<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1999
REGISTRATION NO. [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SLEEPMASTER L.L.C.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW JERSEY 2500 22-3341313
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2001 LOWER ROAD
LINDEN, NEW JERSEY 07036
(732) 381-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
C/O JAMES P. KOSCICA
EXECUTIVE VICE PRESIDENT AND SECRETARY
2001 LOWER ROAD
LINDEN, NEW JERSEY 07036
(732) 381-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sleepmaster L.L.C. and Sleepmaster Finance
Corporation 11% Senior Subordinated Notes due
2009............................................. $115,000,000 $1,000 $115,000,000 $31,970.00
- ---------------------------------------------------------------------------------------------------------------
Guarantees(2)...................................... N/A N/A N/A N/A
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- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) based upon the book value of the securities
as of , 1999.
(2) The Guarantee by each of Palm Beach Bedding Company, Herr Manufacturing
Company and Lower Road Associates, LLC of the payment of principal and
interest on the Notes is being registered hereby. Pursuant to Rule 457(g),
no registration fee is required with respect to the Guarantees.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<S> <C> <C>
SLEEPMASTER FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 2500 22-3652420
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
PALM BEACH BEDDING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA 2500 59-0833393
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
HERR MANUFACTURING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
PENNSYLVANIA 2500 28-1414913
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
LOWER ROAD ASSOCIATES, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW JERSEY 2500 22-3578078
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<PAGE> 3
PROSPECTUS
JUNE , 1999
SLEEPMASTER L.L.C.
AND
SLEEPMASTER FINANCE CORPORATION
OFFER FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR 11% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
[ ,] 1999
UNLESS EXTENDED.
TERMS OF EXCHANGE NOTES
MATURITY:
- - May 15, 2009.
REDEMPTION:
- - We may redeem the exchange notes at any time on or after May 15, 2004.
- - Before May 15, 2002, we may be able to redeem up to 35% of the exchange notes
with the proceeds of public offerings of equity in Sleepmaster L.L.C.
MANDATORY OFFER TO REPURCHASE:
- - If we sell all or substantially all of our assets or experience specific kinds
of changes in control, we may be required to repurchase the exchange notes.
SECURITY:
- - The exchange notes and the guarantees by our guarantor subsidiaries are
unsecured.
GUARANTEES:
- - If we cannot make payments on the exchange notes when due, our guarantor
subsidiaries must make them instead.
RANKING:
- - These exchange notes and the subsidiary guarantees rank:
1. behind all of our and our guarantor subsidiaries' current and future senior
indebtedness;
2. equal with all of our and our guarantor subsidiaries' other current and
future senior subordinated indebtedness; and
3. ahead of all of our and our guarantor subsidiaries' other current and
future indebtedness that expressly provides that it is not senior to these
exchange notes and the subsidiary guarantees.
INTEREST:
- - Fixed annual rate of 11%.
- - Paid every six months on May 15 and November 15.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 9
Use of Proceeds............................................. 17
Capitalization.............................................. 18
Unaudited Pro Forma Consolidated Financial Data............. 19
Selected Historical Financial and Other Data................ 27
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
Business.................................................... 37
Management.................................................. 48
Security Ownership.......................................... 52
Relationships and Related Transactions...................... 54
Description of Indebtedness................................. 58
Description of the Notes.................................... 62
Exchange Offer.............................................. 110
United States Federal Income Tax Considerations............. 117
Plan of Distribution........................................ 118
Legal Matters............................................... 119
Experts..................................................... 119
Available Information....................................... 119
Index to Financial Statements............................... F-1
</TABLE>
------------------------
<PAGE> 5
PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer.
It probably does not contain all the information that is important to you. For a
more complete understanding of this exchange offer, we encourage you to read
this entire document and the documents we have referred you to.
In addition, our management has estimated the market share percentages
provided in this prospectus. We believe these estimates to be reliable, but
these numbers have not been verified by an independent source.
THE OLD NOTE OFFERING
Old Notes.................. We sold the old notes to Merrill Lynch & Co. and
First Union Capital Markets, the initial
purchasers, on May 18, 1999. Merrill Lynch & Co.
and First Union Capital Markets subsequently resold
the old notes to qualified institutional buyers
under Rule 144A of the Securities Act of 1933.
Exchange and Registration
Rights Agreement......... We, Merrill Lynch & Co. and First Union Capital
Markets entered into a registration rights
agreement on May 18, 1999. The registration rights
agreement granted Merrill Lynch & Co. and First
Union Capital Markets and any subsequent holders of
the old notes exchange and registration rights. We
intend that the exchange offer satisfy those
exchange and registration rights. The exchange and
registration rights we granted will terminate upon
the consummation of our exchange offer.
THE EXCHANGE OFFER
Securities Offered......... Up to $115,000,000 of 11% series B senior
subordinated notes due 2009. The terms of the
exchange notes and old notes are identical in all
material respects, except for transfer restrictions
and registration rights relating to the old notes.
The Exchange Offer......... We are offering to exchange the old notes for a
principal amount equal to the principal amount of
exchange notes. Old notes may be exchanged only in
integral principal multiples of $1,000.
Expiration Date; Withdrawal
of Tender.................. Our exchange offer will expire 5:00 p.m. New York
City time, on [ ], 1999, or such later
date and time as we may extend. You may withdraw
your tender of old notes at any time prior to the
expiration date. We will return any old notes not
accepted by us for exchange for any reason at our
expense as promptly as possible after the
expiration or termination of our exchange offer.
Conditions to the
Exchange Offer........... Based on an interpretation by the staff of the
Securities and Exchange Commission set forth in
no-action letters issued to third parties, we
believe that you may offer for resale, resell or
otherwise transfer the exchange notes without
complying with the registration and prospectus
delivery provisions of the Securities Act of 1933,
provided that:
- such exchange notes are acquired in the
ordinary course of your business,
1
<PAGE> 6
- you do not intend to participate and have no
arrangement or understanding with any person
to participate in the distribution of such
exchange notes and
- you are not our "affiliate" within the
meaning of Rule 405 under the Securities Act
of 1933.
Our obligation to accept for exchange, or to issue
the exchange notes in exchange for, any old notes
is subject to:
- customary conditions relating to compliance
with any applicable law,
- any applicable interpretation by any staff
of the Securities and Exchange Commission,
or
- any order of any governmental agency or
court of law.
We currently expect that each of the conditions
will be satisfied and that no waivers will be
necessary. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes................ Each holder of old notes wishing to accept the
exchange offer must complete, sign and date the
Letter of Transmittal, or a facsimile. The holder
must mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
old notes and any other required documentation, to
the exchange agent at the address set forth in the
section "The Exchange Offer" under the heading
"Procedures for Tendering Old Notes."
Use of Proceeds............ We will not receive any proceeds from the exchange
of notes according to the terms of our exchange
offer.
Exchange Agent............. United States Trust Company of New York is serving
as the exchange agent in connection with our
exchange offer.
Federal Income Tax
Consequences............. The exchange of old notes in accordance with the
terms of this exchange offer should not be a
taxable event to you for federal income tax
purposes. See "United States Federal Income Tax
Considerations."
2
<PAGE> 7
THE EXCHANGE NOTES
The following is a brief summary of the terms of the exchange notes. The
terms of the exchange notes are identical to the terms of the old notes, except
that the old notes offered differed with respect to their transfer restrictions
and their registration rights. For a more complete description of the terms of
the exchange notes, see "Description of the Notes" in this prospectus.
Issuers....................... Sleepmaster L.L.C. and Sleepmaster Finance
Corporation
Total Amount of Exchange Notes
Offered..................... Up to $115.0 million aggregate principal amount
of 11% Series B Senior Subordinated Notes due
2009.
Maturity...................... May 15, 2009.
Interest...................... Annual rate -- 11%
Payment Frequency -- every six months on May 15
and November 15
First payment -- November 15, 1999.
Guarantees.................... Each of our domestic subsidiaries will fully
and unconditionally guarantee the exchange
notes on a senior subordinated basis. We wholly
own each guarantor subsidiary. Future domestic
subsidiaries also will be required to guarantee
the exchange notes if those subsidiaries
guarantee any of our debt.
If we cannot make payments on the exchange
notes when they are due, the guarantor
subsidiaries must make them instead.
The guarantor subsidiaries are also guarantors
of our new credit facility and are liable with
us on a senior basis for such obligations.
We pledged all of the capital stock of
Sleepmaster, our guarantor subsidiaries and 65%
of the capital stock of our non-guarantor
subsidiary to secure the obligations under our
new credit facility. We and the guarantor
subsidiaries also granted security interests
in, or liens on, substantially all other
tangible and intangible assets of Sleepmaster
and our guarantor subsidiaries.
These exchange notes will be, and the
subsidiary guarantees are senior subordinated
debts, ranking:
- behind all of our and our guarantor
subsidiaries' current and future senior
debt;
- equal with all of our and our guarantor
subsidiaries' other senior subordinated
debt; and
- ahead of all of our and our guarantor
subsidiaries' other current and future
subordinated debt.
Ranking....................... In addition, the exchange notes effectively
will rank junior to all liabilities of our
non-guarantor subsidiaries. Because the
exchange notes are junior in right of payment
to senior debt, in the event of bankruptcy,
liquidation or dissolution, holders of the
exchange notes will not receive any payment
until holders of senior debt and guarantor
senior debt have been paid in full.
3
<PAGE> 8
As of March 31, 1999 after giving pro forma
effect to this offering of exchange notes and
our use of the net proceeds from the old note
offering and borrowings related to certain
acquisitions and related costs,
- we would have had outstanding $6.6
million of senior debt (consisting of
our guarantee of guarantor senior debt),
- the guarantors would have had
outstanding $6.6 million of guarantor
senior debt and
- our nonguarantor subsidiary would have
had no debt.
Optional Redemption........... We may redeem some or all of the exchange notes
at any time on or after May 15, 2004, at the
redemption prices set forth in the Section
"Description of Notes" under the heading
"Optional Redemption."
Public Equity Offering
Optional Redemption......... Before May 15, 2002, we may redeem up to 35% of
the exchange notes with the net proceeds of a
public equity offering at the redemption price
described in the Section "Description of Notes"
under the heading "Optional Redemption," if at
least 65% of the exchange notes issued remain
outstanding after such redemption.
Transfer Restrictions......... The exchange notes are new securities, and
there is currently no established market for
them. We do not intend to list the exchange
notes on any securities exchange.
Change of Control Optional
Redemption.................. Upon certain change of control events, we may
elect to redeem all, but not some, of the
exchange notes at par, together with accrued
interest, plus an applicable premium based on a
discount rate calculated using the interest
rate of a Treasury security maturing on the
first redemption date plus 50 basis points;
provided, however, that the redemption price
shall be no less than 105.5%.
Change of Control............. Upon certain change of control events, each
holder of exchange notes may require us to
repurchase some or all of its exchange notes at
a purchase price equal to 101% of the principal
amount, plus accrued interest. See "Description
of the Notes -- Purchase of Notes Upon a Change
of Control."
Basic Covenants of the
Indenture..................... We will issue the exchange notes under an
indenture with United States Trust Company of
New York, as trustee. The indenture governing
the exchange notes contains covenants that,
among other things, place limits on our ability
and the ability of our subsidiaries to:
- borrow money,
- pay dividends on, redeem or repurchase
our capital stock,
- make restricted payments and
investments,
- issue or sell capital stock of
restricted subsidiaries,
4
<PAGE> 9
- use assets as security in other
transactions,
- in the case of our restricted
subsidiaries, prohibit the payment of
dividends or other payments to us,
- guarantee debt,
- engage in transactions with affiliates,
- create unrestricted subsidiaries, and
- sell assets in excess of specified
amounts or merge with or into other
companies.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description of the
Notes" in this prospectus.
RISK FACTORS
See "Risk Factors" beginning on page 9 and the other information in this
prospectus for a discussion of factors you should carefully consider before
deciding to invest in the exchange notes.
5
<PAGE> 10
SLEEPMASTER L.L.C.
OVERVIEW
We are a leading manufacturer and distributor of a full line of
conventional bedding, mattresses and box springs marketed under the well-known
brand names of Serta, Serta Perfect Sleeper, Sertapedic and Masterpiece. Serta,
Inc., through its licensees, is the second largest manufacturer of conventional
bedding products in the United States, with a domestic market share of
approximately 17% in 1998. We are the second largest Serta licensee in North
America with approximately a 22% market share in our domestic licensed
territories on a pro forma basis in 1998.
Our licensed territories consist of:
- the metropolitan New York area (including Fairfield County in
Connecticut) and southern New York State,
- the State of New Jersey,
- eastern Pennsylvania (including the metropolitan Philadelphia area),
- the metropolitan Wilmington, Delaware area (including Cecil County in
Maryland),
- the State of Florida, except for seven counties in the Florida panhandle,
and
- substantially all of Ontario, Canada.
We distribute our products through a variety of channels, including bedding
chains, furniture retailers, department stores, wholesale buying clubs and
contract customers. We operate from manufacturing facilities located in Linden,
New Jersey, Lancaster, Pennsylvania, Riviera Beach, Florida and Concord,
Ontario, Canada.
RECENT ACQUISITIONS
We recently completed a number of acquisitions, including:
- Palm Beach Bedding Company, which owns the license to manufacture Serta
products in Florida except for seven counties in the Florida panhandle,
on March 3, 1998,
- Herr Manufacturing Company, which owns the license to manufacture Serta
products in eastern Pennsylvania and southern New York, on February 26,
1999, and
- Star Bedding Products Limited, which owns the license to manufacture and
sell Serta products in substantially all of Ontario, Canada, on May 18,
1999.
RECENT DEVELOPMENTS
On May 18, 1999, Sleepmaster and Sleepmaster Finance Corporation issued
$115,000,000 of 11% senior subordinated notes due 2009. Sleepmaster used a
portion of the proceeds of the old note offering to prepay the existing credit
facility, redeem the series A and series B senior subordinated notes due 2007,
and acquire substantially all of the assets of Star. Also, on May 18, 1999, we
entered into a new $25.0 million, six-year revolving senior credit facility. The
new credit facility is secured by substantially all of our domestic assets and
is guaranteed by all of our domestic restricted subsidiaries. We intend to use
borrowings under this new credit facility for working capital, general corporate
purposes and permitted acquisitions.
------------------------
Sleepmaster Finance Corporation is a wholly-owned subsidiary of Sleepmaster
L.L.C. formed solely for the purpose of acting as co-issuer of the notes.
Sleepmaster Finance Corporation has no material assets or operations. Our
address is 2001 Lower Road, Linden, New Jersey, and our telephone number is
(732) 381-5000.
6
<PAGE> 11
SUMMARY CONDENSED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents our summary condensed consolidated financial
data. The condensed financial data for the fiscal years ended December 31, 1998,
December 31, 1997 and December 31, 1996 has been derived from, and should be
read in conjunction with, the audited consolidated financial statements of
Sleepmaster. The condensed financial data for the three months ended March 31,
1999 and 1998 is unaudited but, in our opinion, includes all adjustments,
consisting only of normal recurring adjustments considered necessary for the
fair presentation of such information. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year.
The following table also presents certain summary unaudited pro forma
financial data of Sleepmaster. The unaudited pro forma financial data for the
year ended December 31, 1998 and as of and for the three months ended March 31,
1999 has been derived from the unaudited pro forma financial data and the notes
thereto included elsewhere in this prospectus. The summary unaudited pro forma
financial data should be read in conjunction with the historical consolidated
financial statements of Sleepmaster and accompanying notes thereto, "Unaudited
Pro Forma Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The summary unaudited pro
forma financial data is provided for informational purposes only and does not
purport to be indicative of the financial position or results of operations that
would have actually been obtained had the acquisitions of Palm Beach, Herr and
Star and the old note offering, including the application of the net proceeds
therefrom, been completed on the dates indicated or to project Sleepmaster's
results of operations for any future date or period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1996 1997 1998 1998 1999
-------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................. $59,763 $67,472 $110,251 $20,436 $34,227
Gross profit.............................. 22,265 25,024 41,263 7,411 12,964
Selling, general and administrative
expenses............................... 14,130 15,044 25,794 4,762 8,379
Amortization of intangibles............... 644 644 1,223 219 378
Operating income.......................... 7,491 9,336 14,246 2,430 4,207
Interest expense, net (a)................. 2,578 4,663 7,096 1,478 2,028
Other (income) expense, net............... 216 (97) (18) (13) (80)
Income before income taxes................ 4,697 4,770 7,168 965 2,259
Net income................................ 4,606 2,757 4,148 557 1,375
OTHER DATA:
Gross margin.............................. 37.3% 37.1% 37.4% 36.3% 37.9%
EBITDA(b)................................. $ 8,534 $10,429 $ 16,335 $ 2,808 $ 4,875
EBITDA margin............................. 14.3% 15.5% 14.8% 13.7% 14.2%
Depreciation and amortization............. $ 1,043 $ 1,093 $ 2,089 $ 378 $ 668
Capital expenditures...................... $ 167 $ 572 $ 1,095 $ 321 $ 570
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
1998 MARCH 31, 1999
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
PRO FORMA FINANCIAL DATA:
Net sales................................................. $151,702 $40,735
Gross profit.............................................. $ 57,670 $15,447
Gross margin.............................................. 38.0% 37.9%
EBITDA(b)................................................. $ 23,146 $ 5,951
EBITDA margin............................................. 15.3% 14.6%
Depreciation and amortization............................. $ 3,642 $ 950
Capital expenditures...................................... $ 2,061 $ 585
Ratio of EBITDA to cash interest expense.................. 1.76x 1.85x
</TABLE>
(continued on following page)
7
<PAGE> 12
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
--------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,159
Net working capital(d).................................... 5,310
Total assets.............................................. 140,141
Total debt................................................ 121,605
Redeemable cumulative preferred interests................. 18,815
Members' deficit.......................................... (22,188)
</TABLE>
- ---------------
(a) Interest expense, net includes the amortization of deferred debt issuance
costs of $391, $170 and $281 for the years ended 1996, 1997 and 1998,
respectively, and $118 and $180 for the three months ended March 31, 1998
and 1999, respectively.
(b) EBITDA represents, for any period, net income before interest expense,
income taxes, depreciation amortization and other non-operating
income/expense. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness. We believe that presentation of EBITDA may be helpful to
investors. However, EBITDA should not be considered an alternative to net
income as a measure of Sleepmaster's operating results or to cash flows as a
measure of liquidity. In addition, although the EBITDA measure of
performance is not recognized under generally accepted accounting
principles, it is widely used by industrial companies as a general measure
of a company's operating performance because it assists in comparing
performance on a relatively consistent basis across companies without regard
to depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are involved) or
non-operating factors such as historical cost bases. Because EBITDA is not
calculated identically by all companies, the presentation in this prospectus
may not be comparable to other similarly titled measures of other companies.
(c) Net total debt is calculated as total debt less cash and cash equivalents.
(d) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities (excluding current portion of long-term debt).
8
<PAGE> 13
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information set forth in this prospectus before you decide to purchase
these notes.
SUBSTANTIAL LEVERAGE -- WE WILL HAVE SUBSTANTIAL DEBT FOLLOWING THIS OFFERING
AND WILL NEED TO GENERATE SIGNIFICANT CASH FLOW IN ORDER TO PAY INTEREST ON OUR
DEBT.
We will be highly leveraged after this offering. The following chart
presents
(1) our debt senior to the exchange notes, our total debt, our total debt
as a percentage of capitalization as of March 31, 1999 and
(2) our ratio of earnings to fixed charges for the year ended December 31,
1998 and the three months ended March 31, 1999 after giving pro forma
effect to the acquisition of Herr and Star and the old note offering,
including the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
---------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Senior debt........................................... $ 6.6
Total debt............................................ 121.6
Total debt as a percentage of capitalization.......... 102.9%
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- ------------------
<S> <C> <C>
Ratio of earnings to fixed charges.................... 1.42x 1.51x
</TABLE>
We may incur additional debt in the future, including secured debt, although the
amount we can incur will be limited by our existing and future debt agreements.
Our high level of debt could have important consequences to noteholders,
including:
- limiting our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service
requirements or other purposes,
- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and fund debt service,
- increasing our vulnerability to adverse economic and industry conditions,
particularly compared to competitors who may be less leveraged than we
are, and
- increasing our vulnerability to interest rate increases because
borrowings under our bank credit facilities are at variable interest
rates.
Our ability to pay interest on the exchange notes and to satisfy our other
debt obligations will depend upon, among other things, our future operating
performance and our ability to refinance debt when necessary. Each of these
factors is to a large extent dependent on economic, financial, competitive and
other factors beyond our control. If, in the future, we cannot generate
sufficient cash from operations to make scheduled payments on the exchange notes
or to meet our other obligations, we will need to restructure or refinance our
debt, obtain additional debt or equity financing, reduce or delay capital
expenditures or sell assets. We cannot assure you that our business will
generate cash flow, or that we will be able to obtain funding, sufficient to
satisfy our debt service requirements, including our payments on these exchange
notes.
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<PAGE> 14
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE EXCHANGE NOTES IS
JUNIOR TO ALL OF OUR EXISTING AND FUTURE SENIOR DEBT AND POSSIBLY ALL OF OUR
FUTURE BORROWINGS. FURTHER, THE GUARANTEES OF THESE EXCHANGE NOTES ARE JUNIOR TO
ALL OUR GUARANTOR SUBSIDIARIES EXISTING AND FUTURE DEBT AND POSSIBLY ALL THEIR
FUTURE BORROWINGS.
The exchange notes will rank behind and be subordinate to all of our
existing and future senior debt and the guarantees will rank behind and be
subordinate to guarantor senior debt. In addition, the exchange notes
effectively will rank behind all liabilities of our nonguarantor subsidiaries.
If we become bankrupt, liquidate or dissolve, our assets would be available
to pay obligations on the exchange notes only after all payments had been made
on our senior debt. Similarly, if one of our subsidiary guarantors becomes
bankrupt, liquidates or dissolves, that subsidiary's assets would be available
to pay obligations on its guarantee only after payments have been made on its
guarantor senior debt. Because our senior debt must be paid first, you may
receive less than holders of senior debt in any bankruptcy proceeding,
liquidation or dissolution. In any of these cases, we cannot assure you that
sufficient assets will remain to make any payments on the exchange notes. See
"Description of the Notes -- Ranking."
If a payment default occurs with respect to our designated senior debt, we
cannot make payments on the exchange notes unless we cure the default or the
holder of the senior debt waives the default. Moreover, if any non-payment
default exists under our designated senior debt, we cannot make any cash
payments on the exchange notes for a period of up to 179 days in any 365 day
period, unless we cure the default, the holder of the senior debt waives the
default or rescinds acceleration of the debt, or we repay the debt in full. See
"Description of the Notes -- Ranking."
RESTRICTIONS IMPOSED BY THE NEW CREDIT FACILITY AND THE INDENTURE -- WE ARE
SUBJECT TO RESTRICTIVE COVENANTS CONTAINED IN OUR NEW CREDIT FACILITY AND IN THE
INDENTURE WHICH PLACE RESTRICTIONS ON HOW WE CAN OPERATE OUR BUSINESS. FAILURE
TO COMPLY WITH ANY OF THE RESTRICTIONS COULD RESULT IN ACCELERATION OF OUR DEBT.
SEE "DESCRIPTION OF CERTAIN INDEBTEDNESS -- THE NEW CREDIT FACILITY" AND
"DESCRIPTION OF NOTES -- COVENANTS."
SECURITY -- THE EXCHANGE NOTES WILL NOT BE SECURED BY ANY OF OUR ASSETS AND THE
NEW CREDIT FACILITY WILL BE SECURED BY SUBSTANTIALLY ALL OF OUR ASSETS.
The exchange notes will not be secured by any of our assets. However, the
new credit facility will be secured by substantially all of the assets of
Sleepmaster and its domestic subsidiaries. Additionally, the terms of the
indenture and the instruments governing Sleepmaster's other debt permit
Sleepmaster to incur additional secured debt. If we become insolvent or are
liquidated, or if payment under any of the instruments governing our secured
debt is accelerated, the lenders under such instruments would be entitled to
exercise the remedies available to a secured lender under applicable law and
pursuant to instruments governing such debt. Accordingly, such lenders will have
a prior claim on our assets. In any such event, because the exchange notes will
not be secured by any of our assets, it is possible that there would be no
assets remaining from which claims of the holders of the notes could be
satisfied or, if any such assets remained, such assets might be insufficient to
satisfy such claims in full.
INTEGRATION OF THE RECENT ACQUISITIONS -- WE MAY NOT HAVE SUFFICIENT MANAGEMENT,
FINANCIAL AND OTHER RESOURCES TO INTEGRATE AND CONSOLIDATE THE RECENTLY ACQUIRED
SUBSIDIARIES AND ANY FUTURE ACQUISITIONS, AND WE MAY BE UNABLE TO OPERATE
PROFITABLY OUR CONSOLIDATED COMPANY.
We acquired Palm Beach on March 3, 1998, Herr on February 26, 1999 and Star
on May 18, 1999. The integration and consolidation of the recently acquired
companies and any future acquisitions may require substantial management,
financial and other resources. The diversion of these resources and the
increased size of our company may subject us to operational risks. While we
believe that our financial, management and other resources are sufficient to
accomplish any integration of the recently acquired companies, we may not have
adequate resources to accomplish this integration and any attempt to integrate
the recently acquired companies may adversely affect the operation of our
company.
10
<PAGE> 15
In addition, the increased size of our consolidated company following our
recent acquisitions may pose different and greater operational challenges than
we have experienced in the past. We had net sales of $67.5 million in fiscal
year 1997 compared to pro forma net sales of $151.7 million in fiscal year 1998.
We believe that the recently acquired subsidiaries will enhance our competitive
position and the business prospects of our consolidated company. However, we
cannot assure you that such benefits will be realized, that the combination of
our company and the recently acquired companies will be successful or that
management will be able to profitably operate our consolidated company following
any integration. Any future acquisitions may result in significant transaction
expenses and risks associated with entering new markets in addition to the
integration and consolidation risks described above. We may not have sufficient
management, financial and other resources to integrate any future acquisitions
and we may be unable to profitably operate our consolidated company.
FUTURE ACQUISITIONS -- WE MAY NOT BE ABLE TO SUCCESSFULLY IDENTIFY AND CLOSE
FUTURE ACQUISITIONS.
We may not be able to successfully identify and close future acquisitions.
We engage in evaluations of potential acquisitions continuously and are in
various stages of discussion regarding these possible acquisitions. Currently,
there are no definitive agreements or letters of intent with respect to any
material acquisition.
Although other potential acquisition candidates fit our acquisition
criteria, we may not be able to complete any such transactions in the future or
identify those candidates that would result in the most successful combinations.
In addition, we may not be able to complete future acquisitions at acceptable
prices and terms, and increased competition for acquisition candidates could
result in fewer acquisition opportunities and higher acquisition prices. Also,
in order to acquire any Serta licensee, we would need the approval of the Serta
board of directors and/or shareholders depending on the structure of the
acquisition. The magnitude, timing and nature of future acquisitions will depend
upon various factors, including:
- availability of suitable acquisition candidates,
- competition with other bedding manufacturers for suitable acquisitions,
- the negotiation of acceptable terms,
- our financial capabilities,
- the availability of skilled employees to manage and operate the acquired
companies,
- our ability to obtain the approval of the Serta board of directors or
shareholders regarding the acquisition of any Serta licensee, and
- general economic and business conditions.
We expect to finance acquisitions with cash on hand, through issuance of
debt or equity securities, including the exchange notes, and through borrowings
under credit arrangements, including pursuant to the new credit facility.
However, we may not be able to obtain additional financing in order to finance
future acquisitions. The ability to obtain debt or equity financing is subject
to market conditions. Using cash to complete acquisitions could substantially
limit our operating or financial flexibility. If we are unable to obtain
financing on acceptable terms, we may be required to reduce significantly the
scope of our presently anticipated expansion, which could have a significant
negative affect on our profitability.
INFORMATION SYSTEMS AND ACCOUNTING PERSONNEL -- ANY FAILURE TO IMPLEMENT OUR NEW
MANAGEMENT INFORMATION SYSTEMS AND HIRE ADDITIONAL PERSONNEL COULD HAVE A
SIGNIFICANT NEGATIVE EFFECT ON OUR ABILITY TO RUN OUR BUSINESS.
As a result of our recent growth we will need to upgrade our management
information systems. We intend to invest up to approximately $2.0 million in
total to replace and upgrade our domestic computer system software and hardware
during fiscals 1999 and 2000. Implementation of these new systems is expected to
be completed at our Linden, New Jersey facility in the third quarter of fiscal
1999 and will later be expanded to our other facilities. Moreover, given our
growth we may need to hire additional accounting personnel and upgrade our
accounting reporting systems to that required of a public company.
11
<PAGE> 16
Any failure to fully implement our new systems, hire additional personnel or
upgrade our accounting reporting systems could have a significant negative
affect on our ability to run our business.
DEPENDENCE ON KEY PERSONNEL -- LOSS OF KEY PERSONNEL AND OR FAILURE TO IDENTIFY
AND RECRUIT HIGHLY QUALIFIED MANAGEMENT PERSONNEL COULD MAKE IT MORE DIFFICULT
FOR US TO GENERATE CASH FLOW FROM OPERATIONS AND SERVICE OUR DEBT.
Our success depends in large part on the services of our senior management
team. The loss of any of our key executives could materially adversely affect
our company and seriously impair our ability to implement our strategy. The
employment agreements of most of our key executives expire on November 1, 2001.
However, certain employment agreements with officers of our recently acquired
subsidiaries expire in February 2001, May 2002 and February 2004. We do not
maintain key person life insurance policies on any of our executive officers.
Our ability to manage our anticipated growth will also depend on our
ability to identify, hire and retain additional qualified management personnel.
In addition, as is typical in our industry, from time to time we experience
difficulty in finding employees to work in our factories. We may be unsuccessful
in attracting and retaining such personnel and such failure could have a
significant negative affect on our profitability and ability to successfully
compete in our industry.
COMPETITION -- THE HIGH LEVEL OF COMPETITION IN THE BEDDING INDUSTRY COULD MAKE
IT DIFFICULT FOR US TO GENERATE SUFFICIENT CASH FLOW TO SERVICE OUR DEBT.
The bedding industry is highly competitive, and we encounter competition
from several manufacturers in the domestic market. Three manufacturers
(including Serta) account for 54% of domestic wholesale mattress and box spring
shipments. The remaining 46% consists of six second tier companies and
approximately 800 independent and local regional manufacturers. Certain of our
principal competitors are larger, have greater financial resources, spend more
on advertising, and are less highly leveraged than we are and may be better able
to withstand a change in market conditions within the bedding industry. We
cannot assure you that we will be able to maintain or improve our competitive
position in the markets in which we compete.
CONCENTRATION OF CUSTOMERS -- A REDUCTION OR TERMINATION OF PURCHASES BY OUR TOP
TEN CUSTOMERS, WHICH ACCOUNT FOR A SIGNIFICANT AMOUNT OF OUR NET SALES, COULD
SIGNIFICANTLY REDUCE OUR ABILITY TO GENERATE SUFFICIENT CASH FLOW TO PAY
INTEREST ON THE EXCHANGE NOTES WHEN DUE.
We depend upon a decreasing number of significant customers for a large
percentage of our sales. The customer base of Sleepmaster is concentrated.
Specifically,
- sales to our largest customer accounted for approximately 10% of sales in
1998 on a pro forma basis; and
- sales to our top ten customers accounted for approximately 46% of our net
shipments in 1998 on a pro forma basis.
In addition, our business depends upon the financial viability of our
customers, who operate mainly within the retail industry. In recent years, the
retail bedding industry has experienced
(1) an increase in market share by larger retailers and
(2) a trend toward consolidation.
As a result, our retail customer base is decreasing and more of our retail sales
volume is becoming concentrated in these larger, consolidated retailers.
In addition, some of our customers have operated (and two customers
currently operate) under the protection of the federal bankruptcy laws. In the
future, retailers in the United States may consolidate, undergo restructurings
or reorganizations, or realign their affiliations, any of which could decrease
the number of stores that carry our products or increase the ownership
concentration within the retail industry.
12
<PAGE> 17
Some of these retailers may decide to carry only one brand of mattress products
which significantly reduce our customer base and decrease our profitability. In
addition, a significant decrease or interruption in business from any of our
significant retail customers could result in write-offs or in the loss of future
business and could significantly reduce our profitability.
CONCENTRATION OF SUPPLIERS -- IF OUR PRINCIPAL OR OTHER SUPPLIERS DISCONTINUED
OR DELAYED SUPPLYING OUR RAW MATERIALS OR IF OUR SUPPLIERS INCREASED THE PRICE
OF OUR RAW MATERIALS, OUR MANUFACTURING OPERATIONS COULD BE DELAYED WHICH COULD
MAKE IT DIFFICULT FOR US TO SERVICE OUR DEBT.
Leggett & Platt is our primary vendor, supplying us with approximately 43%
of our raw materials in 1998, including certain proprietary components which can
only be purchased from it. We do not have a contract with Leggett & Platt.
Although we attempt to reduce the risks of dependence on a single external
source, if Leggett & Platt or any other supplier were to discontinue or delay
supplying our raw materials for any reason, such discontinuance or delay could
impair our ability to manufacture mattresses and box springs.
Possible fluctuations in the cost of raw materials could also adversely
affect our company. The major raw materials that we purchase for our production
process are innersprings, insulator pads, fabrics and roll goods consisting of
foam, fiber and non-wovens. The price and availability of these raw materials
are subject to market conditions affecting supply and demand. Our profitability
may be significantly negatively affected by increases in raw material costs to
the extent we are unable to pass on these higher costs to our customers.
DEPENDENCE ON SERTA -- WE DEPEND SIGNIFICANTLY ON CERTAIN INTELLECTUAL PROPERTY
THAT WE LICENSE FROM SERTA.
We license certain trademarks from Serta, Inc., including the names Serta
and Perfect Sleeper, for use on mattresses and box springs. The loss or any
limitation on our right to use these names would significantly negatively affect
our ability to compete effectively with other companies.
There can be no assurance that the actions taken by us and Serta to
establish and protect the Serta trademarks will be adequate to protect their
value or to prevent imitation by others. Moreover, others may assert rights in,
or claim ownership of, the Serta trademarks and we may not be able to
successfully resolve such conflicts. Negative publicity related to the Serta
trademarks or our products or Serta products of other Serta licensees could have
a significant negative impact on our profitability, cash flow and ability to
service our debt.
Serta has the ability to terminate any of our licenses if we:
- fail to comply with Serta's by-laws (including the requirement to pay
royalties to Serta),
- fail to meet product specifications, or
- attempt to assign such license without the approval of the Serta board of
directors or, if board approval is not obtained or if the board takes no
action, the Serta shareholders. Under the license agreements, an
assignment is deemed to occur upon a change of control (including through
public equity offerings which result in a sale of more than 50% of our
equity) or upon the occurrence of certain bankruptcy events.
Although none of our licenses have been terminated in the past, and
although we have no reason to believe that any of our licenses will be
terminated in the future, there can be no assurance that a termination will not
occur. Any such termination would have a significant negative impact on our
profitability cash flow and ability to service our debt.
EMPLOYEE MATTERS -- EMPLOYEE WORK STOPPAGES OR STRIKES COULD IMPAIR OUR
BUSINESS.
We could be adversely affected by employee work stoppages or strikes. As of
March 31, 1999, we had 806 full-time employees. We employ approximately 381
employees pursuant to collective bargaining agreements with the United Steel
Workers Union. The collective bargaining agreement covering employees
13
<PAGE> 18
at our Linden, New Jersey facility expires on April 30, 2000 and Star's
collective bargaining agreement covering employees at the Concord, Ontario,
Canada facility expires on December 31, 1999. Union contracts typically have a
three-year term and we are periodically in negotiation with this union. Although
we believe our overall relations with our union employees to be generally
satisfactory, we may at some point be subject to work stoppages and possibly
strikes by some of our employees. Any such event could decrease our cash flow
and ability to service our debt.
CONTROLLING SHAREHOLDERS -- THE INTERESTS OF OUR CONTROLLING INTEREST HOLDERS
MAY BE IN CONFLICT WITH YOUR INTERESTS AS A HOLDER OF EXCHANGE NOTES. THIS COULD
RESULT IN CORPORATE DECISION MAKING THAT INVOLVES DISPROPORTIONATE RISKS TO THE
HOLDERS OF THE EXCHANGE NOTES, INCLUDING OUR ABILITY TO SERVICE OUR INDEBTEDNESS
OR PAY THE PRINCIPAL AMOUNT OF OUR INDEBTEDNESS WHEN DUE.
The interests of our controlling interest holders may be in conflict with
your interests as a holder of exchange notes. We are over 99.9% owned by
Sleepmaster Holdings L.L.C. Sleepmaster Holdings L.L.C. in turn is owned 74% by
Sleep Investor L.L.C. and 26% by our senior executives on a fully diluted basis.
Sleep Investor L.L.C. in turn is owned in part by Citicorp Venture Capital,
Ltd., CCT Partners IV, L.P. (an affiliate of Citicorp Venture Capital), PMI
Mezzanine Fund, L.P. and other Citicorp Venture Capital investors. As a result,
Citicorp Venture Capital, CCT and the other Citicorp Venture Capital investors
own approximately 44% of our membership interests on a fully diluted basis.
Circumstances may occur in which the interests of Citicorp Venture Capital and
these other investors, as members of our company and as holders of exchange
notes that rank behind these exchange notes, could be in conflict with the
interests of the holders of the exchange notes. In addition, Citicorp Venture
Capital and these other investors may have an interest in pursuing acquisitions,
divestitures or other transactions that, in their judgment, could enhance their
equity investment, even though such transactions might involve disproportionate
risks to the holders of the exchange notes.
ENVIRONMENTAL MATTERS -- RISK OF ENVIRONMENTAL LIABILITY IS INHERENT IN THE
NATURE OF OUR BUSINESS AND WE MAY INCUR SIGNIFICANT COSTS TO COMPLY WITH MORE
STRINGENT ENVIRONMENTAL POLICIES.
Our facilities are subject to numerous federal, state and local laws and
regulations relating to pollution and the protection of the environment and
worker health and safety.
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 do not anticipate incurring significant costs as a result of our efforts
to comply with, or our liabilities under, such requirements. However, changes in
environmental laws and regulations or the discovery of previously unknown
contamination or other liabilities relating to our properties and operations
could require us to sustain significant environmental liabilities which could
make it difficult to pay the interest or principal amount of these exchange
notes when due. In addition, we might incur significant capital and other costs
to comply with increasingly stringent air emission control laws and enforcement
policies which would decrease our cash flow available to service our
indebtedness.
YEAR 2000 ISSUE -- IF WE, OR THIRD PARTIES WITH WHICH WE DO BUSINESS, FAIL TO
COMPLY WITH YEAR 2000 REMEDIATION REQUIREMENTS, SLEEPMASTER COULD HAVE
OPERATIONAL DIFFICULTIES THAT COULD INCREASE OUR COSTS OF DOING BUSINESS,
DECREASE OUR CASH FLOWS FROM OPERATIONS AND MAKE IT MORE DIFFICULT FOR US TO
SERVICE OUR DEBT.
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results. Currently, many computer systems and software
products are coded to accept only two-digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many companies'
software
14
<PAGE> 19
and computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements. If we, or third parties with which we do
business, fail to make each of our software systems Year 2000 compliant in a
timely manner, our cost of doing business could increase while our cash flow
from operations decreases.
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE REPURCHASE OPTION CONTAINED IN THE INDENTURE.
Upon the occurrence of certain specific kinds of change of control events
described in the section entitled "Description of Notes -- Purchase Notes Upon a
Change of Control," we will be required to offer to repurchase all outstanding
exchange notes. However, we may not have sufficient funds at the time of the
change of control to make the required repurchase of exchange notes and
restrictions in the new credit facility may not allow such repurchases. In
addition, certain corporate events, such as a leveraged recapitalization that
would increase the level of our debt, would not necessarily constitute a change
of control event under the indenture.
FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES, SUBORDINATE CLAIMS IN RESPECT OF THE
EXCHANGE NOTES AND REQUIRE EXCHANGE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS.
Federal and state statutes allow courts, under specific circumstances, to
void guarantees, subordinate claims in respect of the exchange notes and require
noteholders to return payments received from guarantors. Under the federal
bankruptcy law and comparable provisions of state fraudulent transfer laws, the
guarantees of our subsidiary guarantors could be voided or claims in respect of
the exchange notes or the subsidiary guarantees could be junior to all of our
other debts or all other debts of our guarantor subsidiaries if, among other
things:
- we incurred such debt with the intent of hindering, delaying or
defrauding then-existing or future creditors,
- we received less than reasonably equivalent value or fair consideration
for incurring such debt and, at the time of the incurrence of such debt,
we:
- were insolvent or rendered insolvent by reason of such incurrence, or
- were engaged in a business or transaction for which the assets
remaining with our company constituted unreasonably small capital, or
- intended to incur, or believed that we would incur, debts beyond our
ability to pay as they would mature, or
- were a defendant in an action for money damages, or had a judgment for
money damages rendered against us, which after final judgment was
unsatisfied, or
- any subsidiary guarantor received less than reasonably equivalent value
or fair consideration for the incurrence of such subsidiary guarantee
and, at the time it incurred the debt evidenced by its subsidiary
guarantee, any subsidiary guarantor:
- was insolvent or rendered insolvent by reason of such incurrence, or
- was engaged in a business or transaction for which such guarantor's
remaining assets constituted unreasonably small capital, or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment made by us or that subsidiary guarantor pursuant
to its subsidiary guarantee could be voided and required to be returned to us or
the subsidiary guarantor or to a fund for the benefit of our creditors or the
creditors of the subsidiary guarantor.
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<PAGE> 20
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, a subsidiary guarantor
would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of its assets, or
- the present fair saleable value of its assets were less than the amount
that would be required in order to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature, or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that we and each subsidiary guarantor, after
giving effect to its guarantee of these exchange notes, will not be insolvent,
will not have unreasonably small capital for the business in which it is engaged
and will not have incurred debts beyond its ability to pay such debts as they
mature. There can be no assurance, 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 -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THESE EXCHANGE NOTES WHICH COULD LIMIT THE LIQUIDITY OF
YOUR EXCHANGE NOTES.
Prior to this offering, there was no public market for these exchange
notes. We have been informed by the initial purchasers that they intend to make
a market in these exchange notes after this offering is completed. However, the
initial purchasers may cease their market-making at any time. In addition, the
liquidity of the trading market in these exchange notes, and the market price
quoted for these exchange notes, may be decreased by changes in the overall
market for high yield securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry generally.
------------------------
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements, which are subject to risks,
uncertainties, and assumptions about Sleepmaster L.L.C. and Sleepmaster Finance
Corporation include, among other things, statements regarding:
- our anticipated growth strategies and pursuit of potential acquisition
opportunities;
- our intention to introduce new products;
- anticipated trends in our businesses;
- our ability to integrate acquired businesses;
- future expenditures for capital projects, including our new management
information systems;
- our ability to continue to control costs and maintain quality; and
- our ability to implement our year 2000 compliance modifications.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
These forward-looking statements may be materially impacted by the factors
listed under "Risk Factors." In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
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<PAGE> 21
USE OF PROCEEDS
Sleepmaster and Sleepmaster Finance Corporation will not receive any
proceeds from this exchange offer.
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<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of Sleepmaster at March
31, 1999
(1) on an actual basis and
(2) pro forma as adjusted to give effect to the Star acquisition and the
old note offering.
This table should be read in conjunction with "Use of Proceeds," "Unaudited Pro
Forma Consolidated Financial Data," "Selected Historical Financial and Other
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and accompanying notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt, including current portion:
New credit facility(a).................................... $ -- $ --
Existing credit facility(b)............................... 67,744 --
Industrial revenue bonds(c)............................... 6,605 6,605
Notes offered hereby...................................... -- 115,000
12% senior subordinated notes due 2007.................... 20,000 --
-------- ---------
Total debt........................................ 94,349 121,605
-------- ---------
Redeemable cumulative preferred interests, 9,999.96 units
outstanding(d)............................................ 18,815 18,815
Members' deficit:
Common interests
Class A, 8,000 units outstanding....................... 1,640 1,640
Class B, no units outstanding.......................... -- --
Accumulated deficit....................................... (18,330) (23,828)
-------- ---------
Total members' deficit............................ (16,690) (22,188)
-------- ---------
Total capitalization......................... $ 96,474 $ 118,232
======== =========
</TABLE>
- ---------------
(a) The new credit facility provides a revolving line of credit of $25.0 million
and an acquisition facility, on a best efforts basis, of $50.0 million. As
of June 21, 1999, no amounts were outstanding under the new credit facility.
(b) On May 18, 1999, the amount outstanding under the existing credit facility,
prior to its repayment from the proceeds of the old note offering, was
$69,244.
(c) We are financially obligated under Palm Beach's variable rate industrial
revenue bonds due 2016. The industrial revenue bonds are collateralized by
certain land and buildings of Sleepmaster and an irrevocable letter of
credit up to $7.0 million.
(d) The redeemable cumulative preferred interests accrue dividends at a
compounded annual rate of 12.0%. In connection with the closing of the old
note offering, the parties to the Sleepmaster LLC operating agreement
amended the agreement to extend the redemption date of the redeemable
cumulative preferred interests to November 14, 2009. See "Certain
Relationships and Related Transactions -- Sleepmaster LLC Operating
Agreement."
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<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited consolidated pro forma financial information of
Sleepmaster has been prepared to give effect to the acquisitions of Palm Beach,
Herr and Star and the old note offering, including the application of the net
proceeds therefrom. The pro forma adjustments presented are based upon available
information and certain assumptions that Sleepmaster believes are reasonable.
The unaudited pro forma consolidated balance sheet of Sleepmaster as of
March 31, 1999 gives effect to the acquisition of Star and the old note
offering, including the application of the net proceeds therefrom as if the
transactions had occurred on March 31, 1999. The unaudited pro forma
consolidated statements of income of Sleepmaster for the year ended December 31,
1998 and the quarter ended March 31, 1999 give effect to the acquisitions of
Palm Beach, Herr and Star and the old note offering, including the application
of the net proceeds therefrom, as if the transactions had occurred as of the
beginning of each period.
The pro forma financial data should be read in conjunction with the
historical consolidated financial statements of Sleepmaster, Palm Beach, Herr
and Star and accompanying notes thereto, "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information included elsewhere in this prospectus. Sleepmaster
believes that the assumptions used in the following financial statements provide
a reasonable basis on which to present the unaudited pro forma data. The pro
forma financial data and related notes are provided for informational purposes
only and do not purport to be indicative of the financial position or results of
operations that would have actually been obtained had the acquisitions of Palm
Beach, Herr and Star and the old note offering been completed on the dates
indicated, or to project Sleepmaster's results of operations for any future date
or period.
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<PAGE> 24
SLEEPMASTER L.L.C.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL PRO FORMA ADJUSTMENTS ADJUSTMENTS FOR PRO FORMA
SLEEPMASTER STAR(A) FOR STAR THE OLD NOTE OFFERING AS ADJUSTED
----------- --------- ----------- --------------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.................. $ 699 $ -- $(16,890)(b) $109,739(f) $ 2,159
(91,389)(g)
Accounts receivable, net................... 16,984 1,619 18,603
Inventories................................ 5,273 404 5,677
Other current assets....................... 1,129 20 (167)(b) 982
Deferred tax assets........................ 1,623 -- 1,623
-------- ------- --------
Total current assets............... 25,708 2,043 29,044
Property, plant and equipment, net......... 13,941 890 14,831
Intangible assets.......................... 64,517 -- 15,332(b) 79,849
Other assets............................... 2,069 3 17,157(b) 5,261(f) 5,480
(17,157)(c) (1,853)(g)
Deferred tax assets........................ 10,937 -- 10,937
-------- ------- --------
Total assets....................... $117,172 $ 2,936 $140,141
======== ======= ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT):
Accounts payable........................... $ 12,467 $ 476 $ 12,943
Accrued sales allowances and advertising
expense.................................. 3,553 388 3,941
Accrued expenses and other current
liabilities.............................. 4,344 247 100(d) 4,691
Current portion of long term debt.......... 6,505 -- (6,125)(g) 380
-------- ------- --------
Total current liabilities.......... 26,869 1,111 21,955
-------- ------- --------
Long term debt............................. 87,844 -- 115,000(f) 121,225
(81,619)(g)
Other liabilities.......................... 334 -- 334
-------- ------- --------
Total non-current liabilities...... 88,178 -- 121,559
-------- ------- --------
Redeemable cumulative preferred
interests................................ 18,815 -- 18,815
Members' equity (deficit).................. (16,690) 1,825 15,332(e) (5,498)(g) (22,188)
(17,157)(c)
-------- ------- --------
Total liabilities and members' equity
(deficit)................................ $117,172 $ 2,936 $140,141
======== ======= ========
</TABLE>
20
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The pro forma consolidated balance sheet gives effect to the following pro
forma adjustments:
(a) Represents the acquisition of Star, derived from the unaudited
financial statements of Star as of March 31, 1999, included elsewhere
in this prospectus, adjusted to eliminate certain assets and
liabilities not being acquired or assumed by Sleepmaster as follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
STAR ADJUSTMENTS STAR
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents.......... $ -- $ -- $ --
Accounts receivable, net........... 1,619 -- 1,619
Inventories........................ 404 -- 404
Other current assets............... 20 -- 20
----------- ----------- -----------
Total current assets.......... 2,043 -- 2,043
Property, plant and equipment,
net.............................. 890 -- 890
Other assets....................... 3 -- 3
----------- ----------- -----------
Total assets.................. $ 2,936 $ -- $ 2,936
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable................... $ 476 $ -- $ 476
Accrued sales allowances........... 388 -- 388
Accrued expenses and other current
liabilities...................... 247 -- 247
Short-term borrowings.............. 4 (4) --
Income taxes payable............... 43 (43) --
----------- ----------- -----------
1,158 (47) 1,111
Advance from related party......... 320 (320) --
Deferred income taxes.............. 17 (17) --
Stockholder's equity............... 1,441 384 1,825
----------- ----------- -----------
Total liabilities and
stockholder's equity........ $ 2,936 $ -- $ 2,936
=========== =========== ===========
</TABLE>
(b) Represents adjustments to record the excess of purchase price over the
estimated fair values of the net assets acquired of Star as follows:
<TABLE>
<S> <C>
Purchase price, including costs of acquisition........... $17,157
Net book value of net assets acquired.................... 1,825
-------
Goodwill............................................ $15,332
=======
</TABLE>
This acquisition will be accounted for as purchase business
combination and the purchase price will be allocated to the fair
values of the assets and liabilities acquired. Since this is a recent
acquisition, the determination of the fair values of assets and
liabilities acquired has not yet been completed. Accordingly, the
purchase price in excess of the net book value of assets and
liabilities acquired, derived from the unaudited balance sheet of
Star at March 31, 1999, has been allocated to goodwill for the
purposes of this pro forma presentation.
(c) Represents the elimination entries required to reflect the
consolidation of Star with Sleepmaster.
(d) Represents costs of the Star acquisition accrued as of March 31, 1999.
(e) Represents adjustment to members' equity (deficit) as a result of the
acquisition of Star.
(f) Represents adjustments to reflect proceeds from the issuance of
$115,000 of the notes pursuant to the old note offering, net of
estimated closing costs of $5,261.
(g) Represents the repayment of $15,000 of 12.0% series A senior
subordinated notes and $5,000 of 12.0% series B senior subordinated
notes, the repayment of borrowings under Sleepmaster's existing credit
facility of $67,744, as well as the associated repayment premiums
aggregating $3,645, with the proceeds from the old note offering, plus
the write-off of related unamortized debt issuance costs of $1,853.
21
<PAGE> 26
SLEEPMASTER L.L.C.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED
HISTORICAL FOR PALM BEACH, FOR PALM BEACH,
HISTORICAL PALM HISTORICAL HERR AND HERR AND HISTORICAL
SLEEPMASTER BEACH(B) HERR(D) OLD NOTE OFFERING OLD NOTE OFFERING STAR(M)
----------- ------------- ------------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $110,251 $ 7,056 $19,385 $ (226)(e) $136,466 $15,236
Cost of sales.................. 68,988 4,338 11,587 (226)(e) 84,586 9,446
(101)(f)
-------- ------- ------- -------- -------
Gross profit................. 41,263 2,718 7,798 51,880 5,790
-------- ------- ------- -------- -------
Selling, general &
administrative expenses...... 25,794 1,739 6,545 76(g) 32,699 3,237
(1,455)(h)
Amortization of intangibles.... 1,223 -- 16 606(i) 1,845 --
-------- ------- ------- -------- -------
Operating income............. 14,246 979 1,237 17,336 2,553
Interest expense, net(a)....... 7,096 49 27 6,273(j) 13,445 17
Other (income) expense, net.... (18) (2,318) (150) 2,780(k) 294
-------- ------- ------- -------- -------
Income before income taxes
and extraordinary item..... 7,168 3,248 1,360 3,597 2,536
Provision for income taxes..... 3,020 1,366(c) 532 (3,435)(l) 1,483 935
-------- ------- ------- -------- -------
Income before extraordinary
item......................... $ 4,148 $ 1,882 $ 828 $ 2,114 $ 1,601
======== ======= ======= ======== =======
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS
FOR STAR ADJUSTED
----------- ---------
<S> <C> <C>
Net sales...................... $151,702
Cost of sales.................. 94,032
--------
Gross profit................. 57,670
--------
Selling, general &
administrative expenses...... 35,936
Amortization of intangibles.... 385(n) 2,230
--------
Operating income............. 19,504
Interest expense, net(a)....... (17)(o) 13,445
Other (income) expense, net.... 294
--------
Income before income taxes
and extraordinary item..... 5,765
Provision for income taxes..... (155)(p) 2,263
--------
Income before extraordinary
item......................... $ 3,502
========
</TABLE>
22
<PAGE> 27
SLEEPMASTER L.L.C.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
QUARTER ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED PRO FORMA
HISTORICAL HISTORICAL FOR HERR AND FOR HERR AND HISTORICAL ADJUSTMENTS PRO FORMA
SLEEPMASTER HERR(B) OLD NOTE OFFERING OLD NOTE OFFERING STAR(M) FOR STAR AS ADJUSTED
----------- ---------- ----------------- ----------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $34,227 $2,748 $ (24)(e) $36,951 $3,784 $40,735
Cost of sales........ 21,263 1,697 (24)(e) 22,932 2,356 25,288
(4)(f)
------- ------ ------- ------ -------
Gross profit......... 12,964 1,051 14,019 1,428 15,447
Selling general &
administrative
expense............ 8,379 739 9,118 769 9,887
Amortization of
intangibles........ 378 3 82(i) 463 -- 96(n) 559
------- ------ ------- ------ -------
Operating income..... 4,207 309 4,438 659 5,001
Interest expense,
net(a)............. 2,028 2 1,311(j) 3,341 3 (3)(o) 3,341
Other (income)
expense, net....... (80) (16) (96) -- (96)
------- ------ ------- ------ -------
Income before income
taxes and
extraordinary
item............... 2,259 323 1,193 656 1,756
Income tax
provision.......... 884 126 (542)(l) 468 216 (36) (p) 648
------- ------ ------- ------ -------
Income before
extraordinary
item............... $ 1,375 $ 197 $ 725 $ 440 $ 1,108
======= ====== ======= ====== =======
</TABLE>
23
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
The pro forma consolidated statements of income for the year ended December
31, 1998 and the quarter ended March 31, 1999 give effect to the following pro
forma adjustments:
(a) Interest expense, net includes the amortization of deferred debt
issuance costs of $281 and $131 for the year ended December 31, 1998
and the quarter ended March 31, 1999, respectively.
(b) For the year ended December 31, 1998 -- represents the results of
operations of Palm Beach prior to its acquisition for the period from
January 1, 1998 through March 2, 1998. For the quarter ended March 31,
1999 -- represents the results of operations of Herr prior to its
acquisition for the period from January 1, 1999 to February 25, 1999.
(c) Represents an adjustment to income tax expense (42.0% effective rate)
as a result of including the results of operations of Palm Beach
indicated in adjustment (b). Prior to the acquisition, Palm Beach was
taxed as a small business corporation whereby profits and losses were
passed directly to the shareholders for inclusion in their personal
income tax returns.
(d) Derived from the audited financial statements of Herr for the year
ended December 31, 1998, included elsewhere in this prospectus.
(e)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Elimination of intercompany sales transactions $226 $24
</TABLE>
(f)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Decreased depreciation expense of Herr's factory $101 $4
machinery and equipment based upon the application
of the straight-line method of depreciation, in
conformity with Sleepmaster's accounting policy,
compared with an accelerated method used in the
historical financial statements of Herr
</TABLE>
(g) Represents legal expenses associated with the debt incurred in
connection with the acquisition of Herr.
(h) Represents the elimination of costs incurred by Herr that Sleepmaster
has not assumed:
<TABLE>
<S> <C>
Interest expense associated with deferred compensation
arrangements with certain officers and stockholders....... $ 125
Compensation for certain officers/stockholders of Herr to
reflect new contractual arrangements for officers'
compensation. This adjustment is solely as a result of
changed circumstances that will exist after the
acquisition. The duties and responsibilities of the
officers will not be diminished or cause other costs to be
incurred to offset the pro forma adjustment to
compensation expense...................................... 1,330
------
Total............................................. $1,455
------
</TABLE>
(i) Represents the amortization over 40 years of the excess of purchase
price over the estimated fair values of the net assets acquired of
Palm Beach and Herr as follows.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Palm Beach for the period from January 1, 1998 through
March 2, 1998, and Herr for the year ended December 31,
1998................................................... $606
</TABLE>
24
<PAGE> 29
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, 1999
--------------
<S> <C>
Herr for the period from January 1, 1999 through February
25, 1999............................................... $82
</TABLE>
(j) Represents adjustments to interest expense:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Interest expense on the notes........................ $12,650 $ 3,162
Amortization of issuance costs associated with the
old note offering over the life of the notes....... 526 131
Elimination of interest expense as a result of the
repayment of certain indebtedness with the proceeds
from the old note offering. Pro forma interest
expense associated with debt incurred in connection
with the acquisitions of Palm Beach and Herr has
not been included herein since such debt is assumed
to be repaid from the proceeds from the old note
offering........................................... (6,622) (1,802)
Elimination of amortization expense of debt issuance
costs as a result of the write-off thereby due to
early repayment of certain indebtedness. Pro forma
amortization of debt issuance costs associated with
incremental debt incurred in connection with the
acquisition of Herr, except for legal fees
associated with such incremental borrowing which
have been charged to selling, general and
administrative expenses for the year ended December
31, 1998 (adjustment (g)), has not been included
herein since such debt issuance costs are assumed
to be written off when the associated debt is
repaid from the proceeds from the old note
offering........................................... (281) (180)
------- -------
Total...................................... $ 6,273 $ 1,311
======= =======
</TABLE>
(k) Represents an adjustment to eliminate a gain recorded by Palm Beach
from the sale of a building prior to the acquisition. The building was
sold to an unrelated third party.
(l) Represents an adjustment to income tax expense for the effects of the
aforementioned adjustments (e) through (k) (42.0% effective rate for
the year ended December 31, 1998; 39.0% effective rate for the
quarter ended March 31, 1999).
(m) Derived from the audited financial statements of Star for the year
ended December 31, 1998 and from the unaudited financial statements of
Star for the quarter ended March 31, 1999, included elsewhere in this
prospectus.
(n)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Amortization over 40 years of the excess of
purchase price over the estimated fair values of
the net assets acquired of Star $385 $96
</TABLE>
25
<PAGE> 30
(o)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Elimination of interest expense associated with
debt of Star not assumed by Sleepmaster $17 $3
</TABLE>
(p) Represents an adjustment to income tax expense for the effects of the
aforementioned adjustments (n) and (o) (42.0% effective rate for the
year ended December 31, 1998; 39.0% effective rate for the quarter
ended March 31, 1999).
Extraordinary losses of $3.3 million, net of Federal income taxes of $2.4
million (42.0% effective rate for the year ended December 31, 1998), and $3.6
million, net of Federal income taxes of $2.2 million (39.0% effective rate for
the quarter ended March 31, 1999), for the year ended December 31, 1998 and the
quarter ended March 31, 1999, respectively, will result from the early repayment
of $15.0 million of 12.0% series A senior subordinated notes at a premium, $5.0
million of 12.0% series B senior subordinated notes at a premium, as well as an
early repayment penalty associated with Sleepmaster's existing credit facility
as a result of the application of proceeds from the old note offering. Such
extraordinary losses have not been reflected in the accompanying pro forma
consolidated statements of income.
26
<PAGE> 31
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The following table sets forth our historical selected consolidated
financial and other data. The historical consolidated financial information for
the fiscal years ended December 31, 1998, December 31, 1997 and December 31,
1996 has been derived from, and should be read in conjunction with, the audited
consolidated financial statements of Sleepmaster and its subsidiaries. The
financial information as of and for the fiscal years ended December 31, 1995 and
December 31, 1994 has been derived from our internal financial records and is
unaudited but, in the opinion of our management, includes all adjustments
considered necessary for the fair presentation of our financial condition and
results of operations for such periods and as of such dates. The condensed
financial data for the three months ended March 31, 1999 and 1998 is unaudited
but, in our opinion, includes all adjustments, consisting only of normal
recurring adjustments considered necessary for the fair presentation of such
information. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
The selected consolidated financial data should be read in conjunction with
the historical consolidated financial statements of Sleepmaster and accompanying
notes thereto, "Unaudited Pro Forma Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.............................. $47,575 $55,044 $ 59,763 $67,472 $110,251 $20,436 $ 34,227
Gross profit........................... 16,565 20,347 22,265 25,024 41,263 7,411 12,964
Selling, general and administrative
expenses............................. 12,561 13,965 14,130 15,044 25,794 4,762 8,379
Amortization of intangibles............ 423 676 644 644 1,223 219 378
Operating income....................... 3,582 5,707 7,491 9,336 14,246 2,430 4,207
Interest expense, net(a)............... 308 2,304 2,578 4,663 7,096 1,478 2,028
Other (income) expense, net............ (114) 188 216 (97) (18) (13) (80)
Income before income taxes............. 3,389 3,214 4,697 4,770 7,168 965 2,259
Net income............................. 3,389 3,214 4,606 2,757 4,148 557 1,375
BALANCE SHEET DATA (AT END OF PERIOD):
Net working capital(b)................. $ 1,160 $ (553) $ 736 $ 309 $ 2,749 $ 3,871 $ 4,645
Total assets........................... 14,704 29,813 48,634 47,339 89,540 89,904 117,172
Total debt............................. 3,900 17,989 44,031 39,102 70,696 78,011 94,349
Redeemable cumulative preferred
interests............................ -- -- 14,221 15,927 18,267 16,765 18,815
Members' equity (deficit).............. 4,240 2,717 (21,116) (20,092) (17,517) (19,372) (16,690)
OTHER DATA:
Gross margin........................... 34.8% 37.0% 37.3% 37.1% 37.4% 36.3% 37.9%
EBITDA (c)............................. $ 4,348 $ 6,793 $ 8,534 $10,429 $ 16,335 $ 2,808 $ 4,875
EBITDA margin.......................... 9.1% 12.3% 14.3% 15.5% 14.8% 13.7% 14.2%
Depreciation and amortization.......... $ 766 $ 1,086 $ 1,043 $ 1,093 $ 2,089 $ 378 $ 668
Capital expenditures................... $ 1,380 $ 292 $ 167 $ 572 $ 1,095 $ 321 $ 570
Ratio of earnings to fixed
charges(d)........................... 7.20x 2.25x 2.64x 1.97x 1.96x 1.61x 2.05x
</TABLE>
- ---------------
(a) Interest expense, net includes the amortization of deferred debt issuance
costs of $15, $60, $391, $170 and $281 for the years ended December 31,
1994, 1995, 1996, 1997 and 1998, respectively, and $118 and $180 for the
three months ended March 31, 1998 and 1999, respectively.
27
<PAGE> 32
(b) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities (excluding current portion of long-term debt).
(c) EBITDA represents, for any period, net income before interest expense,
income taxes, depreciation and amortization and other non-operating
income/expense. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness. We believe that presentation of EBITDA may be helpful to
investors. However, EBITDA should not be considered an alternative to net
income as a measure of Sleepmaster's operating results or to cash flows as a
measure of liquidity. In addition, although the EBITDA measure of
performance is not recognized under generally accepted accounting
principles, it is widely used by industrial companies as a general measure
of a company's operating performance because it assists in comparing
performance on a relatively consistent basis across companies without regard
to depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are involved) or
non-operating factors such as historical cost bases. Because EBITDA is not
calculated identically by all companies, the presentation in this prospectus
may not be comparable to other similarly titled measures of other companies.
(d) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of debt issuance costs, whether capitalized or
expensed, plus one-third of rental expense under operating leases (the
portion that has been deemed by our company to be representative of an
interest factor).
28
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
"Forward-Looking Statements" and "Risk Factors," as well as the more detailed
information in the historical financial statements and unaudited pro forma
financial data, including the related notes, appearing elsewhere in this
prospectus. All references to years relate to the fiscal year that ended on
December 31 of such year.
GENERAL
We are a leading manufacturer and distributor of a full line of
conventional bedding, mattresses and box springs marketed under the well-known
brand names of Serta, Serta Perfect Sleeper, Sertapedic and Masterpiece. Serta,
Inc., through its licensees, is the second largest manufacturer of conventional
bedding products in the United States, with a domestic market share of
approximately 17% in 1998. We are the second largest Serta licensee in North
America with approximately a 22% market share in our domestic licensed
territories in 1998. Sleepmaster was founded in Newark, New Jersey in 1910 and
became a Serta licensee for the metropolitan New York area (including Fairfield
County in Connecticut) and northern New Jersey in 1966.
Prior to November 14, 1996, Sleepmaster was a limited liability company
primarily owned by Sleepmaster Holdings L.L.C., a holding company then owned by
management of Sleepmaster and an investor group. On November 14, 1996,
Sleepmaster entered into a recapitalization agreement with a new group of
investors led by Citicorp Venture Capital and PMI Mezzanine Fund, LLP, pursuant
to which the new investor group, Sleep Investor L.L.C., paid cash and issued
promissory notes to effect a leveraged recapitalization of Sleepmaster. As a
result of the recapitalization, Sleep Investor acquired a 72.0% interest in
Sleepmaster Holdings L.L.C. Sleepmaster Holdings L.L.C., in turn, holds over
99.9% of Sleepmaster. In connection with the recapitalization, Sleepmaster
received funding in the form of equity invested by Sleep Investor and current
management, proceeds from the issuance of senior subordinated notes and
borrowings under a credit facility.
Since the recapitalization, we have acquired the stock of Palm Beach on
March 3, 1998, the stock of Herr on February 26, 1999 and substantially all of
the assets of Star on May 18, 1999. The aggregate consideration for these three
acquisitions totaled approximately $80 million. In connection with these
transactions, we entered into employment contracts with the executive management
of Palm Beach, Herr and Star so that the existing management would continue to
operate their respective facilities and licensed territories.
Star is a leading manufacturer and distributor of the full line of Serta
brand mattresses and box springs and owns the rights to manufacture and sell
Serta products in substantially all of Ontario, Canada. Similar to Palm Beach
and Herr, Star distributes its products primarily through leading retailers
including furniture stores, sleep specialists, local retail outlets, department
stores and other institutional customers. Star has captured approximately an 11%
market share of bedding products sold in the Ontario region, approximately a 28%
increase over its market share in 1997. For the fiscal year ended December 31,
1998, Star's net sales were $15.2 million and its EBITDA was $2.7 million. For
the first quarter of 1999, Star's net sales were $3.8 million and its EBITDA was
$0.7 million.
29
<PAGE> 34
RESULTS OF OPERATIONS
The following table sets forth certain operating data of Sleepmaster as a
percentage of net sales for the fiscal years ended December 31, 1996, December
31, 1997 and December 31, 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------------------------------------
FOR THE THREE MONTHS
FOR THE FISCAL YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 62.7 62.9 62.6 63.7 62.1
----- ----- ----- ----- -----
Gross profit....................... 37.3 37.1 37.4 36.3 37.9
Operating expenses:
Selling, general and administrative
expenses......................... 23.6 22.3 23.4 23.3 24.5
Amortization of intangibles........ 1.1 1.0 1.1 1.1 1.1
----- ----- ----- ----- -----
Total operating expenses........... 24.7 23.3 24.5 24.4 25.6
----- ----- ----- ----- -----
Operating income................... 12.6 13.8 12.9 11.9 12.3
Interest expense, net.............. 4.3 6.9 6.4 7.2 5.9
Other (income) expense, net........ 0.4 (0.1) -- -- (0.2)
----- ----- ----- ----- -----
Income before income taxes......... 7.9 7.1 6.5 4.7 6.6
Provision for income taxes......... 0.2 3.0 2.7 2.0 2.6
----- ----- ----- ----- -----
Net income......................... 7.7% 4.1% 3.8% 2.7% 4.0%
===== ===== ===== ===== =====
Depreciation expense............... 0.7% 0.7% 0.8% 0.8% 0.8%
EBITDA............................. 14.3% 15.5% 14.8% 13.7% 14.2%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
Net Sales. Net sales increased by 67.5% or $13.8 million to $34.2 million
in first quarter 1999 from $20.4 million in first quarter 1998. The increase was
primarily due to one months contribution of net sales from Herr, acquired on
February 26, 1999, totaling $1.9 million, and three months contribution of net
sales by Palm Beach totaling $14.1 million, during first quarter 1999 as
compared to only one months contribution of net sales from Palm Beach in first
quarter 1998, totaling $3.1 million. Excluding the acquisitions of Palm Beach
and Herr, net sales increased by 5.3% or $0.9 million, to $18.1 million in first
quarter 1999 from $17.2 million in first quarter 1998. This increase was
attributable to higher unit sales volumes in first quarter 1999 and higher
average unit selling prices as product sales mix shifted to higher priced
products.
Cost of Sales. Cost of sales increased by 63.2%, or $8.2 million to $21.3
million in first quarter 1999 from $13.0 million in first quarter 1998. Cost of
sales as a percentage of net sales decreased to 62.1% in first quarter 1999 from
63.7% in first quarter 1998. This improvement was primarily due to higher margin
business generated by Palm Beach and Herr. These higher margins, which serve to
reduce cost of sales as a percentage of net sales, were partially offset by an
increase in Sleepmaster's manufacturing costs in first quarter 1999, principally
relating to the introduction of the Masterpiece line of bedding products. As a
result of the Palm Beach and Herr acquisitions, Sleepmaster was also able to
realize costs savings on raw material purchases as a result of obtaining
additional volume-related purchase discounts from vendors.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 76.0%, or $3.6 million, to $8.4 million in
first quarter 1999 from $4.8 million in first quarter 1998. Selling, general and
administrative expenses as a percentage of net sales increased to 24.5% in first
quarter 1999 from 23.3% in first quarter 1998. Several factors contributed to
the rise in selling, general and administrative expenses. First, Palm Beach and
Herr have higher fixed cost bases as a percentage of net sales than
Sleepmaster's base business and have a larger number of smaller customers than
Sleepmaster. Also, Palm Beach and Herr have higher delivery expenses as a
percentage of net sales as they service a
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<PAGE> 35
larger geographical territory than the area serviced by Sleepmaster. These costs
were offset by increases in average unit selling prices and fixed delivery costs
per unit at Sleepmaster's Linden facility. Finally, certain of Palm Beach's
contractual employment arrangements, scheduled to expire in March 2000,
contributed to the increase in selling, general and administrative expenses as a
percentage of net sales. Management's ongoing objective is to reduce this
expense ratio by leveraging its fixed expense base.
Amortization of Intangibles. Amortization of intangibles increased by $0.2
million to $0.4 million in first quarter 1999 from $0.2 million in first quarter
1998. This was due to the acquisitions of Palm Beach on March 3, 1998 and Herr
on February 26, 1999.
Operating Income. Operating income increased by 73.2%, or $1.8 million, to
$4.2 million in first quarter 1999 from $2.4 million in first quarter 1998. As a
result of the above factors, operating income as a percentage of net sales
increased to 12.3% in first quarter 1999 from 11.9% in first quarter 1998.
Interest Expense, Net. Interest expense increased by $0.5 million, to $2.0
million in first quarter 1999 from $1.5 million in first quarter 1998. This
increase was due to the cost of additional debt financing incurred for the
acquisitions of Palm Beach and Herr. See "-- Liquidity and Capital Resources."
Provision for Income Taxes. The provision for income taxes increased by
$0.5 million, to $0.9 million in first quarter 1999 from $0.4 million in first
quarter 1998. The provision for income taxes resulted in an effective tax rate
of 39.1% in first quarter 1999 and 42.3% in first quarter 1998.
Net Income. As a result of the above factors, net income for first quarter
1999 was $1.4 million compared to $0.6 million for first quarter 1998.
FISCAL 1998 AS COMPARED TO FISCAL 1997
Net Sales. Net sales increased by 63.4%, or $42.8 million, to $110.3
million in 1998 from $67.5 million in 1997. This increase was primarily due to
the acquisition of Palm Beach which contributed ten months of sales totaling
$37.1 million. Excluding the acquisition of Palm Beach, net sales increased by
8.4%, or $5.7 million, to $73.2 million in 1998 from $67.5 million in 1997. This
increase was primarily attributable to higher unit volumes in 1998. There was
also an increase in average unit selling prices due to a change in product sales
mix to higher priced products.
Cost of Sales. Cost of sales increased by 62.7%, or $26.6 million, to
$69.0 million in 1998 from $42.4 million in 1997. Cost of sales as a percentage
of net sales decreased to 62.6% in 1998 from 62.9% in 1997. This improvement was
primarily due to higher margin business generated by Palm Beach. These higher
margins, which serve to reduce cost of sales as a percentage of net sales, were
partially offset by an increase in Sleepmaster's manufacturing costs in 1998. As
a result of the Palm Beach acquisition, Sleepmaster was also able to realize
cost savings on raw material purchases as a result of obtaining additional
volume-related purchase discounts from vendors.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 72.0%, or $10.8 million, to $25.8 million
in 1998 from $15.0 million in 1997. Selling, general and administrative expenses
as a percentage of net sales increased to 23.4% in 1998 from 22.3% in 1997.
Several factors contributed to this increase. First, Palm Beach has a higher
fixed cost base as a percentage of net sales than Sleepmaster's base business
and has a greater number of smaller customers than Sleepmaster. Second, Palm
Beach has higher delivery expenses as a percentage of net sales due to its large
geographical licensed territory. Such expenses were offset by increases in
average unit selling prices and generally fixed delivery costs per unit at our
Linden, New Jersey facility. Finally, certain of Palm Beach's contractual
employment arrangements, scheduled to expire in March 2000, contributed to the
increase in selling, general and administrative expenses as a percentage of net
sales. Management's ongoing objective is to reduce this expense ratio by
leveraging its fixed expense base.
Amortization of Intangibles. Amortization of intangibles increased by $0.6
million, to $1.2 million in 1998 from $0.6 million in 1997. This increase was
due to the acquisition of Palm Beach in March 1998.
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<PAGE> 36
Operating Income. Operating income increased by 52.6%, or $4.9 million, to
$14.2 million in 1998 from $9.3 million in 1997. As a result of the above
factors, operating income as a percentage of net sales decreased to 12.9% in
1998 from 13.8% in 1997.
Interest Expense, Net. Interest expense increased by 52.2%, or $2.4
million, to $7.1 million in 1998 from $4.7 million in 1997. This increase was
due to the cost of additional debt financing on debt incurred and assumed
resulting from the acquisition of Palm Beach. See "-- Liquidity and Capital
Resources." Based on current plans and as a result of this offering, management
expects interest expense to increase in 1999.
Provision for Income Taxes. The provision for income taxes increased by
50%, or $1.0 million, to $3.0 million in 1998 from $2.0 million in 1997. The
provision for income taxes resulted in an effective rate of 42.1% in 1998 and
42.2% in 1997.
Net Income. As a result of the above factors net income for 1998 was $4.1
million compared to $2.8 million in 1997.
FISCAL 1997 AS COMPARED TO FISCAL 1996
Net Sales. Net sales increased by 12.9%, or $7.7 million, to $67.5 million
in 1997 from $59.8 million in 1996. This increase was primarily due to increases
in unit sales volume in 1997 of 9.5% and an increase in average unit selling
prices of 3.0%.
Cost of Sales. Cost of sales increased by 13.2%, or $4.9 million, to $42.4
million in 1997 from $37.5 million in 1996. Cost of sales as a percentage of net
sales increased slightly to 62.9% in 1997 from 62.7% in 1996. This increase was
attributable to higher costs of raw materials and labor in 1997, partially
offset by a reduction in manufacturing costs in the same period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 6.5%, or $0.9 million, to $15.0 million in
1997 from $14.1 million in 1996. Selling, general and administrative expenses
decreased as a percentage of net sales to 22.3% in 1997 from 23.6% in 1996. This
decrease was primarily attributable to a reduction in salaries and commissions
as a percentage of net sales, a decrease in Serta licensing fees as a percentage
of net sales, and higher professional fees incurred in 1996 in connection with
Sleepmaster's leveraged recapitalization which did not recur in 1997.
Amortization of Intangibles. Amortization of intangibles remained constant
at $0.6 million in 1997 and 1996.
Operating Income. Operating income increased by 24.6%, or $1.8 million, to
$9.3 million in 1997 from $7.5 million in 1996. The above factors resulted in an
increase in operating income as a percentage of net sales to 13.8% in 1997 from
12.5% in 1996.
Interest Expense, Net. Interest expense increased by 80.9%, or $2.1
million, to $4.7 million in 1997 from $2.6 million in 1996. This was due to the
cost of increased debt financing incurred as a result of Sleepmaster's leveraged
recapitalization in November 1996. See "-- Liquidity and Capital Resources."
Provision for Income Taxes. The provision for income taxes in 1997 was
$2.0 million compared to $0.1 million in 1996. The provision for income taxes
resulted in an effective rate of 42.2% in 1997 and 1.9% in 1996. Until
Sleepmaster's leveraged recapitalization, which was effected on November 14,
1996, Sleepmaster was taxed as a partnership. No provision was made for income
taxes during the period from January 1, 1996 through November 13, 1996 since
income or loss arising during this period was included in the income tax returns
of the members of Sleepmaster.
Net Income. As a result of the above factors net income for 1997 was $2.8
million compared to $4.6 million in 1996.
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LIQUIDITY AND CAPITAL RESOURCES
Our principal source of cash to fund liquidity needs is net cash provided
by operating activities and availability under our existing credit facility. Our
principal use of funds consists of
(1) payments of principal and interest on our indebtedness and
(2) capital expenditures.
Operating activities. Sleepmaster's operating activities generated cash of
$8.9 million in 1998 compared to $6.0 million in 1997 and $5.6 million in 1996.
The increase in cash flows in 1998 was primarily due to the acquisition of Palm
Beach. Sleepmaster's operating activities generated cash of $2.3 million in the
first quarter of 1999 compared to $0.6 million in the first quarter of 1998.
This increase in cash flows in the first quarter of 1999 was primarily due to
increased net income from operations and the acquisition of Herr.
Capital expenditures. Sleepmaster's capital expenditures were $1.1 million
in 1998, $0.6 million in 1997 and $0.2 million in 1996. Capital expenditures
were $0.6 million in the first quarter of 1999, as compared to $0.3 million in
the first quarter of 1998. These capital expenditures consisted primarily of
normal recurring expenditures for machinery and equipment, leasehold and office
furniture and fixtures. Sleepmaster has historically funded its capital
expenditures with cash generated from operations.
Based on current plans, management expects that capital expenditures at all
of our facilities will be approximately $3.9 million in 1999. The increase in
capital expenditures is primarily attributable to a $2.0 million investment to
replace and upgrade our domestic computer system software and hardware and the
full year effect of planned capital expenditures for Palm Beach. The balance of
the increase in capital expenditures is for machinery and equipment. We
anticipate future capital expenditures to be $1.9 million per year for the
existing factories. Management believes that annual capital expenditure
limitations under the new credit facility will not significantly inhibit
Sleepmaster from meeting its capital needs.
Financing activities. Sleepmaster generated $24.5 million of cash inflows
from financing activities in 1998, principally arising from borrowings under an
increased credit facility to acquire Palm Beach, compared with cash outflows of
$5.0 million in 1997 and $6.1 million in 1996. Financing cash outflows arose
primarily from repayments of borrowings under our revolving credit facility in
1997 and arose principally from distributions to members in 1996. Sleepmaster
generated $23.2 million of cash inflows from financing activities in the first
quarter of 1999, principally arising from borrowings under an increased credit
facility to acquire Herr, as compared to $32.2 million of cash inflows from
financing activities in the first quarter of 1998. Cash inflows in the first
quarter of 1998 arose principally from borrowings under an increased credit
facility to acquire Palm Beach.
In connection with the acquisition of Palm Beach on March 3, 1998,
Sleepmaster amended and restated its credit facility to provide for an aggregate
amount of borrowings of up to $66.3 million, a portion of which was used to
finance the acquisition of Palm Beach. See note 10 to the 1998 consolidated
financial statements of Sleepmaster included elsewhere in this prospectus.
On February 26, 1999, Sleepmaster purchased all of the capital stock of
Herr. In connection with the acquisition, Sleepmaster amended and restated its
credit facility to provide for an aggregate amount of borrowings of up to $86.0
million, a portion of which was used to finance the acquisition of Herr.
On May 18, 1999, Sleepmaster purchased substantially all the assets of
Star, the Serta licensee located in Concord, Ontario, Canada. Star is a leading
producer and distributor of the full line of Serta brand mattresses and box
springs and owns the rights to manufacture and sell Serta products in
substantially all of Ontario, Canada. The acquisition was primarily funded with
the net proceeds of the old note offering.
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<PAGE> 38
Debt. On May 18, 1999, we and Sleepmaster Finance Corporation issued
$115,000,000 of 11% senior subordinated notes due 2009. Sleepmaster used a
portion of the proceeds of the old note offering to prepay the existing credit
facility, redeem the series A and series B senior subordinated notes due 2007,
and acquire substantially all of the assets of Star. Also on May 18, 1999,
Sleepmaster entered into a new credit facility with First Union National Bank.
The new credit facility provides revolving credit facilities with aggregate
availability of $25.0 million. The revolving credit facility matures six years
after closing and includes a sublimit of $8.0 million for letters of credit
currently consisting of:
(a) a letter of credit to back the industrial revenue bonds currently
outstanding of $6.6 million and
(b) a $720,000 letter of credit for deposit on the Linden, New Jersey
facility. In addition, our lender has agreed to use its best efforts to
arrange a $50.0 million acquisition facility.
Borrowings under the new credit facility bear interest at floating rates
that are based on LIBOR or on the applicable alternate base rate, and
accordingly Sleepmaster's financial condition and performance will be affected
by changes in interest rates. The new credit facility also imposes certain
restrictions on Sleepmaster and requires Sleepmaster to comply with certain
financial ratios and tests. See "Description of Certain Indebtedness -- The New
Credit Facility."
Sleepmaster, through its subsidiary Palm Beach, is obligated to the County
of Palm Beach, Florida pursuant to certain revenue bonds issued on behalf of
Palm Beach. On April 1, 1996, the County of Palm Beach Florida issued Variable
Rate Demand Industrial Development Revenue Bonds (Palm Beach Bedding Company
Project), Series 1996 in the aggregate principal amount of $7.7 million to
finance the construction of a 235,000 square foot manufacturing facility for
Palm Beach. As of March 31, 1999 $6.6 million of the bonds were outstanding. The
bonds mature in April 2016 and bear interest at a variable rate that was 3.2% at
March 31, 1999.
In connection with the recapitalization of Sleepmaster Holdings L.L.C. on
November 14, 1996, Sleepmaster issued $15.0 million of series A 12% senior
subordinated notes due 2006 to PMI. In connection with the acquisition of Palm
Beach on March 3, 1998, Sleepmaster issued $5.0 million of series B 12% senior
subordinated notes due 2007 to PMI and amended the terms of the series A senior
subordinated notes to extend the maturity date to 2007. On May 18, 1999, we used
a portion of the net proceeds from the old note offering to prepay the senior
subordinated notes.
In connection with the recapitalization of Sleepmaster Holdings L.L.C. on
November 14, 1996, Sleep Investor issued $7.0 million of junior subordinated
promissory notes and paid cash to the then existing members of Sleepmaster
Holdings L.L.C. (including current members of our management). In exchange for
the notes, the then-existing members of Sleepmaster Holdings L.L.C. delivered
common and preferred interests of Sleepmaster Holdings L.L.C., as well as notes
issued by Sleepmaster Holdings L.L.C., to Sleep Investor. Interest payments
received by Sleep Investor on the notes issued by Sleepmaster Holdings L.L.C.
correspond to Sleep Investor's obligation to make interest payments on the
promissory notes. The promissory notes bear interest at a fixed rate of 7.02%
per annum and mature on November 14, 2008. The interest on the promissory notes
is pay-in-kind except that an amount equal to the current tax liability for
interest payments received on the promissory notes is paid in cash. The maturity
date of the promissory notes was extended in connection with the acquisition of
Palm Beach from November 14, 2007 to November 14, 2008. In connection with the
completion of the offering of the old notes, and the prepayment of the senior
subordinated notes, the promissory notes were amended to retroactively bear
interest at a fixed rate of 12.0% per annum and to mature on November 14, 2007.
See "Description of Certain Indebtedness -- The Sleep Investor Promissory
Notes."
In conjunction with the purchase of substantially all the assets of Star on
May 18, 1999, Sleepmaster Holdings L.L.C. issued a junior subordinated note to
the seller in the initial aggregate principal amount of $0.68 million as a
portion of the purchase price. The junior subordinated note bears interest at a
fixed rate of 6.0% per annum, which interest shall be paid in kind, and will
mature on the third anniversary of the closing. See "Description of Certain
Indebtedness -- The Sleepmaster Holdings L.L.C. Junior Subordinated Note."
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Sleepmaster has no obligations or commitments to Sleepmaster Holdings
L.L.C. or Sleep Investor either under the promissory notes or the junior
subordinated note. The new credit facility will allow Sleepmaster to fund
interest payments on the promissory notes and the junior subordinated note.
Distributions, dividends and loans of Sleepmaster Holdings L.L.C. for that
purpose are restricted by the terms of the indenture governing the notes. See
"Description of the Notes -- Certain Covenants -- Limitation on Restricted
Payments."
We believe that the cash flows from operations, together with available
borrowings under the new senior credit facility, will be adequate to fund
Sleepmaster's currently anticipated working capital, capital spending and debt
service requirements for at least the next several years. However, we are highly
leveraged and may be able to incur additional debt following this offering. 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 the new credit
facility in an amount sufficient to enable us to service our indebtedness,
including the 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. See
"Risk Factors."
SEASONALITY OF BUSINESS
Sleepmaster's net sales and net income are generally consistent throughout
the fiscal year, except for slight increases in the third quarter. However,
seasonal variations in net sales and net income affect each of Sleepmaster's
four facilities. Palm Beach's net sales and net income increase during the first
and fourth quarters of the fiscal year. In contrast, net sales and net income
increase during the third quarter of the fiscal year at our Linden, New Jersey,
Lancaster, Pennsylvania, and Concord, Ontario, Canada facilities. Since Palm
Beach's sales cycle does not coincide with the sales cycles at the other
facilities, seasonal variations of Sleepmaster are reduced.
NEW ACCOUNTING STANDARDS
In February 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee ("AcSEC") issued statement of position
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 requires certain costs incurred in connection with
developing or obtaining internal-use software to be capitalized and other costs
to be expensed.
In March 1998, AcSEC issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and requires that such costs be expensed
as incurred. The effect of adopting SOP 98-5 will be reported as a change in
accounting principle.
We adopted these standards effective January 1, 1999. The impact of
adopting SOP 98-1 was to increase pre-tax income for the first quarter of 1999
by $0.4 million. The adoption of SOP 98-5 had an immaterial impact on our
consolidated financial position and results of operations for the first quarter
of 1999.
IMPACT OF THE YEAR 2000 ISSUE
As of June 14, 1999, we completed a formal review of the computer hardware
systems and software programs located at all of our facilities. This review
included analysis of potentially affected business and process systems and
replacement or correction of all non-compliant critical business and process
systems we will need in the new millennium. Currently, we believe that our
systems are year 2000 compliant in all material respects.
We utilize non-information technology systems including telephones,
voicemail, heating/air conditioning, electricity and security systems supplied
by third-parties. We completed formal communications, through questionnaires,
with critical suppliers of such non-information technology systems and have been
assured that the products and services they provide are year 2000 compliant. If
any of the non-information
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technology systems provided by these suppliers are not in fact year 2000
compliant, our business or operations could be materially adversely affected.
We also utilize certain manufacturing processes that involve computer
controlled equipment using embedded micro-processor technology. As of May 30,
1999, we completed a formal review of this equipment located at all of our
facilities. Currently, we believe that our systems are year 2000 compliant.
We estimate that the cost of achieving year 2000 compliance with our
information technology and non-information technology systems is approximately
$600,000. Such costs have all been incurred during the first quarter of 1999. As
of June 23, 1999, we believe we have substantially addressed our year 2000
compliance issues. While failure of any critical technology components to
operate properly in the year 2000 could affect our operations, we believe that
resolution of the year 2000 issue will not require significant additional costs
and will not have a material adverse effect on our results of operations.
We rely on transmissions from Serta's computer system for orders from
national accounts to our factories. This computer system is currently not year
2000 compliant. Serta has informed us that this system will be year 2000
compliant by July 31, 1999. There can be no assurance that the failure of Serta
to render this system compliant would not have material adverse effect on us.
In addition to reviewing our internal systems and contacting Serta, we have
polled our significant suppliers and customers 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. All
of our significant suppliers and customers have responded to our queries, either
that they are currently, or that they are in the process of becoming, year 2000
compliant.
We have not developed contingency plans for manual or delayed information
processing since we believe that our efforts to address the year 2000 issue have
been substantially completed consistent with our timetable. We will periodically
reassess our progress and efforts and may develop such contingency plans in the
future. While we currently expect no material adverse effect on our business,
financial condition, results of operations or cash flows due to year 2000
issues, our beliefs and expectations are based on certain assumptions that
ultimately may prove to be inaccurate.
We believe that the most reasonable worst case scenario in the event of a
year 2000-related failure would be delays in the receipt of payments from our
customers and delays in receiving shipments of raw materials from our suppliers.
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<PAGE> 41
BUSINESS
We are a leading manufacturer and distributor of a full line of
conventional bedding, mattresses and box springs marketed under the well-known
brand names of Serta, Serta Perfect Sleeper, Sertapedic and Masterpiece. Serta,
Inc., through its licensees, is the second largest manufacturer of conventional
bedding products in the United States, with a domestic market share of
approximately 17% in 1998. We are the second largest Serta licensee in North
America with approximately a 22% market share in our domestic licensed
territories on a pro forma basis in 1998. The license and geographic structure
of Serta has enabled us to capitalize on the combination of a strong nationally
advertised brand with high consumer awareness, along with the ability to provide
localized marketing and customer support in our licensed territories.
Serta is a national organization that is owned by and operated for the
benefit of its licensees. The organization consists of 12 domestic licensed
mattress manufacturers, covering 34 licensing territories and operating out of
27 domestic manufacturing facilities. Serta also has 30 international licensees
in Canada, Europe, Asia, the Middle East, South America and the Caribbean. Since
1993, the domestic market share of Serta brand products has increased by 34.7%,
compared to a 9.8% increase for its next closest competitor. In 1998, domestic
net shipments of Serta brand products by Serta licensees were approximately $640
million, of which our share on a pro forma basis was approximately 22%.
We are one of Serta's 12 domestic licensed mattress producers, covering
licensing territories consisting of:
- the metropolitan New York area (including Fairfield County in
Connecticut) and southern New York State,
- the State of New Jersey,
- eastern Pennsylvania (including the metropolitan Philadelphia area),
- the metropolitan Wilmington, Delaware area (including Cecil County in
Maryland),
- the State of Florida, except for seven counties in the Florida panhandle
and
- substantially all of Ontario, Canada.
We distribute our products through a variety of channels, including bedding
chains, furniture retailers, department stores, wholesale buying clubs and
contract customers. We operate from manufacturing facilities located in Linden,
New Jersey, Lancaster, Pennsylvania, Riviera Beach, Florida and Concord,
Ontario, Canada. For the three months ended March 31, 1999, on a pro forma
basis, we generated net sales of $40.7 million and EBITDA of $6.0 million.
INDUSTRY OVERVIEW
The United States conventional bedding industry is mature and stable. Over
the past 20 years, the industry has enjoyed an increase in revenues at a
compounded annual growth rate of 7.0%. Sales in the bedding industry declined
only once during the period (1.9% in 1982). For the year ended December 31,
1998, wholesale shipments were $3.8 billion. Since 1993, the combined market
share of the top three bedding manufacturers has increased from 49% to 54%.
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<PAGE> 42
The following chart illustrates the growth in the domestic bedding
industry:
[Domestic Wholesale Mattress & Foundation Shipment Bar Graph]
<TABLE>
<CAPTION>
DOMESTIC WHOLESALE MATRESS AND FOUNDATION
SHIPMENTS
-----------------------------------------
<S> <C>
'1978' 1062
1213
'1980' 1326
1395
'1982' 1369
1593
'1984' 1700
1796
'1986' 1929
2095
'1988' 2261
2309
'1990' 2319
2382
'1992' 2564
2762
'1994' 3018
3181
'1996' 3347
3621
'1998' 3900
</TABLE>
- ---------------
Source: International Sleep Products Association
Industry Growth. The steady growth in shipments in the domestic bedding
industry is attributable to several factors. These factors include:
- increases in housing starts and replacement sales,
- population growth,
- increases in new family formations,
- increased individual and family mobility,
- increased divorce rates,
- growth in gross domestic product, and
- more disposable personal income.
Unit sales have also increased due to trends towards more beds per home and
more frequent replacement of bedding products. In addition, the average unit
selling price has increased as a result of the increase in sales of larger size
beds, greater emphasis on marketing to older consumers who spend more per unit
on average than younger consumers spend, a focus on retailers' efforts to sell
better quality bedding and the industry's continued public relations efforts
related to health benefits of more supportive bedding.
Growth in the bedding industry is also attributable to the high profit
margins available to bedding retailers. Studies conducted by the National Home
Furnishings Association have consistently shown that bedding is one of the most
profitable items on their retailers' floor. In particular, the studies indicate
that bedding sales:
- provide the most profit in terms of gross margin return on investment,
- result in the highest inventory turnover,
- constitute one of the highest sales per square foot of selling area, and
- exhibit growth at a compounded annual rate 50% greater than that of
domestic furniture.
The profitability of bedding sales has prompted stores without bedding
departments to begin selling bedding products and influenced stores that
currently sell bedding products to expand their existing bedding departments.
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Industry Stability. The bedding industry has been consistently stable and
somewhat shielded from economic downturns. The bedding industry's relative
insulation from cyclical swings has enabled the industry to suffer only a single
year of decreasing sales in the past 20 years. The industry has remained stable
largely as a result of the following characteristics:
- replacement sales, which account for approximately 70% of conventional
bedding sales, contribute to the market's relative stability, as
management believes that the average household purchases a new mattress
set every seven to eight years,
- bedding manufacturers fund a substantial portion of cooperative
advertising which enables retailers to continue to advertise bedding
products even in a weak economic environment,
- a significant portion of costs in manufacturing mattresses, especially
cost of goods sold expenses, are variable, which limits the impact of
economic downturn on margins and allows industry participants to continue
to invest in necessary sales promotion and research and development, and
- because mattresses are generally manufactured to order, manufacturers and
retailers maintain low inventory levels which mitigate variations in
working capital requirements experienced by the furniture and appliance
industries.
In addition, the domestic bedding industry is relatively insulated from
foreign competition due to
- the size and bulk of bedding products,
- retailers' desire for just-in-time delivery of bedding products,
- labor costs' small percentage of manufacturing expense, and
- the lack of a foreign brand name.
While a few foreign competitors have entered the bedding industry, they have
done so by acquiring or building United States-based companies and/or
manufacturing facilities.
Demand for a Fully Merchandised Branded Program. Retailers have recognized
that a broad product line with identifiable value gradations is an effective way
to market bedding to consumers. We believe that a strong brand name and a
favorable opinion of the product's quality by the retail floor sales staff are
crucial to the sales process. As a result, manufacturers and retailers typically
emphasize brand names and focus on popular price points. To this end, most major
manufacturers produce a mattress which will sell at a retail price of $399 per
queen-size set (which includes both the mattress and the box spring) in an
effort to generate store traffic. However, once consumers are in the store,
retailers are often able to motivate consumers to make purchases at higher
retail price points of $599, $699, $799 and above per queen-size set. This
strategy requires a manufacturer to supply retailers with a broad product line
which in turn results in increased sales of incrementally higher margin products
for retailers and increased market share for the manufacturer.
COMPETITIVE STRENGTHS
We attribute our leadership position to the following competitive
strengths:
Strong Market Position and High Brand Awareness. Serta, through its
licensees, is the second largest manufacturer of conventional bedding products
in the United States. Our market share on a pro forma basis in 1998 was
approximately 22% in our domestic licensed territories compared to Serta's 17%
overall domestic market share. Our well-known brand names such as Serta, Serta
Perfect Sleeper and Sertapedic have contributed to our consistently strong
market share. In addition, the Serta brand is recognized as one of the leading
brands in the home furnishing industry. In 1998, Serta's national advertising
investment was $17.5 million compared with $14.4 million and $4.4 million by its
two largest competitors. We believe Serta's investment in national advertising
coupled with advertising by Serta licensees which is matched by local dealers
totaled approximately $130.0 million in 1998 and has created strong brand
recognition in the
39
<PAGE> 44
bedding industry. We also believe our strong brand names create consumer
preference, which leads to higher average unit selling prices, higher retailer
profitability and additional retail floor space allocations.
National Brand with Local Marketing Efforts. We combine a strong
nationally advertised brand that has wide consumer awareness with localized
marketing efforts tailored to meet the specific needs of our customers. Our
sales and marketing efforts are decentralized so that we can more readily
identify local market opportunities and quickly take advantage of them. The
Serta license structure allows us to determine the product, display, advertising
and service needs of our customers, while giving localized sales persons the
flexibility to work with our customers to fulfill their specific needs.
Extensive Product Offerings. We offer an extensive selection of well-known
conventional bedding products designed to appeal to multiple segments of the
consumer base and retail market. Our broad product offerings at various price
points enable retailers to merchandise their programs to maximize step-up sales
and profitability. Our product line ranges from higher-margin, higher-priced
bedding, sold under the Perfect Night by Serta, Serta Perfect Sleeper Nightstar,
Serta Perfect Sleeper Showcase, Serta Perfect Sleeper and Masterpiece names, to
lower-priced promotional products such as Sertapedic, private label and contract
bedding products.
Proprietary Products. Serta has been a leader in developing certain
proprietary features designed to distinguish our mattresses from competitive
products. Serta has built a "mini-factory" at its corporate headquarters to test
and develop new and better components and to provide Serta licensees with
proprietary features. These features include a continuous wire innerspring unit,
patented ModuCoil steel elements, patented Triple Beam box springs and patented
Contour Comfort Quilt. In addition, Serta has developed and designed the new
Masterpiece Collection which contains features such as Double Micro-Offset
Coils, Master Weld Torsion System and Ultimate Edge Support.
Efficient Manufacturing and Distribution Capabilities. Our current
manufacturing space spans 629,000 square feet in our four factories. All of our
facilities were opened within the last five years and contain advanced
technology and production equipment. As a result, we have enhanced production,
improved operating efficiencies and increased production capacities. Our
efficiency in production and our dedication to customer service have enabled us
to respond to our retailers' needs for just-in-time deliveries of quality
products.
Commitment to Retailers. We understand that the critical link in selling
our products to the consumer is our customer, the retailer. We provide our
retailers with the necessary products, services and information to assist them
in achieving their sales and profit objectives. These include proper sales
training support, advertising ideas to attract consumers to the stores,
just-in-time deliveries, quality products and extensive product assortments that
allow effective retail merchandising to achieve more profitable step-up sales.
BUSINESS STRATEGY
Our objectives are to continue to grow sales, increase profitability and
gain market share by pursuing the following strategies:
Selectively Pursue Consolidation Opportunities. Since 1993, we have
purchased and integrated four Serta licensees. We are continuously involved in
discussions relating to potential acquisitions of Serta licensees in North
America. In addition, we will explore the possibility of acquiring
independent/regional bedding manufacturing operations that would allow us to
capitalize on existing joint marketing, manufacturing and distribution
capabilities. Through our acquisitions, we have been able to realize cash flow
benefits and cost savings associated with materials purchasing, working capital
improvements, productivity improvements and the adoption of "best practices"
methodologies among all of our facilities. Our strategy is to leverage our
superior manufacturing, distribution and marketing capabilities in order to
generate incremental revenue and EBITDA.
Build Investment in the Serta Brand. Since consumers cannot closely
examine the inner construction of a mattress, perceptions of quality and value
are strongly influenced by the brand name and sales efforts
40
<PAGE> 45
by local retailers. We believe Serta's investment in national advertising
coupled with advertising by Serta licensees which is matched by local dealers
totaled approximately $130.0 million in 1998. These expenditures further
increase awareness of our brands and strengthen our relationships with
customers.
Expand Our Product Offerings. We constantly seek ways to expand our
product offerings. Within the past year, we introduced a new, high-end addition
to the Perfect Sleeper line, the Nightstar. In addition, we have recently begun
to manufacture and distribute a new upscale product called Masterpiece with
minimum advertised prices ranging from $700 to $5,000. The Masterpiece
collection was designed to meet customer demands for upscale bedding. This
collection provides us and retailers with a top-of-the-line product to maximize
step-up sales, which results in higher average unit selling prices and gross
margins. Leading retailers such as Macy's, Bloomingdale's and Burdine's are
currently selling this collection.
Capitalize on Experienced and Committed Management Team. We have assembled
one of the industry's strongest management teams with a demonstrated track
record of increasing sales and profitability. This senior management team has an
average tenure of 20 years in the bedding industry and has a 26% equity interest
on a fully diluted basis in our parent company. The management team has been
involved in:
- the acquisition of other Serta licensees and the integration of these
acquisitions into our company,
- strategic planning to develop programs and products that have
significantly increased sales and profitability,
- the development of close retailer relationships, and
- providing Serta with direction and guidance through the participation of
one of our officers as a member of Serta's board of directors and by
other key executives' participation as members of Serta's manufacturing,
sales and finance committees.
In addition, upon completion of our acquisitions, we have sought to retain
successful management teams in order to capitalize on their experience and local
market expertise.
THE SERTA NATIONAL ORGANIZATION
Serta is a national organization that is owned by and operated for the
benefit of the Serta licensees. The Serta organization consists of 12 domestic
licensed mattress producers which cover 34 licensing territories and operate out
of 27 domestic manufacturing facilities. Serta also has 30 international
licensees in Canada, Europe, Asia, the Middle East, South America and the
Caribbean. Serta owns the rights to the Serta trademark and licenses companies
to manufacture and sell mattresses under the Serta brand name. The licensing
agreements prohibit each licensee from manufacturing outside of its licensing
territories. The Serta organization generated total domestic revenues of $640
million in the year ending December 31, 1998.
The Serta organization is headed by Serta's president, who reports to a
board of directors which consists of representatives of six licensees, two
outside directors and the president of Serta, Inc. Charles Schweitzer, Chief
Executive Officer of Sleepmaster, has been a member of the board of directors
since 1995. Serta cannot own its licenses and does not have a
"right-of-first-refusal" if any are to be sold. Strategic decisions for Serta
are made by the board of directors and passed through to the Serta licensees.
Although all Serta national advertising budgets are voted on and approved by the
Serta board of directors, Serta licensees control their own marketing,
merchandising, manufacturing and administrative functions and thus have the
ability to tailor their businesses to the needs of local customers. Serta
focuses on the following programs and services for the licensing group:
conducting national advertising campaigns; issuing guidelines for Serta
products; supervising quality control programs; handling sales programs for
national accounts; protecting Serta trademarks; and conducting product research
and development. We paid approximately 3.0% of our 1998 gross sales on a pro
forma basis as a royalty to the Serta organization.
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<PAGE> 46
PRODUCTS
Overview. Our product line consists of conventional bedding and box
springs sold primarily under the Serta brand which varies in price, design,
material and size. Retail prices for our Serta brand products range from under
$200 for a twin size promotional set to approximately $2,400 for a king size
luxury set. Retail prices of the newly introduced Masterpiece line range from
approximately $700 for twin size to $5,000 for king size. We offer retailers a
full line of products, allowing retailers to develop their own product
assortment to facilitate step-up sales and to meet various consumer comfort and
support preferences.
Serta Perfect Sleeper. The Serta Perfect Sleeper line up consists of five
levels of quality, Perfect Night, Night Star, Showcase, Ultra Premium and Super
Premium, and retails in a range from approximately $399 to $2,199 per
queen-sized set. The following chart illustrates the differences between each of
the levels: [RETAIL PRICE STEP-UP FEATURES GRAPHIC]
In addition, each of the Serta Perfect Sleeper's five levels of quality has
step-up features as follows:
- Perfect Night. The highest end product within the Serta Perfect Sleeper
line, the Perfect Night retails from approximately $1,599 to $2,199 in
queen size. The innerspring unit contains 752 Posture Spirals, with Dual
Posture Edge, Triple Beam 108 ModuCoil support elements, Contour Comfort
Quilt with Body Loft, Perimeter Edge Foam and temperature sensitive Body
Pillow foam.
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<PAGE> 47
- Nightstar. The newest introduction in the Perfect Sleeper line, the
Nightstar, retails from approximately $1,099 to $1,499 in queen size. The
innerspring contains 720 Posture Spirals with Dual Posture Edge, Triple
Beam 108 ModuCoil support elements, Contour Comfort Quilt with Body Loft
and Posture Edge Foam.
- Showcase. Providing the step-up bridge from Ultra Premium to Nightstar,
the Showcase retails from approximately $899 to $1,099 in queen size. The
innerspring contains 704 posture spirals over the patented Triple Beam 96
ModuCoil foundation system plus resilient down-like Pillo-Fill quilted to
high-density zoned convoluted foam.
- Ultra Premium. The Ultra Premium provides superior value at popular
upper retail price points ranging from approximately $699 to $999 in
queen size and utilizes a 704 Posture Spiral continuous wire innerspring
unit over a Triple Beam box spring with additional support from specially
zoned convoluted foam and ultra firm Perimeter Edge foam.
- Super Premium. Our best selling category, the Super Premium provides
support and comfort at popular retail price points ranging from $399 to
$799 in queen size, while containing all of the components of a Perfect
Sleeper so that the consumer benefits from comfort and firmness at lower
prices.
All Perfect Sleepers include the Perfect Sleeper Spiral Support System and
the Perfect Sleeper Triple Beam Foundation System described as follows:
- The Perfect Sleeper Posture Spiral Support System contains continuous
steel spirals to provide a superior level of surface support and comfort,
a unique lacing configuration of head-to-toe helical wire to provide
stability, additional posture spirals in the center third of the mattress
to deliver additional support, and a clipped border rod to provide extra
edge support.
- The Perfect Sleeper Triple Beam Foundation System has ModuCoil steel
elements to uniquely combine the resilience of a coil with the strength
of a module, a self-locking grid system to provide surface consistency
and long-lasting firmness, and an exclusive triple beam frame that
provides additional strength, uniform support and maximum stability.
Masterpiece. Introduced in 1999, Masterpiece was developed with a blend of
old world craftsmanship and modern technology, and represents an upscale
collection of mattresses and box springs. The Masterpiece line targets the
growing upscale market and reflects a distinct marketing philosophy that is
structured to protect and enhance its upscale brand image. A driving force
behind the growth of the upscale market has been an increase in the disposable
income of the baby boom generation, the population's dominant buying segment, as
well as the demographic changes which have evolved, including the graduation and
self support of that generation's children. Masterpiece has many exclusive
features such as Double Micro-Offset Coils, Ultimate Edge, Master Weld Torsion
System, Contour Comfort Quilt and Posture Pad. We expect this product line to
complement and strengthen our assortment offered to retailers without decreasing
sales of Serta products. This collection provides us and retailers with a
top-of-the-line product to maximize step-up sales, which results in higher
average unit selling prices and gross margins.
Sertapedic Promotional and Other. Our Sertapedic branded promotional lines
are value-oriented products sold at retail prices from approximately $200 in
twin size to $600 in queen size. These lower priced beds help attract consumers
into stores and provide the retailer with a program necessary to create
merchandising steps to achieve step-up sales.
Contract. We sell a wide range of quality bedding products to institutions
in the hospitality, healthcare, military and dormitory markets. These products
are sold both under the Serta and Serta Perfect Sleeper labels, as well as
non-Serta brand private labels.
Private Label. We offer a collection of private label products at lower
price points to compete with non-branded products supplied by smaller
non-branded competitors. Our private label products help our retailers
consolidate vendor structures by enabling them to purchase through one source.
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<PAGE> 48
CUSTOMERS
We manufacture and supply products to a broad and stable customer base
consisting of over 1,730 retail outlets representing more than 710 customers
from channels of distribution such as:
- major bedding chains including Sleepy's, Rockaway, Mattress Giant,
Bedding Barn and Sleep Country,
- major furniture retailers including Rooms To Go, Seaman's, Baer, Kanes
and The Brick,
- major department stores including Macy's, Bloomingdale's, Burdine's,
Stern's, Boscov's, Sears and Eaton's,
- wholesale buying clubs such as Sam's,
- direct marketing firms such as Dial-A-Mattress, and
- contract customers such as Prime Hospitality.
Our ten largest accounts accounted for approximately 46% of net shipments
in 1998 on a pro forma basis. One customer accounted for approximately 10% of
sales on a pro forma basis in 1998.
SALES, MARKETING AND ADVERTISING
Our marketing and advertising focus on local markets as well as the
national market. We exclusively employ a sales organization of approximately 44
people to target local retailers and to sell our products to authorized
retailers in local markets. We provide our sales force with ongoing, extensive
training in advertising, merchandising and salesmanship so that our sales force
can successfully target retailers and work closely with retailers to assist them
in implementing and improving their sales techniques. In addition, Serta has
formed an organization to sell Serta products on a national level and to
administer programs for national accounts such as Sears and Sam's Club. The
combination of our local sales efforts and Serta's national marketing efforts
allows us to better analyze the needs of our retailers and to customize our
sales and marketing efforts to specific competitive environments.
Our marketing strategy focuses on two areas: (1) total retailer support
programs -- including cooperative advertising programs designed to meet
individual retailer needs and to complement individual retailers' marketing
programs and (2) a continuation of the substantial investment in national
advertising that has established and will continue to build brand awareness.
Our retailer support program assists retailers in increasing sales by
providing them with the following:
- advertising and retail incentive packages tailored to the needs of our
retailers,
- point of sale materials that enable retail sales people to demonstrate
the unique features of our product and explain step-up features to
increase average unit selling prices,
- retail sales education programs conducted at retail sites and at our
factory showrooms, and
- merchandised product assortments to meet the needs of retailers and help
achieve step-up sales.
We believe this program differentiates us from most of our competitors.
Serta invests in building the Serta brand name through national
advertising, and has been recognized as one of the leading brands in the home
furnishing industry. Serta advertises throughout the year on prime network and
cable programs, as well as on selected daytime and syndicated programs. Serta
advertising is featured on shows such as ER, Touched by an Angel, Law & Order,
Oprah Winfrey and the Annual Academy Awards. Serta's year-long magazine schedule
includes such publications as House Beautiful, Architectural Digest, House and
Garden and Travel and Leisure. In addition, Serta sponsors highly successful
radio programs on the acclaimed National Public Radio Network.
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<PAGE> 49
COMPETITION
Serta is the second largest conventional bedding manufacturer in the United
States and primarily competes with two national companies: Sealy and Simmons. Of
the top three bedding manufacturers, Serta is the only one comprised solely of
licensees. The license structure gives Serta and its licensees the advantage of
having a strong national organization combined with localized marketing and
sales efforts to maximize opportunities in local markets.
Serta, Simmons and Sealy together accounted for approximately 54% of
domestic wholesale mattress and box spring shipments in 1998. In 1998, the
market shares of the top three manufacturers were as follows:
[MARKET SHARE PIE CHART]
- ---------------
Source: Company estimates derived from data from the International Sleep
Products Association, Furniture/Today and public filings.
Since 1993, market shares of the top three mattress manufacturers have
changed as follows:
[MARKET SHARE COMPARISON BAR CHART]
<TABLE>
<CAPTION>
SEALY (INCLUDES THE STEARNS
& FOSTER BRAND) SIMMONS SERTA
--------------------------- ------- -----
<S> <C> <C> <C>
'1993-98' -4 9.80 34.70
</TABLE>
- ---------------
Source: Company estimates derived from data from the International Sleep
Products Association, Furniture/Today and public filings.
The remaining 46% of the domestic bedding market is highly fragmented and
consists of
(1) six second tier companies: Spring Air, Restonic, Springwall,
Thera-Pedic, Basset and Englander and
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<PAGE> 50
(2) approximately 800 independent and local regional manufacturers which
mainly manufacture lower quality products for sale at lower price
points.
While we primarily manufacture higher margin, differentiated bedding products,
we also manufacture lower priced, lower margin promotional and private label
bedding to compete with smaller manufacturers and to enable retailers to provide
a full breadth of products to consumers.
MANUFACTURING FACILITIES AND DISTRIBUTION
We operate three bedding manufacturing facilities in the United States and
one manufacturing facility in Concord, Ontario, Canada. Of our three current
facilities, one operates a single shift and the others operate two shifts daily.
We anticipate that all four facilities will operate two shifts daily by December
31, 2000. We have found that the movement to two shifts has dramatically
increased unit production levels. We believe that through the utilization of
extra shifts, we will be able to meet the growing demand for our products
without incurring significant capital expenditures.
Our facilities are strategically located to service one or more major
metropolitan areas. We have approximately 629,000 square feet of space, most of
which is devoted to production. We have instituted just-in-time delivery from
our major suppliers. We do not maintain a supply of finished inventory. Instead
we produce all products on a made-to-order basis, enabling us to supply our
broad selection of products in an efficient manner to our retailers and
minimizing our inventory carrying costs. As a result, our average inventory turn
is 13 times per year. We adjust production levels to meet demand and as a result
we have no material backlog of orders.
Our Linden, New Jersey facility is held pursuant to a lease which
terminates on February 1, 2004 but provides us with two five-year options to
extend the lease. The Star facility in Concord, Ontario, Canada is held pursuant
to a lease which terminates on December 31, 2000 but provides us with a five
year option to renew. We own our other facilities. The following table sets
forth certain information regarding our manufacturing and distribution
facilities at December 31, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE OWNED/LEASED
- -------- ----------- ------------
<S> <C> <C>
Linden, New Jersey................................. 240,000 Leased
Riviera Beach, Florida............................. 235,000 Owned
Lancaster, Pennsylvania............................ 100,000 Owned
Concord, Ontario................................... 54,000 Leased
</TABLE>
We consider our present facilities to be well maintained, in sound
operating condition and adequate for our needs. We have the necessary, as well
as some excess, capacity available in our facilities, and we have the necessary
equipment (as owner or lessee) to carry on and grow our business.
We have entered into various distribution arrangements at each facility
based upon our needs and the circumstances at each location. In some locations,
we have contracted with independent third parties to distribute all or a portion
of our products and in other locations we own trailers and distribute the
products ourselves. The flexibility of our distribution program allows us to
distribute products using the most cost effective method.
SUPPLIERS
We have cultivated numerous long-standing relationships with a broad range
of raw material suppliers. Major raw material categories include innersprings,
box spring modules, lumber, foam and ticking. Our largest suppliers include
Leggett & Platt, Burlington Industries, Blumenthal Print Works, Foamex, Flexible
Foam and General Foam. Approximately 43% of our raw materials were purchased
from Leggett & Platt in 1998. We take advantage of all trade discounts and do
not enter into written supply contracts with any of our suppliers. We maintain
several alternative-source suppliers for most of our raw materials. However,
46
<PAGE> 51
certain proprietary components can only be purchased from Leggett & Platt. We
have never suffered a significant production loss from insufficient raw material
supplies.
Raw materials are periodically inspected to confirm specifications from
suppliers. At the finished goods stage, two inspectors review each mattress
and/or box spring before they are packed and sent to shipping. If a quality
problem exists, the unit is removed from the line and sent for repair.
Management estimates that only a small amount of total production is removed for
reasons of deficient production quality.
Management also employs a quality control supervisor who works full-time
reviewing processes and finished goods in order to maintain a high-quality,
Serta-specified construction standard. The supervisor is responsible for
training workers on Sleepmaster's quality inspection methods.
WARRANTIES; PRODUCT RETURNS
Our conventional bedding products generally offer limited warranties of ten
years against manufacturing defects, with certain promotional products carrying
warranties of one year. Our management believes that our warranty terms are
generally consistent with those of our primary national competitors. Our
historical costs of honoring warranty claims have been immaterial.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
We are subject to federal, state, and local laws and regulations relating
to pollution, environmental protection and occupational health and safety. In
addition, our conventional bedding and other product lines are subject to
various federal and state laws and regulations relating to flammability,
sanitation and consumer protection standards. We believe that we are in material
compliance with these requirements.
We are not aware of any pending federal environmental legislation that we
expect to have a material impact on our company. We do not expect to make any
material capital expenditures for environmental controls during the next two
fiscal years.
Our principal wastes are nonhazardous materials such as wood, cardboard,
scrap foam and packaging materials. As is the case with manufacturers in
general, if a release of hazardous substances occurs on or from our properties
or any associated off-site 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 also dispose, primarily by
recycling, of small amounts of used oil.
EMPLOYEES
As of March 31, 1999, we employed 806 full-time employees, of whom
approximately 381 were represented by the United Steel Worker's Union. The
collective bargaining agreement covering the employees at the Linden, New Jersey
facility terminates on April 30, 2000 and the collective bargaining agreement
covering employees at the Concord, Ontario, Canada facility expires on December
31, 1999. We are not a party to any master labor agreement covering production
employees at more than a single manufacturing facility. We believe that our
employee relations are generally satisfactory. We have not experienced any work
stoppages or slowdowns as a result of labor difficulties during the last ten
years.
LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings arising in
the ordinary course of business. We do not expect that these matters,
individually or in the aggregate, will have a material adverse effect on our
company's business, financial condition or results of operations. We are not
currently involved in any material legal proceedings.
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<PAGE> 52
MANAGEMENT
ADVISORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and a brief account of the
business experience of each person who is an advisor or executive officer of
Sleepmaster L.L.C. and Sleepmaster Holdings L.L.C.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles Schweitzer................... 55 President and Chief Executive Officer, Advisor,
and Managing Member
James Koscica........................ 39 Executive Vice President and Chief Financial
Officer and Advisor
Michael Reilly....................... 50 Senior Vice President of Sales and Marketing
Timothy Dupont....................... 50 Vice President of Manufacturing
Michael Bubis........................ 44 President of Palm Beach and Advisor
David Thomas......................... 49 Advisor
John Weber........................... 34 Advisor
Michael Bradley...................... 33 Advisor
Robert Bartholomew................... 52 Advisor
</TABLE>
Charles Schweitzer has served as President and Chief Executive Officer of
Sleepmaster since April 1993, after joining Sleepmaster as Senior Vice President
in April 1986. Prior to joining Sleepmaster, he served as Senior Vice President,
Sales and Marketing for Classic Corporation, one of the world's largest waterbed
manufacturers. Before his tenure at Classic Corporation, Mr. Schweitzer served
as Vice President, Marketing for Sealy Mattress Company of Connecticut/New York.
Mr. Schweitzer has a B.A. in Economics and an MBA in Marketing from City College
of New York.
James Koscica has served as Executive Vice President and Chief Financial
Officer of Sleepmaster since January 1995 and served as Vice President of
Finance and Administration since April 1993, after joining Sleepmaster as
controller in November 1989. Before he joined Sleepmaster, he served as
controller for a Budget Rent-A-Car Corporation franchise. Prior to his work at
Budget, Mr. Koscica served in management in systems development at AT&T. Mr.
Koscica has a B.A. in Accounting from Rutgers University and is a licensed CPA
in New Jersey.
Michael Reilly has served as Senior Vice President of Sales and Marketing
since January 1995 and Vice President of Sales from April 1993, after joining
Sleepmaster as Key Account Executive in February 1978. Before joining
Sleepmaster, Mr. Reilly served as Marketing Representative for Simmons Company.
Mr. Reilly has a B.A. in Business Administration from Catholic University.
Timothy Dupont has served as Vice President of Manufacturing since April
1993, after joining Sleepmaster as Manufacturing Manager in January 1985. Before
joining Sleepmaster, he served as General Manager for Guilden Development
Company. Mr. Dupont has a B.A. in Business Administration from Chapman College.
Michael Bubis is an advisor of Sleepmaster. Mr. Bubis has worked at Palm
Beach since 1969 and has been President of Palm Beach since 1991. Mr. Bubis
served as a member of the board of directors of Serta from 1995 through 1998.
David Thomas is an advisor of Sleepmaster. Mr. Thomas has been a Managing
Director of Citicorp Venture Capital, Ltd. for over five years. Mr. Thomas is a
director of Lifestyle Furnishings International Ltd., Galey & Lord, Inc., Anvil
Knitwear, Inc., Plainwell, Inc., Stage Stores, Inc. and American Commercial
Lines LLC.
John Weber is an advisor of Sleepmaster. Mr. Weber has been a Vice
President at Citicorp Venture Capital, Ltd. since 1994. Previously, Mr. Weber
worked at Putnam Investments from 1992 through 1994.
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<PAGE> 53
Mr. Weber is a director of Anvil Knitwear, Inc., Electrocal Designs, Inc., FFC
Holding, Inc., Graphic Design Technologies, Marine Optical, Inc., Gerber
Childrenswear, Inc., Plainwell, Inc. and Smith Alarm.
Michael Bradley is an advisor of Sleepmaster. Mr. Bradley joined Citicorp
Venture Capital, Ltd. in 1996. Prior to joining Citicorp Venture Capital, Ltd.,
Mr. Bradley worked at Merrill Lynch and Selected Equity Research. Mr. Bradley
received his B.A. from the University of Virginia, his J.D. from the University
of Virginia and his MBA from Columbia Business School. Mr. Bradley serves on the
board of directors of Hayden Corporation, MinCorp, Galey & Lord, Inc. and HL
Holdings.
Robert Bartholomew is an advisor of Sleepmaster. Mr. Bartholomew co-founded
Pacific Mezzanine Investors in 1990. Previously, Mr. Bartholomew worked at
Pacific Mutual from 1986 through 1989. Mr. Bartholomew received his B.A. in
Economics and an MBA in Finance from Rutgers University.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to our company for the
fiscal year ended December 31, 1998, of those persons who served as
(1) the chief executive officer during fiscal year 1998 and
(2) the other four most highly compensated executive officers of our
company for fiscal year 1998 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A)
- --------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Charles Schweitzer.................................... 1998 $320,250 $73,658 $56,006
President and Chief Executive Officer
James Koscica......................................... 1998 233,221 48,510 47,924
Executive Vice President and Chief Financial Officer
Michael Bubis......................................... 1998 241,660 59,257 23,010
President of Palm Beach
Michael Reilly........................................ 1998 179,550 39,501 40,942
Senior Vice President of Sales and Marketing
Timothy Dupont........................................ 1998 116,550 47,786 34,273
Vice President of Manufacturing
</TABLE>
- ---------------
(a) Represents amounts paid on behalf of each of the Named Executive Officers
for
(1) premiums for health, life and accidental death and dismemberment
insurance and for long-term disability benefits;
(2) contributions to Sleepmaster's defined contribution plans; and
(3) automobile allowances.
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<PAGE> 54
No stock options were exercised by any of the Named Executive Officers
during 1998. The following table sets forth the number of securities underlying
unexercised options held by each of the Named Executive Officers and the value
of such options at the end of 1998:
<TABLE>
<CAPTION>
FISCAL YEAR END OPTION VALUES
----------------------------------------------------------
NUMBERS OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END (A)
NAME (#) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------------------------- -------------------------
<S> <C> <C>
Charles Schweitzer............ 0/212 $0/$515,584
James Koscica................. 0/106 0/$257,792
Michael Reilly................ 0/106 0/$257,792
Timothy Dupont................ 0/106 0/$257,792
</TABLE>
- ---------------
(a) Value of unexercised options at fiscal year-end represents the difference
between the exercise price of any outstanding-in-the-money options and the
fair market value of Sleepmaster Holdings L.L.C.'s class A common membership
interests on December 31, 1998.
EXECUTIVE EMPLOYMENT AGREEMENTS
In 1996, Sleepmaster Holdings L.L.C., Sleepmaster and Sleep Investor
entered into employment and option agreements with Charles Schweitzer, James
Koscica, Michael Reilly and Timothy Dupont dated as of November 14, 1996. Such
agreements provide for, among other things:
- terms of employment until November 1, 2001,
- base salaries of $305,000 (Mr. Schweitzer), $210,000 (Mr. Koscica),
$171,000 (Mr. Reilly) and $111,000 (Mr. Dupont),
- early termination by reason of such officer's death or disability, by
resolution of Sleepmaster's board of advisors, or upon such officer's
voluntary resignation with or without a good reason event,
- a severance payment in the case of early termination by Sleepmaster for
other than cause or a voluntary resignation for good reason, payable in
regular installments of the base salary through the period ending on the
earlier of
(1) November 1, 2001 and
(2) the later of
(a) January 2, 2000 and
(b) the second anniversary of the date of termination plus a bonus
payment pro rated based on the number of days worked during the
year of termination,
- a base salary plus a bonus to be calculated based upon EBITDA
performance,
- benefits, including medical, life and disability insurance,
- confidentiality of information obtained during employment,
non-competition and non-solicitation, and
- an option vesting schedule for employees to acquire membership interests
in Sleepmaster Holdings L.L.C., which Sleepmaster Holdings L.L.C. or
Sleepmaster (if Sleepmaster Holdings L.L.C. does not elect to purchase
all such interests) may repurchase if the employee is terminated for any
reason.
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On March 3, 1998, Palm Beach (joined by Sleepmaster Holdings L.L.C. and
Sleepmaster) entered into an employment agreement with Michael Bubis. The terms
of this agreement are substantially similar to the terms described above with
the following differences:
- a base salary of $267,904,
- term of employment until March 3, 2001,
- election to the Board of Advisors of Sleepmaster and Sleepmaster Holdings
L.L.C. during the employment term,
- a severance payment in the case of early termination by Palm Beach
without cause or a voluntary resignation for good reason, payable in a
lump sum, of the base salary from the date of termination through March
3, 2001 plus a specified sum in satisfaction on any bonus payment due or
to become due under the employment agreement.
STOCK OPTION PLANS
On November 14, 1996 we entered into stock option agreements with Charles
Schweitzer, James Koscica, Michael Reilly and Timothy Dupont. These nonqualified
options entitle the executives to purchase an aggregate amount of 530 units of
class A common interests of Sleepmaster Holdings L.L.C. at an exercise price of
$100 per unit.
Options granted under the agreements vest in whole or in part on December
31, 1999 and December 31, 2001 based on Sleepmaster's achievement of EBITDA
targets as long as the executive remains employed by Sleepmaster.
Additionally, applicable portions of the options shall vest upon a sale of
Sleepmaster if:
- the sale occurs prior to December 31, 1999 and
- the aggregate cash consideration received by the holders of Sleepmaster's
common interests equals or exceeds either the target for December 31,
1999 or for December 31, 2001.
Fifty percent of the options shall vest upon a sale of Sleepmaster if:
- the sale occurs after December 31, 1999 but before December 31, 2001 and
- the aggregate cash consideration received by holders of Sleepmaster's
common interests equals or exceeds the target for December 31, 2001.
If as of December 31, 2001 any portion of the options have not vested,
Sleepmaster may automatically transfer any portion of the unvested options and
re-grant the unvested options without payment of any consideration to the
executives. The option agreements may be amended by Sleepmaster Holdings
L.L.C.'s board of advisors.
COMPENSATION OF ADVISORS
Our advisors are not compensated for the services they render on the board
of advisors, and they are not reimbursed for expenses incurred as a result of
board membership.
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SECURITY OWNERSHIP
The following table sets forth certain information with respect to the
common equity interests of Sleepmaster Holdings L.L.C. Sleepmaster Holdings
L.L.C. owns over 99.9% of the common equity interests of Sleepmaster.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
COMMON COMMON
MEMBERSHIP MEMBERSHIP
NAME AND ADDRESS INTERESTS INTERESTS
- ---------------- ---------- -------------
<S> <C> <C>
Citicorp Venture Capital, Ltd. ............................. 3,852.3 38.6%
399 Park Avenue
New York, NY 10043
CCT Partners IV, L.P. ...................................... 677.5 6.8
399 Park Avenue
New York, NY 10043
PMI Mezzanine Fund L.P.(a) ................................. 3,403.0 34.1
610 Newport Center Drive
Suite 1100
Newport Beach, CA 92660
Charles Schweitzer.......................................... 677.7 6.8
2001 Lower Road
Linden, NJ 07036-6520
James Koscica............................................... 360.0 3.6
2001 Lower Road
Linden, NJ 07036-6520
Michael Reilly.............................................. 360.0 3.6
2001 Lower Road
Linden, NJ 07036-6520
Timothy Dupont.............................................. 360.0 3.6
2001 Lower Road
Linden, NJ 07036-6520
Michael Bubis............................................... 466.0 4.7
3774 Interstate Park Road North
Riviera Beach, FL 33404
David Thomas(b)............................................. 4,716.3 47.3
399 Park Avenue
New York, NY 10043
John Weber(b)............................................... 4,578.3 45.9
399 Park Avenue
New York, NY 10043
Michael Bradley(c).......................................... 4,529.9 45.4
399 Park Avenue
New York, NY 10043
Robert Bartholomew(d)....................................... 3,403.0 34.1
610 Newport Center Drive
Suite 1100
Newport Beach, CA 92660
All directors and executive officers as a group (9
persons).................................................. 10,354.7 94.3
</TABLE>
- ---------------
(a) Consists of 1,000 class A common membership interests and warrants currently
exercisable for 2,403 common membership interests.
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<PAGE> 57
(b) Includes 4,529.76 common membership interests held by Citicorp Venture
Capital and CCT Partners IV. Messrs. Thomas and Weber each disclaim
beneficial ownership of such common membership interests.
(c) Includes 3,852.3 common membership interests held by Citicorp Venture
Capital. Mr. Bradley disclaims beneficial ownership of such common
membership interests.
(d) Includes 1,000 common membership interests held by PMI and warrants held by
PMI currently exercisable for 2,403 common membership interests. Mr.
Bartholomew disclaims beneficial ownership of such common membership
interests and warrants.
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RELATIONSHIPS AND RELATED TRANSACTIONS
The following descriptions do not purport to be complete and are qualified
in their entirety by reference to each of the agreements described below.
SLEEPMASTER HOLDINGS L.L.C. LIMITED LIABILITY COMPANY OPERATING AGREEMENT
In 1996, Sleep Investor, Charles Schweitzer, James Koscica, Timothy Dupont
and Michael Reilly entered into the Sleepmaster Holdings L.L.C. second amended
and restated limited liability company operating agreement. Sleepmaster Holdings
L.L.C. was formed under the New Jersey Limited Liability Company Act. The
business and affairs of Sleepmaster Holdings L.L.C. are managed by the managing
member (Charles Schweitzer), subject to the direction of a board of advisors
having duties comparable to a corporate board of directors. Currently, the board
of advisors is composed of seven advisors. The number of advisors can be
increased by a vote of at least 80% of the advisors. The Sleepmaster Holdings
L.L.C. limited liability company agreement calls for the existence of four
senior officers as follows:
(1) Chief Executive Officer and President,
(2) Executive Vice President and Chief Financial Officer,
(3) Vice President of Sales and
(4) Vice President of Production.
Membership Interests. The board of advisors is authorized to issue or sell
any of the following:
(1) additional membership interests or other interests in Sleepmaster
Holdings L.L.C.,
(2) obligations, evidences of indebtedness or other securities or interests
convertible into or exchangeable for membership interests or other
interests in Sleepmaster Holdings L.L.C. and
(3) warrants, options, or other rights to purchase or otherwise acquire
membership interests or other interests in Sleepmaster Holdings L.L.C.
The class A members are entitled to one vote per class A common unit.
Except as specifically required by law, the class B members and the preferred
members have no right to vote on any matters to be voted on by the members of
Sleepmaster Holdings L.L.C., except in the case of mergers, consolidations,
recapitalizations, or reorganizations. Each class B member is entitled at any
time to convert any or all of the class B common units held by such class B
member into the same number of class A common units and members holding a
majority of the class B common units can cause a conversion of 100% of the class
B common units into the same number of class A common units.
Distributions. The board of advisors has sole discretion regarding the
amounts and timing of distributions to members of Sleepmaster Holdings L.L.C.,
subject to the retention and establishment of reserves of, or payments to third
parties of, such funds as it deems necessary with respect to the reasonable
business needs of Sleepmaster Holdings L.L.C. Distributions are to be made in
the following order and priority:
(1) first, to the members in proportion to and to the extent of their
unpaid preferred return (as defined in the Sleepmaster Holdings L.L.C.
limited liability company agreement),
(2) second, to the members in proportion to and to the extent of their
unreturned preferred capital (as defined in the Sleepmaster Holdings
L.L.C. limited liability company agreement), and
(3) third, to the members in proportion to their common units.
Redemption. Except as extensions are provided for, Sleepmaster Holdings
L.L.C. shall make a distribution to each preferred member on November 14, 2008
in an amount equal to the full amount of such preferred member's unpaid
preferred return and unreturned preferred capital as of the scheduled redemption
date. In connection with the closing of the old note offering on May 18, 1999,
the parties to
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the Sleepmaster Holdings L.L.C. limited liability company agreement amended the
agreement to extend the redemption date of the preferred membership interests to
November 14, 2009.
SLEEPMASTER LIMITED LIABILITY COMPANY OPERATING AGREEMENT
Sleep Investor and Sleepmaster Holdings L.L.C. entered into the Sleepmaster
amended and restated limited liability company operating agreement. Sleepmaster
was formed under the New Jersey Limited Liability Company Act. The business and
affairs of Sleepmaster are managed by the managing member (Charles Schweitzer),
subject to the direction of a board of advisors having duties comparable to a
corporate board of directors. Currently, the Sleepmaster board of advisors is
composed of seven advisors. The number of advisors can be increased by a vote of
at least 80% of the advisors. The Sleepmaster limited liability company
agreement calls for the existence of four senior officers as follows:
(1) Chief Executive Officer and President,
(2) Executive Vice President and Chief Financial Officer,
(3) Vice President of Sales and
(4) Vice President of Production.
Membership Interests. Sleepmaster's board of advisors is authorized to
issue or sell any of the following:
(1) additional membership interests or other interests in Sleepmaster,
(2) obligations, evidences of indebtedness or other securities or interests
convertible into or exchangeable for membership interests or other
interests in Sleepmaster, and
(3) warrants, options, or other rights to purchase or otherwise acquire
membership interests or other interests in Sleepmaster.
The class A members are entitled to one vote per class A common unit.
Except as specifically provided or required by law, the class B members and the
preferred members have no right to vote on any matters to be voted on by the
members of Sleepmaster, except in the case of mergers, consolidations,
recapitalizations, or reorganizations. Each class B member is entitled at any
time to convert any or all of the class B common units held by such class B
member into the same number of class A common units and members holding a
majority of the class B common units can cause a conversion of 100% of the class
B common units into the same number of class A common units. Currently, 7,999
class A membership interests are held by Sleepmaster Holdings L.L.C. and one is
held by Sleep Investor. Sleepmaster Holdings L.L.C. also holds 9,999.96
preferred membership interests.
Distributions. Sleepmaster's board of advisors has sole discretion
regarding the amounts and timing of distributions to members of Sleepmaster,
subject to the retention and establishment of reserves of, or payments to third
parties of, such funds as it deems necessary with respect to the reasonable
business needs of Sleepmaster. Distributions are to be made in the following
order and priority:
(1) first, to the members in proportion to and to the extent of their
Unpaid Preferred Return (as defined in the Sleepmaster limited
liability company agreement),
(2) second, to the members in proportion to and to the extent of their
Unreturned Preferred Capital (as defined in the Sleepmaster limited
liability company agreement), and
(3) third, to the members in proportion to their common units.
Redemption. Except as extensions are provided for, Sleepmaster shall make
a distribution to each preferred member on November 14, 2008 in an amount equal
to the full amount of such preferred member's unpaid preferred return and
unreturned preferred capital as of the scheduled redemption date. In connection
with the closing of the old note offering, the parties to the Sleepmaster LLC
agreement amended the agreement to extend the redemption date of the preferred
membership interests to November 14, 2009.
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SLEEPMASTER HOLDINGS L.L.C. SECURITYHOLDERS AGREEMENT
In 1998, Sleepmaster Holdings L.L.C., Sleep Investor, PMI, certain
executives of Holdings and two other investors entered into an amended and
restated securityholders agreement dated as of March 3, 1998. The amended and
restated securityholders agreement requires that Sleepmaster Holdings L.L.C.,
Sleep Investor, PMI and certain executives of Sleepmaster Holdings L.L.C. vote
their membership interests and take all other actions within their control such
that the board of advisors of Sleepmaster Holdings L.L.C. will be comprised of
four advisors designated by Sleep Investor and three advisors representative of
management (Schweitzer, Koscica and Bubis). The board of advisors (or similar
governing bodies) of Sleepmaster Holdings L.L.C.'s subsidiaries must have the
same composition.
In addition, the securityholders agreement:
(1) restricts the transfer of membership interests of Sleepmaster Holdings
L.L.C.;
(2) grants tag-along rights on certain transfers of membership interests of
Sleepmaster Holdings L.L.C.;
(3) grants first offer rights on certain transfers of membership interests
of Sleepmaster Holdings L.L.C.;
(4) requires each securityholder to consent to a sale of Sleepmaster
Holdings L.L.C. if the sale is approved by the board of advisors of
Sleepmaster Holdings L.L.C. and the holders of a majority of the
membership interests issued to Sleep Investor and its affiliates; and
(5) grants limited preemptive rights on certain issuances of membership
interests of Holdings.
The tag-along and first offer rights with respect to each securityholder's
interests will terminate upon the consummation of a sale of the interests to the
public pursuant to an offering registered under the Securities Act of 1933 or to
the public effected through a broker-dealer or market-maker pursuant to Rule
144.
SLEEPMASTER HOLDINGS L.L.C. REGISTRATION RIGHTS AGREEMENT
In 1998, Sleepmaster Holdings L.L.C., Sleep Investor, PMI, certain
executives of Sleepmaster Holdings L.L.C. and two other investors entered into
an amended and restated registration rights agreement dated as of March 3, 1998.
Under the amended and restated registration rights agreement, the holders of a
majority of the membership interests issued to Sleep Investor or its affiliates
have the right, subject to certain conditions, to require Sleepmaster Holdings
L.L.C. to consummate a registered offering of equity securities of Sleepmaster
Holdings L.L.C. or a successor corporate entity.
In addition, all holders of registrable securities are entitled to request
the inclusion, subject to the terms and conditions of the registration rights
agreement, of any of their common interests in any registration statement, other
than registration statements on forms S-8 or S-4 or any similar form in
connection with a registration to primarily register debt securities, at
Sleepmaster Holdings L.L.C.'s expense whenever Sleepmaster Holdings L.L.C.
proposes to register any of its common interests under the Securities Act of
1933. In connection with all such registrations, Sleepmaster Holdings L.L.C. has
agreed to indemnify all holders of registrable securities against certain
liabilities, including liabilities under the Securities Act of 1933.
THE RECAPITALIZATION AND OTHER TRANSACTIONS
Recapitalization Agreement. In November 1996, Sleepmaster Holdings L.L.C.,
Sleepmaster, Sleep Investor, Brown/Schweitzer Holdings Inc. and each of the then
existing members of Sleepmaster Holdings L.L.C. entered into a recapitalization
agreement. Pursuant to the recapitalization agreement, Sleepmaster Holdings
L.L.C. redeemed all of the membership interests of its members (except for four
members who are current members of management) and then sold such membership
interests to Sleep Investor. In addition, Sleep Investor purchased 8,714 units
of redeemable preferred interests and 6,099 units of
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common interests of Sleepmaster Holdings L.L.C. for approximately $12.9 million
plus issuance of notes to the then existing members of Sleepmaster Holdings
L.L.C. totaling $7.0 million. The remaining preferred and common interests of
Sleepmaster Holdings L.L.C. were allocated to the four members of Sleepmaster
Holdings L.L.C. who are currently members of our management. As a result of the
recapitalization, Sleep Investor acquired 72% of the outstanding interests of
Sleepmaster Holdings L.L.C. and Sleepmaster Holdings L.L.C. management retained
28%.
Sleep Investor Promissory Notes. In conjunction with the recapitalization
of Sleepmaster Holdings L.L.C. in 1996, Sleep Investor issued $7.0 million of
junior subordinated notes and paid cash to the then-existing members of
Sleepmaster Holdings L.L.C. (including current members of our management). In
exchange for the notes, the then-existing members of Sleepmaster Holdings L.L.C.
delivered common and preferred interests of Sleepmaster Holdings L.L.C., as well
as notes issued by Sleepmaster Holdings L.L.C., to Sleep Investor. As of March
31, 1999, $8.0 million of the promissory notes were outstanding. In connection
with the old note offering and the redemption of the senior subordinated notes,
the promissory notes were amended to provide for a 12.0% interest rate and a
maturity date of November 14, 2007.
Senior Subordinated Notes. In November 1996 Sleepmaster, Sleepmaster
Holdings L.L.C. and PMI entered into a securities purchase agreement. Pursuant
to this agreement, Sleepmaster sold $15.0 million series A senior subordinated
notes due 2007 to PMI. These senior subordinated notes held by PMI were redeemed
with a portion of the net proceeds of the old note offering.
In addition, in March 1998 Sleepmaster, Sleepmaster Holdings L.L.C. and PMI
entered into a securities purchase agreement. Pursuant to this agreement,
Sleepmaster sold $5.0 million series B senior subordinated notes due 2007 to
PMI. These senior subordinated notes held by PMI were redeemed with a portion of
the proceeds of the old note offering.
Warrants. In connection with the sale of senior subordinated notes by
Sleepmaster to PMI in 1996 and 1998, Sleepmaster Holdings L.L.C. issued to PMI
2000 warrants and 403 warrants, respectively, to purchase class A common units
of Sleepmaster Holdings L.L.C. The warrants are currently exercisable at any
time until March 3, 2010 at exercise price of $0.01 per unit, subject to
adjustment. The holders of a majority of the outstanding warrants, during a
specified window period each year from November 14, 2003 to November 14, 2009,
have the right to require Sleepmaster Holdings L.L.C. to purchase all of the
warrants or common units into which the warrants are exercisable. If this right
is exercised, the purchase price on a per unit basis would be an amount equal to
the value of Sleepmaster Holdings L.L.C. divided by the number of outstanding
units of common interests. The value of Sleepmaster Holdings L.L.C. would be the
greater of a multiple of EBITDA and the aggregate current market price of the
units of common interests on a fully diluted basis. The put option is subject to
the availability of financing. The put option shall terminate upon:
(1) an approved sale or
(2) the consummation of an underwritten public offering of units of common
interests.
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DESCRIPTION OF INDEBTEDNESS
THE NEW CREDIT FACILITY
The following is a summary of the material terms of the new credit facility
that Sleepmaster, Sleepmaster Holdings L.L.C., Palm Beach, Herr, Lower Road
Associates, LLC, and Sleepmaster Finance Corporation, the lenders parties
thereto and First Union National Bank, as a lender and as an administrative
agent entered into on May 18, 1999. The following summary is qualified in its
entirety by reference to the new credit facility, copies of which will be made
available to holders of the exchange notes upon request.
Structure. The new credit facility provides revolving credit facilities
with aggregate availability of $25.0 million. The revolving credit facility will
mature on May 18, 2005 and includes a sublimit of $8.0 million which covers
letters of credit currently consisting of (a) a letter of credit to back the
industrial revenue bonds currently outstanding of $6.6 million and (b) a
$720,000 letter of credit issued to the landlord for deposit on the Linden, New
Jersey facility. In addition, First Union National Bank has also agreed to use
its best efforts to arrange an acquisition facility with an aggregate
availability of $50.0 million.
Availability. Availability under the new credit facility is subject to
various conditions precedent typical of bank loans. Amounts under the revolving
credit facility are available on a revolving basis. Amounts under the
acquisition facility are available until November 18, 2001.
Interest. Borrowings under the revolving credit facility and the
acquisition facility bear interest at a rate equal to LIBOR plus
- the applicable margin to be determined on the basis of Sleepmaster's
ratio of total funded debt (including any earnout payments capitalized on
Sleepmaster's balance sheet in accordance with GAAP) to EBITDA or
- the alternate base rate (which is equal to the higher of (1) the First
Union prime rate and (2) the Federal Funds rate plus 0.50%) plus the
applicable margin.
Fees. Sleepmaster has agreed to pay certain fees with respect to the new
credit facility, including:
- a revolving credit facility commitment fee on a per annum basis at a rate
of 0.50% on the average daily commitment;
- an acquisition facility commitment fee on a per annum basis during the
draw down period on the average unused portion of the acquiring facility;
- letter of credit fees calculated on the aggregate face amount for each
letter of credit equal to
(1) the applicable margin for LIBOR loans on a per annum basis plus
(2) a fronting fee of 0.125% per annum and customary amendment, drawing
and transfer fees to be paid to the issuing bank.
Security. The obligations of Sleepmaster under the new credit facility are
secured, jointly and severally, by
- a first priority lien on 100% of the membership interests in Sleepmaster,
- a first priority lien on 100% (65% for foreign subsidiaries) of the
equity or other ownership interests of Sleepmaster's currently owned or
hereafter acquired direct and indirect subsidiaries, and
- a first priority lien on and security interest in all assets of
Sleepmaster and its direct and indirect United States subsidiaries.
Guarantees. The obligations of Sleepmaster are guaranteed, jointly and
severally, by each of our domestic subsidiaries.
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Commitment Reductions and Repayments. Sleepmaster will be required to make
mandatory prepayments upon receipt of proceeds of certain insurance awards,
asset sales or equity sale proceeds, debt issuance proceeds, and 50% of annual
excess cash flow. These proceeds will first reduce any remaining amortization
payments on the acquisition facility and then be applied to reduce the revolving
credit facility.
Affirmative, Negative and Financial Covenants. The new credit facility
contains a number of covenants that, among other things, restrict the ability of
Sleepmaster and its subsidiaries to:
- incur additional indebtedness,
- pay dividends and make distributions,
- issue common and preferred stock of subsidiaries,
- make certain investments,
- repurchase stock,
- create liens,
- enter into transactions with affiliates.
- enter into sale and leaseback transactions,
- merge or consolidate with third parties, and
- transfer and sell assets.
In addition, the new credit facility requires Sleepmaster to comply with
specified financial ratios and tests, including a maximum leverage ratio, a
minimum tangible net worth ratio and a minimum interest coverage ratio.
Events of Default. The new credit facility contains customary events of
default, including:
- non-payment of principal, interest or fees,
- violation of covenants after customary cure periods,
- inaccuracy of representations and warranties,
- cross-default to other material agreements and indebtedness,
- bankruptcy,
- material judgments,
- ERISA matters,
- invalidity of loan documentation or security interest, and
- change of control.
INDUSTRIAL REVENUE BONDS
Sleepmaster, through its subsidiary Palm Beach, is financially obligated to
the County of Palm Beach, Florida pursuant to certain revenue bonds issued on
behalf of Palm Beach. On April 1, 1996, the County of Palm Beach Florida issued
the Variable Rate Demand Industrial Development Revenue Bonds (Palm Beach
Bedding Company Project), Series 1996 in the aggregate principal amount of $7.7
million to finance the construction of a 235,000 square foot manufacturing
facility for Palm Beach. The bonds mature in April 2016. As of March 31, 1999,
$6.6 million principal amount of the bonds were outstanding.
Interest Rates. The bonds bear interest at a variable rate determined
weekly by the First Union National Bank of North Carolina. The variable rate
will be based upon prevailing market conditions and will be the minimum rate
necessary, in the judgement of the First Union National Bank of North
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Carolina, to enable it to arrange the sale of the bonds at a price equal to the
principal amount thereof plus accrued interest. The variable rate is capped at
(1) the maximum rate permitted by applicable law or
(2) 12.0% per annum determined weekly.
On a one-time basis, Palm Beach has the option to convert the interest rate
payable on the bonds from a variable rate to a fixed rate. The interest fixed
rate will be determined by First Union National Bank of North Carolina, as
placement agent, in its sole judgment based upon prevailing market conditions on
the date of such conversion. Palm Beach has not exercised its right to convert
the interest rate payable to a fixed rate. At March 31, 1999, the interest rate
on the bonds was 3.2%.
Redemption and Repurchase. While the bonds bear interest at the variable
rate, the County of Palm Beach, Florida may redeem the bonds in whole or in part
on:
(1) certain interest payment dates and
(2) on the date the interest rate is converted to a fixed rate, upon the
written request from Palm Beach with the consent of First Union
National Bank of Florida. The owners of the bonds also have the right
to demand the purchase of the bonds at a purchase price equal to the
principal amount of the bond, plus accrued interest to the date of
purchase if certain notice provisions are met. Once the interest rate
on the bonds is converted to a fixed interest rate, they are subject to
mandatory tender and purchase by Palm Beach on the date of such
conversion unless the owners have irrevocably elected to hold the bonds
bearing a fixed rate.
Security. The bonds are collateralized by a letter of credit issued by
First Union National Bank of Florida and backed up by La Salle National Bank for
the benefit of the trustee under the indenture relating to the bonds on the Palm
Beach manufacturing facilities and a pledge of Palm Beach's interest in the
bonds.
THE SLEEP INVESTOR PROMISSORY NOTES
In conjunction with the recapitalization of Sleepmaster Holdings L.L.C in
1996, Sleep Investor issued $7.0 million of junior subordinated notes and paid
cash to the then-existing members of Sleepmaster Holdings L.L.C (including
current members of our management). In exchange for the notes, the then-
existing members of Sleepmaster Holdings L.L.C delivered common and preferred
interests of Sleepmaster Holdings L.L.C, as well as notes issued by Sleepmaster
Holdings L.L.C, to Sleep Investor. Interest payments received by Sleep Investor
on the notes issued by Sleepmaster Holdings L.L.C correspond to Sleep Investor's
obligation to make interest payments on the promissory notes. The promissory
notes may be prepaid at Sleep Investor's option and any prepayments must be made
pro rata among all holders of the promissory notes.
The promissory notes initially matured on November 14, 2007 and bore
interest at a fixed rate of 7.02% per annum, which interest was paid in kind
except that an amount equal to the current tax liability for the interest
received on the promissory notes was paid in cash. The maturity date was
extended to November 14, 2008 from November 14, 2007 in connection with the
acquisition of Palm Beach as required by the terms of the senior subordinated
notes. As of March 31, 1999, $8.0 million principal amount of promissory notes
were outstanding.
Amendment. In connection with the old note offering and the prepayment of
the senior subordinated notes, the promissory notes were amended to
retroactively bear interest at a fixed rate of 12.0% per annum and to mature on
November 14, 2007. The holders of the promissory notes received the retroactive
interest payment in the form of a cash payment which was meant to satisfy the
tax obligations of the holders with respect to the retroactive interest payment
and a pay-in-kind note for the balance. Future interest will be paid
semi-annually. An amount of interest shall be paid in cash that allows the
holders to satisfy their income tax obligations with respect to the interest
accrual on the promissory notes. The cash interest payment portion will rise or
fall as income tax rates rise or fall. The balance of the interest will be paid
in
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the form of a promissory note; provided that if Sleepmaster's ratio of EBITDA to
interest expense is greater than or equal to 2:1, the entire 12.0% interest
shall be paid in cash.
Prepayment. A mandatory prepayment of the promissory notes will be
triggered upon a change of control which is defined as:
(1) prior to an initial public offering, the failure of Citicorp Venture
Capital, Ltd. and its affiliates and employees to own 40% of the common
interests of Sleepmaster Holdings L.L.C.; and
(2) after an initial public offering, the failure of Citicorp Venture
Capital, Ltd. and its affiliates and employees to own 25% of the common
interests of Sleepmaster Holdings L.L.C.
Sleepmaster has no obligations or commitments to Sleep Investor under the
promissory notes. The new credit facility allows Sleepmaster to fund interest
payments on the promissory notes.
THE SLEEPMASTER HOLDINGS L.L.C. JUNIOR SUBORDINATED NOTE
In conjunction with the purchase of substantially all the assets of Star on
May 18, 1999, Sleepmaster Holdings L.L.C. issued a junior subordinated note to
the seller in the initial aggregate principal amount of $0.68 million as a
portion of the purchase price.
The junior subordinated note bears interest at a fixed rate of 6.0% per
annum, which is pay-in-kind, unless and until the occurrence of:
- a mandatory prepayment of the entire outstanding principal amount of the
junior subordinated note, plus all accrued and unpaid interest, within 15
days after the consummation of a sale of Sleepmaster Holdings L.L.C. or
Star or
- an optional prepayment of all or a portion of the unpaid principal amount
of the junior subordinated note, together with accrued and unpaid
interest on such portion of the principal amount which it is prepaying
(provided that such prepayment is not forbidden by the terms of the
senior debt).
The junior subordinated note matures on May 18, 2002.
Sleepmaster has no obligations or commitments to Sleepmaster Holdings
L.L.C. under the junior subordinated note. The new credit facility allows
Sleepmaster to fund interest payments on the junior subordinated note.
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DESCRIPTION OF THE NOTES
GENERAL
You can find the definitions of some of the terms used in this description
under the subheading "Definitions." For purposes of this section, reference to
Sleepmaster L.L.C. does not include its subsidiaries.
We will issue the exchange notes under the terms of the indenture dated as
of May 18, 1999 between Sleepmaster L.L.C., as the issuer, Sleepmaster Finance
Corporation, as a co-obligor, the guarantor subsidiaries and United States Trust
Company of New York, 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.
The form and terms of the series B senior subordinated notes due 2009 are
the same as the form and terms of the old notes except that
(1) the exchange notes will have been registered under the Securities Act
of 1933 and thus will not bear restrictive legends restricting their
transfer under the Securities Act of 1933 and
(2) holders of exchange notes will not be entitled to rights of holders of
the old notes under the registration rights agreement which terminate
upon the consummation of the exchange offer.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture and the registration rights agreement because they, and not
this description, define your rights as holders of these exchange notes. Copies
of the of the indenture and the registration rights agreement may be obtained by
contacting us at the address and telephone number set forth at the end of the
section entitled "Prospectus Summary."
BRIEF DESCRIPTION OF THE EXCHANGE NOTES
The Notes
These exchange notes:
- are general unsecured obligations of Sleepmaster and Sleepmaster Finance
Corporation;
- are subordinated in right of payment to all of our and our guarantor
subsidiaries' current and future senior debt;
- are equal in right of payment to all of our and our guarantor
subsidiaries' existing and future senior subordinated debt; and
- are ahead of all our and our guarantor subsidiaries' other current and
future debt that expressly provides that it is subordinated to these
exchange notes and the subsidiary guarantees.
PRINCIPAL, MATURITY AND INTEREST
The exchange notes will be unsecured senior subordinated obligations of the
Sleepmaster and Sleepmaster Finance Corporation and will mature on May 15, 2009.
Each exchange note will bear interest at the rate of 11% from May 18, 1999 or
from the most recent interest payment date on which interest has been paid,
payable semiannually in arrears on May 15 and November 15 in each year,
commencing November 15, 1999.
The exchange notes which may be issued under the indenture will be limited
to $165.0 million aggregate principal amount, of which $115.0 million will be
issued in this offering. Up to $50 million of additional notes having identical
terms and conditions to the notes offered in this offering may be issued from
time to time after the date of this prospectus under the indenture, subject to
the provisions of the indenture, including those described under the caption
"-- Covenants -- Limitation on Indebtedness." The exchange notes issued in this
offering and any additional notes subsequently issued under the indenture will
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be treated as a single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers to purchase.
The issuers will pay interest to the Person in whose name the exchange note
(or any predecessor exchange note) is registered at the close of business on the
May 1 or November 1 immediately preceding the relevant interest payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. (Sections 202, 301 and 309)
METHODS OF RECEIVING PAYMENTS ON THE EXCHANGE NOTES
Principal of, premium, if any, and interest on the exchange notes will be
payable, and the exchange notes will be exchangeable and transferable, at the
office or agency of the issuers in The City of New York maintained for such
purposes (which initially will be the corporate trust office of the trustee).
Payment of interest also may be made at the option of the issuers by check
mailed to the Person entitled thereto as shown on the security register.
(Sections 301, 305 and 1002)
The exchange notes will be issued only in fully registered form without
coupons, in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer, exchange or
redemption of exchange notes, except in certain circumstances for any tax or
other governmental charge that may be imposed in connection with the exchange
notes. (Sections 302 and 305)
Settlement for the exchange notes will be made in same day funds. All
payments of principal and interest will be made by Sleepmaster in same day
funds. The exchange notes will trade in the Same-Day Funds Settlement System of
The Depository Trust Company until maturity, and secondary market trading
activity for the exchange notes will therefore settle in same day funds.
GUARANTEES
Payment of the exchange notes is guaranteed by the guarantors jointly and
severally, fully and unconditionally, on a senior subordinated basis.
- The guarantors are comprised of all of the domestic Wholly Owned
Restricted Subsidiaries of Sleepmaster.
- In addition, if any domestic Restricted Subsidiary of Sleepmaster becomes
a guarantor or obligor in respect of any other Indebtedness of
Sleepmaster or any of the Restricted Subsidiaries, Sleepmaster shall
cause such Restricted Subsidiary to enter into a supplemental indenture.
Under the supplemental indenture, the Restricted Subsidiary shall agree
to guarantee Sleepmaster's obligations under the exchange notes.
If the issuers default in payment of the principal of, premium, if any, or
interest on the exchange notes, each of the guarantors will be unconditionally,
jointly and severally obligated to duly and punctually pay the principal of,
premium, if any, and interest on the exchange notes.
The obligations of each guarantor under its guarantee are limited to the
maximum amount which:
(1) after giving effect to all other contingent and fixed liabilities of
such guarantor, and
(2) after giving effect to any collections from or payments made by or on
behalf of any other guarantor in respect of the obligations of such
other guarantor under its guarantee or pursuant to its contribution
obligations under the indenture,
will result in the obligations of such guarantor under its guarantee not
constituting a fraudulent conveyance or fraudulent transfer under Federal or
state law. Each guarantor that makes a payment or distribution under its
guarantee shall be entitled to a contribution from any other guarantor in a pro
rata amount based on the net assets of each guarantor determined in accordance
with GAAP.
Notwithstanding the foregoing, in certain circumstances a guarantee of a
guarantor may be released pursuant to the provisions of subsection (c) under
"-- Covenants -- Limitation on Issuances of Guarantees
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of and Pledges for Indebtedness." Sleepmaster also may, at any time, cause a
Restricted Subsidiary to become a guarantor by executing and delivering a
supplemental indenture providing for the guarantee of payment of the exchange
notes by such Restricted Subsidiary on the basis provided in the indenture.
OPTIONAL REDEMPTION
After May 15, 2004, we may redeem all or a portion of the exchange notes,
on not less than 30 nor more than 60 days' prior notice, in amounts of $1,000 or
an integral multiple of $1,000. The exchange notes will be redeemed during the
twelve-month period beginning on May 15 of the years indicated below at the
redemption prices expressed as percentages of principal amount plus accrued and
unpaid interest set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2004.............................................. 105.500%
2005.............................................. 103.667%
2006.............................................. 101.833%
2007 and thereafter............................... 100.000%
</TABLE>
In each case, we will also pay accrued and unpaid interest, if any, to the
redemption date, subject to the rights of holders of record on relevant record
dates to receive interest due on an interest payment date.
Public Equity Offering Redemption. At any time prior to May 15, 2002, we
may on one or more occasions redeem up to 35% of the aggregate principal amount
of the exchange notes originally issued under the indenture with the proceeds of
one or more public equity offerings. This 35% includes the principal amount of
any additional notes which may be issued under the indenture. The redemption
price will be 111% of the principal amount of the exchange notes, plus accrued
and unpaid interest to the redemption date, provided that:
(1) at least 65% of the aggregate principal amount of exchange notes,
including any additional notes which may be issued under the indenture,
remains outstanding immediately after the occurrence of each such
redemption;
(2) we mail notice of the redemption no later than 20 days after the
closing of the related public equity offering; and
(3) the redemption occurs within 45 days of the date of the closing of such
public equity offering.
Change of Control Call. The exchange notes may be redeemed at any time
prior to May 15, 2004, at the option of the issuers, in whole and not in part,
within 60 days after a change in control event. The issuers must give notice to
each holder of exchange notes not less than 30 nor more than 60 days' prior to
the scheduled redemption. Exchange notes may be redeemed in amounts of $1,000 or
an integral multiple of $1,000. The redemption price will be equal to the sum of
(1) 100% of the principal amount thereof plus
(2) accrued and unpaid interest, if any, to the redemption date, subject to
the right of holders of record on relevant record dates to receive
interest due on an interest payment date, plus
(3) the Applicable Premium, if any.
In no event will the redemption price of the exchange notes be less than 105.5%
(the redemption price for the exchange notes on May 15, 2004) of the principal
amount of the exchange notes, plus accrued interest to the applicable redemption
date.
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Applicable Premium means, with respect to an exchange note to be redeemed
at any redemption date, the excess of
(A) the present value at such time of
(1) the redemption price of such exchange note at May 15, 2004, plus
(2) all required interest payments (excluding accrued but unpaid
interest to the date of redemption) due on such exchange note
through May 15, 2004, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over
(B) the then outstanding principal amount of such exchange note.
Procedures. If less than all of the exchange notes are to be redeemed, the
trustee shall select the exchange notes to be redeemed in compliance with the
requirements of the principal national security exchange, if any, on which the
exchange notes are listed. If the exchange notes are not listed on a national
security exchange, the trustee shall redeem the exchange notes on a pro rata
basis, by lot or by any other method the trustee shall deem fair and reasonable.
Exchange notes redeemed in part must be redeemed only in integral multiples of
$1,000. Redemption pursuant to the provisions relating to a public equity
offering must be made on a pro rata basis or on as nearly a pro rata basis as
practicable, subject to the procedures of The Depositary Trust Company or any
other depositary. (Sections 203, 1101, 1105 and 1107)
SINKING FUND
The exchange notes will not be entitled to the benefit of any sinking fund.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
If a change of control event occurs, each holder of exchange notes will
have the right to require that the issuers purchase all or any part (in integral
multiples of $1,000) of such holder's exchange notes pursuant to a change of
control offer. In the change of control offer, the issuers will offer to
purchase all of the exchange notes at a purchase price in cash in an amount
equal to 101% of the principal amount of such exchange notes, plus accrued and
unpaid interest, if any, to the date of purchase. The repurchase is subject to
the rights of holders of record on relevant record dates to receive interest due
on an interest payment date.
Within 30 days of any change of control, the issuers must notify the
trustee and give written notice of the change of control to each holder of
exchange notes, by first-class mail, postage prepaid, at its address appearing
in the security register. The notice must state, among other things,
- that a change of control has occurred and the date of such event;
- the circumstances and relevant facts regarding such change of control,
including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such change of control;
- the purchase price and the purchase date which shall be fixed by the
issuers on a business day no earlier than 30 days nor later than 60 days
from the date the notice is mailed, or such later date as is necessary to
comply with requirements under the Securities Exchange Act of 1934;
- that any exchange note not tendered will continue to accrue interest;
- that, unless the issuers default in the payment of the change of control
purchase price, any exchange notes accepted for payment pursuant to the
change of control offer shall cease to accrue interest after the change
of control purchase date; and
- other procedures that a holder of exchange notes must follow to accept a
change of control offer or to withdraw acceptance of the change of
control offer. (Section 1015)
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In addition, prior to any change of control, but after it is publicly
announced, the issuers, at their option, may notify the trustee and give written
notice of the proposed change of control to each holder of the exchange notes,
offering to purchase all of the exchange notes at the change of control purchase
price, which notice and offer shall be sufficient to constitute a change of
control offer.
If a change of control offer is made, the issuers may not have available
funds sufficient to pay the change of control purchase price for all of the
exchange notes that might be delivered by holders of the exchange notes seeking
to accept the change of control offer. The failure of Sleepmaster to make or
consummate the change of control offer or pay the change of control purchase
price when due will give the trustee and the holders of the exchange notes the
rights described under "-- Events of Default."
Under the credit facility, a change of control, as defined in the credit
facility, constitutes an event of default. Upon acceleration, all Indebtedness
thereunder would become due and payable.
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 the issuers. The term "all or substantially all" as used in the
definition of "change of control" has not been interpreted under New York law
(which is the governing law of the indenture) to represent a specific
quantitative test. Therefore, if holders of the exchange notes elected to
exercise their rights under the indenture and Sleepmaster and Sleepmaster
Finance Corporation elected to contest such election, it is not clear how a
court interpreting New York law would interpret the phrase.
The existence of a holder's right to require the issuers to repurchase such
holder's exchange notes upon a change of control may deter a third party from
acquiring Sleepmaster and Sleepmaster Finance Corporation in a transaction which
constitutes a change of control.
The provisions of the indenture will not afford holders of the exchange
notes the right to require the issuers to repurchase the exchange notes in the
event of a highly leveraged transaction or certain transactions with Sleepmaster
and Sleepmaster Finance Corporation management or Affiliates if such transaction
is not defined as a change of control. The following highly leveraged
transactions may not constitute a change of control but may adversely affect
holders of exchange notes:
(1) reorganization,
(2) restructuring,
(3) merger or similar transaction (including, in certain circumstances, an
acquisition of Sleepmaster and Sleepmaster Finance Corporation by
management or affiliates) involving Sleepmaster and Sleepmaster Finance
Corporation.
A transaction involving Sleepmaster and Sleepmaster Finance Corporation
management or Affiliates, or a transaction involving a recapitalization of
Sleepmaster and Sleepmaster Finance Corporation, will result in a change of
control if it is the type of transaction specified by such definition.
Sleepmaster and Sleepmaster Finance Corporation will comply with the
applicable tender offer rules, including Rule 14e-1 under the Securities
Exchange Act, and any other applicable securities laws or regulations in
connection with a change of control offer.
Sleepmaster and Sleepmaster Finance Corporation will not be required to
make a change of control offer upon a change of control if
(1) a third party makes the change of control offer
(2) the change of control offer is made in the manner and at the times and
otherwise in compliance with the requirements described in the
indenture applicable to a change of control offer made by Sleepmaster
and Sleepmaster Finance Corporation and
(3) the third party purchases all exchange notes validly tendered and not
withdrawn under such change of control offer.
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RANKING
The Indebtedness evidenced by the exchange notes will be unsecured senior
subordinated indebtedness of Sleepmaster and Sleepmaster Finance Corporation.
The payment of the principal of any premiums and interest on the exchange notes
(1) is subordinate in right of payment, as set forth in the indenture, to
all existing and future Senior Indebtedness of Sleepmaster and
Sleepmaster Finance Corporation,
(2) will rank equal in right of payment with all existing and future senior
subordinated indebtedness of Sleepmaster and Sleepmaster Finance
Corporation, and
(3) will be senior in right of payment to all existing and future
subordinated obligations of Sleepmaster and Sleepmaster Finance
Corporation.
The exchange notes will also be effectively subordinated to any Secured
Indebtedness of Sleepmaster and Sleepmaster Finance Corporation to the extent of
the value of the assets securing such indebtedness. However, payment from the
money or the proceeds of U.S. Government Obligations held in any defeasance
trust described under "Defeasance" below is not subordinated to any Senior
Indebtedness or subject to the restrictions in the indenture.
Guarantor Subsidiaries. The indebtedness evidenced by a subsidiary guaranty
will be unsecured senior subordinated indebtedness of the guarantor subsidiary
issuing such subsidiary guaranty. The payment of a subsidiary guaranty
(1) is subordinate in right of payment, as set forth in the indenture, to
all existing and future senior indebtedness of such guarantor
subsidiary,
(2) will rank equal in right of payment with the existing and future senior
subordinated indebtedness of such guarantor subsidiary and
(3) will be senior in right of payment to all existing and future
subordinated obligations of such guarantor subsidiary.
Each subsidiary guaranty will also be effectively subordinated to any Secured
Indebtedness of the guarantor subsidiary to the extent of the value of the
assets securing such indebtedness.
Event of Default. Upon the occurrence of any default in the payment of any
Designated Senior Indebtedness beyond any applicable grace period and after the
receipt by the trustee from a representative of holders of any Designated Senior
Indebtedness (collectively, a "Senior Representative") of written notice of such
default, payments on the exchange notes will be restricted. Specifically, no
payment (other than payments previously made pursuant to the provisions
described under "-- Defeasance or Covenant Defeasance of Indenture") or
distribution of any assets of Sleepmaster of any kind or character (excluding
certain permitted equity interests or subordinated securities) may be made on
account of the principal of, premium, if any, or interest on, the exchange notes
or on account of the purchase, redemption, defeasance or other acquisition of or
in respect of, the exchange notes unless and until such default shall have been
cured or waived or shall have ceased to exist or such Designated Senior
Indebtedness shall have been discharged or paid in full. After the default is
cured or waived, Sleepmaster shall resume making any and all required payments
in respect of the exchange notes, including any missed payments.
Blockage Period. Upon the occurrence and during the continuance of any
non-payment default Sleepmaster may not pay the exchange notes for a period.
This restriction applies to any Designated Senior Indebtedness with maturity
that may be accelerated immediately. This period will commence upon the receipt
by the trustee and Sleepmaster from a Senior Representative of written notice of
such non-payment default. After the trustee and Sleepmaster receive notice, no
payment (other than payments previously made pursuant to the provisions
described under "-- Defeasance or Covenant Defeasance of Indenture") or
distribution of any assets of Sleepmaster of any kind or character (excluding
certain permitted equity interests or subordinated securities) may be made by
Sleepmaster on account of the principal of, premium, if any, or interest on, the
exchange notes. In addition, no payments may be made
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on account of the purchase, redemption, defeasance or other acquisition of, or
in respect of, the exchange notes for the period specified below.
The payment blockage period shall commence upon the receipt of notice of
the non-payment default by the trustee and Sleepmaster from a Senior
Representative and shall end on the earliest of
(1) the 179th day after such commencement,
(2) the date on which such non-payment default, and all other non-payment
defaults as to which notice is given after such payment blockage period
is initiated, is cured, waived or ceases to exist or on which such
Designated Senior Indebtedness is discharged or paid in full or
(3) the date on which such payment blockage period, and all non-payment
defaults as to which notice is given after such payment blockage period
is initiated, shall have been terminated by written notice to
Sleepmaster or the trustee from the Senior Representative initiating
such payment blockage period.
When the payment blockage period ends, Sleepmaster will promptly resume
making any and all required payments in respect of the exchange notes, including
any missed payments. In no event will a payment blockage period extend beyond
179 days from the date of the receipt by Sleepmaster or the trustee of the
notice initiating such payment blockage period.
Any number of notices of non-payment defaults may be given during this
first 179 day period. However, during any period of 365 consecutive days only
one payment blockage period, during which payment of principal of, or interest
on, the exchange notes may not be made, may commence. The duration of such
payment blockage period may not exceed 179 days and there must be a 186
consecutive day period in any 365 day period during which no payment blockage
period is in effect.
No non-payment default with respect to Designated Senior Indebtedness that
existed or was continuing on the date of the commencement of any payment
blockage period will be, or can be, made the basis for the commencement of a
second payment blockage period, whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days subsequent to the commencement of such initial
Payment Blockage Period. (Section 1203)
Default. If Sleepmaster fails to make any payment on the exchange notes when
due or within any applicable grace period, whether or not on account of the
payment blockage provisions referred to above, such failure would constitute an
event of default under the indenture and would enable the holders of the
exchange notes to accelerate the maturity thereof. See "-- Events of Default."
The indenture will provide that in the event of
(1) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding,
relative to Sleepmaster or its assets,
(2) or any liquidation, dissolution or other winding up of Sleepmaster,
whether voluntary or involuntary, or
(3) any assignment for the benefit of creditors or other marshalling of
assets or liabilities of Sleepmaster (except in connection with the
consolidation or merger of Sleepmaster or its liquidation or
dissolution following the conveyance, transfer or lease of its
properties and assets substantially as an entirety upon the terms and
conditions described under "-- Consolidation, Merger, Sale of Assets"),
all Senior Indebtedness must be paid in full before any payment or
distribution (excluding distributions of certain permitted equity
interests or subordinated securities) is made on account of the
principal of, premium, if any, or interest on the exchange notes or on
account of the purchase, redemption, defeasance or other acquisition of
or in respect of the exchange notes (other than payments previously
made pursuant to the provisions described under "-- Defeasance or
Covenant Defeasance of Indenture").
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By reason of such subordination, in the event of liquidation or insolvency,
creditors of Sleepmaster who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the exchange notes. Funds which would be
otherwise payable to the holders of the exchange notes will be paid to the
holders of the Senior Indebtedness to the extent necessary to pay the Senior
Indebtedness in full and Sleepmaster may be unable to meet its obligations fully
with respect to the exchange notes.
Future Debt. The indenture will limit, but not prohibit, the incurrence by
Sleepmaster and its Subsidiaries of additional Indebtedness. Additionally, the
indenture will prohibit the incurrence by Sleepmaster of Indebtedness that is
subordinated in right of payment to any Senior Indebtedness of Sleepmaster and
senior in right of payment to the exchange notes.
Each guarantee of a guarantor will be an unsecured senior subordinated
obligation of such guarantor, ranking senior in right of payment to all other
existing and future Indebtedness of such guarantor that is expressly
subordinated to Senior Guarantor Indebtedness. The Indebtedness evidenced by the
guarantees will be subordinated to Senior Guarantor Indebtedness to
substantially the same extent as the exchange notes are subordinated to Senior
Indebtedness. During any period when payment on the exchange notes is blocked by
Designated Senior Indebtedness, payment on the guarantees will be similarly
blocked.
Current Outstanding Debt. As of March 31, 1999, on a pro forma basis after
giving effect to the sale of the exchange notes and the application of the
estimated net proceeds of the offering of the old notes,
(1) the aggregate amount of Senior Indebtedness outstanding would have been
approximately $6.6 million (consisting of our guarantee of Senior
Guarantor Indebtedness),
(2) the aggregate amount of Senior Guarantor Indebtedness would have been
$6.6 million,
(3) our non-guarantor Restricted Subsidiary would have had no Indebtedness
outstanding and
(4) no Subordinated Indebtedness or Pari Passu Indebtedness would have been
outstanding.
See "Risk Factors -- We will have substantial debt following this offering and
will need to generate significant cash flow in order to pay interest on our
debt" and "Capitalization."
Sleepmaster Finance Corporation
Sleepmaster Finance Corporation is a joint and several co-obligor of the
exchange notes. Sleepmaster Finance Corporation is a Wholly Owned Restricted
Subsidiary of Sleepmaster and has no material assets. The indenture provides
that the exchange notes are senior subordinated obligations of Sleepmaster
Finance Corporation to the same extent as the obligations are senior
subordinated obligations of Sleepmaster. As of March 31, 1999, on a pro forma
basis, Sleepmaster Finance Corporation would have had no Indebtedness
outstanding (other than the exchange notes).
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and interest
on any Indebtedness of Sleepmaster (other than as otherwise provided in this
definition), whether outstanding on the date of the indenture or thereafter
created, incurred or assumed, and whether at any time owing, actually or
contingent, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the exchange notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include
(1) Indebtedness evidenced by the exchange notes or any additional notes,
(2) Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of Sleepmaster,
(3) Indebtedness which when incurred and without respect to any election
under Section 1111(b) of Title 11 United States Code, is without
recourse to Sleepmaster,
(4) Indebtedness which is represented by Redeemable Capital Stock,
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(5) any liability for foreign, federal, state, local or other taxes owed or
owing by Sleepmaster to the extent such liability constitutes
Indebtedness,
(6) Indebtedness of Sleepmaster to a Subsidiary or any other Affiliate of
Sleepmaster or any of such Affiliate's Subsidiaries,
(7) to the extent it might constitute Indebtedness, amounts owing for
goods, materials or services purchased in the ordinary course of
business or consisting of trade accounts payable owed or owing by
Sleepmaster, and amounts owed by Sleepmaster for compensation to
employees or services rendered to Sleepmaster,
(8) that portion of any Indebtedness which at the time of issuance is
issued in violation of the indenture and
(9) Indebtedness evidenced by any guarantee of any Subordinated
Indebtedness or Pari Passu Indebtedness.
"DESIGNATED SENIOR INDEBTEDNESS" means
(1) all Senior Indebtedness under the credit facility and
(2) any other Senior Indebtedness which at the time of determination has an
aggregate principal amount outstanding of at least $20 million and
which is specifically designated in the instrument evidencing such
Senior Indebtedness or the agreement under which such Senior
Indebtedness arises as "Designated Senior Indebtedness" by Sleepmaster.
"SENIOR GUARANTOR INDEBTEDNESS" means the principal of, premium, if any,
and interest on any Indebtedness of any guarantor (other than as otherwise
provided in this definition). This includes indebtedness outstanding on the date
of the indenture or thereafter created, incurred or assumed, and whether at any
time owing, actually or contingent. Senior Guarantor Indebtedness will not
include Indebtedness if the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to any guarantee.
Notwithstanding the foregoing, "Senior Guarantor Indebtedness" shall not
include
(1) Indebtedness evidenced by the guarantees or any guarantee by a
guarantor of additional notes,
(2) Indebtedness that is subordinated or junior in right of payment to any
Indebtedness of any guarantor,
(3) Indebtedness which when incurred and without respect to any election
under Section 1111(b) of Title 11 United States Code, is without
recourse to any guarantor,
(4) Indebtedness which is represented by Redeemable Capital Stock,
(5) any liability for foreign, federal, state, local or other taxes owed or
owing by any guarantor to the extent such liability constitutes
Indebtedness,
(6) Indebtedness of any guarantor to a Subsidiary or any other Affiliate of
Sleepmaster or any of such Affiliate's Subsidiaries,
(7) to the extent it might constitute Indebtedness, amounts owing for
goods, materials or services purchased in the ordinary course of
business or consisting of trade accounts payable owed or owing by such
guarantor, and amounts owed by such guarantor for compensation to
employees or services rendered to such guarantor,
(8) that portion of any Indebtedness which at the time of issuance is
issued in violation of the indenture and
(9) Indebtedness evidenced by any guarantee of any Subordinated
Indebtedness or Pari Passu Indebtedness.
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COVENANTS
The indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. Sleepmaster will not, and will not cause or
permit any of its Restricted Subsidiaries to incur Indebtedness. Incurring
Indebtedness includes creating, issuing, incurring, assuming, guaranteeing or
otherwise in any manner becoming directly or indirectly liable for the payment
of or otherwise incurring, contingently or otherwise, any Indebtedness
(including any Acquired Indebtedness), unless
(1) such Indebtedness is incurred by Sleepmaster or a guarantor or
constitutes Acquired Indebtedness of a Restricted Subsidiary and,
(2) in each case, Sleepmaster's Consolidated Fixed Charge Coverage Ratio
for the most recent four full fiscal quarters for which financial
statements are available immediately preceding the incurrence of such
Indebtedness taken as one period is at least equal to or greater than
2:1. (Section 1008)
Notwithstanding the foregoing, Sleepmaster and, to the extent specifically
set forth below, the Restricted Subsidiaries may incur each and all of the
following which constitute Permitted Indebtedness:
(1) Indebtedness of Sleepmaster (and guarantees thereof by the guarantors)
under the credit facility in an aggregate principal amount then
classified as having been incurred in reliance on this clause (1) at
any one time outstanding not to exceed the greater of
(a) $25 million under the revolving credit facility thereof and in
respect of letters of credit thereunder minus the amount by which
any commitments thereunder are permanently reduced and minus the
aggregate amount of Net Cash Proceeds of Asset Sales applied to
permanently reduce the commitments with respect to such
Indebtedness pursuant to the "Restriction on Asset Sales"
covenant; and
(b) the sum of
(1) 80% of the consolidated net book value of the accounts
receivable and
(2) 60% of the net book value of the inventory, in each case of
Sleepmaster and its Restricted Subsidiaries as set forth on the
latest available consolidated balance sheet of Sleepmaster
determined in accordance with GAAP;
(2) Indebtedness of Sleepmaster and Sleepmaster Finance Corporation
pursuant to the exchange notes (other than any additional notes) and
Indebtedness of any guarantor pursuant to a guarantee of the exchange
notes (other than any additional notes);
(3) Indebtedness of Sleepmaster or any Restricted Subsidiary outstanding on
the date of the indenture,
(4) Indebtedness of Sleepmaster owing to a Restricted Subsidiary;
- provided that any Indebtedness of Sleepmaster owing to a Restricted
Subsidiary that is not a guarantor is made pursuant to an
intercompany note in the form attached to the indenture and is
unsecured and is subordinated in right of payment from and after
such time as the exchange notes shall become due and payable
(whether at Stated Maturity, acceleration or otherwise) to the
payment and performance of Sleepmaster's obligations under the
exchange notes;
- provided, further, that any disposition, pledge or transfer of any
such Indebtedness to a Person (other than a disposition, pledge or
transfer to a Restricted Subsidiary) shall be deemed to be an
incurrence of such Indebtedness by Sleepmaster or other obligor not
permitted by this clause (4);
(5) Indebtedness of a Majority Owned Restricted Subsidiary owing to
Sleepmaster or another Majority Owned Restricted Subsidiary;
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- provided that any such Indebtedness is made pursuant to an
intercompany note in the form attached to the indenture;
- provided, further, that
(a) any disposition, pledge or transfer of any such Indebtedness to a
Person (other than a disposition, pledge or transfer to
Sleepmaster or a Majority Owned Restricted Subsidiary) shall be
deemed to be an incurrence of such Indebtedness by the obligor
not permitted by this clause (5), and
(b) any transaction pursuant to which any Majority Owned Restricted
Subsidiary, which has Indebtedness owing to Sleepmaster or any
other Wholly Owned Restricted Subsidiary, ceases to be a Majority
Owned Restricted Subsidiary shall be deemed to be the incurrence
of Indebtedness by such Majority Owned Restricted Subsidiary that
is not permitted by this clause (5);
(6) guarantees of any Restricted Subsidiary made in accordance with the
provisions of "-- Limitation on Issuances of Guarantees of and Pledges
for Indebtedness;"
(7) obligations of Sleepmaster or any Restricted Subsidiary entered into in
the ordinary course of business
(a) pursuant to Interest Rate Agreements designed to protect
Sleepmaster or any Restricted Subsidiary against fluctuations in
interest rates in respect of Indebtedness of Sleepmaster or any
Restricted Subsidiary as long as such obligations do not exceed
the aggregate principal amount of such Indebtedness then
outstanding or
(b) under any Currency Hedging Agreements, relating to
(1) Indebtedness of Sleepmaster or any Restricted Subsidiary and/or
(2) obligations to purchase or sell assets or properties, in each
case, incurred in the ordinary course of business of Sleepmaster
or any Restricted Subsidiary;
provided, however, that such Currency Hedging Agreements do not increase
the Indebtedness or other obligations of Sleepmaster or any Restricted
Subsidiary outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(8) Indebtedness of Sleepmaster or any Restricted Subsidiary represented
by Capital Lease Obligations or Purchase Money Obligations or other
Indebtedness incurred or assumed in connection with the acquisition or
development of real or personal, movable or immovable, property in
each case incurred for the purpose of financing or refinancing all or
any part of the purchase price or cost of construction or improvement
of property (including common stock) used in the business of
Sleepmaster, in an aggregate principal amount outstanding at any time
pursuant to this clause (8) not to exceed the greater of $7.5 million
or 10% of Sleepmaster's Consolidated Net Tangible Assets; provided
that the principal amount of any Indebtedness permitted under this
clause (8) did not in each case at the time of incurrence exceed the
Fair Market Value, as determined by Sleepmaster in good faith, of the
acquired or constructed asset or improvement so financed;
(9) Acquired Indebtedness, Indebtedness incurred to finance acquisitions,
or Indebtedness incurred to refinance Acquired Indebtedness or
Indebtedness incurred to finance acquisitions, in any such case of
Sleepmaster or any guarantor, provided that after giving pro forma
effect thereto
(a) Sleepmaster's Consolidated Fixed Charge Coverage Ratio is less
than 2.0:1 but greater than or equal to 1.75:1 and
(b) Sleepmaster's Consolidated Fixed Charge Coverage Ratio increases
as a consequence of such incurrence and related acquisition;
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(10) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (2), (3) or (9) of this definition of "Permitted
Indebtedness," including any successive refinancings so long as the
borrower under such refinancing is Sleepmaster or, if not Sleepmaster,
the same as the borrower of the Indebtedness being refinanced and the
aggregate principal amount of Indebtedness represented thereby (or if
such Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof, the original issue price of such
Indebtedness plus any accreted value attributable thereto since the
original issuance of such Indebtedness) is not increased by such
refinancing plus the lesser of
(a)the stated amount of any premium or other payment required to be paid
in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or
(b)the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of
expenses of Sleepmaster incurred in connection with such refinancing
and
(1) in the case of any refinancing of Indebtedness that is
Subordinated Indebtedness, such new Indebtedness is made
subordinated to the exchange notes at least to the same
extent as the Indebtedness being refinanced and
(2) in the case of Pari Passu Indebtedness or Subordinated
Indebtedness, as the case may be, such refinancing does not
reduce the Average Life to Stated Maturity or the Stated
Maturity of such Indebtedness;
(11) any guarantee by Sleepmaster or any of its Restricted Subsidiaries of
Indebtedness of Sleepmaster or a Restricted Subsidiary of Sleepmaster
that was not prohibited from being incurred pursuant to any of the
terms of the indenture;
(12) Indebtedness incurred by Sleepmaster 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 to letters of credit in respect to workers'
compensation claims or self-insurance, or other Indebtedness with
respect to reimbursement type obligations regarding workers'
compensation claims; provided, however, that upon the drawing of such
letters of credit or the incurrence of such Indebtedness, such
obligations are reimbursed within 30 days following such drawing or
incurrence;
(13) Indebtedness arising from agreements of Sleepmaster or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price
or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, asset or Restricted
Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition;
provided that
(x) such Indebtedness is not reflected on the balance sheet of
Sleepmaster or any Restricted Subsidiary (contingent obligations
referred to in a footnote or footnotes to financial statements and
not otherwise reflected on the balance sheet will not be deemed to
be reflected on such balance sheet for purposes of this clause (x))
and
(y) the maximum assumable liability in respect of such Indebtedness
shall at no time exceed the gross cash proceeds actually received by
Sleepmaster and/or such Restricted Subsidiary in connection with
such disposition;
(14) obligations in respect of performance and surety bonds and completion
guarantees provided by Sleepmaster or any Restricted Subsidiary in the
ordinary course of business; and
(15) Indebtedness of Sleepmaster in addition to that described in clauses
(1) through (14) above, and any renewals, extensions, substitutions,
refinancings or replacements of such Indebtedness,
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so long as the aggregate principal amount of all such Indebtedness shall not
exceed $10 million outstanding at any one time in the aggregate.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness permitted by this
covenant, Sleepmaster in its sole discretion shall classify such item of
Indebtedness and only be required to include the amount of such Indebtedness as
one of such types. In addition, Sleepmaster may, at any time, change the
classification of an item of Indebtedness (or any portion thereof) to any other
clause or to the first paragraph hereof provided that Sleepmaster would be
permitted to incur such item of Indebtedness (or portion thereof) pursuant to
such other clause or the first paragraph hereof, as the case may be, at such
time of reclassification, except for Redeemable Capital Stock outstanding on the
date of the indenture.
LIMITATION ON RESTRICTED PAYMENTS.
(a) Sleepmaster will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly:
(1) declare or pay any dividend on, or make any distribution on account
of, any shares of Sleepmaster's Capital Stock (other than dividends
or distributions payable solely in shares of its Qualified Capital
Stock or in options, warrants or other rights to acquire shares of
such Qualified Capital Stock);
(2) purchase, redeem, defease or otherwise acquire or retire for value,
directly or indirectly, Sleepmaster's Capital Stock, any Capital
Stock of any Subsidiary of Sleepmaster (other than Capital Stock of
any Wholly Owned Restricted Subsidiary of Sleepmaster or any
Restricted Subsidiary if as a result of such purchase, redemption,
defeasance, acquisition or retirement, such Restricted Subsidiary
becomes a Majority Owned Restricted Subsidiary), any Capital Stock
of any entity that owns, directly or indirectly, a majority of the
Capital Stock of Sleepmaster, or options, warrants or other rights
to acquire any of the aforementioned Capital Stock;
(3) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any required or
mandatory principal payment, sinking fund payment or maturity, any
Subordinated Indebtedness;
(4) declare or pay any dividend or distribution on any Capital Stock of
any Restricted Subsidiary to any Person (other than
(a) to Sleepmaster or any of its Wholly Owned Restricted Subsidiaries
or
(b) dividends or distributions made by a Restricted Subsidiary on a
pro rata basis to all stockholders of such Restricted
Subsidiary); or
(5) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (1) through (5)
above, other than any such action that is a Permitted Payment (as
defined below), collectively, "Restricted Payments") (the amount of any
such Restricted Payment, if other than cash, shall be the Fair Market
Value of the assets proposed to be transferred, as determined by the
board of directors of Sleepmaster, whose determination shall be
conclusive and evidenced by a board resolution), unless
(1) immediately before and immediately after giving effect to such
proposed Restricted Payment on a pro forma basis, no Default or
Event of Default shall have occurred and be continuing and such
Restricted Payment shall not be an event which is, or after notice
or lapse of time or both, would be, an "event of default" under the
terms of any Indebtedness of Sleepmaster or its Restricted
Subsidiaries;
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(2) immediately before and immediately after giving effect to such
Restricted Payment on a pro forma basis, Sleepmaster could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under
the provisions described under "-- Limitation on Indebtedness;" and
(3) after giving effect to the proposed Restricted Payment, the aggregate
amount of all such Restricted Payments declared or made after the date
of the indenture and all Designation Amounts does not exceed the sum
of:
(A) 50% of the aggregate Consolidated Net Income of Sleepmaster accrued
on a cumulative basis during the period beginning on the first day
of Sleepmaster's fiscal quarter beginning after the date of the
indenture and ending on the last day of Sleepmaster's last fiscal
quarter ending prior to the date of the Restricted Payment (or, if
such aggregate cumulative Consolidated Net Income shall be a loss,
minus 100% of such loss);
(B) the aggregate net cash proceeds (including the fair market value of
property other than cash, provided that such fair market value is
determined by the board of directors of Sleepmaster in good faith
and evidenced by a board resolution set forth in an officer's
certificate delivered to the trustee and, if the fair market value
is in excess of $5 million, an opinion as to the value thereof
issued by an investment banking firm of national standing (a copy of
which shall be delivered to the trustee), which opinion shall
provide a specific value which, or a range of values the lowest
point of which, is not lower than the value set forth in the board
resolution, and provided further that such property is related,
ancillary or complementary to any business of Sleepmaster and its
Restricted Subsidiaries) received after the date of the indenture by
Sleepmaster either
(1) as capital contributions in the form of common equity to
Sleepmaster or
(2) from the issuance or sale (other than to any of its Subsidiaries)
of Qualified Capital Stock of Sleepmaster or any options,
warrants or rights to purchase such Qualified Capital Stock of
Sleepmaster (except, in each case, to the extent such proceeds
are used to purchase, redeem or otherwise retire Capital Stock or
Subordinated Indebtedness as set forth below in clause (2) or (3)
of paragraph (b) below) (and excluding the Net Cash Proceeds from
the issuance of Qualified Capital Stock financed, directly or
indirectly, using funds borrowed from Sleepmaster or any
Subsidiary until and to the extent such borrowing is repaid);
(C) the aggregate net cash proceeds (including the fair market value of
property other than cash, provided that such fair market value is
determined by the board of directors of Sleepmaster in good faith
and evidenced by a board resolution set forth in an officer's
certificate delivered to the trustee and, if the fair market value
is in excess of $5 million, an opinion as to the value thereof
issued by an investment banking firm of national standing (a copy of
which shall be delivered to the trustee), which opinion shall
provide a specific value which, or a range of values the lowest
point of which, is not lower than the value set forth in the board
resolution and provided further that such property is related,
ancillary or complementary to any business of Sleepmaster and its
Restricted Subsidiaries) received after the date of the indenture by
Sleepmaster (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase Qualified
Capital Stock of Sleepmaster (and excluding the net cash proceeds
from the exercise of any options, warrants or rights to purchase
Qualified Capital Stock financed, directly or indirectly, using
funds borrowed from Sleepmaster or any Subsidiary until and to the
extent such borrowing is repaid);
(D) the aggregate net cash proceeds received after the date of the
indenture by Sleepmaster from the conversion or exchange, if any, of
debt securities or Redeemable Capital Stock of Sleepmaster or its
Restricted Subsidiaries into or for Qualified Capital Stock of
Sleepmaster plus, to the extent such debt securities or Redeemable
Capital Stock were issued after the date of the indenture, the
aggregate of net cash proceeds from their original issuance (and
excluding the net cash proceeds from the conversion or exchange of
debt securities or
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Redeemable Capital Stock financed, directly or indirectly, using
funds borrowed from Sleepmaster or any Subsidiary until and to the
extent such borrowing is repaid); and
(E) (a) in the case of the disposition or repayment of any investment
constituting a Restricted Payment made after the date of the
indenture, an amount (to the extent not included in
Consolidated Net Income) equal to the lesser of the return of
capital with respect to such Investment and the initial amount
of such Investment, in either case, less the cost of the
disposition of such Investment and net of taxes, and
(b) in the case of the designation of an Unrestricted Subsidiary
as a Restricted Subsidiary (as long as the designation of
such Subsidiary as an Unrestricted Subsidiary was deemed a
Restricted Payment), the Fair Market Value of Sleepmaster's
interest in such Subsidiary provided that such amount shall
not in any case exceed the amount of the Restricted Payment
deemed made at the time the Subsidiary was designated as an
Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, and in the case of clauses (2) through
(11) below, so long as no Default or Event of Default is continuing or
would arise therefrom, the foregoing provisions shall not prohibit the
following actions (each of clauses (1) through (4) being referred to as
a "Permitted Payment"):
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment
was permitted by the provisions of paragraph (a) of this section
and such payment shall have been deemed to have been paid on such
date of declaration and shall not have been deemed a "Permitted
Payment" for purposes of the calculation required by paragraph (a)
of this section;
(2) the repurchase, redemption, or other acquisition or retirement for
value of any shares of any class of Capital Stock of Sleepmaster in
exchange for (including any such exchange pursuant to the exercise
of a conversion right or privilege in connection with which cash is
paid in lieu of the issuance of fractional shares or scrip), or out
of the net cash proceeds of a substantially concurrent issuance and
sale for cash (other than to a Subsidiary) of, other shares of
Qualified Capital Stock of Sleepmaster; provided that the net cash
proceeds from the issuance of such shares of Qualified Capital
Stock are excluded from clause (3)(B) of paragraph (a) of this
section;
(3) the repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness
in exchange for, or in an amount not in excess of the Net Cash
Proceeds of, a substantially concurrent issuance and sale for cash
(other than to any Subsidiary of Sleepmaster) of any Qualified
Capital Stock of Sleepmaster, provided that the Net Cash Proceeds
from the issuance of such shares of Qualified Capital Stock are
excluded from clause (3)(B) of paragraph (a) of this section; and
(4) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a
"refinancing") through the substantially concurrent issuance of new
Subordinated Indebtedness of Sleepmaster, provided that any such
new Subordinated Indebtedness
(a) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if such Subordinated
Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration thereof, then such lesser amount as of the date
of determination), plus the lesser of
(1) the stated amount of any premium or other payment
required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being
refinanced or
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(2) the amount of premium or other payment actually paid at
such time to refinance the Indebtedness, plus, in either
case, the amount of expenses of Sleepmaster incurred in
connection with such refinancing;
(b) has an Average Life to Stated Maturity greater than the
remaining Average Life to Stated Maturity of the Subordinated
Indebtedness being refinanced; and
(c) is expressly subordinated in right of payment to the exchange
notes at least to the same extent as the Subordinated
Indebtedness to be refinanced;
(5) the purchase or redemption of shares of Special Preferred Stock
issued subsequent to the Issue Date, provided that immediately
following such purchase or redemption the Consolidated Fixed
Charge Coverage Ratio of Sleepmaster is not less than 2.0:1;
(6) the declaration or payment of dividends or other distributions, or
the making of loans, to Sleepmaster Holdings L.L.C. for
(a) reasonable and customary salary, bonus and other benefits
payable to officers, employees and consultants of Sleepmaster
Holdings L.L.C. consistent with past practice,
(b) reasonable fees and expenses paid to members of the Board of
Directors of Sleepmaster Holdings L.L.C. consistent with past
practice,
(c) general corporate overhead expenses of Sleepmaster Holdings
L.L.C. in the ordinary course of business consistent with past
practice,
(d) management, consulting or advisory fees paid to Sleepmaster
Holdings L.L.C. to permit Sleepmaster Holdings L.L.C. to pay
management, consulting or advisory fees, in each case, not to
exceed $500,000 in any fiscal year, and
(e) the repurchase, redemption or other acquisition or retirement
for value of any Capital Stock of Sleepmaster Holdings L.L.C.
or Sleepmaster held by any member or former member of
Sleepmaster Holdings L.L.C.'s or Sleepmaster's (or any of
Sleepmaster's Restricted Subsidiaries') management pursuant to
any management equity subscription agreement, stockholders
agreement or stock option agreement, in each case as in effect
as of the date of the indenture;
provided, however,
(A) with respect to clauses (a) through (c) above in the
aggregate, the aggregate amount paid does not exceed $500,000
in any fiscal year and
(B) with respect to clause (e) above, the aggregate price paid
shall not exceed
(x) $2 million in any calendar year (with unused amounts in
any one calendar year being carried over to the
immediately succeeding calendar year subject to a maximum
(without giving effect to clause (y)) of $5 million in any
calendar year), plus
(y) the net cash proceeds contributed to Sleepmaster by
Sleepmaster Holdings L.L.C. from any issuance or
reissuance of Capital Stock by Sleepmaster Holdings
L.L.C. to members of management of Sleepmaster and its
Restricted Subsidiaries (provided that the net cash
proceeds contributed to Sleepmaster from the issuance of
such shares of Capital Stock are excluded from clause
(3)(B) of paragraph (a) of this section to the extent
used pursuant to this clause (6)(e) of paragraph (b) of
this section) and the proceeds to Sleepmaster of any
"key-man" life insurance policies; provided that the
cancellation of Indebtedness owing to Sleepmaster from
members of management of Sleepmaster or any Restricted
Subsidiary in connection with such repurchase of Capital
Stock will not be deemed to be a Restricted Payment;
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(7) distributions to Sleepmaster Holdings L.L.C. of Tax Amounts with
respect to a calendar year, which distributions or payments may be
made from time to time with respect to such calendar year, based on
reasonable estimates of such Tax Amounts, as are necessary in order
for Sleepmaster Holdings L.L.C. to make estimated and final payments
of income tax with respect to the Taxable Income of Sleepmaster with
respect to such calendar year; provided that in the event that the
amounts which were actually distributed under this clause (7) with
respect to such calendar year exceed the required Tax Amounts with
respect to such calendar year as determined by Sleepmaster's
accountants, Sleepmaster Holdings L.L.C. shall promptly pay to
Sleepmaster such excess; and provided further that all such
distributions or payments in respect of a calendar year are made no
later than 120 days after the end of such calendar year;
(8) the declaration and payment of dividends on Redeemable Capital Stock
issued after the date of the indenture, the incurrence of which
satisfied the covenant set forth in the first paragraph of
"-- Limitation on Indebtedness" above;
(9) 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;
(10) loans, advances, dividends or distributions from Sleepmaster to
Sleepmaster Holdings L.L.C. in an amount equal to the current cash
interest payments then due on the Sleep Investor Promissory Notes as
in effect on the Issue Date; provided that with respect to any such
loans, advances, dividends or distributions and after giving effect
thereto, the Consolidated Fixed Charge Coverage Ratio of Sleepmaster
is not less than 2.0:1; and
(11) additional Restricted Payments, other than those listed above, not to
exceed $5 million in the aggregate while the exchange notes are
outstanding. (Section 1009)
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Sleepmaster will not, and will
not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of assets,
property or services) with or for the benefit of any Affiliate of Sleepmaster
(other than Sleepmaster or a Majority Owned Restricted Subsidiary) unless such
transaction or series of related transactions is entered into in good faith and
in writing and
(1) (a) such transaction or series of related transactions is on terms that
are no less favorable to Sleepmaster or such Restricted Subsidiary, as
the case may be, than those that would be available in a comparable
transaction in arm's-length dealings with an unrelated third party, and
(b) Sleepmaster delivers an officers' certificate to the trustee
certifying that such transaction or series of related transactions
complies with clause (1)(a) of this Section,
(2) with respect to any transaction or series of related transactions
involving aggregate value in excess of $5 million, such transaction or
series of related transactions has been approved by a majority of the
Disinterested Directors of the board of directors of Sleepmaster, or in
the event there is only one Disinterested Director, by such
Disinterested Director, and
(3) with respect to any transaction or series of related transactions
involving aggregate value in excess of $10 million, Sleepmaster
delivers to the trustee a written opinion of an investment banking firm
of national standing or other recognized independent expert with
experience appraising the terms and conditions of the type of
transaction or series of related transactions for which an opinion is
required stating that the transaction or series of related transactions
is fair to Sleepmaster or such Restricted Subsidiary from a financial
point of view;
However, this provision shall not apply to
(1) employment agreements and employee benefit arrangements with any
officer or director of Sleepmaster, including under any stock option or
stock incentive plans, entered into in the
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ordinary course of business and consistent with the past practices of
Sleepmaster or such Restricted Subsidiary,
(2) transactions pursuant to agreements in effect on the date of the
indenture, including amendments thereto entered into after that date,
provided that the terms of any such amendment are not less favorable to
Sleepmaster or such Restricted Subsidiary than the terms of such
agreement prior to such amendment or
(3) any Permitted Payment or Restricted Payment which is permitted to be
made under "-- Limitation on Restricted Payments." (Section 1010)
LIMITATION ON LIENS. Sleepmaster will not, and will not cause or permit
any Restricted Subsidiary to, directly or indirectly, create, incur or affirm
any Lien of any kind securing any Pari Passu Indebtedness or Subordinated
Indebtedness (including any assumption, guarantee or other liability with
respect thereto by any Restricted Subsidiary) upon any property or assets
(including any intercompany notes) of Sleepmaster or any Restricted Subsidiary
owned on the date of the indenture or acquired after the date of the indenture,
or assign or convey any right to receive any income or profits therefrom, unless
the exchange notes (or a guarantee in the case of Liens of a guarantor) are
directly secured equally and ratably with (or, in the case of Subordinated
Indebtedness, prior or senior thereto, with the same relative priority as the
exchange notes shall have with respect to such Subordinated Indebtedness) the
obligation or liability secured by such Lien except for Liens
(A) securing Acquired Indebtedness which was created prior to (and not
created in connection with, or in contemplation of) the incurrence of
such Pari Passu Indebtedness or Subordinated Indebtedness (including
any assumption, guarantee or other liability with respect thereto by
any Restricted Subsidiary) and which Indebtedness is permitted under
the provisions of "-- Limitation on Indebtedness," provided, however,
that in the case of this clause (A), any such Lien only extends to the
assets that were subject to such Lien securing such Indebtedness prior
to the related acquisition by Sleepmaster or its Restricted
Subsidiaries,
(B) securing any Indebtedness incurred in connection with any refinancing,
renewal, substitutions or replacements of any such Indebtedness
described in clause (A), so long as the aggregate principal amount of
Indebtedness represented thereby (or if such Indebtedness provides for
an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness plus any accreted value
attributable thereto since the original issuance of such Indebtedness)
is not increased by such refinancing by an amount greater than the
lesser of
(1) the stated amount of any premium or other payment required to be
paid in connection with such a refinancing pursuant to the terms of
the Indebtedness being refinanced or
(2) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of
expenses of Sleepmaster incurred in connection with such
refinancing, provided, however, that in the case of this clause (B),
any such Lien only extends to the assets that were subject to such
Lien securing such Indebtedness prior to the related acquisition by
Sleepmaster or its Restricted Subsidiaries,
(C) Liens in favor of Sleepmaster or any Restricted Subsidiary,
(D) Liens on property existing at the time of acquisition thereof by
Sleepmaster or any Restricted Subsidiary of Sleepmaster, provided such
Liens were not incurred in contemplation of such acquisition,
(E) Liens existing on the date of the indenture, and
(F) Liens securing Indebtedness incurred pursuant to clause (10) of the
second paragraph of "-- Limitation on Indebtedness" where the Liens
securing the Indebtedness being refinanced were permitted under the
indenture.
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Notwithstanding the foregoing, any Lien securing the exchange notes granted
pursuant to this covenant shall be automatically and unconditionally released
and discharged upon the release by the holders of the Pari Passu Indebtedness or
Subordinated Indebtedness described above of their Lien on the property or
assets of Sleepmaster or any Restricted Subsidiary (including any deemed release
upon payment in full of all obligations under such Indebtedness), at such time
as the holders of all such Pari Passu Indebtedness or Subordinated Indebtedness
also release their Lien on the property or assets of Sleepmaster or such
Restricted Subsidiary, or upon any sale, exchange or transfer to any Person not
an Affiliate of Sleepmaster of the property or assets secured by such Lien, or
of all of the Capital Stock held by Sleepmaster or any Restricted Subsidiary in,
or all or substantially all the assets of, any Restricted Subsidiary creating
such Lien. (Section 1011)
LIMITATION ON SALE OF ASSETS.
(a) Sleepmaster will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate an Asset
Sale unless
(1) at least 75% of the consideration from such Asset Sale is received
in cash or Temporary Cash Investments and
(2) Sleepmaster or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value
of the shares or assets subject to such Asset Sale (as determined by
the board of directors of Sleepmaster and evidenced in a board
resolution); provided that the amount of
(x) any liabilities (as shown on Sleepmaster's or such Restricted
Subsidiary's most recent balance sheet) of Sleepmaster or any
Restricted Subsidiary (other than contingent liabilities,
liabilities that are subordinated to or rank equally with the
exchange notes or any guarantee thereof and liabilities that are
incurred in connection with or in contemplation of the related
Asset Sale) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that fully and
unconditionally releases Sleepmaster or such Restricted
Subsidiary from further liability and
(y) any securities, notes or other obligations received by
Sleepmaster or any such Restricted Subsidiary from such
transferee that are promptly converted by Sleepmaster or such
Restricted Subsidiary into cash or Temporary Cash Investments (to
the extent of the cash received) shall be deemed to be cash for
purposes of this provision; and provided, further, that the 75%
limitation referred to in clause (2) above will not apply to any
Asset Sale in which the cash or Temporary Cash Investments
portion of the consideration received therefrom, determined in
accordance with the foregoing proviso, is equal to or greater
than what the after-tax proceeds would have been had such Asset
Sale complied with the aforementioned 75% limitation.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness or
Senior Guarantor Indebtedness then outstanding as required by the terms
thereof, or Sleepmaster determines not to apply such Net Cash Proceeds
to the permanent prepayment of such Senior Indebtedness or Senior
Guarantor Indebtedness, or if no such Senior Indebtedness or Senior
Guarantor Indebtedness is then outstanding, then Sleepmaster or a
Restricted Subsidiary may within 365 days of the Asset Sale invest the
Net Cash Proceeds in properties and other assets that (as determined by
the board of directors of Sleepmaster) replace the properties and
assets that were the subject of the Asset Sale or in properties and
assets that will be used in the businesses of Sleepmaster or its
Restricted Subsidiaries existing on the date of the Indenture or in
businesses reasonably related thereto. The amount of such Net Cash
Proceeds not used or invested within 365 days of the Asset Sale as set
forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5 million or
more, Sleepmaster will apply the Excess Proceeds to the repayment of
the exchange notes and any other Pari Passu
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Indebtedness outstanding with similar provisions requiring Sleepmaster
to make an offer to purchase such Indebtedness with the proceeds from
any Asset Sale as follows:
(A) Sleepmaster will make an offer to purchase (an "Offer") from all
holders of the exchange notes in accordance with the procedures set
forth in the indenture in the maximum principal amount (expressed as
a multiple of $1,000) of exchange notes that may be purchased out of
an amount equal to the product of such Excess Proceeds multiplied by
a fraction, the numerator of which is the outstanding principal
amount of the exchange notes, and the denominator of which is the
sum of the outstanding principal amount (or accreted value in the
case of Indebtedness issued with original issue discount) of the
exchange notes and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all exchange notes tendered)
and
(B) to the extent required by such Pari Passu Indebtedness to
permanently reduce the principal amount of such Pari Passu
Indebtedness (or accreted value in the case of Indebtedness issued
with original issue discount), Sleepmaster will make an offer to
purchase or otherwise repurchase or redeem Pari Passu Indebtedness
(a "Pari Passu Offer") in an amount (the "Pari Passu Debt Amount")
equal to the excess of the Excess Proceeds over the Note Amount;
provided that in no event will Sleepmaster be required to make a
Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal
amount (or accreted value) of such Pari Passu Indebtedness plus the
amount of any premium required to be paid to repurchase such Pari
Passu Indebtedness.
The offer price for the exchange notes will be payable in cash in an
amount equal to 100% of the principal amount of the exchange notes plus
accrued and unpaid interest, if any, to the date (the "Offer Date") such
offer is consummated (the "Offered Price"), in accordance with the
procedures set forth in the indenture. To the extent that the aggregate
Offered Price of the exchange notes tendered pursuant to the offer is
less than the exchange note amount relating thereto or the aggregate
amount of Pari Passu Indebtedness that is purchased in a Pari Passu
Offer is less than the Pari Passu Debt Amount, Sleepmaster may use any
remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of exchange notes and Pari Passu Indebtedness
surrendered by holders thereof exceeds the amount of Excess Proceeds,
the trustee shall select the exchange notes to be purchased on a pro
rata basis. Upon the completion of the purchase of all the exchange
notes tendered pursuant to an offer and the completion of a Pari Passu
Offer, the amount of Excess Proceeds, if any, shall be reset at zero.
(d) If Sleepmaster becomes obligated to make an offer pursuant to clause
(c) above, the exchange notes and the Pari Passu Indebtedness shall be
purchased by Sleepmaster, at the option of the holders thereof, in
whole or in part in integral multiples of $1,000, on a date that is not
earlier than 30 days and not later than 60 days from the date the
notice of the offer is given to holders, or such later date as may be
necessary for Sleepmaster to comply with the requirements under the
Securities Exchange Act of 1934.
(e) The indenture will provide that Sleepmaster will comply with the
applicable tender offer rules, including Rule 14e-1 under the
Securities Exchange Act of 1934, and any other applicable securities
laws or regulations in connection with an offer. (Section 1012)
LIMITATION ON ISSUANCES OF GUARANTEES OF AND PLEDGES FOR INDEBTEDNESS.
(a) Sleepmaster will not cause or permit any Restricted Subsidiary, other
than a guarantor, directly or indirectly, to secure the payment of any
Senior Indebtedness of Sleepmaster and Sleepmaster will not, and will
not permit any Restricted Subsidiary to, pledge any intercompany notes
representing obligations of any Restricted Subsidiary (other than a
guarantor) to secure the payment of any Senior Indebtedness unless in
each case such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the indenture providing for a
guarantee of payment of the exchange notes by such Restricted
Subsidiary, which guarantee shall be on the
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same terms as the guarantee of the Senior Indebtedness (if a guarantee
of Senior Indebtedness is granted by any such Restricted Subsidiary)
except that the guarantee of the exchange notes need not be secured and
shall be subordinated to the claims against such Restricted Subsidiary
in respect of Senior Indebtedness to the same extent as the exchange
notes are subordinated to Senior Indebtedness of Sleepmaster under the
indenture.
(b) Sleepmaster will not cause or permit any Restricted Subsidiary (which
is not a guarantor), directly or indirectly, to guarantee, assume or in
any other manner become liable with respect to any Indebtedness of
Sleepmaster or any Restricted Subsidiary unless such Restricted
Subsidiary simultaneously executes and delivers a supplemental
indenture to the indenture providing for a guarantee of the exchange
notes on the same terms as the guarantee of such Indebtedness except
that
(A) such guarantee need not be secured unless required pursuant to
"-- Limitation on Liens,"
(B) if such Indebtedness is by its terms Senior Indebtedness, any such
assumption, guarantee or other liability of such Restricted
Subsidiary with respect to such Indebtedness shall be senior to such
Restricted Subsidiary's guarantee of the exchange notes to the same
extent as such Senior Indebtedness is senior to the exchange notes
and
(C) if such Indebtedness is by its terms expressly subordinated to the
exchange notes, any such assumption, guarantee or other liability of
such Restricted Subsidiary with respect to such Indebtedness shall
be subordinated to such Restricted Subsidiary's guarantee of the
exchange notes at least to the same extent as such Indebtedness is
subordinated to the exchange notes.
(c) Notwithstanding the foregoing, any guarantee by a Restricted Subsidiary
of the exchange notes shall provide by its terms that it (and all Liens
securing the same) shall be automatically and unconditionally released
and discharged upon
(1) any sale, exchange or transfer, to any Person not an Affiliate of
Sleepmaster, of all of Sleepmaster's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which
transaction is in compliance with the terms of the indenture and
such Restricted Subsidiary is released from all guarantees, if any,
by it of other Indebtedness of Sleepmaster or any Restricted
Subsidiaries and
(2) with respect to any guarantees created after the date of the
indenture, the release by the holders of the Indebtedness of
Sleepmaster described in clauses (a) and (b) above of their security
interest or their guarantee by such Restricted Subsidiary (including
any deemed release upon payment in full of all obligations under
such Indebtedness), at such time as
(A) no other Indebtedness of Sleepmaster has been secured or
guaranteed by such Restricted Subsidiary, as the case may be, or
(B) the holders of all such other Indebtedness which is secured or
guaranteed by such Restricted Subsidiary also release their
security interest in or guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all
obligations under such Indebtedness). (Section 1013)
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. Each of Sleepmaster and
Sleepmaster Finance Corporation will not, and will not permit or cause any
guarantor to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise in any manner become directly or indirectly liable for or with respect
to or otherwise permit to exist any Indebtedness that is subordinate in right of
payment to any Indebtedness of Sleepmaster, Sleepmaster Finance Corporation or
such guarantor, as the case may be, unless such Indebtedness is also pari passu
with the exchange notes or the guarantee of such guarantor or subordinated in
right of payment to the exchange notes or such guarantee at least to the same
extent as the exchange notes or such guarantee are subordinated in right of
payment to Senior Indebtedness or Senior Indebtedness of such guarantor, as the
case may be, as set forth in the indenture. (Section 1014)
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LIMITATION ON SUBSIDIARY CAPITAL STOCK.
(a) Sleepmaster will not permit any Restricted Subsidiary of Sleepmaster to
issue, sell or transfer any Capital Stock, except
(1) if after giving effect to such issuance, sale or transfer of Capital
Stock such Restricted Subsidiary would be a Majority Owned
Restricted Subsidiary,
(2) for Capital Stock issued or sold to, held by or transferred to
Sleepmaster or a Wholly Owned Restricted Subsidiary, and
(3) for Capital Stock issued by a Person prior to the time
(A) such Person becomes a Restricted Subsidiary,
(B) such Person merges with or into a Restricted Subsidiary or
(C) a Restricted Subsidiary merges with or into such Person; provided
that such Capital Stock was not issued or incurred by such Person
in anticipation of the type of transaction contemplated by
subclause (A), (B) or (C). This clause (a) shall not apply upon
the acquisition of all the outstanding Capital Stock of such
Restricted Subsidiary in accordance with the terms of the
indenture.
(b) Sleepmaster will not permit any Person (other than Sleepmaster or a
Wholly Owned Restricted Subsidiary) to acquire Capital Stock of any
Restricted Subsidiary from Sleepmaster or any Restricted Subsidiary
except (1) upon the acquisition of all the outstanding Capital Stock of
such Restricted Subsidiary in accordance with the terms of the
indenture or (2) if after giving effect to such acquisition such
Restricted Subsidiary would be a Majority Owned Subsidiary.
(c) Notwithstanding the foregoing, this covenant shall not prohibit any
issuance or sale of the Capital Stock of any Restricted Subsidiary if
immediately after giving effect to such issuance or sale, any
Investment in such Person remaining after giving effect to such
issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of
such issuance or sale. Any such Investment shall be deemed a Restricted
Payment. (Section 1016)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. Sleepmaster will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to
(A) pay dividends or make any other distribution on its Capital Stock or
any other interest or participation in or measured by its profits,
(B) pay any Indebtedness owed to Sleepmaster or any other Restricted
Subsidiary,
(C) make any Investment in Sleepmaster or any other Restricted Subsidiary
or
(D) transfer any of its properties or assets to Sleepmaster or any other
Restricted Subsidiary.
However, this covenant will not prohibit any encumbrance or restriction
(1) pursuant to an agreement in effect on the date of the indenture;
(2) with respect to a Restricted Subsidiary that is not a Restricted
Subsidiary of Sleepmaster on the date of the indenture, in existence at
the time such Person becomes a Restricted Subsidiary of Sleepmaster and
not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary, provided that such encumbrances and
restrictions are not applicable to Sleepmaster or any Restricted
Subsidiary or the properties or assets of Sleepmaster or any Restricted
Subsidiary other than such Subsidiary which is becoming a Restricted
Subsidiary;
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(3) under the Credit Facility as in effect on 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 more
restrictive in the aggregate (as determined in the good faith judgment
of Sleepmaster's board of directors) with respect to such dividend and
other payment restrictions than those contained in the Credit Facility
as in effect on the date of the indenture;
(4) under the indenture and the exchange notes (including the additional
exchange notes);
(5) under any applicable law, rule, regulation or order;
(6) by reason of customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practices,
(7) under purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (D) above on the property so acquired;
(8) under contracts for the sale of assets, including without limitation
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Restricted
Subsidiary; and
(9) under any agreement that extends, renews, refinances or replaces the
agreements containing the encumbrances or restrictions in the foregoing
clauses (1) through (8), or in this clause (9), provided that the terms
and conditions of any such encumbrances or restrictions are no more
restrictive in any material respect than those under or pursuant to the
agreement evidencing the Indebtedness so extended, renewed, refinanced
or replaced. (Section 1017)
LIMITATION ON UNRESTRICTED SUBSIDIARIES. Sleepmaster may designate after
the Issue Date any Subsidiary (other than a guarantor) as an "Unrestricted
Subsidiary" under the indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) Sleepmaster would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"-- Limitation on Restricted Payments" above in an amount (the
"Designation Amount") equal to the greater of (1) the net book value of
Sleepmaster's interest in such Subsidiary calculated in accordance with
GAAP or (2) the Fair Market Value of Sleepmaster's interest in such
Subsidiary as determined in good faith by Sleepmaster's board of
directors;
(c) such Unrestricted Subsidiary does not own any Capital Stock in any
Restricted Subsidiary of Sleepmaster which is not simultaneously being
designated an Unrestricted Subsidiary;
(d) such Unrestricted Subsidiary is not liable, directly or indirectly,
with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness, provided that an Unrestricted Subsidiary may provide a
guarantee for the exchange notes; and
(e) such Unrestricted Subsidiary is not a party to any agreement, contract,
arrangement or understanding at such time with Sleepmaster or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to Sleepmaster or
such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of Sleepmaster or, in the
event such condition is not satisfied, the value of such agreement,
contract, arrangement or understanding to such Unrestricted Subsidiary
shall be deemed a Restricted Payment.
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In the event of any such Designation, Sleepmaster shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the "Limitation
on Restricted Payments" covenant for all purposes of the indenture equal to the
Designation Amount.
The indenture will also provide that Sleepmaster shall not and shall not
cause or permit any Restricted Subsidiary to at any time
(a) provide credit support for, guarantee or subject any of its property or
assets (other than the Capital Stock of any Unrestricted Subsidiary) to
the satisfaction of, any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) (other than Permitted Investments in Unrestricted
Subsidiaries) or
(b) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary. For purposes of the foregoing, the Designation
of a Subsidiary of Sleepmaster as an Unrestricted Subsidiary shall be
deemed to be the Designation of all of the Subsidiaries of such
Subsidiary as Unrestricted Subsidiaries.
Sleepmaster may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time,
have been permitted to be incurred for all purposes of the indenture;
and
(c) unless such redesignated Subsidiary shall not have any Indebtedness
outstanding (other than Indebtedness that would be Permitted
Indebtedness), immediately after giving effect to such proposed
Revocation, and after giving pro forma effect to the incurrence of any
such Indebtedness of such redesignated Subsidiary as if such
Indebtedness was incurred on the date of the Revocation, Sleepmaster
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "-- Limitation
on Indebtedness."
All Designations and Revocations must be evidenced by a resolution of the
board of directors of Sleepmaster delivered to the trustee certifying compliance
with the foregoing provisions. (Section 1018)
LIMITATION ON ACTIVITIES OF SLEEPMASTER FINANCE CORPORATION. Sleepmaster
Finance Corporation shall have no material assets and shall not engage in any
activities other than in connection with the indenture and the exchange notes.
(Section 1019)
PROVISION OF FINANCIAL STATEMENTS. After May 18, 1999, whether or not
Sleepmaster is subject to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, Sleepmaster and any guarantor will, to the extent permitted under the
Securities Exchange Act of 1934, file with the Securities and Exchange
Commission the annual reports, quarterly reports and other documents which
Sleepmaster and such guarantor would have been required to file with the
Securities and Exchange Commission pursuant to Sections 13(a) or 15(d) if
Sleepmaster or such guarantor were so subject, such documents to be filed with
the Securities and Exchange Commission on or prior to the date (the "Required
Filing Date") by which Sleepmaster and such guarantor would have been required
so to file such documents if Sleepmaster and such guarantor were so subject.
Sleepmaster and any guarantor will also in any event, whether or not
required to file reports with the Securities and Exchange Commission,
(a) within 15 days of each Required Filing Date
(1) transmit by mail to all holders, as their names and addresses appear
in the security register, without cost to such holders and
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(2) file with the trustee copies of the annual reports, quarterly
reports and other documents which Sleepmaster and such guarantor
would have been required to file with the Securities and Exchange
Commission pursuant to Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934 if Sleepmaster and such guarantor were subject
to either of such sections and
(b) if filing such documents by Sleepmaster and such guarantor with the
Securities and Exchange Commission is not permitted under the Exchange
Act of 1934, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such
documents to any prospective holder at Sleepmaster's cost.
If any guarantor's financial statements would be required to be included in
the financial statements filed or delivered pursuant to the indenture if
Sleepmaster were subject to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, Sleepmaster shall include such guarantor's financial statements in
any filing or delivery pursuant to the indenture.
The indenture also provides that, so long as any of the exchange notes
remain outstanding, Sleepmaster will make available to any prospective purchaser
of exchange notes or beneficial owner of exchange notes in connection with any
sale thereof the information required by Rule 144A(d)(4) under the Securities
Act of 1933, until such time as Sleepmaster has either exchanged the exchange
notes for securities identical in all material respects which have been
registered under the Securities Act of 1933 or until such time as the holders
thereof have disposed of such exchange notes pursuant to an effective
registration statement under the Securities Act of 1933. (Section 1020)
ADDITIONAL COVENANTS. The indenture also contains covenants with respect
to the following matters:
(1) payment of principal, premium and interest;
(2) maintenance of an office or agency in The City of New York;
(3) arrangements regarding the handling of money held in trust;
(4) maintenance of corporate existence;
(5) payment of taxes and other claims;
(6) maintenance of properties; and
(7) maintenance of insurance.
CONSOLIDATION, MERGER, SALE OF ASSETS
Sleepmaster will not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
Persons, or permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions, if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of Sleepmaster and its Restricted Subsidiaries on a Consolidated basis to
any other Person or group of Persons, unless at the time and after giving effect
thereto
(1) either
(a) Sleepmaster will be the continuing corporation or limited liability
company or
(b) the Person (if other than Sleepmaster) formed by such consolidation
or into which Sleepmaster is merged or the Person which acquires by
sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of Sleepmaster and
its Restricted Subsidiaries on a Consolidated basis (the "Surviving
Entity") will be a corporation or limited liability company duly
organized and validly existing under the laws of the United States
of America, any state thereof or the District of Columbia and
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such Person expressly assumes, by a supplemental indenture, in a form reasonably
satisfactory to the trustee, all the obligations of Sleepmaster under the
exchange notes and the indenture and the registration rights agreement, as the
case may be, and the exchange notes and the indenture and the
registration rights agreement will remain in full force and effect as
so supplemented (and any guarantees will be confirmed as applying to
such Surviving Entity's obligations);
(2) immediately before and immediately after giving effect to such
transaction on a pro forma basis (and treating any Indebtedness not
previously an obligation of Sleepmaster or any of its Restricted
Subsidiaries which becomes the obligation of Sleepmaster or any of its
Restricted Subsidiaries as a result of such transaction as having been
incurred at the time of such transaction), no Default or Event of
Default will have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred on the first day
of the four-quarter period for which financial statements are available
ending immediately prior to the consummation of such transaction with
the appropriate adjustments with respect to the transaction being
included in such pro forma calculation), either
(a) Sleepmaster (or the Surviving Entity if Sleepmaster is not the
continuing obligor under the indenture) could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under
the provisions of "-- Covenants -- Limitation on Indebtedness;" or
(b) the Consolidated Fixed Charge Coverage Ratio of Sleepmaster (or the
Surviving Entity if Sleepmaster is not the continuing obligor under
the indenture) immediately following such transaction is at least
1.75 to 1.0 and such Consolidated Fixed Charge Coverage Ratio is
higher than the Consolidated Fixed Charge Coverage Ratio immediately
prior to such transaction; provided that nothing in this clause (3)
shall prohibit a merger between Sleepmaster and an Affiliate of
Sleepmaster incorporated solely for the purpose of reincorporation
of Sleepmaster in another state of the United States or for
conversion of Sleepmaster from a limited liability company to a
corporation;
(4) at the time of each transaction each of Sleepmaster and Sleepmaster
Finance Corporation, unless it is the other party to the transaction
described above, will have by supplemental indenture confirmed that it
is an issuer under the indenture and the exchange notes;
(5) at the time of the transaction each guarantor, if any, unless it is the
other party to the transactions described above, will have by
supplemental indenture confirmed that its guarantee shall apply to such
Person's obligations under the indenture and the exchange notes; and
(6) at the time of the transaction Sleepmaster or the Surviving Entity will
have delivered, or caused to be delivered, to the trustee, in form and
substance reasonably satisfactory to the trustee, an officers'
certificate and an opinion of counsel, each to the effect that such
consolidation, merger, transfer, sale, assignment, conveyance,
transfer, lease or other transaction and the supplemental indenture in
respect thereof comply with the indenture and that all conditions
precedent therein provided for relating to such transaction have been
complied with. (Section 801)
Each guarantor will not, and Sleepmaster will not permit a guarantor to, in
a single transaction or through a series of related transactions, consolidate
with or merge with or into any other Person (other than Sleepmaster or any
guarantor) or sell, assign, convey, transfer, lease or otherwise dispose of all
or substantially all of its properties and assets to any Person or group of
Persons (other than Sleepmaster or any guarantor) or permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or disposition
of all or substantially all of the properties and assets of the guarantor and
its Restricted Subsidiaries on a Consolidated basis to any other Person or group
of Persons (other than Sleepmaster or any guarantor), unless at the time and
after giving effect thereto
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(1) either
(a) the guarantor will be the continuing entity in the case of a
consolidation or merger involving the guarantor or
(b) the Person (if other than the guarantor) formed by such
consolidation or into which such guarantor is merged or the Person
which acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all of the properties and assets of
the guarantor and its Restricted Subsidiaries on a Consolidated
basis (the "Surviving Guarantor Entity") will be duly organized and
validly existing under the laws of the United States of America, any
state thereof or the District of Columbia and such Person expressly
assumes, by a supplemental indenture, in a form reasonably
satisfactory to the trustee, all the obligations of such guarantor
under its guarantee of the exchange notes and the indenture and the
registration rights agreement and such guarantee, indenture and
registration rights agreement will remain in full force and effect;
(2) immediately before and immediately after giving effect to such
transaction on a pro forma basis, no Default or Event of Default will
have occurred and be continuing; and
(3) at the time of the transaction such guarantor or the Surviving
Guarantor Entity will have delivered, or caused to be delivered, to the
trustee, in form and substance reasonably satisfactory to the trustee,
an officers' certificate and an opinion of counsel, each to the effect
that such consolidation, merger, transfer, sale, assignment,
conveyance, lease or other transaction and the supplemental indenture
in respect thereof comply with the indenture and that all conditions
precedent therein provided for relating to such transaction have been
complied with; provided, however, that this paragraph shall not apply
to any guarantor whose guarantee of the exchange notes is
unconditionally released and discharged in accordance with paragraph
(c) under the provisions of "-- Covenants -- Limitation on Issuances of
Guarantees of and Pledges for Indebtedness." (Section 801)
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the three immediately preceding
paragraphs in which Sleepmaster, Sleepmaster Finance Corporation or any
guarantor, as the case may be, is not the successor Person, the successor Person
formed or remaining or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, Sleepmaster,
Sleepmaster Finance Corporation or such guarantor, as the case may be, and
Sleepmaster, Sleepmaster Finance Corporation or any guarantor, as the case may
be, would be discharged (other than in a transaction that results in the
transfer of assets constituting or accounting for less than 95% of the
Consolidated assets (as of the last balance sheet date available to Sleepmaster)
of Sleepmaster or the Consolidated revenue of Sleepmaster (as of the last
12-month period for which financial statements are available)) from all
obligations and covenants under the indenture and the exchange notes or its
guarantee, as the case may be, and the registration rights agreement. (Section
802)
EVENTS OF DEFAULT
An Event of Default will occur under the indenture if:
(1) there shall be a default in the payment of any interest on any exchange
note when it becomes due and payable, and such default shall continue
for a period of 30 days (whether or not prohibited by the subordination
provisions of the indenture);
(2) there shall be a default in the payment of the principal of (or
premium, if any, on) any exchange note at its Maturity (upon
acceleration, optional or mandatory redemption, if any, required
repurchase or otherwise) (whether or not prohibited by the
subordination provisions of the indenture);
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(3) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of Sleepmaster, Sleepmaster Finance
Corporation, or any guarantor under the indenture or any guarantee
(other than a default in the performance, or breach, of a covenant
or agreement which is specifically dealt with in clause (1), (2) or
in clause (b), (c) or (d) of this clause (3)) and such default or
breach shall continue for a period of 30 days after written notice
has been given, by certified mail,
(1) to Sleepmaster by the trustee or
(2) to Sleepmaster and the trustee by the holders of at least 25%
in aggregate principal amount of the outstanding exchange
notes;
(b) there shall be a default in the performance or breach of the
provisions described in "-- Consolidation, Merger, Sale of Assets;"
(c) Sleepmaster and Sleepmaster Finance Corporation shall have failed to
make or consummate an offer in accordance with the provisions of
"-- Sleepmaster Covenants -- Limitation on Sale of Assets;" or
(d) Sleepmaster and Sleepmaster Finance Corporation shall have failed to
make or consummate a Change of Control Offer in accordance with the
provisions of "-- Purchase of Notes Upon a Change of Control;"
(4) one or more defaults shall have occurred under any of the agreements,
indentures or instruments under which Sleepmaster, Sleepmaster Finance
Corporation, any guarantor or any Restricted Subsidiary then has
outstanding Indebtedness in excess of $5 million, individually or in
the aggregate, and either
(a) such default results from the failure to pay such Indebtedness at
its stated final maturity or
(b) such default or defaults have resulted in the acceleration of the
maturity of such Indebtedness;
(5) any guarantee shall for any reason cease to be, or shall for any reason
be asserted in writing by any guarantor, Sleepmaster or Sleepmaster
Finance Corporation not to be, in full force and effect and enforceable
in accordance with its terms, except to the extent contemplated by the
indenture and any such guarantee, or Sleepmaster Finance Corporation
shall for any reason cease to be, or shall for any reason be asserted
in writing by Sleepmaster, any guarantor or Sleepmaster Finance
Corporation not to be, a co-obligor pursuant to the exchange notes,
except to the extent contemplated by the indenture;
(6) one or more judgments, orders or decrees of any court or regulatory or
administrative agency for the payment of money in excess of $5 million,
either individually or in the aggregate, shall be rendered against
Sleepmaster, Sleepmaster Finance Corporation, any guarantor or any
Restricted Subsidiary or any of their respective properties and shall
not be discharged and either
(a) any creditor shall have commenced an enforcement proceeding upon
such judgment, order or decree or
(b) there shall have been a period of 60 consecutive days during which a
stay of enforcement of such judgment or order, by reason of an
appeal or otherwise, shall not be in effect;
(7) there shall have been the entry by a court of competent jurisdiction of
(a) a decree or order for relief in respect of Sleepmaster, Sleepmaster
Finance Corporation, any guarantor or any Restricted Subsidiary in
an involuntary case or proceeding under any applicable Bankruptcy
Law or
(b) a decree or order adjudging Sleepmaster, Sleepmaster Finance
Corporation, any guarantor or any Restricted Subsidiary bankrupt or
insolvent, or seeking reorganization, arrangement,
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adjustment or composition of or in respect of Sleepmaster,
Sleepmaster Finance Corporation, any guarantor or any Restricted
Subsidiary under any applicable federal or state law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of Sleepmaster, Sleepmaster Finance
Corporation, any guarantor or any Restricted Subsidiary or of any
substantial part of their respective properties, or ordering the
winding up or liquidation of their affairs, and any such decree or
order for relief shall continue to be in effect, or any such other
decree or order shall be unstayed and in effect, for a period of 60
consecutive days; or
(8) (a) Sleepmaster, Sleepmaster Finance Corporation, any guarantor or any
Restricted Subsidiary commences a voluntary case or proceeding
under any applicable Bankruptcy Law or any other case or proceeding
to be adjudicated bankrupt or insolvent,
(b) Sleepmaster, Sleepmaster Finance Corporation, any guarantor or any
Restricted Subsidiary consents to the entry of a decree or order for
relief in respect of Sleepmaster, such guarantor or such Restricted
Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or to the commencement of any bankruptcy or
insolvency case or proceeding against it,
(c) Sleepmaster, Sleepmaster Finance Corporation, any guarantor or any
Restricted Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law,
(d) Sleepmaster, Sleepmaster Finance Corporation, any guarantor or any
Restricted Subsidiary
(1) consents to the filing of such petition or the appointment of, or
taking possession by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of
Sleepmaster, Sleepmaster Finance Corporation, any guarantor or
such Restricted Subsidiary or of any substantial part of their
respective properties,
(2) makes an assignment for the benefit of creditors or
(3) admits in writing its inability to pay its debts generally as
they become due or
(e) Sleepmaster, Sleepmaster Finance Corporation, any guarantor or any
Restricted Subsidiary takes any corporate action in furtherance of
any such actions in this paragraph (8). (Section 501)
If an Event of Default (other than as specified in clauses (7) and (8) of
the prior paragraph) shall occur and be continuing with respect to the
indenture, the trustee or the holders of not less than 25% in aggregate
principal amount of the exchange notes then outstanding may, and the trustee at
the request of such holders shall, declare all unpaid principal of, premium, if
any, and accrued interest on all exchange notes to be due and payable
immediately, by a notice in writing to Sleepmaster and to Sleepmaster Finance
Corporation (and to the trustee if given by the holders of the exchange notes)
and upon any such declaration, such principal, premium, if any, and interest
shall become due and payable immediately. If an Event of Default specified in
clause (7) or (8) of the prior paragraph occurs and is continuing, then all the
exchange notes shall ipso facto become and be due and payable immediately in an
amount equal to the principal amount of the exchange notes, together with
accrued and unpaid interest, if any, to the date the exchange notes become due
and payable, without any declaration or other act on the part of the trustee or
any holder. Thereupon, the trustee may, at its discretion, proceed to protect
and enforce the rights of the holders of exchange notes by appropriate judicial
proceedings.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the trustee, the holders of a
majority in aggregate principal amount of exchange notes outstanding by written
notice to Sleepmaster, Sleepmaster Finance Corporation and the trustee, may
rescind and annul such declaration and its consequences if
(a) Sleepmaster has paid or deposited with the trustee a sum sufficient to
pay
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(1) all sums paid or advanced by the trustee under the indenture and the
reasonable compensation, expenses, disbursements and advances of the
trustee, its agents and counsel,
(2) all overdue interest on all exchange notes then outstanding,
(3) the principal of, and premium, if any, on any exchange notes then
outstanding which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate borne by the
exchange notes and
(4) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the exchange notes;
(b) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of principal of,
premium, if any, and interest on the exchange notes which have become
due solely by such declaration of acceleration, have been cured or
waived as provided in the indenture.
No such rescission shall affect any subsequent default or impair any right
consequent thereon. (Section 502)
The holders of not less than a majority in aggregate principal amount of
the exchange notes outstanding may on behalf of the holders of all outstanding
exchange notes waive any past default under the indenture and its consequences,
except a default
(1) in the payment of the principal of, premium, if any, or interest on any
exchange note (which may only be waived with the consent of each holder
of exchange notes affected) or
(2) in respect of a covenant or provision which under the indenture cannot
be modified or amended without the consent of the holder of each
exchange note affected by such modification or amendment. (Section
513)
No holder of any of the exchange notes has any right to institute any
proceedings with respect to the indenture or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount of the outstanding
exchange notes have made written request, and offered reasonable indemnity, to
the trustee to institute such proceeding as trustee under the exchange notes and
the indenture, the trustee has failed to institute such proceeding within 15
days after receipt of such notice and the trustee, within such 15-day period,
has not received directions inconsistent with such written request by holders of
a majority in aggregate principal amount of the outstanding exchange notes. Such
limitations do not, however, apply to a suit instituted by a holder of a
exchange note for the enforcement of the payment of the principal of, premium,
if any, or interest on such exchange note on or after the respective due dates
expressed in such exchange note. (Sections 507, 508)
Sleepmaster and Sleepmaster Finance Corporation are required to notify the
trustee within five business days of the occurrence of any Default. Sleepmaster
and Sleepmaster Finance Corporation are required to deliver to the trustee, on
or before a date not more than 60 days after the end of each fiscal quarter and
not more than 120 days after the end of each fiscal year, a written statement as
to compliance with the indenture, including whether or not any Default has
occurred. (Section 1021) The trustee is under no obligation to exercise any of
the rights or powers vested in it by the indenture at the request or direction
of any of the holders of the exchange notes unless such holders offer to the
trustee security or indemnity satisfactory to the trustee against the costs,
expenses and liabilities which might be incurred thereby. (Section 603)
The Trust Indenture Act of 1939 contains limitations on the rights of the
trustee, should it become a creditor of Sleepmaster, Sleepmaster Finance
Corporation or any guarantor, if any, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The trustee is permitted to engage in other
transactions, but if it acquires any
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conflicting interest it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
Sleepmaster and Sleepmaster Finance Corporation may, at their option and at
any time, elect to have the obligations of Sleepmaster and Sleepmaster Finance
Corporation, any guarantor and any other obligor upon the exchange notes
discharged with respect to the outstanding exchange notes. Such defeasance means
that Sleepmaster and Sleepmaster Finance Corporation, any such guarantor and any
other obligor under the indenture shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding exchange notes, except
for
(1) the rights of holders of such outstanding exchange notes to receive
payments in respect of the principal of, premium, if any, and interest
on such exchange notes when such payments are due,
(2) Sleepmaster and Sleepmaster Finance Corporation's obligations with
respect to the 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
(4) the defeasance provisions of the indenture.
In addition, Sleepmaster and Sleepmaster Finance Corporation may, at their
option and at any time, elect to have the obligations of Sleepmaster and
Sleepmaster Finance Corporation and any guarantor released with respect to
certain covenants that are described in the indenture and thereafter any
omission to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the exchange notes. In the event covenant
defeasance occurs, certain events (not including non-payment, bankruptcy and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the exchange notes. (Sections 401, 402 and
403)
In order to exercise either defeasance or covenant defeasance,
(a) Sleepmaster must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the exchange notes cash in United States
dollars, U.S. Government Obligations (as defined in the indenture), or
a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public
accountants or a nationally recognized investment banking firm, to pay
and discharge the principal of, premium, if any, and interest on the
outstanding exchange notes on the Stated Maturity (or on any date
after May 15, 2004 (such date being referred to as the "Defeasance
Redemption Date"), if at or prior to electing either defeasance or
covenant defeasance, Sleepmaster has delivered to the trustee an
irrevocable notice to redeem all of the outstanding exchange notes on
the Defeasance Redemption Date);
(b) in the case of defeasance, Sleepmaster shall have delivered to the
trustee an opinion of independent counsel in the United States stating
that
(A) Sleepmaster 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 independent counsel in the
United States 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 defeasance and will be
subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
defeasance had not occurred;
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(c) in the case of covenant defeasance, Sleepmaster shall have delivered
to the trustee an opinion of independent counsel in the United States
to the effect 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;
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as clauses (7) or (8) under the
first paragraph under "-- Events of Default" are concerned, at any
time during the period ending on the 91st day after the date of
deposit;
(e) such defeasance or covenant defeasance shall not cause the trustee for
the exchange notes to have a conflicting interest as defined in the
Indenture and for purposes of the Trust Indenture Act of 1939 with
respect to any securities of Sleepmaster, Sleepmaster Finance
Corporation or any guarantor;
(f) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a Default under, the indenture or any
other material agreement or instrument to which Sleepmaster,
Sleepmaster Finance Corporation, any guarantor or any Restricted
Subsidiary is a party or by which it is bound;
(g) such defeasance or covenant defeasance shall not result in the trust
arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless
such trust shall be registered under the Investment Company Act of
1940 or exempt from registration thereunder;
(h) Sleepmaster will have delivered to the trustee an opinion of
independent counsel in the United States 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;
(i) Sleepmaster shall have delivered to the trustee an officers'
certificate stating that the deposit was not made by Sleepmaster with
the intent of preferring the holders of the exchange notes or any
guarantee over the other creditors of Sleepmaster, Sleepmaster Finance
Corporation or any guarantor with the intent of defeating, hindering,
delaying or defrauding creditors of Sleepmaster, Sleepmaster Finance
Corporation, any guarantor or others;
(j) no event or condition shall exist that would prevent Sleepmaster and
Sleepmaster Finance Corporation from making payments of the principal
of, premium, if any, and interest on the exchange notes on the date of
such deposit or at any time ending on the 91st day after the date of
such deposit; and
(k) Sleepmaster will have delivered to the trustee an officers'
certificate and an opinion of independent counsel, each stating that
all conditions precedent (other than conditions which cannot be
satisfied for 91 days) provided for relating to either the defeasance
or the covenant defeasance, as the case may be, have been complied
with. (Section 404)
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
exchange notes as expressly provided for in the indenture) as to all outstanding
exchange notes under the indenture when
(a) either
(1) all such exchange notes theretofore authenticated and delivered
(except lost, stolen or destroyed exchange notes which have been
replaced or paid or exchange notes whose payment has been deposited
in trust or segregated and held in trust by Sleepmaster and
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thereafter repaid to Sleepmaster or discharged from such trust as provided for
in the indenture) have been delivered to the trustee for cancellation or
(2) all exchange notes not theretofore delivered to the trustee for
cancellation
(a) have become due and payable,
(b) will become due and payable at their Stated Maturity within one
year, or
(c) are to be called for redemption within one year under
arrangements satisfactory to the trustee for the giving of
notice of redemption by the trustee in the name, and at the
expense, of Sleepmaster;
(b) Sleepmaster, Sleepmaster Finance Corporation or any guarantor has
irrevocably deposited or caused to be deposited with the trustee as
trust funds in trust an amount in United States dollars sufficient to
pay and discharge the entire indebtedness on the exchange notes not
theretofore delivered to the trustee for cancellation, including
principal of, premium, if any, and accrued interest at such Maturity,
Stated Maturity or redemption date;
(c) Sleepmaster, Sleepmaster Finance Corporation or any guarantor has paid
or caused to be paid all other sums payable under the indenture by
Sleepmaster and any guarantor; and
(d) Sleepmaster and Sleepmaster Finance Corporation have delivered to the
trustee an officers' certificate and an opinion of independent counsel
each stating that
(1) all conditions precedent under the indenture relating to the
satisfaction and discharge of such indenture have been complied
with and
(2) such satisfaction and discharge will not result in a breach or
violation of, or constitute a default under, the indenture or any
other material agreement or instrument to which Sleepmaster,
Sleepmaster Finance Corporation, any guarantor or any Subsidiary is
a party or by which Sleepmaster, Sleepmaster Finance Corporation,
any guarantor or any Subsidiary is bound. (Section 1301)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the indenture may be made by Sleepmaster,
Sleepmaster Finance Corporation, each guarantor, if any, and the trustee with
the consent of the holders of at least a majority in aggregate principal amount
of the exchange notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for exchange notes); provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding exchange note affected thereby:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, or change to an earlier date any redemption date of, or
waive a default in the payment of the principal of, premium, if any, or
interest on, any such exchange note or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the
principal of any such exchange note or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or,
in the case of redemption, on or after the redemption date);
(2) amend, change or modify the obligation of Sleepmaster and Sleepmaster
Finance Corporation to make and consummate an offer with respect to any
Asset Sale or Asset Sales in accordance with
"-- Covenants -- Limitation on Sale of Assets" or the obligation of
Sleepmaster and Sleepmaster Finance Corporation to make and consummate
a change of control offer in the event of a change of control in
accordance with "-- Purchase of Notes Upon a Change of Control,"
including, in each case, amending, changing or modifying any
definitions related thereto;
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(3) reduce the percentage in principal amount of such outstanding exchange
notes, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for
any waiver or compliance with certain provisions of the indenture;
(4) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past
defaults or relating to the waiver of certain covenants, except to
increase the percentage of such outstanding exchange notes required for
such actions or to provide that certain other provisions of the
indenture cannot be modified or waived without the consent of the
holder of each such exchange note affected thereby;
(5) except as otherwise permitted under "-- Consolidation, Merger, Sale of
Assets," consent to the assignment or transfer by Sleepmaster,
Sleepmaster Finance Corporation or any guarantor of any of its rights
and obligations under the indenture; or
(6) amend or modify any of the provisions of the indenture relating to the
subordination of the exchange notes or any guarantee in any manner
adverse to the holders of the exchange notes or any guarantee. (Section
902)
Notwithstanding the foregoing, without the consent of any holders of the
exchange notes, Sleepmaster, Sleepmaster Finance Corporation, any guarantor, any
other obligor under the exchange notes and the trustee may modify or amend the
indenture:
(1) to evidence the succession of another Person to Sleepmaster,
Sleepmaster Finance Corporation or a guarantor, and the assumption by
any such successor of the covenants of Sleepmaster, Sleepmaster Finance
Corporation or such guarantor in the indenture and in the exchange
notes and in any guarantee in accordance with "-- Consolidation,
Merger, Sale of Assets;"
(2) to add to the covenants of Sleepmaster, Sleepmaster Finance
Corporation, any guarantor or any other obligor upon the exchange notes
for the benefit of the holders of the exchange notes or to surrender
any right or power conferred upon Sleepmaster, Sleepmaster Finance
Corporation or any guarantor or any other obligor upon the exchange
notes, as applicable, in the indenture, in the exchange notes or in any
guarantee;
(3) to cure any ambiguity, or to correct or supplement any provision in the
indenture, the exchange notes or any guarantee which may be defective
or inconsistent with any other provision in the indenture, the exchange
notes or any guarantee or make any other provisions with respect to
matters or questions arising under the indenture, the exchange notes or
any guarantee; provided that, in each case, such provisions shall not
adversely affect the interest of the holders of the exchange notes;
(4) to comply with the requirements of the Securities and Exchange
Commission in order to effect or maintain the qualification of the
indenture under the Trust Indenture Act of 1939;
(5) to add a guarantor under the indenture;
(6) to evidence and provide the acceptance of the appointment of a
successor trustee under the indenture; or
(7) to mortgage, pledge, hypothecate or grant a security interest in favor
of the trustee for the benefit of the holders of the exchange notes as
additional security for the payment and performance of Sleepmaster's
and any guarantor's obligations under the indenture, in any property,
or assets, including any of which are required to be mortgaged, pledged
or hypothecated, or in which a security interest is required to be
granted to the trustee pursuant to the indenture or otherwise. (Section
901)
The holders of a majority in aggregate principal amount of the exchange
notes outstanding may waive compliance with certain restrictive covenants and
provisions of the indenture. (Section 1021)
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GOVERNING LAW
The indenture, the exchange notes and any Guarantee will be governed by,
and construed in accordance with, the laws of the State of New York, without
giving effect to the conflicts of law principles thereof.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of Sleepmaster or Sleepmaster Finance Corporation,
to obtain payment of claims in certain cases, or to realize on certain 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 it must eliminate such conflict within 90 days, apply to
the Securities and Exchange Commission for permission to continue as trustee
with such conflict or resign as trustee. (Sections 608 and 613)
The holders of a majority in principal amount of the then outstanding
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 certain exceptions. The indenture provides that in case an Event of
Default occurs (which has not been cured), 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 exchange notes unless such holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense. (Section 512, 601, 603)
DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person
(1) existing at the time such Person becomes a Restricted Subsidiary or
(2) assumed in connection with the acquisition of assets from such Person,
in each case, other than Indebtedness incurred in connection with, or
in contemplation of, such Person becoming a Restricted Subsidiary or
such acquisition, as the case may be.
Acquired Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary, as the case may be.
"AFFILIATE" means, with respect to any specified Person:
(1) any other Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified Person;
(2) any other Person that owns, directly or indirectly, 10% or more of any
class or series of such specified Person's (or any of such Person's
direct or indirect parent's) Capital Stock or any officer or director
of any such specified Person or other Person or, with respect to any
natural Person, any person having a relationship with such Person by
blood, marriage or adoption not more remote than first cousin; or
(3) any other Person 10% or more of the Voting Stock of which is
beneficially owned or held directly or indirectly by such specified
Person.
For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
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"ASSET SALE" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of:
(1) any Capital Stock of any Restricted Subsidiary;
(2) all or substantially all of the properties and assets of any division
or line of business of Sleepmaster or any Restricted Subsidiary; or
(3) any other properties or assets of Sleepmaster or any Restricted
Subsidiary other than in the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not
include any transfer of properties and assets
(A) that is governed by the provisions described under "Consolidation,
Merger, Sale of Assets,"
(B) that is by Sleepmaster to any Majority Owned Restricted Subsidiary, or
by any Restricted Subsidiary to Sleepmaster or any Majority Owned
Restricted Subsidiary in accordance with the terms of the indenture,
(C) to an Unrestricted Subsidiary to the extent permitted by the terms of
"-- Covenants -- Limitation on Restricted Payments,"
(D) that is of obsolete equipment in the ordinary course of business, or
(E) the Fair Market Value of which in the aggregate does not exceed
$500,000 in any transaction or series of related transactions.
"AVERAGE LIFE TO STATED MATURITY" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing
(1) the sum of the products of
(a) the number of years from the date of determination to the date or
dates of each successive scheduled principal payment of such
Indebtedness multiplied by
(b) the amount of each such principal payment by
(2) the sum of all such principal payments.
"BANKRUPTCY LAW" means Title 11, United States Bankruptcy Code of 1978, or
any similar United States federal or state law or foreign law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"CAPITAL LEASE OBLIGATION" of any Person means any obligation of such
Person and its Restricted Subsidiaries on a Consolidated basis under any capital
lease of (or other agreement conveying the right to use) real or personal
property which, in accordance with GAAP, is required to be recorded as a
capitalized lease obligation.
"CAPITAL STOCK" of any Person means any and all shares, interests,
participations, rights in or other equivalents (however designated) of such
Person's capital stock, other equity interests whether now outstanding or issued
after the date of the indenture, partnership or membership interests (whether
general or limited), limited liability company interests, any other interest or
participation that confers on a Person that right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person,
including any Preferred Stock, and any rights (other than debt securities
convertible into Capital Stock), warrants or options exchangeable for or
convertible into such Capital Stock.
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"CASH EQUIVALENT" means
(1) securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of
America is pledged in support thereof) in each case maturing within one
year after the closing of the offering,
(2) time deposits and certificates of deposit and commercial paper issued
by the parent corporation of any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million and
commercial paper issued by others rated at least A-2 or the equivalent
thereof by Standard & Poor's Ratings Group or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the closing of the offering and
(3) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (1) and (2)
above.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(1) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934), other than Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that
a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of
Sleepmaster or Sleepmaster Finance Corporation;
(2) during any period of two consecutive years, individuals who
(a) at the beginning of such period constituted the board of directors
of Sleepmaster or Sleepmaster Finance Corporation (together with
any new directors whose election to such board or whose nomination
for election by the stockholders of Sleepmaster or Sleepmaster
Finance Corporation was approved by a vote of a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of such board of directors then in office or
(b) were designated by the Permitted Holders cease for any reason to
constitute a majority of such board of directors then in office;
(3) Sleepmaster or Sleepmaster Finance Corporation consolidates with or
merges with or into any Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets
to any Person, or any Person consolidates with or merges into or with
Sleepmaster or Sleepmaster Finance Corporation, in any such event
pursuant to a transaction in which the outstanding Voting Stock of
Sleepmaster or Sleepmaster Finance Corporation is converted into or
exchanged for cash, securities or other property, other than any such
transaction where
(A) the outstanding Voting Stock of Sleepmaster or Sleepmaster Finance
Corporation is changed into or exchanged for
(1) Voting Stock of the surviving corporation which is not Redeemable
Capital Stock or
(2) cash, securities and other property (other than Capital Stock of
the surviving corporation) in an amount which could be paid by
Sleepmaster as a Restricted Payment as described under
"-- Covenants -- Limitation on Restricted Payments" (and such
amount shall be treated as a Restricted Payment subject to the
provisions in the indenture described under
"-- Covenants -- Limitation on Restricted Payments") and
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(B) immediately after such transaction, no "person" or "group," other
than Permitted Holders, is the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934, except
that a person shall be deemed to have beneficial ownership of all
securities that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding
Voting Stock of the surviving corporation; or
(4) Sleepmaster or Sleepmaster Finance Corporation is liquidated or
dissolved or adopts a plan of liquidation or dissolution other than in
a transaction which complies with the provisions described under
" -- Consolidation, Merger, Sale of Assets."
For purposes of this definition, any transfer of an equity interest of an entity
that was formed for the purpose of acquiring voting stock of Sleepmaster or
Sleepmaster Finance Corporation will be deemed to be a transfer of such portion
of such voting stock as corresponds to the portion of the equity of such entity
that has been so transferred.
"COMPARABLE TREASURY ISSUE" means the United States Treasury Security
selected by an Independent Investment Banker, having a maturity comparable to
the first redemption date of the exchange notes, that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of a comparable maturity to the
first redemption date of such exchange notes. "Independent Investment Banker"
means one of the Reference Treasury Dealers appointed by the trustee after
consultation with Sleepmaster and Sleepmaster Finance Corporation.
"COMPARABLE TREASURY PRICE" means, with respect to any redemption date,
(A) the average of the Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or
(B) if the trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such quotations. "Reference Treasury
Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the
trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted
in writing to the trustee by such Reference Treasury Dealer at 3:30
p.m., New York time, on the third business day preceding such
redemption date.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" of any Person means, for any
period, the ratio of
(a) the sum of:
(1) Consolidated Net Income (Loss), and in each case to the extent
deducted in computing Consolidated Net Income (Loss) for such
period,
(2) Consolidated Interest Expense,
(3) Consolidated Income Tax Expense and
(4) Consolidated Non-cash Charges for such period,
of such Person and its Restricted Subsidiaries on a Consolidated basis,
all determined in accordance with GAAP, less
(1) all noncash items increasing Consolidated Net Income for such period
and
(2) all cash payments during such period relating to noncash charges
that were added back to Consolidated Net Income in determining the
Consolidated Fixed Charge Coverage Ratio in any prior period to
(b) the sum of Consolidated Interest Expense for such period and cash plus
noncash dividends (except for dividends on Qualified Capital Stock paid
in shares of Qualified Capital Stock) paid on any Preferred Stock of
such Person and its Restricted Subsidiaries on a Consolidated basis
during such period,
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in each case after giving pro forma effect (as calculated in accordance
with Article 11 of Regulation S-X under the Securities Act of 1933 as in
effect on the date of the Indenture) to
(1) the incurrence of the Indebtedness giving rise to the need to make such
calculation and (if applicable) the application of the net proceeds
therefrom, including to refinance other Indebtedness, as if such
Indebtedness was incurred, and the application of such proceeds
occurred, on the first day of such period;
(2) the incurrence, repayment or retirement of any other Indebtedness by
Sleepmaster and Sleepmaster Finance Corporation and their Restricted
Subsidiaries since the first day of such period as if such Indebtedness
was incurred, repaid or retired at the beginning of such period (except
that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average
daily balance of such Indebtedness during such period);
(3) in the case of Acquired Indebtedness or any acquisition occurring at
the time of the incurrence of such Indebtedness, the related
acquisition, assuming such acquisition had been consummated on the
first day of such period; and
(4) any acquisition or disposition by Sleepmaster and Sleepmaster Finance
Corporation and their Restricted Subsidiaries of any company or any
business or any assets out of the ordinary course of business, whether
by merger, stock purchase or sale or asset purchase or sale, or any
related repayment of Indebtedness, in each case since the first day of
such period, assuming such acquisition or disposition had been
consummated on the first day of such period;
provided that
(1) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma
basis and
(A) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate
for the entire period and
(B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of such
Person, a fixed or floating rate of interest, shall be computed by
applying at the option of such Person either the fixed or floating
rate and
(2) in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the
applicable period.
"CONSOLIDATED INCOME TAX EXPENSE" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person and
its Consolidated Restricted Subsidiaries for such period as determined in
accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" of any Person means, without duplication,
for any period, the sum of
(a) the interest expense of such Person and its Restricted Subsidiaries for
such period, on a Consolidated basis, including, without limitation,
(1) amortization of debt discount,
(2) the net costs associated with Interest Rate Agreements and Currency
Hedging Agreements (including amortization of discounts),
(3) the interest portion of any deferred payment obligation,
(4) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers acceptance financing and
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(5) accrued interest, plus
(b) (1) the interest component of the Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and
its Restricted Subsidiaries during such period and
(2) all capitalized interest of such Person and its Restricted
Subsidiaries, plus
(c) the interest expense under any Guaranteed Debt of such Person and any
Restricted Subsidiary to the extent not included under clause (a)(4)
above, whether or not paid by such Person or its Restricted
Subsidiaries, less
(d) for purposes of calculating the Consolidated Fixed Charge Coverage
Ratio, amortization of deferred financing costs incurred in connection
with the offering of the exchange notes (other than any additional
exchange notes), entering into of the credit facility as in effect on
the date of the indenture and the transactions related thereto and any
other deferred financing costs incurred prior to the date of the
indenture.
"CONSOLIDATED NET INCOME (LOSS)" of any Person means, for any period, the
Consolidated net income (or loss) of such Person and its Restricted Subsidiaries
for such period on a Consolidated basis as determined in accordance with GAAP,
adjusted, to the extent included in calculating such net income (or loss), by
excluding, without duplication,
(1) all extraordinary gains or losses net of taxes (less all fees and
expenses relating thereto),
(2) the portion of net income (or loss) of such Person and its Restricted
Subsidiaries on a Consolidated basis allocable to minority interests in
unconsolidated Persons or Unrestricted Subsidiaries to the extent that
cash dividends or distributions have not actually been received by such
Person or one of its Consolidated Restricted Subsidiaries,
(3) net income (or loss) of any Person combined with such Person or any of
its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination,
(4) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan,
(5) gains or losses, net of taxes (less all fees and expenses relating
thereto), in respect of dispositions of assets other than in the
ordinary course of business,
(6) the net income of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, 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,
(7) any restoration to net income of any contingency reserve, except to the
extent provision for such reserve was made out of income accrued at any
time following the date of the indenture, or
(8) any net gain arising from the acquisition of any securities or
extinguishment, under GAAP, of any Indebtedness of such Person.
"CONSOLIDATED NET TANGIBLE ASSETS" of any Person means as of any date of
determination, the total assets, less goodwill, patents, trade names, trade
marks, copyrights, franchises and other intangible assets, and less deferred tax
assets, if any, in each case as shown on the balance sheet of Sleepmaster and
its Restricted Subsidiaries for the most recently ended fiscal quarter for which
financial statements are available, determined on a consolidated basis in
accordance with GAAP.
"CONSOLIDATED NON-CASH CHARGES" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Restricted Subsidiaries on a Consolidated basis for such period, as
determined in accordance with GAAP (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period).
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"CONSOLIDATION" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its Restricted Subsidiaries would normally
be consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"CURRENCY HEDGING AGREEMENTS" means one or more of the following agreements
which shall be entered into by one or more financial institutions: foreign
exchange contracts, currency swap agreements or other similar agreements or
arrangements designed to protect against the fluctuations in currency values.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or series
of related transactions, a member of the board of directors of Sleepmaster who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"ESCROW AGREEMENT" means the Escrow Agreement, dated as of the date of the
indenture, among Sleepmaster, Finance Corporation and the trustee.
"FAIR MARKET VALUE" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length free market transaction between
an informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair Market Value shall be determined
by the board of directors of Sleepmaster acting in good faith and shall be
evidenced by a resolution of the board of directors.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of the indenture.
"GUARANTEE" means the guarantee by any guarantor of Sleepmaster's and
Sleepmaster Finance Corporation's Indenture Obligations.
"GUARANTEED DEBT" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement
(1) to pay or purchase such Indebtedness or to advance or supply funds for
the payment or purchase of such Indebtedness,
(2) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the
debtor to make payment of such Indebtedness or to assure the holder of
such Indebtedness against loss,
(3) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without
requiring that such property be received or such services be rendered),
(4) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial
condition of the debtor or to cause such debtor to achieve certain
levels of financial performance or
(5) otherwise to assure a creditor against loss;
provided that the term "guarantee" shall not include endorsements for collection
or deposit, in either case in the ordinary course of business.
"INDEBTEDNESS" means, with respect to any Person, without duplication,
(1) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course
of business, but including, without limitation, all obligations,
contingent or
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otherwise, of such Person in connection with any letters of credit
issued under letter of credit facilities, acceptance facilities or
other similar facilities,
(2) all obligations of such Person evidenced by bonds, notes, debentures
or other similar instruments,
(3) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by
such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade payables
arising in the ordinary course of business,
(4) all obligations under Interest Rate Agreements or Currency Hedging
Agreements of such Person,
(5) all Capital Lease Obligations of such Person,
(6) all Indebtedness referred to in clauses (1) through (5) above of other
Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien,
upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such
Indebtedness,
(7) all Guaranteed Debt of such Person,
(8) all Redeemable Capital Stock issued by such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends,
(9) Preferred Stock of any Restricted Subsidiary of Sleepmaster or any
guarantor and
(10) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing of any liability of the types referred to in
clauses (1) through (9) above.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the indenture, and if such price is
based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"INDENTURE OBLIGATIONS" means the obligations of the Issuers and any other
obligor under the indenture or under the exchange notes, including any
guarantor, to pay principal of, premium, if any, and interest when due and
payable, and all other amounts due or to become due under or in connection with
the indenture, the exchange notes and the performance of all other obligations
to the trustee and the holders under the indenture and the exchange notes,
according to the respective terms thereof.
"INTEREST RATE AGREEMENTS" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"INVESTMENT" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"ISSUE DATE" means the original issue date of the exchange notes under the
indenture.
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"LIEN" means any mortgage or deed of trust, charge, pledge, lien (statutory
or otherwise), privilege, security interest, assignment, deposit, arrangement,
easement, hypothecation, claim, preference, priority or other encumbrance upon
or with respect to any property of any kind (including any conditional sale,
capital lease or other title retention agreement, any leases in the nature
thereof, and any agreement to give any security interest), real or personal,
movable or immovable, now owned or hereafter acquired. A Person will be deemed
to own subject to a Lien any property which it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement,
Capitalized Lease Obligation or other title retention agreement.
"MAJORITY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary at
least 90% of the Capital Stock of which is owned beneficially by Sleepmaster.
"MATURITY" means, when used with respect to the exchange notes, the date on
which the principal of the exchange notes becomes due and payable as therein
provided or as provided in the indenture, whether at Stated Maturity, the Offer
Date or the redemption date and whether by declaration of acceleration, offer in
respect of Excess Proceeds, change of control offer in respect of a change of
control, call for redemption or otherwise.
"NET CASH PROCEEDS" means with respect to any Asset Sale by any Person, the
proceeds thereof (without duplication in respect of all Asset Sales) in the form
of cash or Temporary Cash Investments including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets when
disposed of for, cash or Temporary Cash Investments (except to the extent that
such obligations are financed or sold with recourse to Sleepmaster or any
Restricted Subsidiary) net of
(1) brokerage commissions and other reasonable fees and expenses (including
fees and expenses of counsel and investment bankers) related to such
Asset Sale,
(2) provisions for all taxes payable as a result of such Asset Sale,
(3) payments made to retire Indebtedness where payment of such Indebtedness
is secured by the assets or properties the subject of such Asset Sale,
(4) amounts required to be paid to any Person (other than Sleepmaster or
any Restricted Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale and
(5) appropriate amounts to be provided by Sleepmaster or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by
Sleepmaster or any Restricted Subsidiary, as the case may be, after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an
officers' certificate delivered to the trustee.
"PARI PASSU INDEBTEDNESS" means
(a) with respect to Sleepmaster, any Indebtedness of Sleepmaster that is
equal in right of payment to the exchange notes,
(b) with respect to Sleepmaster Finance Corporation, any Indebtedness of
Sleepmaster Finance Corporation that is equal in right of payment to
the exchange notes and
(c) with respect to any guarantee, Indebtedness which ranks equal in right
of payment to such guarantee.
"PERMITTED HOLDERS" means
(1) Citicorp Venture Capital, Ltd., a New York Corporation, and its
Affiliates (provided that for purposes of this provision only the
definition of "Affiliate" shall not include clauses (2) or (3) included
in the definition thereof) and
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(2) Charles Schweitzer, James Koscica, Michael Reilly, Timothy Dupont and
Michael Bubis, their respective spouses and children, and trusts for
their benefit or for the benefit of their spouses and/or children.
"PERMITTED INVESTMENT" means
(1) Investments in any Majority Owned Restricted Subsidiary or any Person
which, as a result of such Investment,
(a) becomes a Majority Owned Restricted Subsidiary or
(b) is merged or consolidated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into,
Sleepmaster or any Majority Owned Restricted Subsidiary;
(2) Indebtedness of Sleepmaster or a Restricted Subsidiary described under
clauses (4), (5) and (6) of the definition of "Permitted Indebtedness;"
(3) Investments in any of the exchange notes;
(4) Temporary Cash Investments;
(5) Investments acquired by Sleepmaster or any Restricted Subsidiary in
connection with an Asset Sale permitted under
"-- Covenants -- Limitation on Sale of Assets" to the extent such
Investments are non-cash proceeds as permitted under such covenant;
(6) Investments in existence on the date of the indenture; and
(7) Investments, in addition to those listed above, not to exceed $5
million at any one time outstanding.
In connection with any assets or property contributed or transferred to any
Person as an Investment, such property and assets shall be equal to the Fair
Market Value (as determined by Sleepmaster's board of directors) at the time of
Investment.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of common
stock (other than Redeemable Capital Stock) of Sleepmaster with gross proceeds
to Sleepmaster of at least $40 million pursuant to a registration statement that
has been declared effective by the Securities and Exchange Commission pursuant
to the Securities Act of 1933 (other than a registration statement on Form S-4
(or any successor form covering substantially the same transactions), Form S-8
(or any successor form covering substantially the same transactions) or
otherwise relating to equity securities issuable under any employee benefit plan
of Sleepmaster).
"PURCHASE MONEY OBLIGATION" means any Indebtedness secured by a Lien on
assets related to the business of Sleepmaster and any additions and accessions
thereto, which are purchased by Sleepmaster at any time after the exchange notes
are issued; provided that
(1) the security agreement or conditional sales or other title retention
contract pursuant to which the Lien on such assets is created
(collectively a "Purchase Money Security Agreement") shall be entered
into within 90 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely
to the assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom,
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(2) at no time shall the aggregate principal amount of the outstanding
Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions thereto and except in respect
of fees and other obligations in respect of such Indebtedness and
(3) (A) the aggregate outstanding principal amount of Indebtedness secured
thereby (determined on a per asset basis in the case of any
additions and accessions) shall not at the time such Purchase Money
Security Agreement is entered into exceed 100% of the purchase
price to Sleepmaster of the assets subject thereto or
(B) the Indebtedness secured thereby shall be with recourse solely to
the assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom.
"QUALIFIED CAPITAL STOCK" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"REDEEMABLE CAPITAL STOCK" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be, required to be redeemed prior to the final Stated Maturity of the
principal of the exchange notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity (other than upon a
change of control of Sleepmaster or Sleepmaster Finance Corporation. in
circumstances where the holders of the exchange notes would have similar
rights), or is convertible into or exchangeable for debt securities at any time
prior to such final Stated Maturity at the option of the holder thereof.
"REFERENCE TREASURY DEALER" means each of Merrill Lynch, Pierce, Fenner &
Smith Incorporated and three other primary U.S. Government securities dealers in
The City of New York to be selected by Sleepmaster and their respective
successors.
"RESTRICTED SUBSIDIARY" means any Subsidiary of Sleepmaster that has not
been designated by the board of directors of Sleepmaster by a board resolution
delivered to the trustee as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "-- Covenants -- Limitation on
Unrestricted Subsidiaries."
"SECURITIES ACT OF 1933" means the Securities Act of 1933, as amended, or
any successor statute, and the rules and regulations promulgated by the
Securities and Exchange Commission thereunder.
"SECURITIES AND EXCHANGE COMMISSION" means the Securities and Exchange
Commission, as from time to time constituted, created under the Securities
Exchange Act of 1934, or if at any time after the execution of the indenture
such Securities and Exchange Commission is not existing and performing the
duties now assigned to it under the Securities Act of 1933, Securities and
Exchange Act of 1934 and Trust Indenture Act of 1939 then the body performing
such duties at such time.
"SECURITIES EXCHANGE ACT OF 1934" means the Securities Exchange Act of
1934, or any successor statute, and the rules and regulations promulgated by the
Securities and Exchange Commission thereunder.
"SLEEP INVESTOR PROMISSORY NOTES" means the Junior Subordinated Notes,
dated November 14, 1996, as in effect on the date of the indenture, of Sleep
Investor L.L.C. issued to each of the individuals and entities listed on a
schedule to the indenture.
"SLEEPMASTER FINANCE CORPORATION" means Sleepmaster Finance Corporation, a
corporation organized under the laws of Delaware, until a successor Person shall
have become such pursuant to the applicable provisions of the indenture.
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"SPECIAL PREFERRED STOCK" means Preferred Stock of Sleepmaster, in an
aggregate amount not to exceed $40 million, which after the Issue Date is issued
to and held solely by Citicorp Venture Capital Ltd. or Sleepmaster Holdings
L.L.C., provided that
(1) dividends on such Preferred Stock are not payable until the earlier of
the Stated Maturity of the exchange notes and the date on which the
exchange notes have been repaid in full and
(2) such Preferred Stock is not Redeemable Capital Stock.
"STATED MATURITY" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as the
fixed date on which the principal of such Indebtedness or such installment of
interest, as the case may be, is due and payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of Sleepmaster Finance
Corporation or a guarantor subordinated in right of payment to the exchange
notes or a guarantee, as the case may be.
"SUBSIDIARY" of a Person means
(1) any corporation more than 50% of the outstanding voting power of the
Voting Stock of which is owned or controlled, directly or indirectly,
by such Person or by one or more other Subsidiaries of such Person, or
by such Person and one or more other Subsidiaries thereof, or
(2) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or
(3) any other Person in which such Person, or one or more other
Subsidiaries of such Person, or such Person and one or more other
Subsidiaries, directly or indirectly, has more than 50% of the
outstanding partnership or similar interests or has the power, by
contract or otherwise, to direct or cause the direction of the
policies, management and affairs thereof.
"TAX AMOUNTS" means, with respect to a calendar year or portion thereof, an
amount equal to the sum of
(1) the Federal income tax that would be imposed on the Taxable Income (as
defined below) of Sleepmaster for such calendar year or portion thereof
at the highest marginal tax rate applicable to corporate taxpayers in
such calendar year or portion thereof, and
(2) the state and local income tax that would be imposed on the Taxable
Income of Sleepmaster for such calendar year or portion thereof in the
state and local jurisdictions in which Sleepmaster qualifies as a
corporation within the meaning of state and local provisions which are
analogous to Section 7701 of the Internal Revenue Code, at the highest
marginal tax rates applicable to corporate taxpayers in such
jurisdictions,
in each case computed taking into account all available deductions or credits
for federal, state or local income tax purposes of state and local income taxes
described in clause (2) (such rate, the "Applicable Tax Rate").
"TAXABLE INCOME" means the taxable income of Sleepmaster computed as if
Sleepmaster filed a tax return for such calendar year as the parent of a
consolidated group of corporations that includes Sleepmaster and each domestic
Subsidiary of Sleepmaster (provided that any amount distributed by Sleepmaster
to Sleepmaster Holdings L.L.C. to allow Sleep Investor LLC to make current cash
interest payments on the Sleep Investor Promissory Notes shall be treated as a
deduction from Taxable Income), except that such taxable income shall be reduced
by any tax losses of Sleepmaster for prior years which actually are available to
offset the taxable income of Sleepmaster and were not previously taken into
account hereunder for prior years.
"TEMPORARY CASH INVESTMENTS" means
(1) any evidence of Indebtedness, maturing not more than one year after the
date of acquisition, issued by the United States of America, or an
instrumentality or agency thereof, and guaranteed
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fully as to principal, premium, if any, and interest by the full faith
and credit of the United States of America,
(2) any certificate of deposit, maturing not more than one year after the
date of acquisition, issued by, or time deposit of, a commercial
banking institution that is a member of the Federal Reserve System and
that has combined capital and surplus and undivided profits of not less
than $500 million, whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. ("Moody's") or any successor rating agency or
"A-1" (or higher) according to Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P") or any successor
rating agency,
(3) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate or
Subsidiary of Sleepmaster) organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia
with a rating, at the time as of which any investment therein is made,
of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P and
(4) any money market deposit accounts issued or offered by a domestic
commercial bank having capital and surplus in excess of $500 million;
provided that the short term debt of such commercial bank has a rating,
at the time of Investment, of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P.
"TREASURY RATE" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"TRUST INDENTURE ACT OF 1939" means the Trust Indenture Act of 1939, as
amended, or any successor statute.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Sleepmaster (other than a
guarantor) designated as such pursuant to and in compliance with the covenant
described under "-- Covenants -- Limitation on Unrestricted Subsidiaries."
"UNRESTRICTED SUBSIDIARY INDEBTEDNESS" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary
(1) as to which neither Sleepmaster, Sleepmaster Finance Corporation nor
any Restricted Subsidiary is directly or indirectly liable (by virtue
of Sleepmaster, Sleepmaster Finance Corporation or any such Restricted
Subsidiary being the primary obligor on, guarantor of, or otherwise
liable in any respect to, such Indebtedness), except Guaranteed Debt of
Sleepmaster, Sleepmaster Finance Corporation or any Restricted
Subsidiary to any Affiliate, in which case (unless the incurrence of
such Guaranteed Debt resulted in a Restricted Payment at the time of
incurrence) Sleepmaster shall be deemed to have made a Restricted
Payment equal to the principal amount of any such Indebtedness to the
extent guaranteed at the time such Affiliate is designated an
Unrestricted Subsidiary and
(2) which, upon the occurrence of a default with respect thereto, does not
result in, or permit any holder of any Indebtedness of Sleepmaster,
Sleepmaster Finance Corporation or any Subsidiary to declare, a default
on such Indebtedness of Sleepmaster, Sleepmaster Finance Corporation or
any Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity; provided that
notwithstanding the foregoing any Unrestricted Subsidiary may guarantee
the exchange notes.
"VOTING STOCK" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at
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the time Capital Stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means a Restricted Subsidiary all the
Capital Stock (other than directors' qualifying shares or shares of foreign
Restricted Subsidiaries required to be owned by foreign nationals pursuant to
applicable law) of which is owned by Sleepmaster or another Wholly Owned
Restricted Subsidiary.
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EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all notes validly
tendered and not withdrawn 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. However, notes may be tendered only in integral multiples of
$1,000.
The form and terms of the exchange notes are the same as the form and terms
of the notes except that:
(1) the exchange notes have been registered under the Securities Act of
1933 and hence will not bear legends restricting their transfer
thereof; and
(2) the holders of the exchange notes will not be entitled to rights under
the registration rights agreement. These rights include the provisions
for an increase in the interest rate on the notes in some circumstances
relating to the timing of the exchange offer. All of these rights will
terminate when the exchange offer is terminated. The exchange notes
will evidence the same debt as the notes. Holders of exchange notes
will be entitled to the benefits of the indenture.
As of the date of this prospectus, $115.0 million aggregate principal
amount of notes was outstanding. 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.
We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
We shall be deemed to have accepted validly tendered notes when, as and if
we have given oral or written notice to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the
exchange notes from the issuers.
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, we will return the certificates for any unaccepted notes, at our
expense, to the tendering holder as promptly as practicable after the expiration
date.
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 transfer taxes in some circumstances, in
connection with the exchange offer as described under the subheading "-- Fees
and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
[ ], 1999, unless we extend the exchange offer. In that case, the term
"expiration date" shall mean the latest date and time to which the exchange
offer is extended. Notwithstanding the foregoing, we will not extend the
expiration date beyond [ ], 1999.
In order to extend the exchange offer, prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date,
we will:
(1) notify the exchange agent of any extension by oral or written notice
and
(2) mail to the registered holders an announcement of any extension.
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We reserve the right, in our sole discretion,
(1) if any of the conditions set forth below under the heading "Conditions"
shall not have been satisfied,
(A) to delay accepting any notes,
(B) to extend the exchange offer or
(C) to terminate the exchange offer, or
(2) to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice of delay to the registered
holders. We will give oral or written notice of any delay, extension or
termination to the exchange agent.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Holders
of notes that are accepted for exchange will receive, in cash, accrued interest
on the exchange notes to, but not including, the date of issuance of the
exchange notes. We will make the first interest payment on the exchange notes on
November 15, 1999. Interest on the notes accepted for exchange will cease to
accrue upon issuance of the exchange notes.
Interest on the exchange notes is payable semi-annually on each May 15 and
November 15, commencing on November 15, 1999.
PROCEDURES FOR TENDERING OLD NOTES
Only a holder of notes may tender notes in the exchange offer. To tender in
the exchange offer, a holder must
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal,
- have the signatures guaranteed if required by the letter of transmittal,
and
- mail or otherwise deliver the letter of transmittal or such facsimile,
together with the notes and any other required documents, to the exchange
agent prior to 5:00 p.m., New York City time, on the expiration date.
To tender notes effectively, the holder must complete the letter of transmittal
and other required documents and the exchange agent must receive all the
documents prior to 5:00 p.m., New York City time, on the expiration date.
Delivery of the notes may be made by book-entry transfer in accordance with the
procedures described below. The exchange agent must receive confirmation of
book-entry transfer prior to the expiration date.
The tender by a holder and the acceptance of the tender by us will
constitute agreement between the holder and us under the terms and subject to
the conditions set forth in this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF 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
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO US. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should promptly instruct the registered holder to tender on the beneficial
owner's behalf. See "Instruction to Registered Holder and/or Book-Entry Transfer
Facility Participant from Owner" included with the letter of transmittal.
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An institution that is a member firm of the Medallion system must guarantee
signatures on a letter of transmittal or a notice of withdrawal unless the notes
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 member firm of the Medallion system.
If the letter of transmittal is signed by a person other than the
registered holder of any notes listed in that letter of transmittal, the notes
must be endorsed or accompanied by a properly completed bond power, signed by
the registered holder as the registered holder's name appears on the notes. An
institution that is a member firm of the Medallion System must guarantee the
signature.
Trustees, executors, administrators, guardians, attorneys-in-fact, offices
of corporations or others acting in a fiduciary or representative capacity
should indicate their capacities when signing the letter of transmittal or any
notes or bond powers. Evidence satisfactory to us of their authority to so act
must be submitted with the letter of transmittal.
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, The Depository Trust Company, for the purpose
of facilitating the exchange offer. Subject to the establishment of the
accounts, any financial institution that is a participant in The Depository
Trust Company's system may make book-entry delivery of notes. To do so, the
financial institution should cause the book-entry transfer facility to transfer
the notes into the exchange agent's account with respect to the notes following
the book-entry transfer facility's procedures for transfer. Delivery of the
notes may be effected through book-entry transfer into the exchange agent's
account at the book-entry transfer facility. However, the holder must transmit
and the exchange agent must receive or confirm an appropriate letter of
transmittal properly completed and duly executed with any required signature
guarantee and all other required documents on or prior to the expiration date,
or, if the guaranteed delivery procedures described below are complied with,
within the time period provided under such procedures. Delivery of documents to
the book-entry transfer facility does not constitute delivery to the exchange
agent.
The Depositary and The Depository Trust Company have confirmed that the
exchange offer is eligible for The Depository Trust Company Automated Tender
Offer Program. Accordingly, The Depository Trust Company participants may
electronically transmit their acceptance of the exchange offer by causing The
Depository Trust Company to transfer notes to the depositary in accordance with
The Depository Trust Company's Automated Tender Offer Program procedures for
transfer. The Depository Trust Company will then send an "agent's message" to
the Depositary.
The term "agent's message" means a message transmitted by The Depository
Trust Company, received by the Depositary and forming part of the confirmation
of a book-entry transfer, which states that
(1) The Depository Trust Company has received an express acknowledgment
from the participant in The Depository Trust Company tendering notes
subject of the book-entry confirmation,
(2) the participant has received and agrees to be bound by the terms of the
letter of transmittal and
(3) 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 The Depository Trust Company and received by the
Depositary, which states that The Depository Trust Company has received an
express acknowledgment from the participant in The Depository Trust Company
tendering notes that such participant has received and agrees to be bound by the
notice of guaranteed delivery.
Notwithstanding the foregoing, in order to validly tender in the exchange
offer with respect to securities transferred through the Automated Tender Offer
Program, a The Depository Trust Company participant using Automated Tender Offer
Program must also properly complete and duly execute the applicable letter of
transmittal and deliver it to the Depositary.
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By the authority granted by The Depository Trust Company, any The
Depository Trust Company participant which has notes credited to its The
Depository Trust Company account at any time (and held of record by The
Depository Trust Company's nominee) may directly provide a tender as though it
were the registered holder by completing, executing and delivering the
applicable letter of transmittal to the Depositary. DELIVERY OF DOCUMENTS TO THE
DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
All questions as to the
- validity,
- form,
- eligibility (including time of receipt),
- acceptance of tendered notes and
- withdrawal of tendered notes
will be determined by us in our sole discretion. Our determination will be final
and binding. We reserve the absolute right to reject any and all notes not
properly tendered. We reserve the absolute right to reject any notes which would
be unlawful if accepted, in the opinion of our counsel. We also reserve the
right in our sole discretion 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. We intend to notify holders of defects or
irregularities with respect to tenders of notes. However, 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 properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the exchange agent to the tendering holders, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their notes and:
(1) whose notes are not immediately available;
(2) who cannot deliver their notes, the letter of transmittal or any other
required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date
may effect a tender if:
(1) they tender through an institution that is a member firm of the
Medallion system;
(2) prior to the expiration date, the exchange agent receives from an
institution that is a member firm of the Medallion system a properly
completed and duly executed notice of guaranteed delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address
of the holder, the certificate number(s) of such notes and the
principal amount of notes tendered, stating that the tender is being
made and guaranteeing that, within five New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or facsimile
thereof) together with the certificate(s) representing the notes (or a
confirmation of book-entry transfer of such notes into the exchange
agent's account at the book-entry transfer facility), and any other
documents required by the letter of transmittal will be deposited by
the firm with the exchange agent; and
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(3) the exchange agent receives
(A) such properly completed and executed letter of transmittal (of
facsimile thereof),
(B) the certificate(s) representing all tendered notes in proper form
for transfer (or a confirmation of book-entry transfer of such notes
into the exchange agent's account at the book-entry transfer
facility), and
(C) all other documents required by the letter of transmittal
upon five New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, we will send a notice of guaranteed
delivery to holders who wish to tender their notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders may withdraw
tenders of notes at any time prior to 5:00 p.m., New York City time, on the
expiration date. To 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 in this prospectus 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;
(2) identify the notes to be withdrawn (including the certificate number(s)
and principal amount of such notes, or, in the case of notes
transferred by book-entry transfer, the name and number of the account
at the book-entry transfer facility 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
transfer sufficient to have the trustee with respect to the notes
register the transfer of notes into the name of the person withdrawing
the tender; and
(4) specify the name in which any notes are to be registered, if different
from that of the person who deposited the notes.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination shall be final and
binding on all parties. We will not deem notes so withdrawn to have been validly
tendered for purposes of the exchange offer. We will not issue exchange notes
for withdrawn notes unless you validly retender the withdrawn notes. We will
return any notes which have been tendered but which are not accepted for
exchange to the holder of the notes at our cost as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. You may
retender properly withdrawn notes by following one of the procedures described
above under the heading "Procedures for Tendering Old Notes" at any time prior
to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange exchange notes for, any notes, and
may terminate or amend the exchange offer as provided in this prospectus before
the acceptance of the notes, if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our sole judgment, might materially impair our ability to
proceed with the exchange offer or any development has occurred in any
existing action or proceeding which may be harmful to us or any of our
subsidiaries; or
(2) any law, statute, rule, regulation or interpretation by the staff of
the Securities and Exchange Commission is proposed, adopted or enacted,
which, in our sole judgment, might impair our ability to proceed with
the exchange offer or impair the contemplated benefits of the exchange
offer to us; or
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(3) any governmental approval has not been obtained, which we believe, in
our sole discretion, is necessary for the consummation of the exchange
offer as outlined in this prospectus.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may:
(1) refuse to accept any notes and return all tendered notes to the
tendering holders;
(2) extend the exchange offer and retain all notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw their notes; or
(3) waive such unsatisfied conditions of the exchange offer and accept all
properly tendered notes which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the exchange
agent for the exchange offer. You should direct all
- executed letters of transmittal,
- questions,
- requests for assistance,
- requests for additional copies of this prospectus or of the letter of
transmittal and
- requests for Notices of Guaranteed Delivery
to the exchange agent addressed as follows:
<TABLE>
<S> <C> <C>
By Overnight Courier and By Hand: By Registered or
by Hand after 4:30 pm United States Trust Certified Mail:
on the Expiration Date: Company of New York United States Trust
United States Trust 111 Broadway, Lower Level Company of New York
Company of New York New York, New York 10006 P.O. Box 844
770 Broadway, 13th Floor Attn: Corporate Trust Services Cooper Station
New York, New York 10003 Via Facsimile: New York, New York 10276-0844
Attn: Corporate (212) 780-0592 Attn: Corporate
Trust Services Attn: Corporate Trust Services Trust Services
Confirm by Telephone:
(800) 548-6565
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are mailing the
principal solicitation. However, our officers and regular employees and those of
our affiliates may make additional solicitation by telegraph, telecopy,
telephone or in person.
We have not retained any dealer-manager in connection with the exchange
offer. We will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services. We will reimburse the exchange
agent for its reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
notes. The carrying value is face value, as reflected in our accounting records
on the date of exchange. Accordingly, we will recognize
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no gain or loss for accounting purposes. The expenses of the exchange offer will
be expensed over the term of the exchange notes.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the exchange. However, holders who
instruct us to register exchange notes in the name of, or request that old notes
not tendered or not accepted in the exchange offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax on that transfer.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF EXCHANGE NOTES
The notes that are not exchanged for exchange notes under the exchange
offer will remain restricted securities. Accordingly, those notes may be resold
only:
(1) to us (upon redemption of the notes or otherwise);
(2) so long as the notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States who is a qualified institutional
buyer according to Rule 144A under the Securities Act of 1933 or
pursuant to another exemption from the registration requirements of the
Securities Act of 1933, 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 of 1933; or
(4) under an effective registration statement under the Securities Act of
1933
in each case in accordance with any applicable securities laws of any state of
the United States.
RESALES OF THE EXCHANGE NOTES
Based on interpretations by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives exchange notes will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act of 1933 and without delivering a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933. The holder (other than
a person that is our "affiliate" within the meaning of Rule 405 under the
Securities Act of 1933) who receives exchange notes in exchange for notes in the
ordinary course of business and who is not participating, need not intend to
participate or have an arrangement or understanding with any person to
participate in the distribution of the exchange notes. However, if any holder
acquires exchange notes in the exchange offer for the purpose of distributing or
participating in a distribution of the exchange notes, the holder cannot rely on
the position of the staff of the Securities and Exchange Commission enunciated
in the no-action letters or any similar interpretive letters. A holder who
acquires exchange notes in order to distribute them must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each broker-dealer that receives exchange notes
for its own account in exchange for notes as a result of market-making
activities or other trading activities must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.
116
<PAGE> 121
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, including the opinion of counsel described below,
is based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, judicial authority and administrative
rulings and practice. The Internal Revenue Service may take a contrary view, and
no ruling from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the following statements and conditions. Any changes or interpretations
may or may not be retroactive and could affect the tax consequences to holders.
Some holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. We recommend that each holder consult his own tax advisor as to
the particular tax consequences of exchanging such holder's old notes for
exchange notes, including the applicability and effect of any state, local or
foreign tax laws.
Kirkland & Ellis, counsel to Sleepmaster LLC, has advised us that in its
opinion, the exchange of the old notes for exchange notes pursuant to the
exchange offer will not be treated as an "exchange" for federal income tax
purposes because the exchange notes will not be considered to differ materially
in kind or extent from the old notes. Rather, the exchange notes received by a
holder will be treated as a continuation of the old notes in the hands of such
holder. As a result, there will be no federal income tax consequences to holders
exchanging old notes for exchange notes pursuant to the exchange offer.
117
<PAGE> 122
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account under
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of exchange notes.
This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of exchange notes
received in exchange for old notes if the old senior subordinated notes were
acquired as a result of market-making activities or other trading activities.
We and our guarantor subsidiaries have agreed to make this prospectus, as
amended or supplemented, available to any broker-dealer to use in connection
with any such resale for a period of at least 90 days after the expiration date.
In addition, until [ ], 1999, all dealers effecting transactions in the
exchange notes may be required to deliver a prospectus.
Neither we nor our guarantor subsidiaries will receive any proceeds from
any sale of exchange notes by broker-dealers. Exchange notes received by
broker-dealers for their own accounts under the exchange offer may be sold from
time to time in one or more transactions
- in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the exchange 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
- at negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers. Brokers or dealers may receive compensation in the form of commissions
or concessions from any broker-dealer or the purchasers of any such exchange
notes. An "underwriter" within the meaning of the Securities Act of 1933
includes
(1) any broker-dealer that resells exchange notes that were received by it
for its own account pursuant to the exchange offer or
(2) any broker or dealer that participates in a distribution of such
exchange notes.
Any profit on any resale of exchange notes and any commissions or concessions
received by any persons may be deemed to be underwriting compensation under the
Securities Act of 1933. 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 of 1933.
Based on interpretations by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives exchange notes will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act of 1933 and without delivering to the purchasers of the exchange
notes a prospectus that satisfies the requirements of Section 10 of the
Securities Act of 1933. The holder (other than a person that is an "affiliate"
of Sleepmaster LLC or Sleepmaster Finance Corporation within the meaning of Rule
405 under the Securities Act of 1933) who receives exchange notes in exchange
for old notes in the ordinary course of business and who is not participating,
need not intend to participate or have an arrangement or understanding with
person to participate in the distribution of the exchange notes.
However, if any holder acquires exchange notes in the exchange offer for
the purpose of distributing or participating in a distribution of the exchange
notes, the holder cannot rely on the position of the staff of the Securities and
Exchange Commission enunciated in such no-action letters or any similar
interpretive letters. The holder must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933 in connection
with any resale transaction. A secondary resale transaction should be covered by
an effective registration statement containing the selling security holder
information required by
118
<PAGE> 123
Item 507 or 508, as applicable, of Regulation S-K under the Securities Act of
1933, unless an exemption from registration is otherwise available.
Further, each broker-dealer that receives exchange notes for its own
account in exchange for old notes, where the old notes were acquired by such
participating broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of any exchange notes. We and each of our guarantor
subsidiaries have agreed, for a period of not less than 90 days from the
consummation of the exchange offer, to make this prospectus available to any
broker-dealer for use in connection with any such resale.
For a period of not less than 90 days after the expiration date we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests those documents
in the letter of transmittal. We and each of our guarantor subsidiaries have
jointly and severally agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the old notes, other
than commissions or concessions of any brokers or dealers. We will indemnify the
holders of the old notes against liabilities under the Securities Act of 1933,
including any broker-dealers.
LEGAL MATTERS
Certain legal matters with respect to the validity of the notes offered
hereby will be passed upon for Sleepmaster by Kirkland & Ellis, New York, New
York. Certain matters in connection with this offering will be passed upon for
the initial purchasers by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York. Certain
legal matters with respect to the laws of the State of New Jersey will be passed
upon by Shanley & Fisher, P.C., Morristown, New Jersey. Fried, Frank, Harris,
Shriver & Jacobson will rely upon Shanley & Fisher, P.C. for purposes of New
Jersey law.
EXPERTS
The financial statements of Sleepmaster, Palm Beach, Herr and Star included
in this prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We and our guarantor subsidiaries have filed with the Securities and
Exchange Commission a Registration Statement on Form S-4, the "Exchange Offer
Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto, pursuant to the Securities Act of 1933, and the
rules and regulations promulgated thereunder, covering the exchange notes being
offered. This prospectus does not contain all the information set forth in the
exchange offer registration statement. For further information with respect to
Sleepmaster L.L.C., Sleepmaster Finance Corporation, the guarantor subsidiaries
and the exchange offer, reference is made to the exchange offer registration
statement. Statements made in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the exchange offer registration statement, reference is made to the
exhibit for a more complete description of the document or matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The exchange offer registration statement, including the exhibits thereto,
can be inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Securities and
Exchange Commission at Seven World Trade Center, Suite 1300, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained
119
<PAGE> 124
from the Public Reference Section of the Securities and Exchange Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Securities and Exchange Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The address of such Web site is: http://www.sec.gov.
We are currently subject to the informational requirements of the
Securities Act of 1933, and in accordance therewith will be required to file
periodic reports and other information with the Securities and Exchange
Commission. Our obligation to file periodic reports and other information with
the Securities and Exchange Commission will be suspended if the exchange notes
are held of record by fewer than 300 holders as of the beginning of our fiscal
year other than the fiscal year in which the exchange offer registration
statement is declared effective.
We will nevertheless be required to continue to file reports with the
Securities and Exchange Commission if the exchange notes are listed on a
national securities exchange. In the event we cease to be subject to the
informational requirements of the Securities Exchange Act of 1934, we will be
required under the indenture to continue to file with the Securities and
Exchange Commission the annual and quarterly reports, information, documents or
other reports, including reports on Forms 10-K, 10-Q and 8-K, which would be
required pursuant to the informational requirements of the Securities Exchange
Act of 1934.
Under the indenture, we shall file with the trustee annual, quarterly and
other reports after it files such reports with the Securities and Exchange
Commission. Annual reports delivered to the trustee and the holders of exchange
notes will contain financial information that has been examined and reported
upon, with an opinion expressed by an independent public accountant. We will
also furnish such other reports as may be required by law.
Information contained in this prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," or "anticipates" or the
negative thereof or other similar terminology, or by discussions of strategy.
Our actual results could differ materially from those anticipated by any such
forward-looking statements as a result of factors set forth under the "Risk
Factors" beginning on page 10 and elsewhere in this prospectus.
The market and industry data presented in this prospectus are based upon
third-party data, including information compiled by the International Sleep
Products Association and Furniture/Today, data provided to us by Serta, Inc. and
reports filed by other market participants with the Securities and Exchange
Commission. While we believe that such estimates are reasonable and reliable, in
certain cases such estimates cannot always be verified by information available
from independent sources. Accordingly, readers are cautioned not to place undue
reliance on such market share data. Unless otherwise indicated, market share
data is based on net shipments and is for the 1998 year.
------------------------
Serta(R), Sertapedic(R), Perfect Sleeper(R), Body Pillow(R), Comfort
Quilt(R), ModuCoil(R), Perfect Night(R), Posture Spiral(R), Dual Posture(R),
Body Loft(R), Pillo-Fill(R), Masterpiece(R), Triple Beam(R), Nightstar(TM),
Double Micro-Offset Coils(TM), Master Weld Torsion System(TM), Perfect Sleeper
Nightstar(TM), Perfect Sleeper Showcase(TM), Posture Edge(TM), Perimeter Edge
Foam(TM), Ultimate Edge Support(TM) and Posture Pad(TM) are trademarks used by
Sleepmaster. Tradenames and trademarks of other companies appearing in this
prospectus are the property of their respective holders.
120
<PAGE> 125
INDEX TO FINANCIAL STATEMENTS
SLEEPMASTER L.L.C. AND SUBSIDIARIES
<TABLE>
<S> <C>
SLEEPMASTER L.L.C.
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996....................... F-4
Consolidated Statements of Changes in Members' Equity
(Deficit) for the Years Ended December 31, 1998, 1997
and 1996............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Condensed Consolidated Balance Sheet as of March
31, 1999............................................... F-18
Unaudited Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 1999 and 1998......... F-19
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 1998..... F-20
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-21
PALM BEACH BEDDING COMPANY
Report of Independent Accountants......................... F-24
Balance Sheet as of December 31, 1997..................... F-25
Statements of Income for the Years Ended December 31, 1997
and 1996............................................... F-26
Statements of Stockholders' Equity for the Years Ended
December 31, 1997 and 1996............................. F-27
Statements of Cash Flows for the Years Ended December 31,
1997 and 1996.......................................... F-28
Notes to Financial Statements............................. F-29
HERR MANUFACTURING COMPANY
Report of Independent Accountants......................... F-33
Balance Sheet as of December 31, 1998..................... F-34
Statement of Income for the Year Ended December 31,
1998................................................... F-35
Statement of Stockholders' Equity for the Year Ended
December 31, 1998...................................... F-36
Statement of Cash Flows for the Year Ended December 31,
1998................................................... F-37
Notes to Financial Statements............................. F-38
STAR BEDDING PRODUCTS (1986) LIMITED
Auditors' Report.......................................... F-42
Consolidated Balance Sheet as at December 31, 1998........ F-43
Consolidated Statement of Income and Retained Earnings for
the Year Ended December 31, 1998....................... F-44
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1998...................................... F-45
Notes to Consolidated Financial Statements................ F-46
Unaudited Condensed Consolidated Balance Sheet as of March
31, 1999............................................... F-50
Unaudited Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 1999 and 1998......... F-51
Unaudited Condensed Consolidated Cash Flows for the Three
Months Ended March 31, 1999 and 1998................... F-52
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-53
</TABLE>
F-1
<PAGE> 126
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Advisors and
Members of Sleepmaster L.L.C.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, members' deficit and of cash flows present
fairly, in all material respects, the consolidated financial position of
Sleepmaster L.L.C. (the "Company") and its subsidiary at December 31, 1998 and
the Company at 1997 and the results of their operations and their cash flows for
each of the three years ended December 31, 1998, 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 audits 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.
PricewaterhouseCoopers LLP
New York, New York
April 2, 1999
F-2
<PAGE> 127
SLEEPMASTER L.L.C.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 161,695 $ 591,683
Accounts receivable, less allowance for doubtful accounts
of $1,657,365 and $1,131,035, respectively............. 12,570,315 7,494,182
Accounts receivable -- other.............................. 1,199,002 667,622
Inventories............................................... 4,746,574 2,679,133
Other current assets...................................... 346,637 93,290
Deferred tax assets....................................... 1,605,977 1,541,674
------------ ------------
Total current assets................................... 20,630,200 13,067,584
Property, plant and equipment, net.......................... 10,429,511 1,596,827
Intangible assets........................................... 45,302,505 18,406,538
Other assets................................................ 1,779,743 1,030,745
Deferred tax assets......................................... 11,397,747 13,237,785
------------ ------------
Total assets........................................... $ 89,539,706 $ 47,339,479
============ ============
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 9,930,782 $ 5,270,766
Accrued advertising expenses.............................. 1,517,347 1,777,648
Accrued sales allowances.................................. 3,188,903 3,273,037
Other current liabilities................................. 3,082,313 1,844,958
Current portion of long-term debt......................... 7,130,000 3,500,000
------------ ------------
Total current liabilities.............................. 24,849,345 15,666,409
------------ ------------
Long-term debt............................................ 63,565,544 35,602,177
Other liabilities......................................... 375,296 235,141
------------ ------------
Total long-term liabilities............................ 63,940,840 35,837,318
------------ ------------
Commitments and contingencies (Note 16)
Redeemable cumulative preferred interests................... 18,266,940 15,927,443
Members' Deficit:
Class A common interests.................................. 1,640,000 1,000,000
Class B common interests.................................. -- --
Accumulated deficit....................................... (19,157,419) (21,091,691)
------------ ------------
Total members' deficit................................. (17,517,419) (20,091,691)
------------ ------------
Total liabilities and members' deficit................. $ 89,539,706 $ 47,339,479
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 128
SLEEPMASTER L.L.C.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net sales.......................................... $110,250,548 $67,472,130 $59,762,889
Cost of sales...................................... 68,987,610 42,448,055 37,497,450
------------ ----------- -----------
Gross profit.................................. 41,262,938 25,024,075 22,265,439
------------ ----------- -----------
Operating expenses
Selling, general and administrative expenses..... 25,793,631 15,043,545 14,130,410
Amortization of intangibles...................... 1,223,134 644,095 644,095
------------ ----------- -----------
Total operating expenses...................... 27,016,765 15,687,640 14,774,505
------------ ----------- -----------
Operating income................................... 14,246,173 9,336,435 7,490,934
------------ ----------- -----------
Interest expense, net.............................. 7,096,489 4,663,050 2,578,107
Other (income) expense, net........................ (17,834) (97,212) 216,267
------------ ----------- -----------
Income before income taxes.................... 7,167,518 4,770,597 4,696,560
Provision for income taxes......................... 3,019,510 2,013,861 91,024
------------ ----------- -----------
Net income.................................... $ 4,148,008 $ 2,756,736 $ 4,605,536
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 129
SLEEPMASTER L.L.C.
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON INTERESTS
-----------------------------------
CLASS A CLASS B RETAINED
------------------ -------------- MEMBERS' EARNINGS
UNITS AMOUNT UNITS AMOUNT INTERESTS (DEFICIT) TOTAL
----- ---------- ----- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1996................. -- $ -- -- $ -- $ 1,395,500 $ 1,321,579 $ 2,717,079
Capital contributions........... 1 129 129
Conversion of members' interests
to common interests upon
Recapitalization of Company... 7,999 999,871 (1,395,500) (620,345) (1,015,974)
Net income...................... 4,605,536 4,605,536
Distributions................... (43,994,429) (43,994,429)
Tax benefit attributable to
Recapitalization of Company... 16,792,432 16,792,432
Accretion of redeemable
cumulative preferred
interests..................... (220,932) (220,932)
----- ---------- ----- ------ ----------- ------------ ------------
DECEMBER 31, 1996............... 8,000 1,000,000 -- -- -- (22,116,159) (21,116,159)
Net income...................... 2,756,736 2,756,736
Distributions................... (25,756) (25,756)
Accretion of redeemable
cumulative preferred
interests..................... (1,706,512) (1,706,512)
----- ---------- ----- ------ ----------- ------------ ------------
DECEMBER 31, 1997............... 8,000 1,000,000 -- -- -- (21,091,691) (20,091,691)
Capital contributions........... 640,000 640,000
Net income...................... 4,148,008 4,148,008
Distributions................... (234,240) (234,240)
Accretion of redeemable
cumulative preferred
interests..................... (1,979,496) (1,979,496)
----- ---------- ----- ------ ----------- ------------ ------------
DECEMBER 31, 1998............... 8,000 $1,640,000 -- $ -- $ -- $(19,157,419) $(17,517,419)
===== ========== ===== ====== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 130
SLEEPMASTER L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 4,148,008 $ 2,756,736 $ 4,605,536
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 2,088,840 1,092,650 1,043,488
Provision for doubtful accounts............. 286,916 249,604 200,004
Loss (gain) on sale of equipment............ 9,004 (63,779) --
Deferred income taxes....................... 1,775,735 1,752,297 91,024
Other non-cash charges...................... 319,957 201,869 422,326
Changes in operating assets and liabilities,
net of acquisition:
(Increase) decrease in accounts
receivable............................. (2,410,920) 208,668 (2,467,435)
Increase in accounts
receivable -- other.................... (207,783) (543,063) (49,700)
Decrease (increase) in inventories........ 113,503 (563,408) (816,410)
(Increase) decrease in other current
assets................................. (196,291) 40,645 (7,280)
Increase in other assets.................. (41,327) -- --
Increase (decrease) in accounts payable... 2,834,075 (103,983) 2,113,193
Increase in accrued liabilities........... 13,891 947,972 387,899
Increase in other liabilities............. 140,155 60,006 60,066
------------ ------------ ------------
Net cash provided by operating activities... 8,873,763 6,036,214 5,582,711
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................... (1,095,262) (572,003) (166,939)
Proceeds from sale of equipment................ -- 66,855 --
Acquisition, net of cash acquired.............. (32,756,038) -- --
------------ ------------ ------------
Net cash used in investing activities....... (33,851,300) (505,148) (166,939)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt................... 48,308,360 1,025,000 42,000,000
Payments on long term debt..................... (23,698,994) (1,232,191) (17,989,000)
Borrowings under revolving line of credit...... 7,396,328 18,100,000 3,877,111
Payments on revolving line of credit........... (7,397,328) (22,821,664) (1,846,130)
Loan origination fees.......................... (826,577) -- (1,161,175)
Distributions.................................. (234,240) (25,756) (38,196,328)
Capital contribution........................... 1,000,000 -- 12,984,155
Payments to purchase warrants.................. -- -- (3,800,000)
Recapitalization costs......................... -- -- (1,998,102)
------------ ------------ ------------
Net cash provided by (used in) financing
activities................................ 24,547,549 (4,954,611) (6,129,469)
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents.................................... (429,988) 576,455 (713,697)
Cash and cash equivalents at beginning of year... 591,683 15,228 728,925
------------ ------------ ------------
Cash and cash equivalents at end of year......... $ 161,695 $ 591,683 $ 15,228
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for
Interest....................................... $ 7,125,489 $ 4,301,877 $ 2,172,472
Income taxes................................... $ 561,600 -- --
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the issuance of redeemable cumulative preferred
interests upon the leveraged recapitalization of the Company in 1996 (see Note
4), the Company recorded a charge to retained earnings (deficit) of $1,979,496,
$1,706,512 and $220,932 for the years ended December 31, 1998, 1997 and 1996,
respectively, representing the accretion of redeemable cumulative preferred
interests at a compounded annual rate of 12.0%.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 131
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sleepmaster L.L.C. ("Sleepmaster" or the "Company"), is a leading
manufacturer and distributor of Serta brand mattresses and box springs in
certain regions of the northeastern United States and Florida. The Company was
formed on January 2, 1995 by acquiring substantially all of the assets and
liabilities of Sleepmaster Products Company, L.P., a Delaware limited
partnership. The business and affairs of the Company are governed by the Limited
Liability Company Operating Agreement of Sleepmaster L.L.C. (the "Sleepmaster
L.L.C. Agreement"), which established a board of advisors having duties
comparable to a corporate board of directors.
Prior to November 1996, 98% of the Company was owned by Sleepmaster
Holdings L.L.C. ("Holdings") and 2% was owned by Brown/Schweitzer Holdings Inc.
("B/S Holdings"). Holdings was owned by management of Sleepmaster. On November
14, 1996, the Company entered into a recapitalization agreement (the
"Recapitalization"). Under the Recapitalization, the members of Holdings sold
their respective interests in part to Holdings, followed by the sale of a
portion of the membership interest to new investors. As a result of the
Recapitalization, Holdings' ownership of Sleepmaster was increased to almost
100% and B/S Holdings was replaced by Sleep Investor L.L.C. ("Sleep Investor"),
a group of investors led by Citicorp Venture Capital and PMI Mezzanine Fund
L.L.P. Because of the ownership change of Holdings as a result of the
Recapitalization, management of Sleepmaster owns 28% of Holdings. The
Sleepmaster L.L.C. Agreement was amended following the completion of this
transaction (the "Amended Sleepmaster L.L.C. Agreement"). See Note 4 for further
details of the transaction and impact on members of the Company.
On March 3, 1998, the Company acquired the capital stock of Palm Beach
Bedding Company ("Palm Beach") for cash and the assumption of Palm Beach County,
Florida, variable rate industrial development revenue bonds.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Palm Beach, for the year ended December 31,
1998. All significant intercompany balances and transactions are eliminated. The
1997 and 1996 financial statements include the accounts of the Company only.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates include the allowance for
doubtful accounts and the recoverability of long-lived assets. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investment instruments
with an original maturity of three months or less.
F-7
<PAGE> 132
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue at the time of shipment. Appropriate
accruals for returns, discounts, rebates and other allowances are recorded as
reductions in sales. The Company's bedding products offer limited warranties of
up to 10 years against manufacturing defects. The Company's cost of honoring
warranty claims is immaterial.
Inventories
Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. Cost is determined on a
first-in, first-out basis. Inventories are produced on a made-to-order basis.
Long-Lived Assets
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated on a straight-line basis over the
following estimated useful lives:
<TABLE>
<S> <C>
Land improvements................................... 40 years
Building and improvements........................... 40 years
Machinery and equipment............................. 5-10 years
Office furniture and equipment...................... 3-5 years
Vehicles............................................ 7 years
Leasehold improvements.............................. length of lease (10 years)
</TABLE>
Expenditures for maintenance and routine repairs are expensed as incurred.
Upon the disposition of property, plant and equipment, the accumulated
depreciation is deducted from the original cost and any gain or loss is
reflected in current income.
Intangible Assets
Goodwill represents the excess of purchase price over the fair value of net
assets acquired and is amortized using the straight-line basis over forty years
from the date of acquisition.
Intangible assets also include a covenant not-to-compete as a result of an
acquisition of a Serta Philadelphia licensee, which is amortized using the
straight-line method over the life of the agreement.
Accumulated amortization at December 31, 1998 and 1997 was approximately
$3,264,000 and $2,064,000, respectively.
The Company reviews goodwill and other intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable by comparing the carrying value of the asset
with its estimated future undiscounted cash flows. If it is determined that an
impairment loss has occurred, the loss would be recognized during that period.
The impairment loss is calculated as the difference between the asset carrying
value and the present value of estimated net cash flows or comparable market
values, giving consideration to recent operating performance and pricing trends.
At December 31, 1998, management believes there was no impairment to long-lived
assets.
Advertising Costs
The Company expenses all advertising costs as incurred, including costs
under the Company's cooperative advertising program with dealers and retailers.
Advertising costs for the years ended
F-8
<PAGE> 133
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998, 1997 and 1996 amounted to approximately $8,154,000,
$5,779,000 and $5,234,000, respectively.
New Accounting Pronouncements
In February 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee ("AcSEC") issued Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires certain costs incurred in
connection with developing or obtaining internal use software to be capitalized
and other costs to be expensed.
In March 1998, AcSEC issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs and requires that such costs
be expensed as incurred. The effect of adopting SOP 98-5 will be reported as a
change in accounting principle.
These standards are effective for the Company's consolidated financial
statements for the first quarter 1999. The Company is currently evaluating the
impact, if any, of these new standards on its financial position and results of
operations.
Income Taxes
The Company files a consolidated federal income tax return with its Parent,
Holdings. Additionally, the Company files a state tax return in New Jersey and
will file in Florida as a result of the Palm Beach acquisition. In accordance
with the provisions of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", the
current and deferred income tax provisions and related current and deferred
income tax assets and liabilities for the Company were determined on a separate
company basis. Currently the Company does not maintain a tax sharing agreement
with its Parent.
3. ACQUISITION
On March 3, 1998, Sleepmaster acquired the capital stock of Palm Beach for
approximately $32,800,000 in cash and the assumption of Palm Beach County,
Florida Industrial Development Revenue Bonds in the aggregate principal amount
of $6,985,000. The cash payment was financed by borrowings under the Company's
amended and restated credit agreement (see Note 10).
The acquisition was accounted for under the purchase method and,
accordingly, Palm Beach's results are included in the consolidated financial
statements since the date of acquisition. The assets and liabilities have been
recorded at their estimated fair values at the date of acquisition. The excess
of the purchase price over the estimated fair values of the net assets acquired,
aggregating approximately $28,100,000, has been recorded as goodwill and is
being amortized over 40 years.
F-9
<PAGE> 134
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the purchase price allocation is as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 5,563,336
Property, plant and equipment............................... 8,612,132
Other assets................................................ 201,051
Goodwill.................................................... 28,119,110
Current liabilities......................................... (2,704,970)
Debt........................................................ (6,985,000)
-----------
Total............................................. $32,805,659
===========
</TABLE>
The following unaudited pro forma income statement data for the years ended
December 31, 1998 and 1997 has been prepared as if the acquisition occurred as
of the beginning of each year presented.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales....................................... $117,307,031 $102,464,996
Net income...................................... 5,642,212 2,482,231
</TABLE>
In management's opinion, the unaudited pro forma combined results of
operations are not necessarily indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of each period
presented, nor are they necessarily indicative of future consolidated results.
4. RECAPITALIZATION
On November 16, 1996, the Company's Parent, Holdings, entered into a
recapitalization agreement (the "Recapitalization Agreement") with the Company,
B/S Holdings and Sleep Investor. As part of the Recapitalization, all
outstanding membership interests were converted to redeemable cumulative
preferred interests and common interests pursuant to the terms of the Amended
Sleepmaster L.L.C. Agreement (See Note 1).
Pursuant to the Recapitalization Agreement, Holdings redeemed all of the
membership interests of its members, except for four members who are members of
management of the Company ("Retained Members"), for an aggregate amount of cash
equal to approximately $34,700,000 and then sold such membership interests to
Sleep Investor. In addition, Sleep Investor purchased 8,714 units of redeemable
cumulative preferred interests and 6,099 units of common interests of Holdings
for approximately $12,900,000 plus issuance of a $7,000,000 pay-in-kind note
payable to all former members of Holdings, including the Retained Members. The
remaining redeemable cumulative preferred and common interests of Holdings were
allocated to the Retained Members. As a result of the Recapitalization, Sleep
Investor owns 72% of the outstanding units of Holdings and the Retained Members
retained a 28% ownership.
Financing for the Recapitalization, including the refinancing of existing
indebtedness and fees and expenses incurred, was provided by (1) the Company's
borrowings under a new $29,700,000 Senior Secured Credit Facility, (2) the
Company's borrowing under $15,000,000 Senior Subordinated Notes and (3) the
$12,900,000 of capital provided by Sleep Investor.
The Company has accounted for the Recapitalization as a leveraged
recapitalization, whereby the historical bases of the assets and liabilities of
the Company have been maintained.
F-10
<PAGE> 135
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Raw materials....................................... $3,540,796 $2,314,165
Work-in-process..................................... 286,958 208,375
Finished goods...................................... 918,820 156,593
---------- ----------
Total inventories.............................. $4,746,574 $2,679,133
========== ==========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Building and improvements.......................... $ 5,045,762 $ --
Land and improvements.............................. 1,705,680 --
Machinery and equipment............................ 3,726,747 1,757,227
Office furniture and fixtures...................... 867,073 443,538
Vehicles........................................... 208,579 --
Leasehold improvements............................. 680,778 374,904
Construction-in-progress........................... 184,123 173,060
----------- ----------
12,418,742 2,748,729
Less: accumulated depreciation..................... 1,989,231 1,151,902
----------- ----------
$10,429,511 $1,596,827
=========== ==========
</TABLE>
Depreciation expense was approximately $866,000, $449,000 and $400,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
7. CONCENTRATION OF CREDIT RISK
The Company manufactures and markets sleep products including mattresses
and box springs to department stores and specialty shops in certain licensed
territories in the United States. In 1998, two customers accounted for
approximately 13% and 11%, respectively, of consolidated net sales. In 1997,
three customers accounted for approximately 17%, 14% and 12%, respectively, of
net sales and the same customers represented 13%, 15% and 13%, respectively, of
net sales in 1996.
Amounts receivable from these customers represented approximately 30% and
51%, respectively, of the trade accounts receivable balance at December 31, 1998
and 1997.
Purchases of raw materials from one vendor represented approximately 43%,
34% and 34% of total raw material purchases for 1998, 1997 and 1996,
respectively.
8. LICENSE AGREEMENT
Serta, Inc. ("Serta") is a national non-profit organization consisting of
12 domestic licensed operating mattress manufacturing companies. The
organization aids the manufacturers in marketing, merchandising, manufacturing
specifications, trademarks and related activities through license fees paid by
the licensees. Serta owns the rights to the Serta trademark and licenses
companies to manufacture and sell mattresses under the Serta brand name. The
Company's license with Serta is effective until terminated by mutual
F-11
<PAGE> 136
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
written agreement by both parties or if the Company does not comply with the
provisions of the license agreement. In 1998, 1997 and 1996, the Company paid
approximately $3,400,000, $2,400,000 and $2,400,000, respectively, in license
fees to Serta.
9. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory profit sharing plan ("Profit
Sharing Plan") covering substantially all non-union employees who meet certain
eligibility requirements, such as age and length of service. Contributions are
determined annually by management, but are limited to an amount deductible for
income tax purposes. The Company reserves the right to terminate or amend the
Profit Sharing Plan at any time. The Company elected to contribute approximately
$345,000 for 1998, $210,000 for 1997 and $200,000 for 1996.
Non-union employees of the Company may participate in a 401(k) savings plan
("Savings Plan"), to which the employees may elect to make contributions
pursuant to a salary reduction agreement upon meeting certain age and length of
service requirements. The Company contributes a matching 50% up to the first 4%
of the employee contributions. Matching contributions to the Savings Plan were
approximately $83,000 for 1998, $45,000 for 1997 and $41,000 for 1996.
Union employees, pursuant to a collective bargaining agreement, are covered
under a 401(k) savings plan established by the Company. For the year ended
December 31, 1998, 1997 and 1996, the Company contributed $250, $200 and $150,
respectively, to the account of each eligible employee. Contribution expense for
this plan was approximately $35,000 for 1998, $24,000 for 1997 and $18,000 for
1996.
10. DEBT
The following is a summary of the Company's long-term debt:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Term Loan A due in variable quarterly installments through
March 2003 at variable interest rates (8.63% at December
31, 1998 and 9.50% at December 31, 1997)................ $22,745,544 $12,101,177
Term Loan B due in variable quarterly installments through
February 2004 at variable interest rates (9.06% at
December 31, 1998 and 9.75% at December 31, 1997)....... 21,250,000 12,000,000
Series A Senior Subordinated Notes, 12.00%, due in
quarterly installments from March 2005 through December
2007.................................................... 15,000,000 15,000,000
Series B Senior Subordinated Notes, 12.00% due in
quarterly installments from March 2005 through December
2007.................................................... 5,000,000 --
Industrial Development Revenue Bonds due through 2016 at
variable interest rates (3.70% at December 31, 1998)
collateralized by an irrevocable letter of credit issued
to the Bond agent in the amount of $6,968,000........... 6,700,000 --
Other..................................................... -- 1,000
----------- -----------
70,695,544 39,102,177
Less, current portion..................................... 7,130,000 3,500,000
----------- -----------
$63,565,544 $35,602,177
=========== ===========
</TABLE>
The letter of credit issued to the agent for the Industrial Development
Revenue Bonds is in turn, collateralized by a first lien against certain land
and buildings of Palm Beach. In connection with the
F-12
<PAGE> 137
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition of Palm Beach on March 3, 1998, the Company was required by the Bond
agent to issue another letter of credit in their favor in an equivalent amount
to the initial letter of credit, secured by a second lien against certain land
and buildings of Palm Beach. This second letter of credit was issued under the
Company's amended and restated secured credit agreement (the "Credit Agreement")
with a bank, entered into in connection with the acquisition of Palm Beach.
Under the terms of the Credit Agreement, which matures on March 3, 2004, the
Company may borrow up to $53.7 million, reduced by the $6,968,000 letter of
credit issued to the Bond agent, comprising a working capital line of credit and
revolving term loans. The revolving credit facility provides sublimits for a
further $1.5 million letter of credit facility.
The Company pays commitment fees of 1/2% per annum on the unused amount of
the credit facilities. At December 31, 1998 the Company had no borrowings
outstanding under the working capital line of credit. The weighted average
interest rate under the revolving working capital line of credit was 8.30% and
10.00% at December 31, 1998 and 1997, respectively.
The carrying amount of long-term debt under the Revolving Credit Facility
and Term Loan Facility approximates fair value because the interest rate adjusts
to market interest rates. The fair values of the 12.00% Senior Subordinated
Notes based on quoted market prices of debt securities with similar terms and
maturities were $20.4 million and $16.8 million at December 31, 1998 and 1997,
respectively.
Under the terms of the Credit Agreement and Senior Subordinated Notes, the
Company is required to maintain certain financial ratios and other financial
conditions. The Credit Agreement and Senior Subordinated Notes also prohibit the
Company from incurring certain additional indebtedness and limit certain
investments, capital expenditures and cash dividends. At December 31, 1998, the
Company was not in compliance with certain non-financial covenants; however
waivers and amendments were obtained.
Additionally, the Company has a letter of credit with a bank in the amount
of $720,462 as a rental security deposit on its Linden, New Jersey, facility.
The Company pays a commitment fee of 3% per year of the face amount. The letter
of credit reduces the amount available to the Company under the working capital
line of credit sublimit associated with its Credit Agreement.
Long term debt at December 31, 1998 is scheduled to mature as follows:
<TABLE>
<S> <C>
1999.................................................. $ 7,130,000
2000.................................................. 8,880,000
2001.................................................. 10,130,000
2002.................................................. 7,375,544
2003.................................................. 9,880,000
Thereafter............................................ 27,300,000
-----------
$70,695,544
===========
</TABLE>
11. MEMBERS' EQUITY
In accordance with the Sleepmaster L.L.C. Agreement, the Company's board of
advisors may issue three classes of membership interests: preferred interests,
Class A common interests and Class B common interests. Class A common interests
entitle the holder to one vote per Class A common unit. The holders of Class B
common interests and preferred interests have no voting or participating rights
except in the case of mergers, consolidations, recapitalizations or
reorganizations.
The Company had outstanding Class A common units of 8,000 as of December
31, 1998 and 1997. No Class B common units have been issued by the Company as of
December 31, 1998.
F-13
<PAGE> 138
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. REDEEMABLE CUMULATIVE PREFERRED INTERESTS
The Company had outstanding 9999.96 units of cumulative redeemable
preferred units as of December 31, 1998 and 1997. The preferred units are not
convertible into any other security of the Company and the holders have no
voting rights except in the case of mergers, consolidations, recapitalizations
or reorganizations. The preferred units accrue dividends at a compounded rate of
12% per annum. The preferred units are redeemable on November 14, 2008, along
with the accrued and unpaid dividends unless the maturity date of the Senior
Subordinated Notes is extended, at which point the redemption date will be the
earlier of (i) the twelve month anniversary of the extended maturity date of the
Senior Subordinated Notes and (ii) November 14, 2011; provided further that the
redemption date shall only be extended one time.
13. WARRANTS
Series A and Series B warrants (collectively the "Warrants") were issued
under a Warrant Agreement dated as of March 2, 1998 between Holdings and PMI
Mezzanine Fund, L.P. as warrant holder concurrent with the issuance of Series A
and Series B Senior Subordinated Notes by Sleepmaster. The Warrants entitle the
warrantholder to purchase one unit of the Class A common interests of Holdings
at an exercise price of $0.01 per unit, subject to certain conditions. The
Warrants are exercisable on or prior to March 2010. As of December 31, 1998, the
Series A and Series B warrants were exercisable into 2,403 common units of
Holdings (approximately 22% of the Class A common interests). Since these
warrants were issued by Holdings and the only operation of Holdings is its
investment in Sleepmaster, the Company will record an adjustment to reduce the
carrying amount of debt issued, with an offsetting charge to accumulated deficit
to the extent of the fair value of the warrants issued.
14. STOCK OPTIONS
In 1998 and 1996, pursuant to the employment agreements of certain
employees, Holdings issued options to purchase 100 shares and 530 shares,
respectively, of Class A common units of Holdings at an exercise price of $100
(the "Options"). The Options vest 50% on December 31, 1999 and 50% on December
31, 2001 subject to the achievement of certain earnings targets by Sleepmaster.
Any unexercised options terminate on the tenth anniversary of the date of grant
or earlier, in connection with the termination of employment.
Since this is a variable stock compensation plan of Holdings and the only
operation of Holdings is its investment in Sleepmaster, the Company will record
compensation expense based on the difference between the exercise price and the
fair value of the Options at the balance sheet date, when it believes it
probable that the Company will meet the earning targets. No compensation cost
related to the Options has been recorded in 1998, 1997, or 1996 since, based on
the Company's current trend of earnings, management considers it unlikely that
they will achieve the earnings targets set forth in the option agreements.
F-14
<PAGE> 139
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------
<S> <C> <C> <C>
CURRENT
Federal........................................ $ 967,515 $ 208,744 $ --
State.......................................... 276,260 52,820 --
---------- ---------- -------
Total current............................... 1,243,775 261,564 --
---------- ---------- -------
DEFERRED
Federal........................................ 1,400,766 1,437,707 77,766
State.......................................... 374,969 314,590 13,258
---------- ---------- -------
Total deferred.............................. 1,775,735 1,752,297 91,024
---------- ---------- -------
Provision for income taxes................ $3,019,510 $2,013,861 $91,024
========== ========== =======
</TABLE>
For the period January 1, 1996 through November 13, 1996, the Company had
elected to be taxed as a partnership. No provision was made for income taxes
during this period as income or loss of the partnership is included in the
income tax returns of the individual members.
The Company's effective tax rate differs from the Federal statutory rate as
indicated in the following reconciliation for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Income tax expense at Federal statutory rate................ 35.0% 35.0% 35.0%
State income tax expense, net of Federal benefit............ 5.9% 5.0% 0.3%
Partnership income, not subject to tax...................... -- -- (33.8)%
Other, net.................................................. 1.2% 2.2% 0.4%
---- ---- -----
42.1% 42.2% 1.9%
==== ==== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax-reporting purposes. The significant
component of the Company's net deferred tax assets represents the tax effect of
goodwill attributable to the leveraged recapitalization on November 14, 1996
(see Note 4). The Company recognized a net deferred tax asset of $16,490,727 in
connection with this recapitalization. At December 31, 1998 and 1997, no
valuation allowance has been recorded since management considers it more likely
than not that the deferred tax assets will be realized.
The components of net deferred tax assets as of December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Goodwill................................................ $12,224,999 $14,271,452
Sales allowance reserves................................ 306,375 300,000
Bad debt reserves....................................... 175,008 60,266
Other................................................... 297,342 147,741
----------- -----------
Net deferred tax assets.............................. $13,003,724 $14,779,459
=========== ===========
</TABLE>
16. COMMITMENTS AND CONTINGENCIES
Employment Contracts
Both Sleepmaster and Palm Beach have employment agreements with its
executive officers, the terms of which expire at various dates through November
1, 2001. Such agreements provide for minimum
F-15
<PAGE> 140
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
salaries as well as incentive bonuses that are payable if specified management
goals are attained. The employment agreements also provide for benefits,
including medical, life insurance and disability benefits. In addition,
executive securities (as defined) will automatically vest in connection with a
sale of the Company. The Company's potential minimum obligation to its executive
officers, excluding bonuses, was approximately $3,600,000 at December 31, 1998.
Operating Leases
On January 12, 1995 the Company assumed the balance of a 10 year,
noncancelable operating lease agreement entered into by the former owner of the
Company for facilities in Linden, New Jersey. The lease expires on January 31,
2004, with renewal options. In addition, the Company leases office furniture and
equipment, manufacturing equipment and distribution trucks under noncancelable
operating leases with various expiration dates through November 30, 2003. Rent
expense under operating leases was approximately $1,221,000, $780,000 and
$780,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999..................................................... $1,047,872
2000..................................................... 925,437
2001..................................................... 913,802
2002..................................................... 876,429
2003..................................................... 868,721
----------
$4,632,261
==========
</TABLE>
17. SUMMARIZED FINANCIAL INFORMATION
The following is summarized financial information of Sleepmaster as of
December 31, 1998 and for the year then ended.
Balance Sheet Summary:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Current assets.......................................... $ 13,483
Noncurrent assets....................................... 66,249
Current liabilities..................................... 23,776
Noncurrent liabilities.................................. 57,591
Redeemable cumulative preferred interests............... 18,267
Members' deficit........................................ (19,902)
</TABLE>
Income Statement Summary:
<TABLE>
<CAPTION>
YEAR ENDED
------------
DECEMBER 31,
1998
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Net sales............................................... $73,476
Cost of sales........................................... 47,005
Net income.............................................. 1,763
</TABLE>
18. SUBSEQUENT EVENTS (UNAUDITED)
On April 8, 1999, the Company entered into an Asset Purchase Agreement with
Star Bedding Products Limited, including its subsidiary, Burrell Bedding Limited
(collectively, "Star"), to acquire
F-16
<PAGE> 141
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
substantially all the assets of Star for approximately $16,077,000 in cash and a
promissory note issued by Holdings of approximately $660,000. The acquisition is
expected to be consummated in the second quarter of 1999.
On February 26, 1999, the Company acquired all the capital stock of Herr
Manufacturing Company ("Herr") for approximately $25,600,000 in cash. In order
to finance the acquisition of Herr, the Company increased its existing Senior
Credit Facility by $25,300,000.
F-17
<PAGE> 142
SLEEPMASTER L.L.C.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 699,147
Accounts receivable....................................... 16,085,222
Accounts receivable -- other.............................. 898,501
Inventories............................................... 5,272,655
Other current assets...................................... 1,128,843
Deferred tax assets....................................... 1,623,772
------------
Total current assets.............................. 25,708,140
Property, plant and equipment, net.......................... 13,941,008
Intangible assets........................................... 64,517,441
Other assets................................................ 2,068,571
Deferred tax assets......................................... 10,936,938
------------
Total assets...................................... $117,172,098
------------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 12,467,014
Accrued sales allowances and advertising expense.......... 3,553,184
Other current liabilities................................. 4,343,794
Current portion of long-term debt......................... 6,505,000
------------
Total current liabilities......................... 26,868,992
------------
Long-term debt.............................................. 87,843,951
Other liabilities........................................... 334,449
------------
Total long-term liabilities....................... 88,178,400
------------
Redeemable cumulative preferred interests................... 18,814,948
Members' deficit:
Class A common interests.................................. 1,640,000
Class B common interests.................................. --
Accumulated deficit....................................... (18,330,242)
------------
Total members' deficit................................. (16,690,242)
------------
Total liabilities and members' deficit................. $117,172,098
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE> 143
SLEEPMASTER L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net sales................................................... $34,227,111 $20,436,027
Cost of sales............................................... 21,262,751 13,025,525
----------- -----------
Gross profit........................................... 12,964,360 7,410,502
----------- -----------
Operating expenses
Selling, general and administrative expenses.............. 8,378,601 4,761,577
Amortization of intangibles............................... 378,018 218,896
----------- -----------
Total operating expenses............................... 8,756,619 4,980,473
----------- -----------
Operating income............................................ 4,207,741 2,430,029
----------- -----------
Interest expense, net....................................... 2,028,059 1,477,552
Other income, net........................................... (79,645) (13,199)
----------- -----------
Income before income taxes............................. 2,259,327 965,676
Provision for income taxes.................................. 884,142 408,800
----------- -----------
Net income............................................. $ 1,375,185 $ 556,876
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 144
SLEEPMASTER L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 1,375,185 $ 556,876
Adjustments to reconcile net income to net cash provided
by operating activities
Deferred income taxes..................................... 443,014 378,000
Depreciation and amortization............................. 668,268 378,476
Provision for doubtful accounts........................... 37,913 50,001
Other non-cash charges.................................... 185,719 161,794
Changes in operating assets and liabilities, net of
acquisition
Increase in accounts receivable........................ (1,936,330) (912,590)
Decrease in accounts receivable -- other............... 465,749 329,185
Decrease in inventories................................ 40,041 621,123
Increase in other current assets....................... (762,572) (198,480)
Decrease (increase) in other assets.................... 4,022 (156,693)
Increase in accounts payable........................... 1,816,767 340,438
Decrease in accrued liabilities........................ (18,895) (981,310)
(Decrease) increase in other liabilities............... (40,847) 35,039
------------ ------------
Net cash provided by operating activities................. 2,278,034 601,859
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (570,303) (321,252)
Acquisition, net of cash acquired......................... (24,356,217) (32,756,038)
------------ ------------
Net cash used in investing activities.................. (24,926,520) (33,077,290)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.............................. 23,748,407 33,363,360
Payments on long-term debt................................ (95,000) (1,438,951)
Borrowings under revolving line of credit................. -- 7,396,328
Payments on revolving line of credit...................... -- (7,397,328)
Loan origination fees..................................... (467,469) (701,343)
Capital contribution...................................... -- 1,000,000
------------ ------------
Net cash provided by financing activities.............. 23,185,938 32,222,066
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 537,452 (253,365)
Cash and cash equivalents at beginning of period............ 161,695 591,683
------------ ------------
Cash and cash equivalents at end of period.................. $ 699,147 $ 338,318
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 145
SLEEPMASTER L.L.C.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Sleepmaster L.L.C. ("Sleepmaster") and its wholly-owned subsidiaries (the
"Company"). All material intercompany balances and transactions have been
eliminated. In the opinion of management, the accompanying interim unaudited
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position at March 31, 1999 and the results of their operations and of
their cash flows for the three months ended March 31, 1999 and 1998. The results
of operations for the periods presented should not necessarily be taken as
indicative of the results of operations that may be expected for the entire
year. In accordance with the rules of the Securities and Exchange Commission,
these financial statements do not include all disclosures required by generally
accepted accounting principles.
The accompanying financial information should be read in conjunction with
the financial statements contained in the Company's Offering Memorandum
effective May 12, 1999.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
Raw materials............................................... $4,087,039
Work-in-process............................................. 275,461
Finished goods.............................................. 910,155
----------
Total inventories................................. $5,272,655
----------
</TABLE>
3. ACCOUNTING PRONOUNCEMENTS
In February 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee ("AcSEC") issued Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires certain costs incurred in
connection with developing or obtaining internal use software to be capitalized
and other costs to be expensed.
In March 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting
of start-up costs and organization costs and requires that such costs be
expensed as incurred. The effect of adopting SOP 98-5 will be reported as a
change in accounting principle.
The Company adopted these standards effective January 1, 1999. The impact
of adopting SOP 98-1 was an increase in pre-tax income of $431,000. The adoption
of SOP 98-5 had an immaterial impact on the Company's consolidated financial
position and results of operations.
4. ACQUISITION
On February 26, 1999, the Company acquired all the capital stock of Herr
Manufacturing Company ("Herr") for approximately $25,600,000 in cash. In order
to finance the acquisition of Herr, the Company increased its existing Senior
Credit Facility by $25,300,000.
The acquisition was accounted for under the purchase method and,
accordingly, Herr's results are included in the consolidated financial
statements since the date of acquisition. The assets acquired and liabilities
assumed have been recorded at their estimated fair values at the date of
acquisition. The excess
F-21
<PAGE> 146
SLEEPMASTER L.L.C.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
of the purchase price over the estimated fair values of the net assets acquired,
aggregating approximately $19,600,000, has been recorded as goodwill and is
being amortized over 40 years.
A summary of the purchase price allocation is as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 3,277,130
Property, plant and equipment............................... 3,224,727
Other assets................................................ 2,500
Goodwill.................................................... 19,599,730
Current liabilities......................................... (1,057,693)
-----------
Total............................................. $25,046,394
===========
</TABLE>
The following unaudited pro forma income statement data for the three month
periods ended March 31, 1999 and 1998 has been prepared as if the acquisition
occurred as of the beginning of each period presented.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales......................................... $36,951,000 $31,782,000
Net income........................................ 1,285,000 1,964,000
</TABLE>
In management's opinion, the unaudited pro forma combined results of
operations are not necessarily indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of each period
presented, nor are they necessarily indicative of future consolidated results.
5. SUMMARIZED FINANCIAL INFORMATION
The following is summarized unaudited financial information of Sleepmaster
as of March 31, 1999 and for the three months ended March 31, 1999 and 1998.
Balance Sheet Summary:
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Current assets.............................................. $ 16,112
Noncurrent assets........................................... 91,787
Current liabilities......................................... 27,653
Noncurrent liabilities...................................... 81,913
Redeemable cumulative preferred interests................... 18,815
Members' deficit............................................ (20,482)
</TABLE>
Income Statement Summary:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $18,185 $17,269
Cost of sales............................................... 11,825 11,243
Net (loss) income........................................... (32) 257
</TABLE>
F-22
<PAGE> 147
SLEEPMASTER L.L.C.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. SUBSEQUENT EVENT
On May 18, 1999, the Company issued $115,000,000 of 11% Senior Subordinated
Notes (the "Notes") due 2009. Concurrent with the issuance of the Notes, the
Company acquired substantially all the assets of Star Bedding Products (1986)
Limited, including its subsidiary, Burrell Bedding Limited (collectively,
"Star"), for CAN $24,500,000 (approximately US $16,700,000) in cash and a
promissory note issued by Sleepmaster Holdings L.L.C.( the Company's Parent) of
CAN $1,000,000 (approximately US $680,000).
F-23
<PAGE> 148
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Advisors and
Members of Sleepmaster L.L.C.:
In our opinion, the accompanying balance sheet and the related statements of
income, stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of Palm Beach Bedding Company (the "Company")
at December 31, 1997 and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1997, 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 audits 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.
PricewaterhouseCoopers LLP
New York, New York
March 26, 1999
F-24
<PAGE> 149
PALM BEACH BEDDING COMPANY
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,237,246
Certificates of deposit................................... 4,356,000
Accounts receivable, less allowance for doubtful accounts
of $260,000............................................ 3,114,660
Inventories............................................... 2,254,237
Prepaid expenses and other current assets................. 424,640
-----------
Total current assets.............................. 12,386,783
Property, plant and equipment, net.......................... 8,993,734
Other assets................................................ 450,577
-----------
Total assets...................................... $21,831,094
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,174,964
Accrued compensation...................................... 459,500
Other current liabilities................................. 733,418
Current portion of long-term debt......................... 380,000
-----------
Total current liabilities......................... 4,747,882
Long-term debt.............................................. 6,605,000
-----------
Total liabilities................................. 11,352,882
Commitments and contingencies (Note 10)
Stockholders' Equity:
Common stock, $5.00 par value, 50,000 shares authorized,
26,752 shares issued and outstanding................... 133,760
Additional paid-in capital................................ 33,839
Retained earnings......................................... 10,310,613
-----------
Total stockholders' equity........................ 10,478,212
-----------
Total liabilities and stockholders' equity...... $21,831,094
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 150
PALM BEACH BEDDING COMPANY
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales................................................... $35,115,277 $30,376,281
Cost of sales............................................... 21,194,465 20,474,991
----------- -----------
Gross profit........................................... 13,920,812 9,901,290
Selling, general and administrative expenses................ 10,358,469 9,084,466
----------- -----------
Operating income............................................ 3,562,343 816,824
Interest expense, net....................................... 291,217 89,505
Other income, net........................................... (188,623) (349,151)
----------- -----------
Net income................................................ $ 3,459,749 $ 1,076,470
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 151
PALM BEACH BEDDING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
JANUARY 1, 1996................... 26,752 $133,760 $33,839 $ 8,904,972 $ 9,072,571
Net income........................ -- -- -- 1,076,470 1,076,470
Distributions..................... -- -- -- (1,478,048) (1,478,048)
------ -------- ------- ----------- -----------
DECEMBER 31, 1996................. 26,752 133,760 33,839 8,503,394 8,670,993
Net income........................ -- -- -- 3,459,749 3,459,749
Distributions..................... -- -- -- (1,652,530) (1,652,530)
------ -------- ------- ----------- -----------
DECEMBER 31, 1997................. 26,752 $133,760 $33,839 $10,310,613 $10,478,212
====== ======== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 152
PALM BEACH BEDDING COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 3,459,749 $ 1,076,470
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 474,211 405,090
Loss on sale of property and equipment................. 3,843 6,763
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable........... 756,173 (976,678)
Decrease in other investments........................ -- 225,602
Increase in inventories.............................. (61,069) (613,633)
Increase in prepaid expenses and other current
assets.............................................. (171,719) (131,887)
Decrease (increase) in other assets.................. 114,975 (19,281)
Increase in accounts payable......................... 672,864 1,368,776
Increase in accrued compensation..................... 193,021 266,479
(Decrease) increase in other current liabilities..... (544,942) 595,058
----------- -----------
Net cash provided by operating activities.............. 4,897,106 2,202,759
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (781,953) (6,853,680)
Purchase of certificates of deposit....................... (4,554,000) (2,577,000)
Proceeds from sale of property and equipment.............. 7,760 26,707
Proceeds from sales and maturities of certificates of
deposit................................................ 2,321,000 3,238,870
Restricted use of bond proceeds........................... 1,527,855 (1,666,611)
----------- -----------
Net cash used in investing activities.................. (1,479,338) (7,831,714)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan acquisition costs.................................... -- (176,043)
Proceeds from long-term debt.............................. -- 7,650,000
Payments on long-term debt................................ (380,000) (285,000)
Distributions............................................. (1,652,530) (1,478,048)
----------- -----------
Net cash (used in) provided by financing activities.... (2,032,530) 5,710,909
----------- -----------
Net increase in cash and cash equivalents................... 1,385,238 81,954
Cash and cash equivalents at beginning of year.............. 852,008 770,054
----------- -----------
Cash and cash equivalents at end of year.................... $ 2,237,246 $ 852,008
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid, net of amounts capitalized in 1996 of
$165,247............................................... $ 291,217 $ 89,505
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 153
PALM BEACH BEDDING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Palm Beach Bedding Company (the "Company"), formed in 1926, is a leading
manufacturer and distributor of Serta brand mattresses and box springs
throughout the State of Florida, except the panhandle region.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investment instruments
with an original maturity of three months or less.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue generally at the time of shipment.
Appropriate accruals for returns, discounts, rebates and other allowances are
recorded as reductions in sales. The Company's bedding products offer limited
warranties of up to 10 years against manufacturing defects. The Company's cost
of honoring warranty claims is immaterial.
Inventories
Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. Cost is determined on a
first-in, first-out basis. Inventories are produced on a made-to-order basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated on a straight-line basis over the
following estimated useful lives:
<TABLE>
<S> <C>
Land improvements........................................... 10-20 years
Building and improvements................................... 30-40 years
Machinery and equipment..................................... 5-7 years
Office furniture and equipment.............................. 5-10 years
Vehicles.................................................... 5-7 years
</TABLE>
Expenditures for maintenance and routine repairs are expensed as incurred.
Upon the disposition of property, plant and equipment, the accumulated
depreciation is deducted from the original cost and any gain or loss is
reflected in current income.
Advertising Costs
The Company expenses all advertising costs as incurred, including costs
incurred under the Company's cooperative advertising program with dealers and
retailers. Advertising costs for the years ended December 31, 1997 and 1996
approximated $2,236,000 and $1,905,000, respectively.
F-29
<PAGE> 154
PALM BEACH BEDDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company has made an election to be treated as a Small Business
Corporation under Subchapter S of the Internal Revenue Code, whereby profits and
losses are passed directly to the shareholders for inclusion in their personal
income tax returns. Therefore, no provision for income taxes is included in
these financial statements.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Raw materials............................................... $1,840,049
Work-in-process............................................. 127,095
Finished goods.............................................. 287,093
----------
Total inventories......................................... $2,254,237
==========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Land and land improvements.................................. $ 2,038,564
Buildings and improvements.................................. 6,880,495
Machinery and equipment..................................... 2,698,758
Office furniture and equipment.............................. 441,114
Vehicles.................................................... 485,058
-----------
12,543,989
Less: accumulated depreciation.............................. (3,550,255)
-----------
$ 8,993,734
===========
</TABLE>
Depreciation expense was approximately $465,000 and $406,000 for the years
ended December 31, 1997 and 1996, respectively.
5. CONCENTRATION OF CREDIT RISK
The Company manufactures and markets sleep products including mattresses
and box springs to department stores and specialty shops in certain licensed
territories in the State of Florida. Sales to two major customers accounted for
approximately 13% and 12%, respectively, of net sales in 1997 and sales to one
major customer accounted for approximately 12% of net sales in 1996. Amounts
receivable from these two customers represented approximately 27% of the trade
accounts receivable balance at December 31, 1997.
Purchases of raw materials from one vendor represented approximately 38%
and 32% of total raw material purchases for 1997 and 1996, respectively.
6. LICENSE AGREEMENT
Serta, Inc. ("Serta") is a national non-profit organization consisting of
12 domestic licensed operating mattress manufacturing companies. The
organization aids the manufacturers in marketing, merchandising, manufacturing
specifications, trademarks and related activities through license fees paid by
the licensees.
F-30
<PAGE> 155
PALM BEACH BEDDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Serta owns the rights to the Serta trademark and licenses companies to
manufacture and sell mattresses under the Serta brand name. The Company's
license with Serta is effective until terminated by mutual written agreement of
both parties or if the Company does not comply with the provisions of the
license agreement. In 1997 and 1996, the Company paid approximately $1,212,000
and $1,174,000, respectively, in license fees to Serta.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Industrial Development Revenue Bonds due through 2016 at
variable interest rates (average rate in 1997 -- 3.80%)
collateralized by an irrevocable letter of credit in the
amount of $7,956,000...................................... $6,985,000
Less, current portion....................................... 380,000
----------
$6,605,000
==========
</TABLE>
In April 1996, the Company obtained $7,650,000 Palm Beach County, Florida,
Variable Rate Demand Industrial Development Revenue Bonds (the "Bonds"). At
December 31, 1997, $7,511,244 of the funds had been expended on purchases and
construction of property and equipment. The remaining balance of $138,756 was
spent on property and equipment purchases during 1998. Quarterly principal
payments of $95,000 are required through October 1, 2013. Thereafter, quarterly
principal payments of $100,000 are required until maturity in April 2016,
including interest at a variable rate determined by the issuer based on
prevailing market rates. The letter of credit issued in connection with the
Bonds is collateralized by a first lien against certain land and buildings of
the Company.
Long-term debt at December 31, 1997 is scheduled to mature as follows:
<TABLE>
<S> <C>
1998........................................................ $ 380,000
1999........................................................ 380,000
2000........................................................ 380,000
2001........................................................ 380,000
2002........................................................ 380,000
Thereafter.................................................. 5,085,000
----------
$6,985,000
==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
In 1997, the Company had a receivable of $84,000 from a stockholder
relating to the purchase of his life insurance policy. This amount was repaid
prior to the acquisition of Palm Beach Bedding Company by Sleepmaster L.L.C.
(see Note 11).
9. 401(K) PLAN
The Company established a noncontributory profit sharing plan January 1,
1989, covering substantially all employees. This plan was amended, effective
January 1, 1997, to be a 401(k) Profit Sharing Plan and Trust. The contributions
are determined by the Board of Directors but are limited to an amount deductible
for income tax purposes. The Company made contributions to this plan of $200,000
for each of the two years ended December 31, 1997.
F-31
<PAGE> 156
PALM BEACH BEDDING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
The Company leases office furniture and equipment, manufacturing equipment
and distribution trucks under noncancelable operating leases with various
expiration dates through November 2002. Rent expense under operating leases was
approximately $420,000 and $300,000 for the year ended December 31, 1997 and
1996, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $227,309
1999........................................................ 203,984
2000........................................................ 71,542
2001........................................................ 59,907
2002........................................................ 18,187
--------
$580,929
========
</TABLE>
11. SUBSEQUENT EVENTS
The Company's manufacturing facility on Clare Avenue in West Palm Beach,
Florida was sold on February 17, 1998 for cash proceeds of $915,000 and a
mortgage note receivable of $2,135,000. The Company realized a gain of
approximately $2,780,000 in connection with the sale.
On March 3, 1998, Sleepmaster L.L.C. acquired substantially all of the net
assets of the Company for approximately $32,800,000 in cash and the assumption
of the Company's Palm Beach County, Florida Industrial Development Revenue Bonds
in the aggregate principal amount of $6,985,000.
F-32
<PAGE> 157
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Advisors and
Members of Sleepmaster L.L.C.:
In our opinion, the accompanying balance sheet and the related statements of
income stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of Herr Manufacturing Company (the "Company")
at December 31, 1998 and the results of its operations and its cash flows for
the year then ended 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
March 26, 1999
F-33
<PAGE> 158
HERR MANUFACTURING COMPANY
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $1,689,949
Accounts receivable, less allowance for doubtful accounts
of $196,000............................................ 1,979,493
Inventories............................................... 463,846
Other current assets...................................... 237,163
Deferred tax assets....................................... 23,576
----------
Total current assets.............................. 4,394,027
Property, plant and equipment, net........................ 3,281,688
Other assets.............................................. 603,099
Deferred tax assets....................................... 45,980
----------
Total assets...................................... $8,324,794
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 591,273
Accrued compensation...................................... 1,413,989
Accrued profit-sharing contribution....................... 313,883
Other accrued liabilities................................. 156,983
Deferred compensation..................................... 1,100,000
Note payable to stockholder............................... 163,252
----------
Total current liabilities......................... 3,739,380
----------
Stockholders' Equity:
Common stock, $100 par value; authorized 2,000 shares;
issued 1,376 shares, including 353 shares in
treasury............................................... 137,598
Retained earnings......................................... 5,047,208
----------
5,184,806
Less: treasury stock, at cost.......................... 599,392
----------
Total stockholders' equity........................ 4,585,414
----------
Total liabilities and stockholders' equity........ $8,324,794
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 159
HERR MANUFACTURING COMPANY
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Net sales................................................... $19,384,937
Cost of sales............................................... 11,586,573
-----------
Gross profit.............................................. 7,798,364
Selling, general and administrative expenses.............. 6,561,068
-----------
Operating income............................................ 1,237,296
Interest expense............................................ 27,752
Other income, net........................................... (150,134)
-----------
Income before income taxes........................ 1,359,678
Provision for income taxes.................................. 531,959
-----------
Net income........................................ $ 827,719
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 160
HERR MANUFACTURING COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------
COMMON STOCK TREASURY STOCK TOTAL
----------------- RETAINED ------------------ STOCKHOLDERS'
SHARES AMOUNT EARNINGS SHARES AMOUNT EQUITY
------ -------- ---------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998........... 1,376 $137,598 $4,219,489 353 $(599,392) $3,757,695
Net income........................ -- -- 827,719 -- -- 827,719
----- -------- ---------- --- --------- ----------
BALANCE DECEMBER 31, 1998......... 1,376 $137,598 $5,047,208 353 $(599,392) $4,585,414
===== ======== ========== === ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE> 161
HERR MANUFACTURING COMPANY
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 827,719
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of fixed assets........................... (15,121)
Depreciation and amortization.......................... 394,060
Deferred compensation.................................. 13,137
Deferred income taxes.................................. 453,423
Changes in operating assets and liabilities:
Increase in accounts receivable...................... (14,210)
Decrease in inventories.............................. 25,782
Increase in other assets............................. (140,480)
Increase in accounts payable......................... 184,207
Increase in accrued compensation..................... 206,641
Decrease in accrued profit-sharing contribution...... (57,885)
Decrease in other accrued liabilities................ (5,614)
----------
Net cash provided by operating activities............ 1,871,659
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (447,918)
Increase in cash surrender value of life insurance
policies............................................... (83,867)
Proceeds from the sale of fixed assets.................... 16,300
----------
Net cash used in investing activities................ (515,485)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable................................. (359,762)
----------
Net cash used in financing activities................ (359,762)
----------
Net increase in cash and cash equivalents................... 996,412
Cash and cash equivalents at beginning of year.............. 693,537
----------
Cash and cash equivalents at end of year.................... $1,689,949
----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................. $ 27,752
Income taxes paid......................................... $ 303,604
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 162
HERR MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Herr Manufacturing Company (the "Company") is a Serta licensee which
manufactures and distributes mattresses and box springs in central and eastern
Pennsylvania and southern New York State. The Company produces products under
the Serta and Herr labels as well as other private labels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investment instruments
with an original maturity of three months or less.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue at the time of shipment. Appropriate
accruals for returns, discounts, rebates and other allowances are recorded as
reductions in sales. The Company's bedding products offer limited warranties of
up to 10 years against manufacturing defects. The Company's cost of honoring
warranty claims is immaterial.
The Company also recognizes commission income on certain sales transactions
processed by the Company on behalf of other Serta licenses. This income is
included in the other income, net caption in the statement of income and
amounted to $69,660 in 1998.
Inventories
Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. Cost is determined on a
first-in, first-out basis. Inventories are produced on a made-to-order basis.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated using the double declining balance and
straight line methods over the estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................... 39 years
Building improvements....................................... 15 years
Machinery and equipment..................................... 5-10 years
Furniture and equipment..................................... 3-7 years
Automobiles................................................. 5 years
</TABLE>
Expenditures for maintenance and routine repairs are expensed as incurred.
Upon the disposition of property, plant and equipment, the accumulated
depreciation is deducted from the original cost and any gain or loss is
reflected in current income.
F-38
<PAGE> 163
HERR MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized over 10 years using the straight-line
method. Amortization expense amounted to $16,000 in 1998. As of December 31,
1998, the unamortized balance of goodwill was $65,833 and is included in other
assets. The Company reviews goodwill for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be fully recoverable.
Advertising Costs
The Company expenses all advertising costs as incurred, including costs
incurred under the Company's cooperative advertising program with dealers and
retailers. Advertising costs for the year ended December 31, 1998 approximated
$1,582,000.
Deferred Income Taxes
Deferred income taxes are recognized for the tax consequences, in future
years, of differences between the tax bases of assets and liabilities as
compared to the corresponding financial reporting amounts at each year end on
the basis of enacted tax rates applicable to the period in which the differences
are expected to affect taxable income.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Raw materials............................................. $439,056
Work-in-process........................................... 15,396
Finished goods............................................ 9,394
--------
Total inventories...................................... $463,846
========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Land...................................................... $ 510,612
Building and improvements................................. 2,215,689
Machinery................................................. 1,627,477
Automobiles and trucks.................................... 673,016
Furniture and equipment................................... 358,569
----------
5,385,363
Less: accumulated depreciation.............................. 2,103,675
----------
$3,281,688
==========
</TABLE>
Depreciation expense was $378,060 for the year ended December 31, 1998.
F-39
<PAGE> 164
HERR MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. CONCENTRATION OF CREDIT RISK
The Company manufactures and markets sleep products including mattresses
and box springs to department stores and specialty shops in certain licensed
territories in central and eastern Pennsylvania and southern New York state.
Sales to one major customer accounted for approximately 14% of net sales in
1998. Amounts receivable from two customers represented approximately 18% and
15%, respectively, of the trade accounts receivable balance at December 31,
1998.
Purchases of raw materials from one vendor represented approximately 44% of
total raw material purchases for 1998.
6. LICENSE AGREEMENT
Serta, Inc. ("Serta"), is a national non-profit organization consisting of
12 domestic licensed operating mattress manufacturing companies. The
organization aids the manufacturers in marketing, merchandising, manufacturing
specifications, trademarks and related activities through license fees paid by
the licensees. Serta owns the rights to the Serta trademark and licenses
companies to manufacture and sell mattresses under the Serta brand name. The
Company's license with Serta is effective until terminated by mutual written
agreement of both parties or if the Company does not comply with the provisions
of the license agreement. In 1998, the Company paid approximately $571,000 in
license fees to Serta.
7. RELATED PARTY TRANSACTIONS
The Company has agreements with two former stockholders which provide for
the Company to compensate them for past services. As of December 31, 1998, there
was an agreement to satisfy this deferred compensation agreement with an
aggregate payment of $1,100,000. This amount was paid in February 1999. The
charge to expense under these agreements amounted to $125,285 in 1998.
The Company is committed under the terms of agreements with its
stockholders to repurchase shares of stock upon the death of a stockholder, if
the personal representative of the deceased offers in writing to sell such
shares to the Company within one year after the date of death. The purchase
price of any shares of stock bought under an offer made in accordance with the
terms of the agreements will be at the agreed upon formula value of such shares
as of the end of the last complete fiscal year prior to the making of such
offer. The formula value is based on the book value of the Company excluding the
book value of the real estate multiplied by 120% plus the agreed value of the
real estate ($2,375,000 at December 31, 1998). The agreed value of the real
estate will be adjusted annually for purposes of the formula.
At December 31, 1998, the Company has a note payable to a stockholder in
the amount of $163,252. Principal payments on this note during 1998 totaled
$23,321. This note was paid in full in February 1999. Interest expense paid to a
stockholder on the note payable totaled $11,355 for 1998.
8. LINE OF CREDIT
The Company had an unsecured line of credit available in the amount of
$700,000 as of December 31, 1998. Interest is at the bank's prime rate. No
amounts were outstanding against the line at December 31, 1998.
9. NOTE PAYABLE
During 1998, the Company paid $336,441 to settle a mortgage note payable to
a bank. The interest rate related to this note was 6.95% in 1998.
F-40
<PAGE> 165
HERR MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. INCOME TAXES
The provision for income taxes consists of the following for the year ended
December 31, 1998:
<TABLE>
<S> <C>
CURRENT
Federal................................................... $ 57,427
State..................................................... 21,109
--------
Total current..................................... 78,536
--------
DEFERRED
Federal................................................... 390,209
State..................................................... 63,214
--------
Total deferred.................................... 453,423
--------
Provision for income taxes........................ $531,959
========
</TABLE>
The Company's effective tax rate differs from the appropriate Federal
statutory rate, as shown in the following reconciliation for the year ended
December 31, 1998.
<TABLE>
<S> <C>
Income tax expense at appropriate Federal statutory rate.... 33.5%
State income tax expense, net of appropriate Federal
benefit................................................... 6.36%
Other, net.................................................. (.74)%
-----
39.12%
=====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial-reporting
purposes and the amounts used for income tax-reporting purposes.
Significant components of net deferred tax assets at December 31, 1998 are
as follows:
<TABLE>
<S> <C>
Current deferred income taxes:
Accrued liabilities not currently deductible.............. $ 23,576
Noncurrent deferred income taxes:
Goodwill.................................................. 97,199
Depreciation.............................................. (51,219)
--------
45,980
--------
Net deferred tax asset................................. $ 69,556
========
</TABLE>
11. RETIREMENT PLAN
The Company has a profit-sharing plan that covers substantially all
employees. The Company contributed $313,883 to this plan for the year ended
December 31, 1998.
12. DISABILITY INCOME PLAN
The Company has a disability income plan that covers substantially all
salaried employees. This plan combines a disability insurance program and a
company-sponsored salary continuation program. Under the company-sponsored
salary continuation program, the Company will provide, in the event of
disability, a proportion of salary above the insurance limits for one year. No
amount was paid for salary continuation under this plan in 1998.
13. SUBSEQUENT EVENTS
On February 26, 1999, the Company sold all its issued and outstanding
shares of its common stock to Sleepmaster L.L.C. for $24,700,000 in cash. The
accompanying financial statements do not reflect any adjustments related to the
sale of the Company's stock.
F-41
<PAGE> 166
AUDITORS' REPORT
TO THE DIRECTOR OF STAR BEDDING PRODUCTS (1986) LIMITED
We have audited the consolidated balance sheet of STAR BEDDING PRODUCTS (1986)
LIMITED as at December 31, 1998 and the consolidated statements of income and
retained earnings and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 1998
and the results of its operations and its cash flows for the year then ended in
accordance with generally accepted accounting principles in the United States.
The opening balances were reported on by other auditors.
PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS
North York, Ontario
March 19, 1999
(except as to note 11(b), which is as of April 8, 1999)
F-42
<PAGE> 167
STAR BEDDING PRODUCTS (1986) LIMITED
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Accounts receivable, less allowance for doubtful accounts of
$17,523................................................... $1,993,026
Accounts receivable -- other................................ 17,057
Inventories (note 2)........................................ 382,252
Prepaid expenses............................................ 14,304
----------
2,406,639
INVESTMENT -- 50 shares of Serta Inc. at cost............... 2,500
FIXED ASSETS (note 3)....................................... 923,951
----------
$3,333,090
==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable............................................ $ 666,735
Accrued co-op advertising................................... 158,054
Accrued sales allowances.................................... 210,559
Accrued bonuses............................................. 261,888
Other accrued liabilities................................... 261,881
Short-term borrowings (note 4).............................. 26,581
Income taxes payable........................................ 413,598
----------
1,999,296
ADVANCES FROM RELATED PARTIES (note 8)...................... 317,279
----------
DEFERRED INCOME TAXES (note 5).............................. 16,988
----------
2,333,563
----------
SHAREHOLDER'S EQUITY:
CAPITAL STOCK
Class A common voting shares, no par value; authorized:
unlimited number of shares; issued: -- 6,500.............. 246,466
Class B common voting shares, no par value; authorized
unlimited number of shares; issued: -- 6,500.............. 180,158
Preference shares, issuable in series with rights and
restrictions to be determined by the director; authorized:
unlimited number of shares; issued: nil................... --
Retained earnings........................................... 532,833
ACCUMULATED OTHER COMPREHENSIVE INCOME...................... 40,070
----------
999,527
----------
$3,333,090
==========
COMMITMENTS AND CONTINGENCIES (note 7)
</TABLE>
The notes to the financial statements form an integral part of these
financial statements.
F-43
<PAGE> 168
STAR BEDDING PRODUCTS (1986) LIMITED
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
NET SALES................................................... $15,235,721
COST OF SALES............................................... 9,445,921
-----------
5,789,800
-----------
OPERATING EXPENSES
Delivery.................................................... 391,989
Selling and advertising..................................... 1,845,611
General and administrative.................................. 999,709
-----------
3,237,309
-----------
OPERATING INCOME............................................ 2,552,491
Other income (expenses)
Interest expense............................................ (17,265)
-----------
INCOME BEFORE INCOME TAXES.................................. 2,535,226
-----------
PROVISION FOR INCOME TAXES (note 5)
Current..................................................... 917,947
Deferred.................................................... 17,530
-----------
935,477
-----------
NET INCOME.................................................. 1,599,749
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments, net of tax........ 7,794
-----------
COMPREHENSIVE INCOME........................................ 1,607,543
RETAINED EARNINGS -- BEGINNING OF YEAR...................... 374,859
CASH DIVIDENDS PAID......................................... (1,449,569)
-----------
RETAINED EARNINGS -- END OF YEAR............................ $ 532,833
===========
</TABLE>
The notes to the financial statements form an integral part of these financial
statements.
F-44
<PAGE> 169
STAR BEDDING PRODUCTS (1986) LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS
OPERATING ACTIVITIES
Net income for the year..................................... $ 1,607,543
Adjustments to reconcile net income to net cash provided by
operating activities
Deferred income taxes.................................. 16,988
Depreciation........................................... 190,823
Gain on sale of fixed assets........................... (10,727)
Changes in operating assets and liabilities
Increase in accounts receivable -- trade and other..... (285,515)
Increase in inventories................................ (13,681)
Decrease in prepaid expenses........................... 85,835
Increase in accounts payable and accrued liabilities... 219,788
-----------
1,811,054
-----------
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (420,095)
Proceeds from sale of fixed assets.......................... 13,147
-----------
(406,948)
-----------
FINANCING ACTIVITIES
Net borrowings under line of credit agreement............... 26,581
Net increase in advances from related parties............... 15,966
Cash dividends paid......................................... (1,449,569)
-----------
(1,407,022)
-----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (7,794)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (10,710)
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR.............. 10,710
-----------
CASH AND CASH EQUIVALENTS -- END OF YEAR.................... $ --
===========
</TABLE>
(Cash and cash equivalents are defined as cash and short-term highly liquid
deposits with maturity dates of less than 90 days.)
The notes to the financial statements form an integral part of these
financial statements.
F-45
<PAGE> 170
STAR BEDDING PRODUCTS (1986) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the company
and its wholly owned subsidiary, Burrell Bedding Limited, for the year ended
December 31, 1998. The subsidiary company also has a December 31 year end.
Significant intercompany balances and transactions are eliminated.
Revenue Recognition
The company recognizes revenue upon the passage of title which is generally
at the time of shipment.
Inventories
Finished goods and work-in-process are valued at the lower of cost,
determined on the first-in, first-out basis, and market. Raw materials are
valued at the lower of cost, determined on a first-in, first-out basis, and
replacement cost.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation.
Depreciation is calculated over the following estimated useful lives:
<TABLE>
<S> <C>
DECLINING BALANCE
Plant equipment............................................. 20%
Automotive equipment........................................ 30%
Computer equipment.......................................... 30%
Office equipment............................................ 20%
Sign........................................................ 20%
STRAIGHT-LINE
Leasehold improvements...................................... 5 years
</TABLE>
Expenditures for maintenance and routine repairs are expensed as incurred.
Advertising Costs
The company expenses all advertising costs as incurred. Advertising
expenses for the year ended December 31, 1998 were $1,009,964.
Income Taxes
Income taxes are accounted for under the liability method whereby deferred
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the financial statements,
based on enacted tax rates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-46
<PAGE> 171
STAR BEDDING PRODUCTS (1986) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
2. INVENTORIES
<TABLE>
<S> <C>
Raw materials............................................... $335,000
Work-in-process............................................. 17,389
Finished goods.............................................. 29,863
--------
$382,252
========
</TABLE>
3. FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET
COST DEPRECIATION BOOK VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Plant equipment......................... $1,407,827 $706,005 $701,822
Automotive equipment.................... 174,070 87,294 86,776
Computer equipment...................... 129,558 64,971 64,587
Office equipment........................ 102,358 51,331 51,027
Sign.................................... 2,319 1,163 1,156
Leasehold improvements.................. 37,275 18,692 18,583
---------- -------- --------
$1,853,407 $929,456 $923,951
========== ======== ========
</TABLE>
Depreciation expense was $190,823 for the year ended December 31, 1998.
4. SHORT-TERM BORROWINGS
The company has a (i) $522,705 demand operating facility and (ii) $375,694
demand reducing equipment financing facility. The demand operating facility
bears interest at prime plus 1/2% and the equipment financing facility bears
interest at prime plus 0.90%. The collateral on these facilities is as follows:
i) a general security agreement having a first charge on all assets
of the company (other than real property);
ii) maintenance of fire insurance in an amount acceptable to the
bank, with loss payable to the bank;
iii) a guarantee of all debts and liabilities owing to the company,
limited to $718,719, signed by Burrell Bedding Limited,
supported by a general security agreement having a first charge
on all assets of Burrell Bedding Limited (other than real
property);
iv) hypothecation by the company of all issued and outstanding shares
of Burrell Bedding Limited;
v) postponement and assignment of claim signed by related parties;
and
vi) collateral agreement with respect to the equipment financed under
the equipment financing facility.
At December 31, 1998, the company had borrowings of $26,581 on the
operating facility and $nil on the equipment financing facility.
F-47
<PAGE> 172
STAR BEDDING PRODUCTS (1986) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
5. INCOME TAXES
a) The provision for income taxes consists of the following:
<TABLE>
<S> <C>
CURRENT TAXES
Federal................................................... $572,340
Provincial................................................ 345,607
--------
917,947
--------
DEFERRED TAXES
Federal................................................... 10,930
Provincial................................................ 6,600
--------
17,530
--------
PROVISION FOR INCOME TAXES............................. $935,477
========
</TABLE>
b) Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes. Significant components of the liability as of December 31,
1998 are as follows:
<TABLE>
<S> <C>
Deferred tax liability related to:
Accumulated depreciation.................................. $(41,988)
Accumulated goodwill...................................... 25,000
--------
$(16,988)
========
</TABLE>
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<S> <C>
Cash paid during the year for
Interest............................................. $ 17,265
Income taxes......................................... 843,452
--------
$860,717
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The company is committed to a lease for premises to December 31, 2000 at an
annual rental of approximately $216,000.
Future minimum lease payments as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999...................................................... $216,000
2000...................................................... 216,000
--------
$432,000
========
</TABLE>
8. RELATED PARTY TRANSACTIONS
For reporting purposes herein, related parties are the company's director
and companies controlled by the director.
F-48
<PAGE> 173
STAR BEDDING PRODUCTS (1986) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
Advances from related parties, as disclosed on the balance sheet, are
collateralized by a general security agreement, are non-interest bearing except
for advances from the director which bear interest at 10% per annum and have no
specific terms of repayment. Demand for repayment is not expected prior to
January 1, 2000. Advances from the director as at December 31, 1998 are
$123,489. The fair value of the non-interest bearing advances cannot be
reasonably determined.
During the year, interest of $12,743 was paid to the company's director.
9. FINANCIAL INSTRUMENTS
The company's financial instruments consist of accounts receivable,
accounts payable, other accrued liabilities, short-term borrowings and advances
from related parties. Unless otherwise noted, it is management's opinion that
the company is not exposed to significant interest rate, currency or credit
risks arising from these financial instruments. The fair value of these
financial instruments approximates their carrying value, unless otherwise noted.
10. ECONOMIC DEPENDENCE
Sales to the company's two largest customers account for approximately 48%
of its annual sales volume. To minimize credit risk related to these and other
customers, the company performs ongoing credit evaluations of its customers'
financial condition and limits the amount of credit extended when deemed
necessary. The company maintains provisions for potential credit losses and any
such losses to date have been within management's expectations.
11. SUBSEQUENT EVENTS
a) On January 1, 1999, Star Bedding Products (1986) Limited amalgamated
with its subsidiary, Burrell Bedding Limited. The amalgamated company will
continue to operate as Star Bedding Products (1986) Limited. The transaction was
accounted for at carrying value.
b) On April 8, 1999, the company entered into an asset purchase agreement
with Sleepmaster L.L.C. to sell substantially all of its assets for
approximately $16,077,000 in cash and a promissory note of approximately
$660,000. The sale is expected to be consummated before June 30, 1999.
F-49
<PAGE> 174
STAR BEDDING PRODUCTS (1986) LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Accounts receivable, less allowance for doubtful accounts of
$27,844................................................... $1,598,978
Accounts receivable -- other................................ 19,509
Inventories................................................. 404,422
Other current assets........................................ 20,435
----------
2,043,344
INVESTMENT -- 50 SHARES OF SERTA INC. -- AT COST............ 2,500
FIXED ASSETS................................................ 890,395
----------
$2,936,239
==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable............................................ $ 476,837
Accrued co-op advertising................................... 158,508
Accrued sales allowances.................................... 229,616
Other accrued liabilities................................... 289,550
Short-term borrowings....................................... 3,815
----------
1,158,326
ADVANCES FROM RELATED PARTIES............................... 319,885
DEFERRED INCOME TAXES....................................... 17,228
----------
1,495,439
----------
SHAREHOLDER'S EQUITY
CAPITAL STOCK
Class A common voting shares, no par value; authorized:
unlimited number of shares; issued: 6,500................. 246,466
Class B common voting shares, no par value; authorized:
unlimited number of shares; issued: 6,500................. 180,158
Preference shares, issuable in series with rights and
restrictions to be determined by the director, authorized:
unlimited number of shares; issued: nil................... --
Retained earnings........................................... 973,451
ACCUMULATED OTHER COMPREHENSIVE INCOME...................... 40,725
----------
1,440,800
----------
$2,936,239
==========
</TABLE>
The notes to the financial statements form an integral
part of these financial statements.
F-50
<PAGE> 175
STAR BEDDING PRODUCTS (1986) LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net sales................................................... $3,784,145 $3,324,617
Cost of sales............................................... 2,356,279 2,135,335
---------- ----------
1,427,866 1,189,282
---------- ----------
OPERATING EXPENSES
Delivery.................................................... 89,049 72,185
Selling and advertising..................................... 474,838 400,562
General and administrative.................................. 204,936 203,310
---------- ----------
768,823 676,057
---------- ----------
OPERATING INCOME............................................ 659,043 513,225
Interest expense............................................ 3,231 8,716
---------- ----------
INCOME BEFORE INCOME TAXES.................................. 655,812 504,509
PROVISION FOR INCOME TAXES
Current..................................................... 215,849 159,670
Deferred.................................................... -- --
---------- ----------
215,849 159,670
---------- ----------
NET INCOME.................................................. 439,963 344,839
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments, net of tax........ 655 --
---------- ----------
COMPREHENSIVE INCOME........................................ 440,618 344,839
RETAINED EARNINGS -- BEGINNING OF PERIOD.................... 532,833 374,859
---------- ----------
RETAINED EARNINGS -- END OF PERIOD.......................... $ 973,451 $ 719,698
========== ==========
</TABLE>
The notes to the financial statements form an integral
part of these financial statements.
F-51
<PAGE> 176
STAR BEDDING PRODUCTS (1986) LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS
OPERATING ACTIVITIES
Net income.................................................. $ 439,963 $ 344,839
Adjustments to reconcile net income to net cash provided by
operating activities
Deferred income taxes..................................... 240 --
Depreciation.............................................. 48,344 46,876
Changes in operating assets and liabilities
Decrease in accounts receivable -- trade and other........ 391,596 290,683
Increase in inventories................................... (22,170) (35,253)
(Increase) decrease in other current assets............... (6,132) 83,278
Decrease in accounts payable and accrued liabilities...... (447,545) (101,298)
Decrease in income taxes payable.......................... (370,658) (236,333)
--------- ---------
33,638 392,792
--------- ---------
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (14,788) (290,363)
--------- ---------
FINANCING ACTIVITIES
Net repayments under line of credit agreement............... (22,766) 12,325
Net decrease in advances from related parties............... 2,606 (125,560)
--------- ---------
(20,160) (113,235)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 1,310 --
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... -- (10,806)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............ -- 10,806
--------- ---------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ -- $ --
========= =========
</TABLE>
The notes to the financial statements form an integral
part of these financial statements.
F-52
<PAGE> 177
STAR BEDDING PRODUCTS (1986) LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Star Bedding Products (1986) Limited and its wholly owned subsidiary, Burrell
Bedding Limited (the "Company"). All significant intercompany balances and
transactions have been eliminated. In the opinion of management, the
accompanying interim unaudited consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position at March 31, 1999 and the
results of their operations and of their cash flows for the three months ended
March 31, 1999 and 1998. The results of operations for the periods presented
should not necessarily be taken as indicative of the results of operations that
may be expected for the entire year. In accordance with the rules of the
Securities and Exchange Commission, these financial statements do not include
all disclosures required by generally accepted accounting principles.
The accompanying financial information should be read in conjunction with
the financial statements contained in the Company's Offering Memorandum
effective May 12, 1999.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
Raw materials............................................... $357,922
Work-in-process............................................. 13,651
Finished goods.............................................. 32,849
--------
Total inventories................................. $404,422
========
</TABLE>
3. SUBSEQUENT EVENT
On May 18, 1999, the Company sold substantially all of its assets to
Sleepmaster L.L.C. for CAN $24,500,000 (approximately US $16,700,000) in cash
and a promissory note of CAN $1,000,000 (approximately US $680,000) to
Sleepmaster Holdings L.L.C. The accompanying financial statements do not reflect
any adjustments related to the sale of the Company's assets.
F-53
<PAGE> 178
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$115,000,000
[SERTA LOGO]
SLEEPMASTER
11% SENIOR SUBORDINATED NOTES DUE 2009
-------------------------------------
PROSPECTUS
-------------------------------------
MERRILL LYNCH & CO.
FIRST UNION CAPITAL MARKETS
[ ], 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 179
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sleepmaster L.L.C. is a limited liability company organized under the laws
of the State of New Jersey. Section 42:2B-10 of the New Jersey Limited Liability
Company Act provides that, subject to such standards and restrictions, if any,
as are set forth in its operating agreement, a limited liability company may,
and shall have the power to indemnify and hold harmless any member or manager or
other person from and against any and all claims and demands whatsoever.
Section 8.1 of Sleepmaster's Amended and Restated Limited Liability Company
Operating Agreement provides, among other things, that:
No Member (including the Managing Member), Advisor or officer of the
Company shall be liable to the Company or to any Member for any loss or damage
sustained by the Company or to any Member, unless the loss or damage shall have
been the result of gross negligence, fraud or intentional misconduct by the
Member (including the Managing Member), Advisor or officer in question. In
performing such Person's duties, each such Person shall be entitled to rely in
good faith on the provisions of this Agreement and on information, opinions,
reports or statements (including financial statements and information, opinions,
reports or statements as to the value or amount of the assets, liabilities,
profits or losses of the Company or any facts pertinent to the existence and
amount of assets from which distributions to Members might properly be paid) of
the following other Persons or groups: one or more officers or employees of the
Company; any attorney, independent accountant, appraiser or other expert or
professional employed or engaged by or on behalf of the Company, the Managing
Member, the Board or any committee of the Board; or any other Person who has
been selected with reasonable care by or on behalf of the Company, the Managing
Member, the Board or any committee of the Board in each case as to matters which
such relying Person reasonably believes to be within such other Person's
competence. The preceding sentence shall in no way limit any Person's right to
rely on information to the extent provided in Section 42:2B-31 of the Act. No
Member (including the Managing Member), Advisor or officer of the Company shall
be personally liable under any judgment of a court, or in any other manner, for
any debt, obligation or liability of the Company, whether that liability or
obligation arises in contract, tort or otherwise, solely by reason of being a
Member, Advisor or officer of the Company or any combination of the foregoing.
Section 8.3 of Sleepmaster's Amended and Restated Limited Liability Company
Operating Agreement provides further that subject to the limitations and
conditions as provided in this Article 8, each Person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or arbitrative (hereinafter a "Proceeding"), or any appeal in such a Proceeding
or any inquiry or investigation that could lead to such a Proceeding, by reason
of the fact that such Person, or a Person of which such Person is the legal
representative, is or was a Member, Advisor or officer shall be indemnified by
the Company to the fullest extent permitted by applicable law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment) against judgments, penalties (including excise and similar taxes
and punitive damages), fines, settlements and reasonable expenses (including,
without limitation, reasonable attorneys' fees and expenses) actually incurred
by such Person in connection with such Proceeding, appeal, inquiry or
investigation, and indemnification under this Article 8 shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder; provided, that such Person shall be entitled to
indemnification hereunder only if such Person acted in good faith and in a
manner such Person reasonably believed to be in or not opposed to the best
interest of the Company.
Section 8.4 of Sleepmaster's Amended and Restated Limited Liability Company
Operating Agreement provides further that the right to indemnification conferred
in this Article 8 shall include the
II-1
<PAGE> 180
right to be paid or reimbursed by the Company the reasonable expenses incurred
by a Person of the type entitled to be indemnified under Section 8.3 who was, is
or is threatened to be, made a named defendant or respondent in a Proceeding in
advance of the final disposition of the Proceeding and without any determination
as to the Person's ultimate entitlement to indemnification; provided, however,
that the payment of such expenses incurred by any such Person in advance of the
final disposition of a Proceeding shall be made only upon delivery to the
Company of a written affirmation by such Person of his or her good faith belief
that he has met the standard of conduct necessary for indemnification under
Article 8 and a written undertaking (acceptable to the Board), by or on behalf
of such Person, to repay all amounts so advanced if it shall ultimately be
determined that such indemnified Person is not entitled to be indemnified under
this Article 8 or otherwise.
Sleepmaster Finance Corporation is a Delaware corporation. Section 145 of
the General Corporation Law of the State of Delaware provides that a Delaware
corporation may indemnify any person who were, are or are threatened to be made,
parties to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative of investigative (other than an action
by or in the right of such corporation), by reason of the fact that such person
is or was an officer, director, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware corporation
may indemnify any persons who are, were or are threatened to be made, a party to
any threatened, pending or completed action or suit by or in the right of the
corporation by reasons of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit, provided such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interest, provided that no indemnification is permitted
without judicial approval if the officer, director, employee or agent is
adjusted to be liable to the corporation. Where an officer, director, employee
or agent is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director has actually and reasonably incurred.
The Certificate of Incorporation of Sleepmaster Finance Corporation
provides that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he (or a person of whom he is the legal representative),
is or was a director of officer of Sleepmaster Finance Corporation or is or was
serving at the request of Sleepmaster Finance Corporation as a director,
officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
Sleepmaster Finance Corporation to the fullest extent which it is empowered to
do so by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits Sleepmaster Finance Corporation to
provide broader indemnification rights than said law permitted Sleepmaster
Finance Corporation to provide prior to such amendment) against all expense,
liability and loss (including attorneys' fees actually and reasonably incurred
by such person in connection with such proceeding and such indemnification shall
inure to the benefit of his or her heirs, executors and administrators'
provided, however, that, except as provided in Section 2 of this Article Eight,
Sleepmaster Finance Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the Board of Directors of
II-2
<PAGE> 181
Sleepmaster Finance Corporation. The right to indemnification conferred in this
Article Eight shall be a contract right and, subject to Sections 2 and 5 of this
Article Eight, shall include the right to payment by Sleepmaster Finance
Corporation of the expenses incurred in defending any such proceeding in advance
of its final disposition. Sleepmaster Finance Corporation may, by action of the
Board of Directors, provide indemnification to employees and agents of
Sleepmaster Finance Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Exhibit Index.
(b) Financial Statement Schedules.
All schedules have been omitted because they are not applicable or because
the required information is shown in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising after the
effective date of the 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 the registration statement;
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) 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 the time shall be deemed to be
the initial bona fide offering thereof;
(3) 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 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 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 such 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 and will be governed by the final adjudication of such issue.
II-3
<PAGE> 182
The undersigned registrant hereby undertakes that:
(4) The undersigned registrant hereby 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 form, 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 the registration statement through the date of responding to
the request.
(5) The undersigned registrant hereby 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 the registration statement when it became effective.
II-4
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Linden,
State of New Jersey, on June 30, 1999.
Sleepmaster L.L.C.
By: /s/ CHARLES SCHWEITZER
------------------------------------
Name: Charles Schweitzer
Title: Executive Advisor,
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James Koscica his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities (including his or her capacity as a director and/or officer of
Sleepmaster L.L.C.), to sign any or all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ CHARLES SCHWEITZER Executive Advisor, President, Chief Executive
- --------------------------------------------- Officer and Advisor (principal executive
Charles Schweitzer officer)
/s/ JAMES P. KOSCICA Executive Advisor/Vice President, Chief
- --------------------------------------------- Financial Officer, Secretary and Advisor
James P. Koscica (principal financial officer and accounting
officer)
/s/ ROBERT BARTHOLOMEW Advisor
- ---------------------------------------------
Robert Bartholomew
/s/ JOHN D. WEBER Advisor
- ---------------------------------------------
John D. Weber
/s/ DAVID F. THOMAS Advisor
- ---------------------------------------------
David F. Thomas
/s/ MICHAEL BRADLEY Advisor
- ---------------------------------------------
Michael Bradley
/s/ MICHAEL BUBIS Advisor
- ---------------------------------------------
Michael Bubis
</TABLE>
II-5
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Linden,
State of New Jersey, on June 30, 1999.
Sleepmaster Finance Corporation
By: /s/ CHARLES SCHWEITZER
------------------------------------
Name: Charles Schweitzer
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James Koscica his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities (including his or her capacity as a director and/or officer of
Sleepmaster Finance Corporation), to sign any or all amendments (including
post-effective amendments) to this registration statement and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ CHARLES SCHWEITZER President, Chief Executive Officer and Director
- --------------------------------------------- (principal executive officer)
Charles Schweitzer
/s/ JAMES P. KOSCICA Executive Vice President, Chief Financial Officer;
- --------------------------------------------- Secretary and Director (principal financial
James P. Koscica officer
and accounting officer)
/s/ ROBERT BARTHOLOMEW Director
- ---------------------------------------------
Robert Bartholomew
/s/ JOHN D. WEBER Director
- ---------------------------------------------
John D. Weber
/s/ DAVID F. THOMAS Director
- ---------------------------------------------
David F. Thomas
/s/ MICHAEL BRADLEY Director
- ---------------------------------------------
Michael Bradley
/s/ MICHAEL BUBIS Director
- ---------------------------------------------
Michael Bubis
</TABLE>
II-6
<PAGE> 185
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Linden,
State of New Jersey, on June 30, 1999.
Palm Beach Bedding Company
By: /s/ MICHAEL BUBIS
------------------------------------
Name: Michael Bubis
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James Koscica his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities (including his or her capacity as a director and/or officer of Palm
Beach Bedding Company), to sign any or all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ CHARLES SCHWEITZER Chief Executive Officer and Chairman of the Board of
- --------------------------------------------- Directors (principal executive officer)
Charles Schweitzer
/s/ JAMES P. KOSCICA Executive Vice President, Chief Financial Officer,
- --------------------------------------------- Secretary and Director (principal financial officer
James P. Koscica and accounting officer)
/s/ ROBERT BARTHOLOMEW Director
- ---------------------------------------------
Robert Bartholomew
/s/ JOHN D. WEBER Director
- ---------------------------------------------
John D. Weber
/s/ DAVID F. THOMAS Director
- ---------------------------------------------
David F. Thomas
/s/ MICHAEL BRADLEY Director
- ---------------------------------------------
Michael Bradley
/s/ MICHAEL BUBIS Director
- ---------------------------------------------
Michael Bubis
</TABLE>
II-7
<PAGE> 186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Linden,
State of New Jersey, on June 30, 1999.
Herr Manufacturing Company
By: /s/ STUART W. HERR
------------------------------------
Name: Stuart W. Herr
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James Koscica his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities (including his or her capacity as a director and/or officer of Herr
Manufacturing Company), to sign any or all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ CHARLES SCHWEITZER Chief Executive Officer and Chairman of the Board of
- --------------------------------------------- Directors (principal executive officer)
Charles Schweitzer
/s/ JAMES P. KOSCICA Executive Vice President, Chief Executive Officer,
- --------------------------------------------- Secretary and Director (principal financial officer
James P. Koscica and accounting officer)
/s/ ROBERT BARTHOLOMEW Director
- ---------------------------------------------
Robert Bartholomew
/s/ JOHN D. WEBER Director
- ---------------------------------------------
John D. Weber
/s/ DAVID F. THOMAS Director
- ---------------------------------------------
David F. Thomas
/s/ MICHAEL BRADLEY Director
- ---------------------------------------------
Michael Bradley
/s/ MICHAEL BUBIS Director
- ---------------------------------------------
Michael Bubis
</TABLE>
II-8
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Linden,
State of New Jersey on June 30, 1999.
Lower Road Associates, LLC
By: /s/ CHARLES SCHWEITZER
------------------------------------
Name: Charles Schweitzer
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James Koscica his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities (including his or her capacity as a director and/or officer of Lower
Road Associates, LLC), to sign any or all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on June 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ CHARLES SCHWEITZER President, Chief Executive Officer and Advisor
- --------------------------------------------- (principal executive officer)
Charles Schweitzer
/s/ JAMES P. KOSCICA Executive Vice President, Chief Financial Officer,
- --------------------------------------------- Secretary and Advisor (principal financial officer
James P. Koscica and accounting officer)
/s/ ROBERT BARTHOLOMEW Advisor
- ---------------------------------------------
Robert Bartholomew
/s/ JOHN D. WEBER Advisor
- ---------------------------------------------
John D. Weber
/s/ DAVID F. THOMAS Advisor
- ---------------------------------------------
David F. Thomas
/s/ MICHAEL BRADLEY Advisor
- ---------------------------------------------
Michael Bradley
/s/ MICHAEL BUBIS Advisor
- ---------------------------------------------
Michael Bubis
</TABLE>
II-9
<PAGE> 188
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
2.1 Recapitalization, Redemption and Purchase Agreement dated
October, 1996 by and among Sleepmaster Holdings L.L.C.,
Sleepmaster L.L.C., Brown/Schweitzer Holdings, Inc., the
members of Sleepmaster Holdings, L.L.C., the investors
names therein and Sleep Investor L.L.C.*
3.1 Certificate of Formation of Sleepmaster L.L.C. dated
December 14, 1994.*
3.2 Sleepmaster L.L.C. Amended and Restated Limited Liability
Company Operating Agreement dated November 14, 1996.*
3.3 Certificate of Incorporation of Sleepmaster Finance
Corporation dated April 30, 1999.*
3.4 By-laws of Sleepmaster Finance Corporation.*
3.5 Articles of Incorporation of Palm Beach Bedding Company
dated July 16, 1959.*
3.6 By-laws of Palm Beach Bedding Company.*
3.7 Articles of Incorporation of Herr Manufacturing Company
dated May 5, 1933.*
3.8 By-laws of Herr Manufacturing Company.*
3.9 Certificate of Formation of Lower Road Associates, LLC dated
April 6, 1998.*
3.10 Operating Agreement of Lower Road Associates, LLC.*
4.1 Indenture dated as of May 18, 1999 by and among Sleepmaster
L.L.C., Sleepmaster Finance Corporation, the Guarantors
listed on the signature pages thereto and the United
States Trust Company of New York.*
5.1 Opinion of Kirkland & Ellis.*
8.1 Opinion of Kirkland & Ellis with respect to Federal tax
consequences.*
9.1 Amended and Restated Securityholders Agreement by and among
Sleepmaster Holdings L.L.C., Sleep Investor L.L.C., PMI
Mezzanine Fund, L.P., Charles Schweitzer, James P.
Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
Richard Tauber, Douglas Phillips and any employees of
Sleepmaster Holdings L.L.C. or its subsidiaries which may
thereafter execute a joinder agreement thereto dated March
3, 1998.*
9.2 Joinder to Amended and Restated Securityholders Agreement by
and among Sleepmaster Holdings L.L.C., certain
securityholders of Sleepmaster Holdings L.L.C. party
thereto and Stuart W. Herr dated March 3, 1998.*
9.3 Joinder to Amended and Restated Securityholders Agreement by
and among Sleepmaster Holdings L.L.C., certain
securityholders of Sleepmaster Holdings L.L.C. party
thereto and John K. Herr, III dated March 3, 1998.*
10.1 Registration Rights Agreement dated as of May 18, 1999 by
and among Sleepmaster L.L.C., Sleepmaster Finance
Corporation, the guarantors listed on the signature pages
thereto and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and First Union Capital Markets Corp.*
10.2 Purchase Agreement dated as of May 12, 1999 by and among
Sleepmaster L.L.C., Sleepmaster Finance Corporation and
the guarantors listed on the signature pages thereto and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
First Union Capital Markets Corp.*
10.3 Second Amended and Restated Limited Liability Company
Operating Agreement of Sleepmaster Holdings L.L.C., dated
November 14, 1996 (including the joinder agreement of
Stuart Herr and John Herr, dated February 26, 1999), as
amended effective May 12, 1999.*
10.4 License Agreement and Memorandum of Agreement, each dated
January 12, 1995, between Sleepmaster L.L.C. and Serta,
Inc., covering certain territories in New Jersey, New York
and Connecticut, as amended.*
10.5 License Agreement and Memorandum of Agreement, each dated
January 12, 1995, between Sleepmaster L.L.C. and Serta,
Inc., covering certain territories in Pennsylvania, New
Jersey, Maryland and Delaware, as amended.*
</TABLE>
<PAGE> 189
<TABLE>
<C> <S> <C>
10.6 License Agreement, dated November 4, 1989, and Memorandum of
Agreement, dated December 1, 1969, between Palm Beach
Bedding Company and Serta, Inc., covering certain
territories in Florida, as amended.*
10.7 License Agreement, dated November 4, 1989, and Memorandum of
Agreement, dated December 1, 1969, between Herr
Manufacturing Company and Serta, Inc., covering certain
territories in Pennsylvania and New York, as amended.*
10.8 Standard Canadian License Agreement and Memorandum of
Agreement -- Form B, dated as of and effective May 18,
1999, between Serta, Inc. and Star Bedding Products (1986)
Ltd., covering certain territories in Ontario, Canada.*
10.9 Masterpiece Sleep Products, Inc. Manufacturing and Servicing
Agreement, dated October 1, 1998, by and between
Masterpiece Sleep Products, Inc. and Sleepmaster L.L.C.
and affiliates.*
10.10 Employment Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Charles Schweitzer.*
10.11 Employment Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and James Koscica.*
10.12 Employment Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Timothy Dupont.*
10.13 Employment Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Michael Reilly.*
10.14 Option Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Charles Schweitzer.*
10.15 Option Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and James Koscica.*
10.16 Option Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Timothy Dupont.*
10.17 Option Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Michael Reilly.*
10.18 Employment Agreement, dated March 3, 1998, between Palm
Beach Bedding Company joined by Sleepmaster Holdings
L.L.C. and Sleepmaster L.L.C. and Michael W. Bubis.*
10.19 Employment and Stock Purchase Agreement, dated as of
February 26, 1999, by and among Herr Manufacturing
Company, Sleepmaster Holdings L.L.C., Sleepmaster L.L.C.,
Charles Schweitzer, Sleep Investor L.L.C. and Stuart W.
Herr.*
10.20 Employment and Stock Purchase Agreement, dated as of
February 26, 1999, by and among Herr Manufacturing
Company, Sleepmaster Holdings L.L.C., Sleepmaster L.L.C.,
Charles Schweitzer, Sleep Investor L.L.C. and John K.
Herr, III.*
10.21 Sleepmaster Holdings L.L.C. Amended and Restated Common
Interest Purchase Warrants, dated as of March 3, 1998 and
Sleepmaster Holdings L.L.C. Common Interest Purchase
Warrants, dated as of March 3, 1998, each as amended on
February 26, 1999.*
10.22 Loan Agreement, dated as of April 1, 1996, between Palm
Beach Bedding Company and Palm Beach County, Florida,
relating to $7,650,000 Palm Beach County, Florida Variable
Rate Demand Industrial Development Revenue Bonds (Palm
Beach Bedding Company Project, Series 1996) originally
outstanding in the original principal amount of
$7,650,000.*
10.23 Trust Indenture, dated as of April 1, 1996, by and among
Palm Beach County, the Trustee and the Credit Facility
Trustee.*
10.24 Lease by and between Hartz Mountain Industries, Inc. and
Sleepmaster Products Company, L.P., dated October 13,
1993.*
10.25 Letter of Credit and Reimbursement Agreement, dated as of
April 1, 1996, between Palm Beach Bedding Company and
First Union National Bank of Florida.*
10.26 Amendment to Reimbursement Agreement, dated March 3, 1998,
between Palm Beach Bedding Company and First Union
National Bank of Florida.**
</TABLE>
<PAGE> 190
<TABLE>
<C> <S> <C>
10.27 Lease Agreement by and between N.H.D. Developments Limited
and Star Bedding Products (1986) Ltd. dated August 15,
1995.**
10.28 Assignment of lease agreement by and between Star Bedding
Products (1986) Ltd., Star Bedding Products Limited and
N.H.D. Developments Limited dated as of May 18, 1999.*
10.29 Intentionally left blank.
10.30 Form of Junior Subordinated Note, dated November 14, 1996,
of Sleep Investor L.L.C. issued to each of Charles
Schweitzer, James Koscica, Timothy DuPont, Michael Reilly,
Douglas A. Brown, Douglas A. Brown VIP Plus Profit Sharing
Plan, Donald S. Brown, John S. Coates, Harold M. Wit,
Allen Investments II, L.L.C., Karl Dillon, Jessand Corp.
Profit Sharing Plan and Trust, Alan Gelband, Panorama
Holdings, L.L.C., Arnold Gussoff Holding Capital
Management Corp., Steven Leischner, William Colaianni, Jo
Levinson 1989 Trust, John M. McMahon, Kaplan, Coate
Special Situations L.P., Robert W. Plaster, Bennett
Rosenthal, Dhiren Shah, and WKM Partners.*
10.31 Amended and Restated Registration Rights Agreement, dated as
of March 3, 1998, by and among Sleepmaster Holdings
L.L.C., Sleep Investor L.L.C., PMI Mezzanine Fund, L.P.,
Charles Schweitzer, James P. Koscica, Michael Reilly,
Timothy Dupont, Michael Bubis, Richard Tauber, Douglas
Phillips (including the joinder agreements of each of
Stuart W. Herr and John K. Herr, III, dated March 3,
1998).*
10.32 Limited Liability Company Operating Agreement of Sleep
Investor L.L.C. dated November 14, 1996.*
10.33 Stock Purchase Agreement, dated as of February 26, 1999, by
and among Sleepmaster L.L.C., Herr Manufacturing Company,
and the stockholders listed on the Seller signature page
attached thereto (including the related Indemnity Escrow
Agreement and Adjustment Escrow Agreement).*
10.34 Asset Purchase Agreement by and among Star Bedding Products
Limited and Sleepmaster L.L.C., as Purchaser and Star
Bedding Products (1986) Limited and Cecil Brauer, as
Seller.*
10.35 Credit Agreement, dated as of May 18, 1999, by and among
Sleepmaster L.L.C., the guarantors thereunder and First
Union National Bank, as agent.*
10.36 1997-1999 Collective Agreement between Star Bedding Products
(1986) Limited and United Steelworkers of America Local
400.*
10.37 Collective Bargaining Agreement by and between Sleepmaster
L.L.C., its plant located in Linden, New Jersey, and the
United Steelworkers of America (ABG Division), AFL-CIO,
CLC, and its Local Union #396 dated May, 1997.*
10.38 Agreement and Plan of Merger by and among Sleepmaster
L.L.C., Sleepmaster Acquisition Corp. and Palm Beach
Bedding Company dated February, 1998.*
12.1 Statement of Ratio of Earnings to Fixed Charges.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of PricewaterhouseCoopers LLP.*
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1 Powers of Attorney (included in signature pages).*
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Letter of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
RECAPITALIZATION, REDEMPTION
AND PURCHASE AGREEMENT
AMONG
SLEEPMASTER HOLDINGS L.L.C.,
SLEEPMASTER L.L.C.,
BROWN/SCHWEITZER HOLDINGS, INC.,
THE MEMBERS OF SLEEPMASTER HOLDINGS, L.L.C.,
THE INVESTORS NAMED HEREIN
AND
SLEEP INVESTOR L.L.C.
DATED: OCTOBER ___, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
ARTICLE I .............................................................. 2
Accounting Terms ................................................. 2
Singular and Plural Forms ........................................ 3
Other Defined Terms .............................................. 3
ARTICLE II ............................................................. 9
Senior Debt Recapitalization ..................................... 9
Authorization of New Senior Subordinated Notes ................... 9
Authorization of Redemption of Membership Interests
and Recapitalization Notes .................................... 9
Resignation of Certain Members; Reclassification of
Membership Interests .......................................... 10
Purchases by the Investor from the Existing Members .............. 10
Purchase and Sale of B/S Interest ................................ 10
Closing .......................................................... 10
Payments by Investor to the Existing Members ..................... 10
Payments by the Company to the Existing Members .................. 11
The Warrant ...................................................... 11
Cancellation of Equity Plan ...................................... 11
Method of Payment ................................................ 11
ARTICLE III ............................................................ 11
Payments of Debt and Related Charges ............................. 11
Sleepmaster Distribution ......................................... 11
Redemption Price ................................................. 12
Pre-Closing Adjustment ........................................... 13
Post-Release Adjustment .......................................... 13
Allocation ....................................................... 15
ARTICLE IV ............................................................. 15
Organization and Good Standing, etc .............................. 15
Financial Statements ............................................. 16
Authorization; No Violation; Consents ............................ 17
Authorization and No Violation ....................... 17
Consents ............................................. 17
Enforceable Agreement ................................ 17
Properties of the Business ....................................... 18
Title to Assets and Related Matters .................. 18
Owned Real Property .................................. 18
Leased Real Property ................................. 18
Personal Property Leases ............................. 18
Compliance with Laws ............................................. 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Litigation ....................................................... 19
Absence of Certain Changes ....................................... 19
Patents, Trademarks, Trade Names ................................. 21
Contracts and Commitments ........................................ 22
Compliance with Labor and Employment Laws ........................ 23
Employee Benefit Plans ........................................... 24
Environmental Matters ............................................ 25
Licenses, Permits and Authorizations ............................. 27
Taxes ............................................................ 27
Sufficiency and Condition of Assets .............................. 29
Broker's or Finder's Fee ......................................... 29
Undisclosed Liabilities .......................................... 29
Notes and Accounts Receivable .................................... 30
Insurance ........................................................ 30
Product Warranty ................................................. 30
Certain Business Relationships with the Company and
its Affiliates ................................................ 30
Disclosure ....................................................... 31
ARTICLE V .............................................................. 31
Organization and Authority ....................................... 31
Consents and Approvals of Governmental Authorities ............... 32
Ownership of Membership Interests ................................ 32
Investment Intent ................................................ 32
ARTICLE VI ............................................................. 33
Organization and Authority ....................................... 33
Consents and Approvals of Governmental Authorities ............... 34
Investment Intent ................................................ 34
Sufficient Funds ................................................. 34
Brokerage ........................................................ 34
ARTICLE VII ............................................................ 35
Representations and Warranties True; Obligations
Performed ..................................................... 35
No Material Changes .............................................. 35
Performance ...................................................... 35
Consents ......................................................... 35
Essential Contracts .............................................. 36
Environmental Matters ............................................ 36
Affiliate Transactions ........................................... 36
Amended Operating Agreement ...................................... 36
Exercise of Warrant .............................................. 36
Resignation of Manager ........................................... 36
Financing ........................................................ 37
Employment Agreements ............................................ 37
No Proceedings ................................................... 37
ARTICLE VIII ........................................................... 37
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Representations and Warranties True; Obligations Performed........ 37
Performance ...................................................... 38
Consents ......................................................... 38
Hartz Letter of Credit ........................................... 38
Environmental Matters ............................................ 38
Employment Agreements/Option Agreements .......................... 38
No Proceedings ................................................... 38
ARTICLE IX ............................................................. 38
Deliveries by the Company, Sleepmaster, B/S and the
Existing Members .............................................. 38
Deliveries by the Investor ....................................... 40
Waiver of Condition Precedent .................................... 40
Closing Escrow ................................................... 40
Release .......................................................... 41
Name Change of Partnership ....................................... 41
ARTICLE X .............................................................. 41
General .......................................................... 41
Provide Access to Information .................................... 41
Conduct Prior to Release Date .................................... 42
Prohibited Transactions Prior to Release Date .................... 42
Confidentiality .................................................. 43
Notices and Consents ............................................. 43
Notice of Developments ........................................... 43
No Affiliate Transactions ........................................ 43
Exclusivity ...................................................... 43
ARTICLE XI ............................................................. 44
Survival ......................................................... 44
Limitations on Liability ......................................... 45
Indemnification .................................................. 47
Defense of Claims ................................................ 48
Certain Payments to the Investor ................................. 50
Remedies Cumulative .............................................. 50
ARTICLE XII ............................................................ 51
Termination ...................................................... 51
Effect of Termination ............................................ 51
ARTICLE XIII ........................................................... 52
Public Announcements ............................................. 52
Rights of Third Parties .......................................... 52
Notices .......................................................... 52
Parties in Interest .............................................. 54
Entire Agreement; Amendment; Waiver .............................. 54
Headings ......................................................... 55
Counterparts ..................................................... 55
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Governing Law .................................................... 55
Severability ..................................................... 55
Expenses ......................................................... 55
Incorporation of Exhibits and Schedules .......................... 55
Specific Performance ............................................. 55
Submission to Jurisdiction ....................................... 55
Waiver of Jury Trial ............................................. 56
Time is of the Essence ........................................... 56
</TABLE>
LIST OF EXHIBITS
Exhibit A Existing Members
Exhibit B Form of Investor Notes
Exhibit C Form of Recapitalization Notes
Exhibit D Form of Restated Operating Agreement
Exhibit E First Source Commitment
Exhibit F Pacific Commitment
Exhibit G Employment Agreement (Schweitzer)
Exhibit H Employment Agreement (Koscica)
Exhibit I Employment Agreement (Reilly)
Exhibit J Employment Agreement (DuPont)
Exhibit K Option Agreement (Schweitzer)
Exhibit L Option Agreement (Koscica)
Exhibit M Option Agreement (Reilly)
Exhibit N Option Agreement (DuPont)
Exhibit O Form of Securityholders Agreement
Exhibit P Form of Opinion of Blumenthal & Lynne
Exhibit Q Form of Opinion of Kirkland & Ellis
iv
<PAGE> 6
RECAPITALIZATION, REDEMPTION
AND PURCHASE AGREEMENT
This RECAPITALIZATION, REDEMPTION AND PURCHASE AGREEMENT is made and
entered into as of the ____ day of October, 1996 by and among SLEEPMASTER
HOLDINGS L.L.C. a New Jersey limited liability company (the "Company"),
SLEEPMASTER L.L.C. ("Sleepmaster"), a New Jersey limited liability company,
BROWN/SCHWEITZER HOLDINGS, INC. ("B/S"), a Florida corporation, each of the
members of the Company (each referred to individually as an "Existing Member"
and collectively as the "Existing Members," and all of whom are listed on
Exhibit A), and SLEEP INVESTOR L.L.C., a Delaware limited liability company (the
"Investor").
RECITALS
WHEREAS, the Existing Members are all of the members of the Company
and own all of the Membership Interests (as defined in Section 1.3 below) of the
Company;
WHEREAS, the Company owns a 98% Membership Interest of Sleepmaster;
WHEREAS, B/S owns a 2% Membership Interest of Sleepmaster;
WHEREAS, Sleepmaster is engaged in the sale, marketing and
distribution of mattresses and other bedding products, including those products
that bear one or more of the "Serta" trademarks;
WHEREAS, subject to the terms and conditions of this Agreement, the
Company intends to cause Sleepmaster to borrow certain additional funds from one
or more lenders, and thereafter to repay all Debt and certain other obligations
of the Company and Sleepmaster at the time outstanding;
WHEREAS, subject to the terms and conditions of this Agreement,
Sleepmaster intends, subsequent to the borrowing and repayment of obligations
referred to in the preceding recital, to distribute to B/S and the Company
certain funds in excess of those required to repay such obligations, all as
specified in this Agreement;
WHEREAS, subject to the terms and conditions of this Agreement, the
Company intends, subsequent to the distribution to be made to it by Sleepmaster,
to repurchase from the Existing Members, and the Existing Members intend to sell
to the Company, certain of their respective Membership Interests in the Company,
each to the extent further described in this Agreement, for a redemption price
consisting of cash and Recapitalization Notes;
<PAGE> 7
WHEREAS, subject to the terms and conditions of this Agreement, the
Existing Members intend, subsequent to the repurchase of Membership Interests of
the Company referred to in the preceding recital, to amend and restate the
Operating Agreement to provide for the reclassification of the Company's then
remaining Membership Interests into (a) Membership Interests of the Company
having certain preferences in distribution, allocation, liquidation and other
matters (the "Preferred Interests") and (b) other Membership Interests of the
Company having characteristics similar to shares of common stock of a business
corporation (the "Common Interests");
WHEREAS, subject to the terms and conditions of this Agreement, the
Investor intends, subsequent to the reclassification of the Membership Interests
of the Company into the Preferred Interests and the Common Interests, to
purchase from the Existing Members, and the Existing Members intend to sell and
assign to the Investor, certain of the Preferred Interests, certain of the
Common Interests and all of the Recapitalization Notes for the consideration
comprised of cash and the Investor Notes, all as more fully set forth in the
Agreement; and
WHEREAS, subject to the terms and conditions of this Agreement, the
Investor also intends, subsequent to the acquisition by the Investor of the
Preferred Interests and the Common Interests to be acquired by it, to acquire,
and B/S intends to sell and transfer to the Investor, the Membership Interest of
Sleepmaster owned by B/S for the consideration and all as more fully set forth
in the Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants which are made and to be performed
pursuant to this Agreement, the Company, Sleepmaster, the Existing Members and
the Investor hereby agree as follows:
ARTICLE I
DEFINITIONS
2.1. Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with GAAP (as hereinafter
defined) consistently applied and each amount included in the Estimated
Pre-Closing Statement and the Closing Date Statement shall be calculated in
accordance with GAAP and shall be consistent with the books and records of the
Business (which books and records shall be correct and complete); provided, that
all known errors and adjustments shall be taken into account in the calculation
of each account set forth above, regardless of their materiality. With respect
to the calculations made in connection with the Estimated Pre-Closing Statement
and the Closing Date Statement, no change in accounting principles shall be made
from those utilized in preparing the Financial Statements (without regard to
materiality), including, without limitation, with respect to the nature or
classification of accounts, closing proceedings, levels of reserves or levels of
accruals. For purposes of the preceding sentence, a "change in accounting
principles" shall include any change in accounting principles, policies,
practices, procedures or methodologies with respect to financial statements,
their classification or their display, as well as any change in practices,
2
<PAGE> 8
methods, conventions or assumptions utilized in making accounting estimates,
other than any change necessitated by a change in underlying circumstances.
2.2. Singular and Plural Forms. The use herein of the singular form also
denotes the plural form, and the use of the plural form herein also denotes the
singular form, as in each case the context may require.
2.3. Other Defined Terms. The terms listed below in this Section shall
have the following respective meanings in this Agreement:
"Act" shall mean the New Jersey Limited Liability Company Act
codified as Chapter 2B of Title 42 of the New Jersey Revised Statutes.
"Action" shall mean any action, suit, claim, investigation, order,
judgment, decree, ruling, charge or legal, administrative or arbitration
proceeding.
"Adjusted Net Redemption Price" shall mean the aggregate Net
Redemption Price less the aggregate original principal amount of the
Recapitalization Notes.
"Affiliate" of an entity shall mean any entity that directly or
indirectly controls, or is controlled by, or is under common control with
such entity and, with respect to any individual, such individual's spouse
or any person within the first degree of kinship of such individual.
"Brown" shall mean Douglas A. Brown, an individual.
"B/S Membership Interest" shall mean the Membership Interest of
Sleepmaster owned by B/S.
"B/S Purchase Price" shall mean the amount by which 2% of the Gross
Redemption Price is greater than 2% of the Sleepmaster Distribution.
"Business" shall mean the manufacture, sale, marketing and
distribution of mattress and other bedding products, including those
products that bear one or more of the "Serta" trademarks, as conducted by
the Company and Sleepmaster on June 30, 1996.
"Change of Control Payments" shall mean all payments, other than
payment of the Net Redemption Price, to which any member or manager of the
Company or Sleepmaster, any Affiliate of the Company or Sleepmaster or any
warrant holder is entitled to receive as a result of the transactions
contemplated hereby, including without limitation any amounts paid by the
Company to the holder of the Warrant if and to the extent the Warrant has
not been exercised as of the Release Date.
3
<PAGE> 9
"Closing" shall have the meaning given in Section 2.7.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Assets" shall mean all rights, properties, assets,
contracts and leases of every kind, character and description, whether
tangible or intangible, whether real, personal or mixed, whether accrued,
contingent or otherwise, and wherever located relating to the Business as
of the opening of Business on the Closing Date.
"Company Expenses" shall mean the aggregate amount of the fees and
expenses of the Company incurred and unpaid at or prior to the Closing by
the Company in connection with this Agreement which inure directly or
indirectly to the benefit of the Existing Members and the consummation of
the transactions contemplated hereby, including, without limitation, any
investment banking, brokers, finders' and legal fees, and including the
fees of Bowles Hollowell Conner & Co. ("BHC"), transfer taxes, conveyance
and recording fees, documentary stamp taxes and all other similar charges;
in no event shall Company Expenses include any fees or expenses paid or
payable by or paid or payable to the Investor, First Source or Pacific or
to any of their respective counsel.
"Debt" shall mean all indebtedness of the Company or Sleepmaster
including without limitation (i) all obligations of the Company or
Sleepmaster for borrowed money or evidenced by bonds, debentures, notes,
letters of credit or other similar instruments, but in no event amounts
due in connection with the New Sleepmaster Debt or the Recapitalization
Notes; (ii) obligations as lessee under capital leases; (iii) obligations
to pay the deferred purchase price of property or services, including (A)
any amounts in excess of $104,150 due under the Pennsauken Non-Competition
Agreements, and (B) obligations to pay certain taxes of the Partnership
pursuant to the agreement, dated January 12, 1995, between Sleepmaster and
the Partnership annexed as Schedule 1.1 hereto, except accounts payable
arising in the Ordinary Course of Business; (iv) all debt of others
guaranteed or otherwise supported by the Company or Sleepmaster, or
secured by a lien on any of the assets of the Company or Sleepmaster; (v)
all amounts owed by or any obligations of the Company or Sleepmaster to
any Affiliate of the Company or Sleepmaster other than pursuant to this
Agreement or the employment contracts listed in Schedule 4.9; (vi) any
Change of Control Payments; and (vii) any interest, principal, prepayment
penalty, fees or expenses in respect of those items listed in clauses (i)
through (vi) of this defined term (other than the New Sleepmaster Debt and
the Recapitalization Notes).
"DuPont" shall mean Timothy DuPont, an individual.
"Employee Members" shall mean Schweitzer, Koscica, DuPont and
Reilly.
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"Equity Plan" shall mean Sleepmaster's Executive Equity
Participation Plan.
"Equity Plan Participant" shall mean each Person currently entitled
to receive any benefit under the Equity Plan.
"Essential Contracts" shall mean the Linden Lease and the Serta
Licenses.
"Existing Senior Loan Facility" shall mean the obligations of the
Company or Sleepmaster to NationsCredit Commercial Corp. ("NCC")
outstanding under the Credit Agreement, dated as of January 12, 1995,
among Sleepmaster, the Company, the lenders referred to therein and NCC as
agent bank.
"Facility" shall mean Sleepmaster's operating facility located at
2001 Lower Road, Linden, New Jersey.
"First Source" shall mean First Source Financial, Inc.
"Financial Statements" shall have the meaning given in Section 4.2.
"GAAP" shall mean United States generally accepted accounting
principles, as in effect from time to time, applied on a basis consistent
with prior periods.
"Governmental Entity" shall mean any court, arbitral tribunal,
administrative agency or commission or other governmental or other
regulatory authority or agency.
"Gross Redemption Price" shall mean the amount determined as such
pursuant to Section 3.3(a).
"Intangible Property Rights" shall mean all of the following,
irrespective of where any of the same were issued, are pending or exist:
United States and foreign patents of any description, and applications
therefor, registrations of trademarks and of other marks, registrations of
trade names, labels or other trade rights, registered user entries, and
applications for any such registration or entries; United States and
foreign copyrights, copyright registrations and applications therefor;
United States and foreign trademarks and other marks, corporate names,
trade names, business names, labels and other trade rights, whether or not
registered; inventions, discoveries, improvements, designs, processes,
formulae, technology, know-how, trade secrets, confidential information
and technical information, whether patented, not patented, patentable or
not patentable; and shop rights and other rights relating in whole or in
part to any of the foregoing.
"Investor Indemnitee" shall have the meaning given it in Section
11.3(a).
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"Investor Notes" shall mean the Senior Notes of the Investor, each
of which shall be substantially in the form of Exhibit B, dated as of the
Release Date, made by the Investor to the Existing Members in the original
aggregate principal amount of $7,000,000.
"IRS" shall mean the Internal Revenue Service.
"K(k)nowledge" when used as a qualification to any representations
or warranties made by the Company shall include Sleepmaster and shall mean
the best knowledge of Schweitzer, Koscica, Reilly, DuPont or Brown.
"Koscica" shall mean James P. Koscica, an individual.
"Labor Contract" shall mean the Collective Bargaining Agreement,
dated May 1, 1994, between Sleepmaster and AFL-CIO CLC Local Union 396 of
the Aluminum, Brick and Glassworkers Union.
"Lien" or "Liens" shall mean any mortgage, pledge, security
interest, conditional sale or other title retention agreement,
encumbrance, lien, easement, claim, right, covenant, restriction, right of
way, warrant, option or charge of any kind, including without limitation
any liens to secure the payment or collection of Taxes.
Any reference to any event, change or effect having a "Material
Adverse Effect" means with respect to an entity (or group of entities
taken as a whole), such event, change or effect that is materially adverse
to the consolidated condition (financial or otherwise), properties, assets
(including intangible assets), liabilities (including contingent
liabilities), business, results of operations or prospects of such entity
(or, if with respect thereto, of such group of entities taken as a whole).
"Linden Lease" shall have the meaning given it in Section 4.4(c).
"Membership Interest" shall mean a limited liability company
interest as defined in Section 2B-2 of the Act.
"Net Redemption Price" shall mean the amount determined as such
pursuant to Section 3.3(b).
"Net Working Capital" shall mean the Company's consolidated current
assets (other than cash and deferred financing costs), less the Company's
consolidated current liabilities (other than (i) the current portion of
any long-term indebtedness, (ii) any funded debt of the Company or
Sleepmaster, (iii) amounts due under the Pennsauken Non-Competition
Agreements and (iv) deferred taxes).
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"New Sleepmaster Debt" shall mean the New Senior Loan Facility and
the New Senior Subordinated Notes.
"New Senior Loan Facility" shall mean the obligations of Sleepmaster
to First Source under the Secured Credit Agreement, dated as of the
Release Date, among Sleepmaster, the Company and First Source as agent
bank for the banks named therein.
"New Senior Subordinated Notes" shall mean the 12% Senior
Subordinated Notes of Sleepmaster, issued as of the Release Date, to
Pacific in the original aggregate principal amount of $15,000,000.
"Operating Agreement" shall mean the Operating Agreement of the
Company, dated as of December 19, 1994, among the Company and the members
named therein and signatories thereto.
"Ordinary Course of Business" means the ordinary course of business
of the Company or Sleepmaster, as the case shall be, consistent with past
custom and practice as of June 30, 1996 (including with respect to
quantity and frequency).
"Pacific" shall mean PMI Mezzanine Fund, L.P., a Delaware limited
partnership.
"Partnership" shall mean Sleepmaster Products Company, L.P., a
Delaware limited partnership, as the same shall be known after the change
in name contemplated by this Agreement.
"Pennsauken Non-Competition Agreements" shall mean each of the two
Non-Competition Agreements, dated November 30, 1993, between the
Partnership and Millard Wilkinson and Robert Moore, respectively, as
assumed by Sleepmaster.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust,
a joint venture, an unincorporated organization or a Governmental Entity.
"Purchased Membership Interests" shall mean the Preferred Interests
and the Common Interests being purchased by the Investor from the Existing
Investors pursuant to Section 2.5.
"Recapitalization Notes" shall mean the Junior Subordinated Notes of
the Company, each of which shall be substantially in the form of Exhibit
C, dated as of the Release Date, in the original aggregate principal
amount of $7,000,000 made by the Company to the Existing Members and
immediately thereafter purchased by the Investor.
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"Redeemed Interests" shall have the meaning given it in Section 2.3.
"Reilly" shall mean Michael Reilly, an individual.
"Release" shall have the meaning given it in Section 9.5.
"Release Date" shall mean the date on which the Release occurs.
"Representative of the Existing Members" shall mean Brown or such
other Person that is named as such in a written instrument signed by the
Existing Members holding a majority in percentage of the Membership
Interests of the Company measured as of the date of this Agreement.
"Restated Operating Agreement" shall mean the Operating Agreement,
as amended and restated in the form of Exhibit D.
"Retained Interests" shall mean all Membership Interests of the
Company other than the Redeemed Interests.
"Schweitzer" shall mean Charles Schweitzer, an individual.
"Serta" shall mean Serta, Inc., a Delaware corporation.
"Serta Consent" shall mean the consent of Serta and the stockholders
of Serta to the transactions contemplated by this Agreement, to the extent
required by the by-laws of Serta and the Serta Licenses; the Serta Consent
shall include a letter agreement to be entered into between Serta and
First Source relating to certain rights of First Source in the event of a
default by Sleepmaster under the New Senior Loan Facility.
"Serta Licenses" shall mean the two Standard License Agreements and
the two Memoranda of Agreement (collectively, the "Serta Licenses"), dated
January 12, 1995, between the Company and Serta covering certain
territories in Pennsylvania, New Jersey, New York, Connecticut, Maryland
and Delaware.
"Sleepmaster Distribution" shall mean the distribution to be made by
Sleepmaster to B/S and the Company pursuant to Section 3.2.
"Sleepmaster Operating Agreement" shall mean the Operating
Agreement, dated as of December 19, 1994, among Sleepmaster and its
members.
"Tax" means, with respect to the Company or Sleepmaster, any taxes,
fees, charges, levies, excises, duties, or assessments of any kind
whatsoever, including, without limitation, income, gross receipts, ad
valorem, premium, excise, real property, personal property, windfall
profit, sales, use, transfer, licensing, import, export, withholding,
employment, payroll, social security, medicare,
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environmental (under Code Sec. 59A), customs duties, value added,
alternative or add-on minimum estimated and franchise taxes, together with
additions to tax or additional amounts, interests and penalties relating
thereto that may be imposed by any Governmental Entity on or with respect
to the Company or Sleepmaster with respect to all taxable periods ending
on or prior to the Closing Date;
"Tax Returns" mean all returns, reports, declarations and forms,
including any schedule or attachment thereto, and any amendment thereof,
required to be filed in respect of any Taxes.
"Warrant" shall mean the warrant to purchase a 10.20% non-voting
membership interest in the Company, dated January 12, 1995, expiring
January 12, 2005 and issued by the Company to NCC.
Other capitalized terms used herein shall have the respective meanings accorded
them throughout this Agreement.
ARTICLE II
RECAPITALIZATION TRANSACTIONS
2.4. Senior Debt Recapitalization. The Company will authorize, and will
cause Sleepmaster to authorize, the New Senior Loan Facility. Subject to the
terms and conditions of this Agreement, the Company will cause Sleepmaster to,
and Sleepmaster will, enter into the New Senior Loan Facility and borrow
initially $30,720,000 and thereafter such amounts as Sleepmaster deems necessary
or advisable.
2.5. Authorization of New Senior Subordinated Notes. The Company will
cause Sleepmaster to authorize, and Sleepmaster will authorize, the issue, sale
and delivery of the New Senior Subordinated Notes to Pacific. Subject to the
terms and conditions of this Agreement, Sleepmaster will issue, sell and deliver
the New Senior Subordinated Notes to Pacific in the aggregate principal amount
of $15,000,000.
2.6. Authorization of Redemption of Membership Interests and
Recapitalization Notes. The Company will authorize the redemption of the
Membership Interests of the Company owned by the Existing Members to the extent
set forth in Schedule 2.3 (the Membership Interests of the Company being so
repurchased by the Company being referred to in this Agreement collectively as
the "Redeemed Interests"), for the aggregate redemption price determined
pursuant to Section 3.3 and referred to in the aggregate in this Agreement as
the "Net Redemption Price." In order to pay a portion of the Net Redemption
Price, the Company will authorize the issue, sale and delivery of the
Recapitalization Notes to all of the Existing Members on a pro rata basis (based
on the amount of their respective Membership Interests). Subject to the terms
and conditions of this Agreement, the Company will redeem the Redeemed Interests
from the Existing Members, and the Existing Members will jointly and severally
sell
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and transfer the Redeemed Interests to the Company as set forth in Schedule 2.3,
all for the Net Redemption Price, which price consists of cash and the
Recapitalization Notes.
2.7. Resignation of Certain Members; Reclassification of Membership
Interests. Subject to the terms and conditions of this Agreement (a) the
Existing Members (other than the Employee Members) hereby resign from the
Company, such resignations to become effective only immediately following the
Existing Members' receipt of the Net Redemption Price; provided that
notwithstanding such resignations, the Existing Members will retain their
respective Membership Interests in the Company until the Investor purchases
their Membership Interests pursuant to Section 2.5. Each Existing Member and the
Company hereby waive the provisions of Section 2B-38 of the Act and consent to
the effectiveness of the resignations of the Existing Members (other than the
Employee Members) as stated in the preceding sentence; and (b) immediately
following their receipt of the Net Redemption Price payable to them, the
Employee Members and the Company will enter into and deliver the Restated
Operating Agreement.
2.8. Purchases by the Investor from the Existing Members. Subject to the
terms and conditions of this Agreement, (i) the Investor will purchase from the
Existing Members, and the Existing Members will sell and assign to the Investor
in the respective allocations set forth in Schedule 2.5, Membership Interests of
the Company, all for an aggregate purchase price of $12,984,286 less the B/S
Purchase Price (such net amount being referred to as the "Investor's Purchase
Price") payable in cash, all to the extent set forth and for the allocations of
the Investor's Purchase Price that are set forth in Schedule 2.5, and (ii) the
Investor will purchase and assume from the Existing Members, and the Existing
Members will sell and assign to the Investor, the Recapitalization Notes in
exchange for an equivalent aggregate principal amount of Investor Notes. In
connection therewith, the Investor will authorize the issue, sale and delivery
of the Investor Notes to the Existing Members in an aggregate principal amount
equivalent to the aggregate principal amount of the Recapitalization Notes, and
will authorize the purchase of the Recapitalization Notes by the Investor.
2.9. Purchase and Sale of B/S Interest. Subject to the terms and
conditions of this Agreement, B/S will sell and assign to Investor, and Investor
will purchase from B/S, the B/S Membership Interest for the B/S Purchase Price,
payable in cash.
2.10. Closing. The closing of the transactions described in Sections 2.1
through 2.6 (the "Closing") will be held on October 17, 1996 at 10:00 A.M. or at
such other time and date not later than November 15, 1996 at least three
business days after the waiver or satisfaction of all closing conditions set
forth in Articles VII and VIII as the parties hereto mutually agree (the
"Closing Date") at the offices of counsel to the Company or such other place as
the parties hereto mutually agree. At the Closing, the parties will deliver into
the escrow contemplated by this Agreement those documents listed in Sections 9.1
and 9.2.
2.11. Payments by Investor to the Existing Members. Upon the Release, the
Investor will pay the Investor's Purchase Price for the Purchased Membership
Interests to such respective bank accounts of the Existing Members as the
Representative for the Existing
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Members shall advise the Investor in writing not less than three business days
prior to the Closing.
2.12. Payments by the Company to the Existing Members. Upon the Release,
the Company will pay the Existing Members the cash portion of the consideration
due to be paid under this Agreement to such respective bank accounts as the
Representative for the Existing Members shall advise the Company in writing not
less than three business days prior to the Closing.
2.13. The Warrant. At the Closing, if and to the extent that the Warrant
has not theretofore been exercised, the Warrant shall be cancelled by the
Company in accordance with its terms, and the holder of the Warrant shall
deliver to the Company an instrument acknowledging the cancellation of such
Warrant and the full and final release of any obligations of the Company or
Sleepmaster thereunder.
2.14. Cancellation of Equity Plan. Each outstanding right issued pursuant
to the Equity Plan shall be cancelled simultaneously with the Closing.
2.15. Method of Payment. Subject to Section 11.5, all payments to be made
upon the Release or otherwise under this Agreement shall be made by bank wire
transfer of federal funds.
ARTICLE III
PAYMENTS BY THE COMPANY
2.16. Payments of Debt and Related Charges. At the Release, the Company
shall pay, or cause to be paid, in full:
(a) the Existing Senior Loan Facility;
(b) all Change of Control Payments;
(c) $104,150 of the amount outstanding under the Pennsauken
Non-Competition Agreements; and
(d) the Company Expenses.
2.17. Sleepmaster Distribution. At the Release, Sleepmaster will
distribute to its members in proportion to their Membership Interests the amount
by which $43,000,000 exceeds the amounts to be paid or caused to be paid by the
Company pursuant to Section 3.1.
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2.18. Redemption Price.
(a) The "Gross Redemption Price" shall be the amount by which
$65,000,000, as adjusted pursuant to Section 3.4(b), exceeds the sum of the
amounts paid pursuant to clauses (a) through (d) of Section 3.1.
(b) The "Net Redemption Price" shall mean the Gross Redemption Price
reduced by (i) an amount equal to 2% of the Sleepmaster Distribution, (ii) the
Investor's Purchase Price, (iii) the B/S Purchase Price and (iv) $2,015,714.
(c) At the Release, the Net Redemption Price shall be allocated and
paid to the Existing Members as follows:
(i) Each Existing Member (including, for purposes of clauses (i)
through (iii) of this Section 3.3(c), the holder of the Warrant, if the
holder has exercised the Warrant on or prior to the Release Date) will
receive in partial payment for the redemption of its Membership Interest
in the Company its pro rata share (based on the amount of its Membership
Interest in the Company as a percentage of all Membership Interests, after
giving effect to the exercise of the Warrant, if and to the extent the
Warrant shall have been exercised) of the Recapitalization Notes, duly
executed and delivered by the Company and registered in its name;
(ii) Each Existing Member (other than the Employee Members) will
receive as payment for the redemption of the remainder of his or its
Redeemed Interests its pro rata share of 50.52% of the Adjusted Net
Redemption Price (the "Non-Employee Members' Share") determined as
follows: the amount payable to each such Existing Member shall be the
product of the Non-Employee Members' Share and a fraction, the numerator
of which shall be the Membership Interest of the Company held by such
Member, expressed in percentage terms (without reduction for the partial
redemption effected by the issuance of the Recapitalization Notes), and
the denominator of which shall be the aggregate of the Membership
Interests of the Company held by all of the Existing Members, expressed in
percentage terms (other than the Employee Members); as of the date of this
Agreement, after giving effect to the exercise of the Warrant if the same
shall have been exercised on or prior to the Release Date; provided, that
if the Warrant shall not have been exercised in full on or prior to the
Release Date, the percentage of the Adjusted Net Redemption Price subject
to this Section 3.3(c)(ii) shall be 44.9% and not 50.52%); and
(iii) Each Employee Member shall receive as payment for the
redemption of his Redeemed Interests his pro rata share of 49.48% of the
Adjusted Net Redemption Price (such net amount being referred to as the
"Employee Members' Share"), determined as follows: the amount payable to
each Employee Member shall be the product of the Employee Members' Share
and a fraction, the numerator of which shall be the Membership Interest of
the Company
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held by such Member, expressed in percentage terms (without reduction for
the partial redemption effected by the issuance of the Recapitalization
Notes), and the denominator of which shall be the aggregate of the
Membership Interests of the Company held by all of the Employee Members as
of the date of this Agreement, expressed in percentage terms; provided,
that if the Warrant shall not have been exercised on or prior to the
Release Date, the percentage of the Adjusted Net Redemption Price subject
to this Section 3.3(c)(iii) shall be 55.1% and not 49.48%).
2.19. Pre-Closing Adjustment.
(a) Not later than five days prior to the Closing Date, the Company
shall deliver to the Investor a financial statement of the Company (the
"Estimated Pre-Closing Statement") setting forth the Company's good faith
estimate of Sleepmaster's Net Working Capital (the "Net Working Capital
Estimate") as of the opening of business on the Closing Date. The Estimated
Pre-Closing Statement shall have been prepared in accordance with GAAP applied
in a manner consistent with the Financial Statements.
(b) Based on the Estimated Pre-Closing Statement, if the Net Working
Capital Estimate is negative, the Gross Redemption Price shall be reduced by
such negative amount on a dollar-for-dollar basis.
2.20. Post-Release Adjustment.
(a) Commencing promptly after the Release Date, the Investor shall
cause the Company to prepare and deliver to the Investor and the Representative
of the Existing Members within 30 days following the Release Date a statement
(the "Release Date Statement") of Net Working Capital of the Company as of the
opening of business on the Release Date.
(b) The Representative of the Existing Members and its accountants
shall review the Release Date Statement and in connection with such review shall
have reasonable access to work papers and personnel to be able to determine the
manner in which any item reflected on the Release Date Statement was determined
and the accuracy of any such determination. The Investor shall provide, and
shall cause the Company to provide, the Existing Members and their accountants
reasonable access at all reasonable times to the Company's books, records,
premises and facilities and other materials, and shall furnish the
Representative of the Existing Members and its accountants with such information
and assistance as either of them shall reasonably request to assist them in
their review of the Release Date Statement in accordance with this Section.
Within 30 days after delivery of the Release Date Statement (the "Review
Period"), the Existing Members shall deliver a written notice to the Investor
setting forth a description of all their objections, if any, to the Release Date
Statement. If no such objection is delivered to the Investor within the Review
Period, then on the day following the last day of the Review Period, the
Existing Members will be deemed to have accepted the Release Date Statement.
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(c) The Investor and the Representative of the Existing Members
shall attempt to resolve all of the Existing Members' objections in good faith
within 15 days of delivery by the Representative of the Existing Members of the
notice of objections. If any objections remain unresolved after the end of such
15-day period, the Investor and the Representative of the Existing Members shall
retain the New York City office of Ernst & Young, LPP, or another public
accounting firm of national reputation mutually acceptable to the Investor and
the Representative of the Existing Members (the "Arbitrator"), to resolve all
disputes relating to the Release Date Statement. The Investor on the one hand
and the Existing Members on the other hand shall each pay one-half of the
Arbitrator's fees and expenses. The Arbitrator shall be instructed to (i) make
its determination based on the terms and conditions of this Agreement and (ii)
select the position of the Investor, the Existing Members or one that falls
between and (iii) make a final resolution of all disputes within 10 days after
being retained by the Investor and the Representative of the Existing Members.
(d) Within 10 days after the resolution of all disputes arising out
of the review of the Release Date Statement in accordance with Section 3.5(c),
or, if the Representative of the Existing Members shall not have delivered the
notice setting forth their objections pursuant to Section 3.5(b), the end of the
Review Period, whichever is later, the following adjusting payments shall be
made:
(i) If the Net Working Capital Estimate is negative and if the
Release Date Net Working Capital is less (i.e., negative to a
greater extent) than the Net Working Capital Estimate (as finally
determined in accordance with this Section), then the Existing
Members shall jointly and severally pay to the Company the amount of
the difference;
(ii) If the Net Working Capital Estimate is negative and if
the Closing Date Net Working Capital is also negative but is greater
(i.e., negative to a lesser extent) than the Net Working Capital
Estimate, the Company shall pay the Existing Members the amount of
the positive difference;
(iii) If the Net Working Capital Estimate is negative and if
the Release Date Net Working Capital is positive, then the Company
shall pay the Existing Members the amount by which the Gross
Redemption Price was reduced pursuant to Section 3.4(b);
(iv) If the Net Working Capital Estimate is positive and the
Release Date Net Working Capital is negative, the Existing Members
shall jointly and severally pay the Company the amount by which the
Release Date Net Working Capital is negative; and
(v) If both the Net Working Capital Estimate and the Release
Date Net Working Capital are positive, no adjusting payments shall
be due or payable.
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All payments made pursuant to this Section 3.5(d) shall be adjustments to the
Net Redemption Price and shall be made by wire transfer of federal funds.
2.21. Allocation. The aggregate of the Net Redemption Price and the
Investor's Purchase Price shall be allocated among the Company Assets pursuant
to Schedule 3.6. No party to this Agreement shall take any position for purposes
of Federal or state income tax respecting the allocation of such amounts which
is inconsistent with the allocation so agreed upon by the parties in accordance
with this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY, SLEEPMASTER, B/S
AND THE EXISTING MEMBERS
The Company, Sleepmaster, B/S and the Existing Members hereby
represent and warrant, jointly and severally, to the Investor that the
statements made in this Article IV are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date and as of
the Release Date.
2.22. Organization and Good Standing, etc.
(a) Each of the Company and Sleepmaster (i) is a limited liability
company duly formed, validly existing and in good standing under the laws of its
jurisdiction of formation; (ii) has full power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns; and (iii) is duly qualified to transact business in all jurisdictions
in which the ownership or leasing of assets, or conducting of its business,
requires such qualification and in which the failure to so qualify would have a
Material Adverse Effect on the Business.
(b) The Company has heretofore delivered to the Investor complete
and correct copies of the Articles of Formation and Operating Agreement, as
amended as currently in effect, of each of the Company and Sleepmaster.
(c) Prior to giving effect to the transactions referred to in
Article II, Schedule 4.1(c) sets forth a true, correct and complete list of (i)
all holders of any Membership Interests of the Company and the amount of such
Membership Interests expressed as a percentage of the profits and losses of the
Company to which such holder is entitled; and (ii) all holders of any Membership
Interests of Sleepmaster and the amount of such Membership Interests expressed
as a percentage of the profits and losses of Sleepmaster to which such holder is
entitled. Other than as set forth in Section 2.3 and the Warrant, there are no
subscriptions, commitments, options, warrants or other arrangements to issue
Membership Interests of the Company or of Sleepmaster or any other securities
convertible into, exchangeable for or
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evidencing the right to subscribe for any Membership Interests of the Company or
of Sleepmaster.
(d) Except for the Company with respect to Sleepmaster, neither the
Company nor Sleepmaster has any investment in and does not control, directly or
indirectly, any other corporation, partnership, joint venture, association or
other entity or business concern.
2.23. Financial Statements. Attached hereto as Schedule 4.2 are (a) the
consolidated balance sheet of the Company as at December 31, 1995 (the "1995
Balance Sheet") and the related consolidated statements of operations and cash
flows of the Company and Sleepmaster for the fiscal year then ended, together
with the notes thereto, in each case audited by Edelman & Kalosieh, the
Company's independent certified public accountant, together with the audit
report of such firm as to such statements (collectively, with the 1995 Balance
Sheet, the "1995 Financial Statements"); (b) the consolidated balance sheets for
the Partnership as at December 31, 1994, December 31, 1993 and December 31,
1992, and the related consolidated statements of operations and cash flows of
the Partnership, each audited by an independent certified public accountant,
together with the audit report from such firm as to such statements (the
"Historical Financial Statements"); and (c) an unaudited consolidated balance
sheet for the Company and Sleepmaster as at June 30, 1996 and unaudited
statements of operations and cash flow for the six-month period then ended (the
"Interim Financial Statements"; the 1995 Financial Statements, the Historical
Financial Statements and the Interim Financial Statements being collectively
referred to as the "Financial Statements"). The Financial Statements (i) were
compiled from and are consistent with the books and records of the Company and
Sleepmaster, or of the Partnership, as the case shall be, regularly maintained
by management and used to prepare the financial statements of the Company and
Sleepmaster, or of the Partnership, as the case shall be, (ii) are used by the
Company in the ordinary conduct of the business of the Company and Sleepmaster,
(iii) except as disclosed in Schedule 4.2, were determined on a basis consistent
with the past practices of the Company and Sleepmaster, or of the Partnership,
as the case shall be, (iv) present fairly the financial position, results of
operation and other information of the Company and Sleepmaster included therein,
or of the Partnership, as the case shall be, including, without limitation,
adequate reserves with respect to inventory, and (v) except with respect to the
absence of footnotes and normal year-end adjustments to be made to the Interim
Financial Statements, have been prepared in accordance with GAAP as consistently
applied by the Company and Sleepmaster during the period covered.
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2.24. Authorization; No Violation; Consents.
(a) Authorization and No Violation. Except as set forth in Schedule
4.3(a), each of the Company and Sleepmaster has full power and authority to
execute and deliver this Agreement and the other agreements and documents
contemplated hereby and to perform its respective obligations hereunder and
thereunder. The execution and delivery by each of the Company and Sleepmaster of
this Agreement and the other agreements and documents contemplated hereby and
the consummation of the transactions contemplated hereby and thereby, the
performance by each of the Company and Sleepmaster of their respective
obligations contemplated hereby and thereby (i) have been duly and validly
authorized by all necessary action on the part of each of the Company and
Sleepmaster, including without limitation all actions taken by the members or
managers of the Company and Sleepmaster, (ii) do not conflict with or violate
any of the terms of the Articles of Formation or Operating Agreement of the
Company or Sleepmaster, (iii) do not violate any applicable law, ordinance, rule
or regulation or any judgment, order, writ, injunction or decree of any court,
administrative or Governmental Entity, and (iv) except as set forth in Schedule
4.3(a), do not violate or conflict with the terms of, or result in a breach of,
or constitute a default under, or result in the creation or imposition of any
Lien upon any property or assets of the Company or Sleepmaster under, any
mortgage, indenture, lease, agreement, license or other instrument to which the
Company or Sleepmaster is a party or by which the Company or Sleepmaster, or the
assets thereof, may be bound, which violation, conflict, default or Lien, in the
aggregate with all other such violations, conflicts, defaults and Liens, would
have a Material Adverse Effect on the Company and Sleepmaster, taken as a whole.
(b) Consents. Except as set forth in Schedule 4.3(b), there are no
consents, authorizations or approvals of, notices to, or filings or
registrations with, any Governmental Entity or any other third party, required,
and no Change of Control Payments become payable, in connection with the
execution and delivery by the Company or Sleepmaster of this Agreement and the
other agreements and documents contemplated hereby, the consummation of the
transactions contemplated hereby and thereby and the performance by the Company
or Sleepmaster of their respective obligations contemplated hereby and thereby,
except where the failure to obtain such consents, authorizations or approvals
would not have a Material Adverse Effect on the Company and Sleepmaster, taken
as a whole. Except as otherwise set forth in Schedule 4.3(b), all consents,
authorizations, approvals, notices, filings and registrations set forth in said
Schedule have been obtained or made.
(c) Enforceable Agreement. This Agreement and the other agreements
and documents contemplated hereby constitute the legal, valid and binding
obligations of the Company, Sleepmaster and the Existing Members, as the case
shall be, enforceable in accordance with their respective terms, except that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding may be brought, and that applicable bankruptcy and
other laws of general application may affect the rights and remedies of
creditors.
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2.25. Properties of the Business.
(a) Title to Assets and Related Matters. Except as set forth in
Schedule 4.4(a), the Company or Sleepmaster, as the case shall be, has good and
marketable title to all of the Company Assets, and on the Release Date the
Company Assets shall be free and clear of all Liens, except such Liens which are
set forth in Schedule 4.4(a). All property and assets (tangible and intangible)
used or required by the Company or Sleepmaster in the conduct of the Business as
presently conducted are owned by the Company or Sleepmaster, as the case may be,
or licensed or leased to the Company or Sleepmaster, as the case may be,
pursuant to a license or lease listed in Schedule 4.4(c), Schedule 4.4(d),
Schedule 4.8 or Schedule 4.9. The Company Assets include all properties and
assets (other than cash and cash equivalents) utilized in carrying on the
operations of the Business in the Ordinary Course of Business.
(b) Owned Real Property. Neither the Company nor Sleepmaster owns
any real property in fee simple.
(c) Leased Real Property. Schedule 4.4(c) sets forth all leases or
other agreements pursuant to which the Company or Sleepmaster leases, occupies
or otherwise uses real property. The lease covering real property located at
2001 Lower Road, Linden, New Jersey, dated October 13, 1993, between Hartz
Mountain Industries, Inc. ("Hartz"), a New York corporation, as landlord, and
the Partnership, as tenant, as modified and assigned under the Landlord's
Consent and Modification Letter Agreement and the Assignment and Assumption of
Lease Agreement, dated January 12, 1995, between the Partnership, as assignor,
and Sleepmaster, as assignee (as so assigned and amended, the "Linden Lease") is
in full force and effect and is enforceable in accordance with its terms. The
Company has previously delivered to the Investor a true and complete copy of the
Linden Lease including all amendments, supplements and other modifications
thereto. Other than Sleepmaster, there are no parties in possession or parties
having any rights to occupy all or any portion of the Facility. The Facility is
in good condition and repair and is sufficient and appropriate for the conduct
of the Business as presently conducted. The Facility and all plants, buildings
and improvements located thereon conform to all applicable building, zoning and
other laws, ordinances, rules and regulations, other than nonconformances, none
of which, either individually or in the aggregate, would have a Material Adverse
Effect on the Business. There is no pending or, to the knowledge of the Company,
any threatened condemnation proceeding affecting any portion of the Facility. To
the Company's best knowledge, all utilities enter the Facility from an adjacent
public street or valid private easement owned by the supplier of such utility;
the Facility has direct access to a public street adjoining the Facility and no
existing accessway crosses or encroaches upon any property or property interest
of any third party; and no improvement forming a portion of the Facility
encroaches upon any property or property interest of any third party.
(d) Personal Property Leases. Schedule 4.4(d) contains a complete
list of:
(i) all leases pursuant to which the Company or Sleepmaster
leases any type of personal property (including without limitation
computer
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hardware and software) which provide, singly, for rental payments in
excess of $10,000 per annum; and
(ii) all leases pursuant to which the Company or Sleepmaster
leases to others any type of property which provide, singly, for
rental payments in excess of $25,000 per annum or which have an
unexpired term in excess of three years.
2.26. Compliance with Laws.
(a) Since the inception of the Company and Sleepmaster, each has
conducted its business in compliance with all applicable federal, state or local
laws, rules and regulations, ordinances, orders, judgments, decrees or
administrative rulings, except for (i) possible violations which in the
aggregate do not have a Material Adverse Effect on the Business, and (ii) those
described in Schedule 4.5.
(b) Since the inception of the Company and Sleepmaster, B/S and each
of the Existing Members have complied with all federal, state or local laws,
rules and regulations, ordinances, orders, judgments, decrees or administrative
rulings that are applicable to the Company Assets, the Business or the ownership
of the Membership Interests, to the extent such laws, rules and regulations,
ordinances, orders, judgments, decrees and administrative rulings are applicable
to B/S and each of the Existing Members, as the case may be.
2.27. Litigation. Except as set forth in Schedule 4.6, there are no
Actions pending against the Company, Sleepmaster, B/S or any of the Existing
Members or any properties or rights of the Company or Sleepmaster or otherwise
relating to the Company or Sleepmaster, and none of the Company, Sleepmaster,
B/S nor any of the Existing Members is subject to any Action, before any court,
arbitrator or administrative or Governmental Entity. Except as set forth in
Schedule 4.6, to the Company's knowledge there are no Actions threatened against
the Company, Sleepmaster, B/S or any of the Existing Members or any properties
or rights of the Company or Sleepmaster or otherwise relating to the Company or
Sleepmaster, except those Actions which, either individually or in the
aggregate, would not have a Material Adverse Effect on the Company and
Sleepmaster, taken as a whole. No Actions are pending or, to the Company's
knowledge, threatened against the Company, Sleepmaster, B/S or any of the
Existing Members or otherwise which question or challenge the validity of this
Agreement or any action taken or proposed to be taken by the Company or
Sleepmaster pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement.
2.28. Absence of Certain Changes. Except as set forth in Schedule 4.7,
since June 30, 1996 each of the Company and Sleepmaster has conducted its
business only in accordance with the Ordinary Course of Business and has not:
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(i) suffered any Material Adverse Effect on the Business or
the financial condition or prospects of the Business;
(ii) suffered any damage, destruction or loss, whether covered
by insurance or not, materially adversely affecting its property,
plant or equipment;
(iii) paid, discharged or satisfied any material liability or
other expenses other than the payment, discharge or satisfaction of
liabilities at the time the same were due and payable and in the
Ordinary Course of Business;
(iv) sold, assigned, transferred, mortgaged, pledged or
permitted or allowed the imposition of any Liens upon any of its
properties or assets (real, personal or mixed, tangible or
intangible) other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of money;
(v) created or incurred any Debt, except incurred in the
borrowing of money in the Ordinary Course of Business from its bank
lender or created or incurred any other material liability;
(vi) delayed or postponed the payment of accounts payable or
other liabilities not in the Ordinary Course of Business;
(vii) cancelled or compromised any material liabilities, or
waived or permitted to lapse any material claims or rights, except
in the Ordinary Course of Business;
(viii) disposed of or permitted to lapse any rights to the use
of any patent, trademark, trade name, copyright, slogan or telephone
number material to the Business;
(ix) granted any material general increase in the compensation
of officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or
any increase in the compensation payable or to become payable to any
managers or employee, other than in the Ordinary Course of Business;
(x) entered into any contract, license, commitment or
transaction not in the Ordinary Course of Business, invested in, or
committed to invest in, or acquired the assets of another Person in
excess of $25,000, or made any capital expenditures or commitment
for any additions to property, plant or equipment which exceed
$25,000 in any one case or $100,000 in the aggregate;
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(xi) accelerated, terminated, modified or cancelled any
agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) involving more than
$25,000 to which the Company or Sleepmaster is a party or by which
it is bound and the Company or Sleepmaster has no knowledge of any
action by any party to do any of the foregoing;
(xii) made any material change in any method of accounting or
accounting practice;
(xiii) paid (other than any payments in the Ordinary Course of
Business), loaned or advanced any material amount to, or sold,
transferred or leased any properties or assets (real, personal or
mixed, tangible or intangible) to, or entered into any agreement or
arrangement with, any of its managers, employees, or any family
member of any of its managers or employees, or any Affiliate of the
Company or Sleepmaster, or any manager or employee of any such
Affiliate or Sleepmaster;
(xiv) granted or entered into any license or sublicense of any
rights under or with respect to any Intangible Property Rights;
(xv) declared, set aside or paid any dividend or made any
distribution with respect to its membership interests (whether in
cash or in kind) other than tax distributions or redeemed, purchased
or otherwise acquired any of its membership interests;
(xvi) entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement; and
(xvii) agreed, whether in writing or otherwise, to take any
action described in this Section 4.7.
2.29. Patents, Trademarks, Trade Names. Subject to matters disclosed in
Schedule 4.4(a), Sleepmaster owns all right, title and interest in and to, free
and clear of any Liens, or is licensed or otherwise has the full right to use,
insofar as the same relate to its business and its operations, all of the
Intangible Property Rights necessary for the operations of the Business as
presently conducted, subject to such exceptions which in the aggregate would not
have a Material Adverse Effect on the Business. Schedule 4.8 contains a complete
list of (a) all registered Intangible Property Rights and all other material
Intangible Property Rights (registered and otherwise) and all pending patent
applications and applications for registration of other Intangible Property
Rights owned by the Company or Sleepmaster, (b) all trade names, corporate
names, unregistered trademarks and material unregistered copyrights owned or
used by the Company or Sleepmaster and (c) all licenses and other agreements
relating to any Intangible Property Rights which the Company or Sleepmaster is
licensed or authorized to use by others or licenses or authorizes others to use.
Except for matters set forth in Schedule 4.8 and for immaterial nonexclusive
licenses granted to third parties, to the Company's knowledge, the
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Company or Sleepmaster has the sole and exclusive right to use the Intangible
Property Rights. Neither the Company nor Sleepmaster has received notice of any
claims and, to the Company's knowledge, no claims have been asserted by any
Person to the use of any Intangible Property Rights, or challenging or
questioning the validity or effectiveness of any such license or agreement,
which claim, if correct, would have a Material Adverse Effect on the Business.
The Company has received no notice that the use of such Intangible Property
Rights by the Business infringes, misappropriates or otherwise conflicts with
any Intangible Property Rights of any other Person, which claim, if correct,
would have a Material Adverse Effect on the Business.
2.30. Contracts and Commitments.
(a) Schedule 4.9 (together with the leases disclosed in Schedule
4.4(c) and 4.4(d), the licenses disclosed in Schedule 4.8 and the employee
benefit plans disclosed in Schedule 4.11) contains a true and complete list of
the following types of agreements of the Business which require the performance
of any obligation or the payment or delivery of any consideration by any party
thereto after the date hereof:
(i) the Serta Licenses;
(ii) all agreements, contracts and commitments to which the
Company or Sleepmaster is a party or by which any of the Company
Assets is bound which by their terms (A) can reasonably be expected
to require future payment by or to the Company or Sleepmaster of
$25,000 or more or (B) cannot be terminated by any party thereto on
less than 90 days prior notice;
(iii) all other written employment contracts and commitments
with employees of the Company or Sleepmaster providing for direct
remuneration for any employee or containing any severance or
termination pay or obligations for any employee;
(iv) all collective bargaining agreements and union contracts
to which the Company or Sleepmaster is a party;
(v) all other contracts and commitments of the Company or
Sleepmaster reflecting Debt or guarantees thereof;
(vi) all other contracts of the Company or Sleepmaster for or
relating to the construction of capital assets which exceed $25,000
in any one case or $100,000 in the aggregate;
(vii) all partnership or joint venture agreements to which the
Company or Sleepmaster is a party;
(viii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products
or other personal property, or for the furnishing or receipt of
services, the performance of
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which will extend over a period of more than one year, result in a
material loss to the Company or Sleepmaster, or involve
consideration in excess of $25,000;
(ix) any agreement concerning confidentiality or
noncompetition; or
(x) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect on the Business.
(b) The Company has made available to the Investor full and complete
copies of the documents identified in Schedules 4.4(c), 4.4(d) and 4.9 (the
"Material Contracts").
(c) Except as provided in Section 4.9(e), other than the Serta
Licenses, neither the Company nor Sleepmaster is a party to any written
agreement and is not subject to any other instruments or documents that would
materially restrict the Business.
(d) The Material Contracts are valid, binding, enforceable and in
full force and effect and there does not exist any default on the part of the
Company or Sleepmaster, or, to the Company's knowledge, any default on the part
of the other party thereto or any event which with notice or lapse of time or
both would constitute a default, under a Material Contract, which default would
allow the termination thereof and would have a Material Adverse Effect on the
Business. Each Material Contract will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby (including the assignments
and assumptions thereof).
(e) The by-laws of Serta, the rules and regulations of Serta
promulgated thereunder and the agreement, dated January 12, 1995, between
Sleepmaster and Serta, are the only instruments or agreements among Serta and
its stockholders to which Sleepmaster or any of its Affiliates are subject or
which bind Sleepmaster or any of its Affiliates.
2.31. Compliance with Labor and Employment Laws.
(a) Sleepmaster is in compliance with the Labor Contract and, in all
material respects, all applicable laws, regulations and administrative orders of
any country, state or municipality or of any subdivision thereof to which the
Company and Sleepmaster and the employment of labor or the use or occupancy of
properties of any part thereof are subject, including without limitation laws
respecting employment and employment practices, terms and conditions of
employment, workplace health and safety, plant closing, employment
discrimination and wages and hours other than failures to comply with applicable
laws, none of which would, singly or in the aggregate have a Material Adverse
Effect on the Business.
(b) There is no strike, labor dispute, slowdown or stoppage actually
pending, or, to the Company's knowledge, threatened, against or directly
affecting the Company or Sleepmaster.
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(c) To the knowledge of the Company, (i) no executive, key employee,
or group of employees has any plans to terminate employment with the Company or
Sleepmaster; (ii) neither the Company nor Sleepmaster has experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes; (iii) neither the Company nor Sleepmaster has committed any
unfair labor practice and (iv) there is no organizational effort presently being
made or threatened by or on behalf of any labor union with respect to employees
of the Company or Sleepmaster.
2.32. Employee Benefit Plans.
(a) Schedule 4.11 sets forth the name of (i) each of the "employee
benefit plans" (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) maintained currently or in the past
by the Company or Sleepmaster under which the Company or Sleepmaster has any
current or potential liability or under which any former or present employee of
the Company or Sleepmaster has any current or future rights to benefits (the
"ERISA Plans"), (ii) each nonqualified deferred compensation, bonus, incentive
or other retirement, plan, program or arrangement, and (iii) each fringe benefit
plan or program (collectively (i), (ii) and (iii) shall be referred to as the
"Plans"), copies of which have been previously delivered to the Investor. None
of the employee benefit plans set forth in Schedule 4.11 is a "pension plan" as
defined in Section 3(2) of ERISA.
(b) Neither the Company nor any trade or business (whether or not
incorporated) which are or have ever been under common control, or which are or
have been treated as a single employer, with the Company under Section 414(b),
(c), (m) or (o) of the Code, has maintained or contributed or ever been
obligated to contribute to any pension plan that is subject to Title IV of ERISA
(including a multiemployer pension plan).
(c) Each Plan (and related trusts, insurance contracts or other
funding vehicles) complies in form and operation with the applicable
requirements of law; and each ERISA Plan which is intended to be qualified under
Section 401 of the Code is so qualified, has received a favorable determination
letter from the IRS and was timely amended and filed with the IRS for a
favorable determination letter with respect to changes made by the Tax Reform
Act of 1986. All required reporting and disclosure obligations (including Form
5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions) with
respect to each ERISA Plan has been properly and timely filed with the
appropriate government agency or distributed to participants.
(d) With respect to each Plan, all contributions and premium
payments which are due (including all employer and employee contributions) have
been paid and all contributions, premium payments and uninsured welfare benefit
plan liabilities for all periods ending on the Closing Date are or will be
accrued for on the books and records of the Company as of the Closing Date.
(e) With respect to each Plan, (i) neither the Company nor
Sleepmaster has any actual or potential liability to the IRS or the Department
of Labor, (ii) there have been no prohibited transactions (as defined in Section
406 of ERISA in Section 4975 of the Code), (iii)
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no fiduciary (as defined in Section 3(21) of ERISA) has any liability for breach
of fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of such Plan, and (iv) no Actions
with respect to the assets thereof are pending or threatened, and neither the
Company nor Sleepmaster has any knowledge of any facts which would give rise to
or could reasonably be expected to give rise to any such Actions.
(f) No welfare benefit plan (as defined in Section 3(1) of ERISA)
maintained by the Company provides post-employment benefits with respect to
current or former employees beyond termination of employment (other than
coverage mandated by Section 4980B of the Code ("COBRA")). Each of the Company
and Sleepmaster has complied in all material respects with COBRA.
(g) The Company has made available to the Investor true and complete
copies of (i) all documents governing the Plans, including, without limitation,
all amendments thereto which will become effective at a later date; (ii) all
summary plan descriptions and each Summary of Material Modifications relating to
the ERISA Plans; (iii) all employment manuals; (iv) insurance policies or
contracts with respect to each Plan; (v) financial statements with respect to
the ERISA Plans (to the extent applicable); (vi) the IRS favorable determination
letter with respect to each ERISA Plan (to the extent applicable); and (vii)
Form 5500 (including all schedules and attachments) with respect to each ERISA
Plan.
2.33. Environmental Matters. Except as set forth in Schedule 4.12:
(a) The operation of the business of the Company and Sleepmaster and
any real property owned, operated or leased by either are in compliance in all
material respects with all applicable Environmental Laws (as hereinafter
defined).
(b) (i) Each of the Company and Sleepmaster has in a timely manner
obtained and currently maintains all Environmental Permits (as hereinafter
defined) necessary for its operations and is in compliance with such
Environmental Permits, (ii) there are no legal proceedings pending nor, to the
Company's knowledge, threatened to modify or revoke such Environmental Permits,
and (iii) neither the Company nor Sleepmaster has received any notice to the
effect that there is lacking any Environmental Permit, or that it is in
violation of any Environmental Permit, required for the current use or operation
of any real property owned, operated or leased by the Company or Sleepmaster.
(c) Neither the Company nor Sleepmaster now utilizes, stores,
disposes of, treats, generates, transports, Releases or owns any Hazardous
Substance (as defined below).
(d) Neither the Company, Sleepmaster, nor any owner or occupant of
any property owned, operated or leased by the Company or Sleepmaster, has ever
utilized any property of the Company or Sleepmaster, or any portion thereof, in
violation of any Environmental Law.
(e) No Release (as defined below) of any Hazardous Substance has
occurred at, upon or under any property owned, operated or leased by the Company
or
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Sleepmaster, or at any facility or property at which Hazardous Substances
used or generated by the Company or Sleepmaster have come to be located, in an
amount which violates any Environmental Law or could reasonably be expected to
give rise to an obligation to remediate, or any other liability, under or
pursuant to any Environmental Law.
(f) There is not now, nor has there been in the past, on, in or
under any real property owned, leased or operated by the Company or Sleepmaster
(i) any underground storage tanks, above ground storage tanks, dikes or surface
impoundments, (ii) any asbestos-containing materials, (ii) any polychlorinated
biphenyls or (iv) any radioactive substances.
(g) Neither the Company nor Sleepmaster has received any notice of
outstanding writs, injunctions, decrees, orders, notices of violation or
judgments or any suits, claims, actions, proceedings or investigations pending
or, to the knowledge of the Company, threatened under or pursuant to any
Environmental Laws, including but not limited to any notice from any
Governmental Entity or private or public entity advising the Company or
Sleepmaster that either is, or is potentially, responsible for response costs
under the CERCLA (as defined in Section 4.12(j)) with respect to a Release or
threatened Release of Hazardous Substances.
(h) Neither the Company nor Sleepmaster has received any notice of
any violation of, or potential liability under, any Environmental Law relating
to the operation of the business or to any of the processes used or followed,
results obtained or products developed, made or sold by the Company including,
without limitation, under CERCLA, the Toxic Substances Control Act of 1976, as
amended, the Resource Conservation Recovery Act of 1976, as amended, the Clean
Air Act, as amended, the Federal Water Pollution Control Act, as amended, or the
Occupational Safety and Health Act of 1970, as amended.
(i) There are no Actions pending or threatened against the Company
or Sleepmaster alleging the violation of or imposing liability, or potential
liability, pursuant to any Environmental Law or Environmental Permit.
(j) For purposes of this Agreement, the following terms have the
following meanings: (i) "Environmental Laws" means any federal, state, local or
foreign law (including common law), statute, code, ordinance, rule, regulation
or other requirement relating to the environment, natural resources, or public
or employee health and safety as in effect as of the date of this Agreement and
includes, but is not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the
Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 33 U.S.C.
Section 2601 et seq., the Toxic Substances Control Act, 15 U.S.C.Section 2601 et
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section
136 et seq., the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq. and
the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., as such
laws have been amended or supplemented to the date hereof, and the regulations
promulgated pursuant thereto, and all analogous state or local statutes and all
common law relating to the pollution or protection of the environment; (ii)
"Environmental Permit" means any permit, approval, authorization, license,
variance, registration, or permission required under any applicable
Environmental Law; (iii) "Hazardous Substances" means any substance, material or
waste which is regulated by any Governmental
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<PAGE> 32
Authority or the United States or other national government, including, without
limitation, any material, substance or waste which is defined as a "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste," "restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any provision of Environmental Law, which includes, but is not
limited to, petroleum, petroleum products, asbestos, urea formaldehyde and
polychlorinated biphenyls and (iv) "Release" means any release, spill, emission,
leaking, pumping, pouring, dumping, emptying, injection, deposit, disposal,
discharge, dispersal, leaching, or migration on or into the indoor or outdoor
environment or into or out of any property.
2.34. Licenses, Permits and Authorizations. Each of the Company and
Sleepmaster holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of the
Business (the "Business Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals that would not,
individually or in the aggregate, have a Material Adverse Effect on the
Business. Each of the Company and Sleepmaster is in compliance with the terms of
the Business Permits, except where the failure so to comply would not have a
Material Adverse Effect on the Business. Except as disclosed in Schedule 4.13,
the business of Sleepmaster is not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for possible
violations that individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect thereon. Except as set forth in Schedule 4.13, no investigation or review
by any Governmental Entity with respect to the Company or Sleepmaster is pending
or, to the knowledge of the Company, threatened, nor has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those the
outcome of which, as far as reasonably can be foreseen, in the future will not
have a Material Adverse Effect on the Business.
2.35. Taxes.
(a) Each of the Company and Sleepmaster has, at all times throughout
its existence, qualified for U.S. federal income tax purposes as a partnership
that is not a "publicly traded partnership" within the meaning of Code Section
7704.
(b) Except as set forth in Schedule 4.14, each of the Company and
Sleepmaster:
(i) has timely filed or will file when due all federal,
foreign, state and local Tax Returns, respectively, required to be
filed by or with respect to it and all such Tax Returns are correct
and complete in all material respects;
(ii) has paid in full, or made due and sufficient accrual in
the 1995 Balance Sheet for, all Taxes required by statute or other
applicable law to be due (or for which it may be liable) and Taxes
claimed to be due by each such jurisdiction and any interest or
penalties with respect thereto as of December 31, 1995; and
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(iii) with respect to any period for which Tax Returns have
not yet been filed, or for which Taxes are not yet due or owing, (x)
has made due and sufficient accruals for Taxes in the Interim
Financial Statements as adjusted for the passage of time in
accordance with GAAP, and (y) will make sufficient accruals for
Taxes in the Net Working Capital Estimate.
(c) Neither the Company nor Sleepmaster is a party to, and neither
has received any written notice of, any pending action or proceeding, nor, to
the Company's knowledge, is any such action or proceeding threatened by any
Governmental Entity, for the assessment or collection of any Taxes and no claim
for the assessment or collection of any Taxes has been asserted against the
Company or Sleepmaster. No Tax Return of the Company or Sleepmaster has been
audited. Neither the Company nor Sleepmaster has given or been requested to give
waivers or extensions of any statutes of limitations relating to the payment of
Taxes.
(d) Neither the Company nor Sleepmaster is the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever been
made by a Governmental Entity in a jurisdiction where the Company or Sleepmaster
does not file Tax Returns that the Company or Sleepmaster, as the case may be,
is subject to tax in that jurisdiction. Each of the Company and Sleepmaster has
withheld proper and accurate amounts from its employees, independent
contractors, creditors, members or other third parties in compliance in all
material respects with all withholding and similar provisions of any and all
applicable federal, foreign, state and local laws, statutes, codes, ordinances,
rules and regulations and paid such amounts to the appropriate Governmental
Entity. Each of the Company and Sleepmaster has filed proper and accurate
federal, foreign, state and local tax returns and estimates with respect to
employee income tax or other withholding with respect to any independent
contractors, creditors, members or other third party, social security taxes and
unemployment taxes for all years and periods (and portions thereof) for which
tax returns were due and any and all amounts shown on such tax returns to be due
and payable have been paid in full. All payments (including interest and
penalties) due or to become due with respect to employee income tax or other
withholding with respect to any independent contractors, creditors, members or
other third party, social security taxes and unemployment taxes for any period
ending prior to the Closing Date were either paid in full on or prior to the
Closing Date or accrued as a liability on the Financial Statements and in the
Net Working Capital Estimate.
(e) Each of the Company and Sleepmaster has made all required
estimated payments of Taxes sufficient in amount to avoid any underpayment
penalties.
(f) None of the Company Assets is an asset or property that any
Investor is or will be required to treat as being (i) owned by any other person
pursuant to the provisions of Section 168(f)(8) of the Code, or (ii) tax-exempt
use property within the meaning of Section 168(h)(1) of the Code. There is no
contract, agreement, plan or arrangement covering any person that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible by the Company by reason of Section 280G of the Code. No election
under Section 338 has been made with respect to the Company or Sleepmaster. No
consent to the application of Section 341(f) of the Code (or any predecessor
provision) has been made or
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filed by or with respect to the Company, Sleepmaster or any of the Company
Assets. Neither the Company nor Sleepmaster is a party to, is bound by or has
any obligation under any tax sharing agreement or similar contract. Neither the
Company nor Sleepmaster has any liability for the Taxes of any other Person
under Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or a successor, by contract, operation of law or
otherwise. The Company has previously made available to the Investor true and
complete copies of each of the United States federal, state, local, and foreign
Tax Returns, for each of the three taxable years preceding the date hereof filed
by the Company or Sleepmaster. No closing agreement pursuant to Section 7121 of
the Code (or any predecessor provision) or any similar provision of any state,
local, or foreign law has been entered into by or with respect to the Company or
Sleepmaster. The 1995 Tax Return of the Company sets forth the respective tax
bases of the Company Assets.
(g) Each of the Company and Sleepmaster has elections in effect
under Code Section 754.
2.36. Sufficiency and Condition of Assets. Sleepmaster has, and on the
Closing Date will have, a normal operating supply (consistent with practices and
policies as of June 30, 1996) of Inventory, equipment and supplies. Each
tangible Company Asset of Sleepmaster has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used.
2.37. Broker's or Finder's Fee. Except for amounts owed by Sleepmaster to
BHC under the letter agreement, dated March 14, 1996, neither the Company, any
of the Existing Members, B/S nor any of the Company's Affiliates has incurred
any liability to any broker, finder or agent or any other person or entity for
any fees or commissions with respect to the transactions contemplated by this
Agreement for which any Investor could become liable or obligated.
2.38. Undisclosed Liabilities.
(a) Neither the Company nor Sleepmaster has any liabilities (and, to
the Company's knowledge, there exists no basis for any present or future Action
against it giving rise to any liabilities), except for (i) liabilities set forth
in the 1995 Financial Statements or on the face of the Interim Financials
(rather than in any notes thereto); (ii) liabilities expressly set forth in the
leases, licenses, contracts or agreements set forth in any of Schedules 4.4(c),
4.4(d), 4.8, 4.9 and 4.11; or (iii) liabilities which have arisen after the date
of the Interim Financials in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law).
(b) Except as set forth in Schedule 4.17(b), as of the Closing Date
and immediately prior to the Release Date, neither the Company nor Sleepmaster
will be obligated with respect to any Debt other than the Existing Senior Loan
Facility, the Pennsauken Non-Competition Agreements and the Change of Control
Payments. After giving effect to the Closing of the transactions contemplated by
this Agreement, on the Release Date neither the Company nor Sleepmaster will be
obligated with respect to any Debt other than (i) the New
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Sleepmaster Debt, (ii) the Recapitalization Notes and (iii) $104,150 of the
amount remaining due and unpaid under the Pennsauken Non-Competition Agreements.
2.39. Notes and Accounts Receivable. All notes and accounts receivable of
Sleepmaster are reflected properly on its books and records and are valid
receivables subject to no setoffs or counterclaims, subject only to (i) the
reserve for bad debts set forth on the face of the Interim Financials (rather
than in any notes thereto) as adjusted for the passage of time through the
Release Date in accordance with the past custom and practice of the Company and
(ii) allowances for co-op advertising, other allowances and discounts to be
granted or taken in accordance with the past custom and practice of Sleepmaster.
2.40. Insurance. Schedule 4.19 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company or Sleepmaster has been a party, a named
insured, or otherwise the beneficiary of coverage at any time since its
inception:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(c) the policy number and the period of coverage; and
(d) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount of coverage.
Each of the Company and Sleepmaster has been covered since its inception by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Schedule 4.19 describes
any self-insurance arrangements affecting the Company or Sleepmaster.
2.41. Product Warranty. Each product manufactured, sold or delivered by
Sleepmaster has been in conformity with all applicable contractual commitments
and all express and implied warranties, and neither the Company nor Sleepmaster
has any liability (and, to the Company's knowledge, there is no basis for any
present or future Action) for replacement or repair thereof or other damages in
connection therewith other than returns and claims which could lead to returns
of individual products or sets of its products in volumes consistent with the
return information that was used to compute "net shipments" as shown on the
Financial Statements. No product manufactured, sold or delivered by Sleepmaster
is subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. Sleepmaster has delivered to the
Investor copies of its standard terms and conditions of sale (including
applicable guaranty, warranty and indemnity provisions).
2.42. Certain Business Relationships with the Company and its Affiliates.
Other than the employment agreements listed in Schedule 4.9, none of the
Company's nor
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Sleepmaster's members nor any of their respective Affiliates has been involved
in any business arrangement or relationship with the Company or Sleepmaster
within the past twelve months, which arrangement or relationship will not have
been terminated prior to or at the Closing. None of the Company's nor
Sleepmaster's members nor their respective Affiliates owns any asset, tangible
or intangible, which is used in the Business.
2.43. Disclosure. No representation or warranty by the Company or
Sleepmaster in this Agreement (including, without limitation, the Disclosure
Schedules) contains any untrue statement of a material fact or omits or will
omit to state any material fact necessary to make the statements herein or
therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE EXISTING MEMBERS AND B/S
Each of the Existing Members and B/S hereby represents and warrants,
severally and not jointly, to the Investor that the statements made in this
Article V are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date and as of the Release Date.
2.44. Organization and Authority.
(a) B/S and each of the Existing Members that is a corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation. B/S and each of such corporate Existing
Members has all requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. B/S and
each of such corporate Existing Members has taken all action as and in the
manner required by law, its certificate of incorporation and by-laws or
otherwise to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby.
(b) Each of the Existing Members organized as a partnership is a
partnership duly organized, validly existing and in good standing under the laws
of the state under which it has been formed and has all power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. Each such Existing Member has taken all action as, and in
the manner, required by law, its certificate of partnership and its partnership
agreement or otherwise to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated hereby.
(c) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, violate (i) any
provisions of the certificate of incorporation or by-laws of B/S or any of the
corporate Existing Members, (ii) any provisions of the certificate of
partnership or partnership agreement of any Existing Members
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organized as a partnership, (iii) any material terms of any material contract or
commitment of any kind or character to which B/S or any of the Existing Members
is a party or by which any of them or their property may be bound, or (iv) any
law, regulation, rule, judgment or order applicable to B/S or any of the
Existing Members or their respective property.
(d) This Agreement constitutes the valid and binding obligation of
B/S and each of the Existing Members, enforceable in accordance with its terms
except to the extent that (i) such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights, and (ii) certain of the covenants contained
herein may not be specifically enforceable and courts may award money damages
rather than specific performance of contractual provisions involving matters
other than the payment of money.
2.45. Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required in connection with the
execution or delivery of this Agreement by B/S or any of the Existing Members
and the consummation of the transactions contemplated hereby.
2.46. Ownership of Membership Interests. Each Existing Member holds of
record and owns beneficially the Membership Interests of the Company (expressed
as a percentage of 100%) set forth next to his name on Exhibit A free and clear
of any restrictions on transfer (other than any restrictions under the
Securities Act of 1933, as amended (the "Securities Act"), and the applicable
securities laws of any state), claims, Taxes, liens, charges, encumbrances,
pledges, security interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. No Existing Member is a party to any option,
warrant, right, contract, call, put or other agreement or commitment providing
for the disposition or acquisition of any Membership Interest of the Company or
Sleepmaster (other than this Agreement). No Existing Member is a party to any
voting trust, proxy or other agreement or understanding with respect to the
voting of any Membership Interest of the Company or Sleepmaster, other than the
Operating Agreement and the Sleepmaster Operating Agreement.
2.47. Investment Intent.
(a) B/S and each Existing Member is acquiring the Preferred
Interests, the Common Interests, the Recapitalization Notes and the Investor
Notes (collectively referred to as the "Recapitalization Securities") being
acquired by it under this Agreement solely for his or its own account, for
investment, and not with a view to any distribution thereof in violation of the
Securities Act, or the applicable state securities laws of any state.
(b) B/S and each of the Existing Members understands that the
Recapitalization Securities have not been registered under the Securities Act or
the securities laws of any state and must be held indefinitely unless
subsequently registered under the Securities Act and any applicable state
securities laws or unless an exemption from such registration becomes or is
available.
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(c) B/S and each of the Existing Members is financially able to hold
the Recapitalization Securities being acquired by it under this Agreement for
long-term investment and recognizes that there are substantial risks involved in
the ownership of the Recapitalization Securities.
(d) B/S and each of the Existing Members has such knowledge and
experience in financial and business matters that such Existing Member is
capable of evaluating the merits and risks of the prospective investment in the
Recapitalization Securities being acquired by it under this Agreement.
(e) B/S and each of the Existing Members is an "accredited
investor," as defined under Rule 501(a) promulgated under the Securities Act.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE INVESTOR
The Investor hereby represents and warrants to the Company and the
Existing Members that the statements made in this Article VI are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date and as of the Release Date.
2.48. Organization and Authority.
(a) The Investor is a limited liability company duly formed and
validly existing under the laws of the State of Delaware. The Investor has all
requisite power and authority to execute and deliver this Agreement and to make,
issue and deliver the Investor Notes and to consummate the transactions
contemplated hereby. The Investor has taken all action as and in the manner
required by law, its certificate of formation, its operating agreement or
otherwise to authorize the execution, delivery and performance of this Agreement
and the Investor Notes and the transactions contemplated hereby.
(b) The execution and delivery of this Agreement, and the issue and
delivery of the Investor Notes, do not, and the consummation of the transactions
contemplated hereby will not, violate (i) any provisions of the articles of
formation or operating agreement of the Investor, (ii) any material terms of any
material contract or commitment of any kind or character to which the Investor
is a party or by which it or its property may be bound, or (iii) any law,
regulation, rule, judgment or order applicable to the Investor or its respective
property. The Investor has no obligations other than created in connection with
the transactions contemplated by this Agreement, has not yet commenced business
or operations and, as of the Release Date, will have no Debt other than the
Investor Notes.
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(c) This Agreement and the Investor Notes each constitute the valid
and binding obligation of the Investor, enforceable in accordance with its
respective terms except to the extent that (i) such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights, and (ii) certain of the
covenants contained herein may not be specifically enforceable and courts may
award money damages rather than specific performance of contractual provisions
involving matters other than the payment of money.
2.49. Consents and Approvals of Governmental Authorities. Except as set
forth on Schedule 6.2, no consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority is
required in connection with the execution or delivery of this Agreement and the
consummation of the transactions contemplated hereby by the Investor, or the
issue or delivery of the Investor Notes by the Investor.
2.50. Investment Intent.
(a) The Investor is acquiring the Purchased Membership Interests and
the Recapitalization Notes for its own account, for investment, and not with a
view to any distribution thereof in violation of the Securities Act of 1933, as
amended (the "Securities Act"), or the applicable state securities laws of any
state.
(b) The Investor understands that neither the Purchased Membership
Interests nor the Recapitalization Notes have been registered under the
Securities Act or the securities laws of any state and must be held indefinitely
unless subsequently registered under the Securities Act and any applicable state
securities laws or unless an exemption from such registration becomes or is
available.
(c) The Investor is financially able to hold the Purchased
Membership Interests and the Recapitalization Notes for long-term investment and
recognizes that there are substantial risks involved in the ownership of the
Purchased Membership Interests and the Recapitalization Notes.
(d) The Investor has such knowledge and experience in financial and
business matters that such Investor is capable of evaluating the merits and
risks of the prospective investment in the Purchased Membership Interests and
the Recapitalization Notes.
(e) The Investor is an "accredited investor," as defined under Rule
501(a) promulgated under the Securities Act.
2.51. Sufficient Funds. Attached as Exhibits E and F are written
commitments which have been delivered to the Company in respect of debt
financing from First Source and Pacific. The written commitments attached have
been duly executed and delivered, remain in full force and effect and have not
been modified or amended.
2.52. Brokerage. The Investor is not a party to, nor is any Existing
Member or the Company in any way obligated to make any payment relating to, any
contract or outstanding
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claim for the payment of any broker's or finder's fee in connection with the
origin, negotiation, execution or performance of this Agreement with respect
to any broker dealt with or engaged by the Investor.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF THE INVESTOR
The consummation by the Investor of the transactions contemplated hereby
is subject to the satisfaction or fulfillment of each of the following
conditions; provided, that the condition set forth in Section 7.5(a) shall be a
condition to be satisfied on or prior to the Release Date and not a condition to
be satisfied on or prior to the Closing Date.
2.53. Representations and Warranties True; Obligations Performed. The
representations and warranties of the Existing Members, the Company, Sleepmaster
and B/S, as applicable, contained herein, in the Exhibits and Schedules attached
hereto and in all certificates and other documents delivered by the Existing
Members, B/S, the Company or Sleepmaster to the Investor pursuant hereto or in
connection with the transactions contemplated hereby shall, in all material
respects, be true and accurate as of the date of this Agreement, as of the
Closing Date and as of the Release Date as though such representations and
warranties were made on each such date, except (a) for changes expressly
permitted or contemplated by this Agreement and (b) to the extent that any such
representations and warranties are made as of a specified date and as to such
representations and warranties the same shall be materially true and correct as
of the specified date. The Company shall have delivered a certificate, signed by
its President, dated the Closing Date, certifying to the satisfaction of the
foregoing conditions and the conditions set forth in Sections 7.2 through 7.13.
2.54. No Material Changes. Since June 30, 1996 the Business shall not
have suffered or become subject to changes of any kind or nature which either
individually or in the aggregate would have a Materially Adverse Effect on the
Business.
2.55. Performance. Each of the Company, Sleepmaster, B/S and each of the
Existing Members, as applicable, shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date.
2.56. Consents. All applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R
Act"), shall have expired or early termination shall have been granted. All
filings with and consents from administrative, Governmental Entities, regulatory
and industry authorities and other third parties required to be obtained or
filed by the Company or Sleepmaster to consummate the transactions contemplated
hereby shall have been obtained by the Company or Sleepmaster, unless the
failure to obtain any such consent (other than with respect to the Essential
Contracts) or make any such filing would
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not have a Material Adverse Effect on the Business or the transactions
contemplated hereby, or except to the extent that making any such filing or
obtaining any such consent has been waived in writing by the Investor.
2.57. Essential Contracts.
(a) Serta and the Serta stockholders shall have consented to the
transactions contemplated hereby.
(b) Hartz shall have consented to the transactions contemplated
hereby and shall have provided (i) an estoppel certificate in accordance with
the provisions of Article 32 of the Linden Lease dated not earlier than two days
prior to Closing and (ii) a memorandum of the Linden Lease (or, if applicable,
an amendment to any existing memorandum of the Linden Lease) in recordable form
and otherwise in accordance with the provisions of Article 34 of the Linden
Lease. First Source shall have entered into a letter agreement regarding the
collateral assignment of the Linden Lease on terms and conditions reasonably
acceptable to First Source.
2.58. Environmental Matters.
The Company, or Sleepmaster, as applicable, shall have submitted to
the New Jersey Department of Environmental Protection and Energy ("DEPE") such
materials as shall be required to complete the Transfer of the Facility in
compliance with the New Jersey Industrial Site Recovery Act, and the Company, or
Sleepmaster, as applicable, shall have complied, at its sole cost and expense,
with all other obligations imposed upon it under that statute.
2.59. Affiliate Transactions. The consulting agreement, dated as of
January 2, 1995, between Sleepmaster and Holding Capital Group, Inc. shall have
been terminated.
2.60. Amended Operating Agreement. The Sleepmaster Operating Agreement
shall have been duly amended and restated (as so amended and restated, the
"Restated Sleepmaster Operating Agreement"):
(i) to provide for the substitution of _____________ as a manager of
the Company to replace Douglas A. Brown; and
(ii) to make such other amendments and modifications to carry out
the transactions contemplated by this Agreement as the Investor, the
Company and the Existing Members shall reasonably agree.
2.61. Exercise of Warrant. The Warrant shall have been duly exercised or
cancelled by the holder thereof.
2.62. Resignation of Manager. Douglas A. Brown shall have resigned as a
manager of each of the Company and Sleepmaster.
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2.63. Financing. The Investor, the Company and Sleepmaster shall have
received written commitments from First Source and Pacific to provide the New
Sleepmaster Debt sufficient to consummate the transactions contemplated herein
and provide working capital to the Company, all on terms satisfactory to the
Investor in its sole discretion.
2.64. Employment Agreements. The existing employment agreements between
Sleepmaster and the Employee Members shall have been terminated as of the
Release Date, and the Employee Members shall have entered into (a) employment
agreements (collectively, the "Employment Agreements") with the Company, each to
be dated as of the Release Date, in the respective forms of Exhibits G, H, I and
J; (b) option agreements (collectively, the "Option Agreements") with the
Company, each to be dated as of the Release Date, in the respective forms of
Exhibits K, L, M and N; and (c) the Securityholders Agreement (the
"Securityholders Agreement"), to be dated the Release Date, among the Employee
Members, the Investor and the Company, substantially in the form of Exhibit O.
2.65. No Proceedings. No Action shall be pending or threatened before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by this Agreement, (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (c) affect adversely the right of the Company or
Sleepmaster, as the case shall be, to own the Company Assets and to operate the
Business (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect).
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY, SLEEPMASTER, B/S
AND THE EXISTING MEMBERS
The consummation by the Existing Members, B/S, the Company and Sleepmaster
of the transactions contemplated hereby is subject to the satisfaction or
fulfillment of each of the following conditions on or prior to the Closing Date
and the continued satisfaction and fulfillment as of the Release Date:
2.66. Representations and Warranties True; Obligations Performed . The
representations and warranties of the Investor contained herein and in all
certificates and other documents delivered by the Investor pursuant hereto or in
connection with the transactions contemplated hereby shall, in all material
respects, be true and accurate as of the date of this Agreement, as of the
Closing Date and as of the Release Date, except for changes expressly permitted
or contemplated by this Agreement and except to the extent that any such
representations and warranties are made as of a specified date and as to such
representations and warranties the same shall be materially true and correct as
of the specified date. The Investor shall have delivered a certificate, signed
by its managers, dated the Closing Date and the Release
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Date, as applicable, certifying to the satisfaction of the foregoing conditions
and the conditions set forth in Sections 8.2 through 8.7.
2.67. Performance. The Investor shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date.
2.68. Consents. All applicable waiting periods under the H-S-R Act shall
have expired or early termination shall have been granted. All filings with and
consents from administrative or Governmental Entities required to have been
obtained or filed by the Investor to consummate the transactions contemplated
hereby shall have been obtained by the Investor, unless the failure to obtain
any such consent (other than with respect to the Essential Contracts) or make
any such filing would not have a Material Adverse Effect on the transactions
contemplated hereby or except to the extent that making any such filing or
obtaining any such consent has been waived in writing by the Company.
2.69. Hartz Letter of Credit. Hartz shall have agreed to release the
letter of credit provided by NCC and held by it as security for the Company's
obligations under the Linden Lease in exchange for a letter of credit in an
equivalent amount provided by or for the account of First Source.
2.70. Environmental Matters. At the request of the Company, the Investor
shall have certified to DEPE in writing that the Facility will be used in
substantially the same manner as prior to the Closing Date.
2.71. Employment Agreements/Option Agreements. The Company shall have
executed and delivered the Employment Agreements and the Option Agreements to
each of the Employee Members.
2.72. No Proceedings. No Action shall be pending or threatened before any
court or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (a) prevent consummation of any
of the transactions contemplated by this Agreement or (b) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation.
ARTICLE IX
DELIVERIES AT THE CLOSING;
RELEASE OF DELIVERIES
2.73. Deliveries by the Company, Sleepmaster, B/S and the Existing
Members.
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(a) At the Closing, the Company, Sleepmaster, B/S and the Existing
Members shall deliver into escrow the following, all of which shall be held in
escrow and thereafter released and delivered to the Investor on the Release Date
pursuant to Section 9.4:
(i) copies of all consents, authorizations, approvals,
notices, registrations and filings required by Sections 7.4 and 7.5
to be obtained by the Company (other than the Serta Consent);
(ii) the opinion of Blumenthal & Lynne, a Professional
Corporation, counsel to the Company, substantially in the form of
Exhibit P;
(iii) the Restated Operating Agreement, duly executed by the
Employee Members;
(iv) the Restated Sleepmaster Operating Agreement;
(v) the Securityholders Agreement;
(vi) the Employment Agreements;
(vii) the Option Agreements;
(viii) the certificate referred to in Section 7.1;
(ix) a certificate of a manager of the Company, dated as of
the Closing Date, certifying as to (i) resolutions adopted by its
Board of Managers and its members, authorizing this Agreement and
the transactions contemplated hereby and incident thereto and (ii)
the incumbency and signatures of the managers; and
(x) such other documents or certificates as shall be
reasonably requested by the Investor or their counsel.
(b) At the Closing, the Company, or Sleepmaster, as the case shall
be, shall deliver into escrow all deliveries to be made by the Company or
Sleepmaster to First Source in connection with the New Senior Loan Facility and
all deliveries to be made to Pacific pursuant to the New Senior Subordinated
Notes, all of which shall be held in escrow and released to First Source and
Pacific on the Release Date.
(c) At the Closing, the Company will deliver into escrow the
Recapitalization Notes, duly executed by the Company and registered in the names
of the respective Existing Members to whom the Recapitalization Notes are to be
issued, to be held in escrow and thereafter released and delivered to the
Existing Members on the Release Date pursuant to Section 9.4.
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2.74. Deliveries by the Investor. At the Closing, the Investor shall
deliver into escrow the following, all of which shall be held in escrow and
thereafter released to the Existing Members (other than the agreement referred
to in (c) which shall be delivered to the Company) on the Release Date pursuant
to Section 9.4:
(a) the certificate referred to in Section 8.1;
(b) the opinion of Kirkland & Ellis, counsel to the Investor,
substantially in the form of Exhibit Q;
(c) the Restated Operating Agreement, executed by the Investor; and
(d) such other documents or certificates as shall be reasonably
requested by the Company, the Existing Members or their respective counsel.
2.75. Waiver of Condition Precedent. Upon the delivery at the Closing on
the Closing Date of each of the documents and other items referred to in Section
9.1 and the satisfaction and fulfillment of all of the conditions in Article
VII, the Investor will deliver to the Company and the Existing Members a
certificate, reasonably satisfactory in form and substance to the Company and
its counsel, that the condition set forth in Section 7.11 has been waived
unconditionally.
2.76. Closing Escrow. All documents and other items delivered pursuant to
Sections 9.1 and 9.2 shall be held in escrow jointly by counsel for the Company
and the Investor until the satisfaction of the following conditions:
(a) Sleepmaster shall have delivered the Serta Consent to the
Investor;
(b) the Company shall have delivered to the Investor a certificate
stating that the representations and warranties of the Existing Members
contained herein, in the Exhibits and Schedules attached hereto and in all
certificates and other documents delivered by the Existing Members or the
Company to the Investor pursuant hereto or in connection with the transactions
contemplated are, in all material respects, true and accurate as of the Release
Date as though such representations and warranties were made on such date,
except for changes expressly permitted or contemplated by this Agreement and to
the extent that any such representations and warranties are made as of a
specified date and as to such representations and warranties the same shall be
materially true and correct as of the specified date; and
(c) the Investor shall have delivered to counsel for the Company a
certificate stating that the representations and warranties of the Investor
contained herein and in all certificates and other documents delivered by the
Investor pursuant hereto or in connection with the transactions contemplated
are, in all material respects, true and accurate as of the Release Date, except
for changes expressly permitted or contemplated by this Agreement and except to
the extent that any such representations and warranties are made as of a
specified date and as to such representations and warranties the same shall be
materially true and correct as of the specified date.
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No provision of any of such documents shall be effective during the pendency of
the escrow. No Investor shall be, or shall be deemed to have become, a member of
the Company or Sleepmaster during the pendency of the escrow. Subject to the
provisions of Sections 10.3 and 10.4, the operations of the Company and
Sleepmaster shall be for the benefit of the Existing Members. If this Agreement
shall be terminated pursuant to its terms while the escrow is pending, all
documents and other items delivered pursuant to Sections 9.1 and 9.2 shall
promptly be returned to the delivering party and shall be of no further force or
effect.
2.77. Release. Upon delivery of the items referred to in clauses (a), (b)
and (c) of Section 9.4, the escrow shall be terminated and all payments required
by Sections 3.1 through 3.3(c) shall be made and all documents held in escrow
shall be released and delivered to the respective parties to whom they are
intended to be delivered; provided, that the Company shall have the right to
waive the delivery by the Investor of the certificate set forth in clause (c) of
Section 9.4 and the Investor shall have the right to waive the delivery by the
Company of the certificate set forth in clause (b) of Section 9.4; and provided,
further, that such waiver shall be in writing and delivered concurrently with,
in the case of the Investor, the certificate set forth in clause (c) of Section
9.4, and, in the case of the Company, the certificate referred to in clause (b)
of Section 9.4. The release of such documents and other items upon the delivery
of the items referred to in clauses (a), (b) and (c) of Section 9.4 (other than
such items the waiver of which has been made consistent with the provisions of
the foregoing sentence) shall be referred to as the "Release."
2.78. Name Change of Partnership. After the Release, the Company will
cause the Partnership to change its name, such that it does not contain the word
"Sleepmaster."
ARTICLE X
COVENANTS PENDING THE CLOSING
AND THE RELEASE
2.79. General. From the date of this Agreement through and including the
Release Date, each of the parties hereto will use its best efforts to (a) take
all action, (b) cooperate and (c) do all things reasonably necessary in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Articles VII and VIII, and including the delivery of the items set forth in
clauses (a), (b) and (c) of Section 9.4). In furtherance of the foregoing, the
Existing Members will cause the Company, and B/S and the Company will cause
Sleepmaster, to perform each of the obligations of the Company or Sleepmaster,
as the case shall be, as set forth in this Article X.
2.80. Provide Access to Information. From the date of this Agreement,
through and including the Release Date, (a) the Company and Sleepmaster shall
afford to the Investor, its attorneys, accountants, lenders and representatives
(the "Advisors") reasonable access during
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normal business hours and upon reasonable prior notice to one of the managers of
the Company, to the books and records of the Company, Sleepmaster and B/S in
order that the Investor and the Advisors may have full opportunity to make such
investigation thereof as they shall reasonably desire, and (b) the Company and
Sleepmaster shall provide to the Investor and the Advisors such additional
financial and operating data and other information as to their businesses, as
the Investor or the Advisors shall from time to time reasonably request.
2.81. Conduct Prior to Release Date. Except as otherwise contemplated by
this Agreement or permitted by the prior written consent of the Investor, each
of the Company and Sleepmaster shall from the date hereof through and including
the Release Date:
(a) conduct the business and operations of the Business only in the
Ordinary Course of Business, perform its obligations under all agreements
binding upon it and maintain all of its respective licenses in good standing;
(b) use its reasonable best efforts to continue in effect any
policies of insurance;
(c) use its reasonable best efforts to preserve their respective
business organizations, including their present workforces;
(d) use its reasonable best efforts to keep available the services
of the present managers and employees of the Business;
(e) use its reasonable best efforts to maintain and preserve the
good will of the suppliers, customers and others having business relations with
the Business; and
(f) consult with the Investor prior to any actual or proposed
conduct other than in the Ordinary Course of Business.
2.82. Prohibited Transactions Prior to Release Date. Except as otherwise
contemplated by this Agreement or permitted by the prior written consent of
Investor, from the date of this Agreement through and including the Release
Date, neither the Company nor Sleepmaster shall:
(a) become a party to any agreement which, if it existed on the date
hereof, would be required to be listed in the Disclosure Schedules unless (i)
either the Company or Sleepmaster enters into such agreement in the Ordinary
Course of Business; and (ii) before either the Company or Sleepmaster enters
into such agreement, it furnishes the Investor with a copy of such agreement or,
at the Investor's option, with a written notice briefly describing the nature of
such agreement and the terms thereof;
(b) amend the Operating Agreement or the Sleepmaster Operating
Agreement; or
(c) do or permit to occur any of the things referred to in Section
4.7.
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2.83. Confidentiality.
(a) Except as required by any court order or decree, regulatory
authorities, Governmental Entities or applicable law, the Investor (i) prior to
the Release shall, and shall cause its officers, directors and Advisors to hold
in strict confidence and not disclose to others for any reason whatsoever,
without the prior written consent of the Company, any non-public information
received by it from the Company in connection with the transactions contemplated
by the Agreement or the Exhibits hereto all in accordance with the letter dated
April 24, 1996, and (ii) will not use such information for any purpose in the
event that the Release does not occur under this Agreement.
(b) Except as required by any court order or decree, regulatory
authorities, Governmental Entities or applicable law, each Existing Member (i)
after the Release shall hold in strict confidence, and not disclose to others
for any reason whatsoever, without the prior written consent of the Company, any
non-public information concerning the conduct, affairs or operation of the
Business, and (ii) will not use any non-public information received by it from
the Investor for any purpose in the event the Release does not occur under this
Agreement.
2.84. Notices and Consents. Prior to the Release Date, the Company will
give any notices to third parties, and the Company will use its best efforts to
obtain any third party consents, that the Investor reasonably may request in
writing in connection with the matters referred to herein.
2.85. Notice of Developments. Prior to the Release Date, each party will
give prompt written notice to the other party of any material adverse
development causing a breach of any of its own representations and warranties in
Articles IV and V. No disclosure by any party pursuant to this Section 10.7,
however, shall be deemed to amend or supplement the Disclosure Schedules or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant, unless expressly consented to by the other.
2.86. No Affiliate Transactions. Prior to the Release Date, neither the
Company nor Sleepmaster shall incur any liability to any of its Affiliates,
other than pursuant to employment agreements set forth in Schedule 4.9.
2.87. Exclusivity. None of the Company, Sleepmaster or the Existing
Members, nor any of such entity's representatives, officers, directors, agents,
stockholders and Affiliates (all such persons and entities, the "Seller Group")
shall initiate, solicit, entertain, negotiate, accept or discuss, directly or
indirectly, any proposal or offer (an "Acquisition Proposal") to acquire all or
any significant part of the Business or the properties or Membership Interests
of the Company, Sleepmaster and/or any of their Affiliates, whether by merger,
purchase of stock, purchase of assets, tender offer or otherwise (a "Third Party
Acquisition"), or provide any non-public information to any third party in
connection with an Acquisition Proposal or enter into any agreement, arrangement
or understanding requiring the Existing Members, the Company or Sleepmaster to
abandon, terminate or fail to consummate the transactions contemplated hereby.
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Each of the Existing Members, the Company and Sleepmaster agrees to (i)
immediately notify the Investor if any member by the Seller Group receives any
indications of interest, requests for information or offers in respect of an
Acquisition Proposal, (ii) communicate to the Investor in reasonable detail the
terms of any such indication, request or proposal, and (iii) provide the
Investor with copies of all written communications relating to any such
indication, request or proposal.
ARTICLE XI
INDEMNIFICATION
2.88. Survival. Notwithstanding (a) the making of this Agreement, (b) any
examination made by or on behalf of the parties hereto and (c) the Closing or
the Release hereunder, (i) the representations and warranties contained in this
Agreement or any Disclosure Schedules with respect to such provisions shall
survive the Release until the date which is sixteen months after the Release
Date, except for (A) the representations and warranties set forth in Sections
4.1, 4.3, 4.4, 4.16, 4.21, 5.1, 5.2, 5.3 and 5.4, each of which will survive
forever, (B) the representations and warranties set forth in Section 4.14 which
will survive until six months following the applicable statute of limitations,
and (C) the representations and warranties set forth in Section 4.12 which will
survive for a period of three years after the Release Date, and (ii) the
covenants and agreements contained in this Agreement or in any other document
delivered pursuant to the provisions hereof or thereof required to be performed
on or after the Closing or the Release (unless noncompliance with those
covenants was waived in writing at the Closing or upon the Release) shall
survive until fully performed or fulfilled. No representations and warranties
other than those contained in the Agreement or any Disclosure Schedule shall
survive the Release or provide any basis for any cause of action or claim
against the Investor, the Company, Sleepmaster, B/S or the Existing Members, as
the case shall be, from and after the Release. Any claim for indemnification
with respect to any such matter which is not asserted by notice relating to such
claim within such specified period of survival may not be pursued and is hereby
irrevocably waived after the termination of such period. Any claim for an
Indemnifiable Loss (as defined in Section 11.2) asserted within such period of
survival as herein provided will be timely made for purposes hereof.
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2.89. Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnity Payment" means
any amount of Indemnifiable Losses required to be paid pursuant to this
Agreement, (ii) "Indemnitee" means any person or entity entitled to
indemnification under this Agreement, (iii) "Indemnifying Party" means any
person or entity required to provide indemnification under this Agreement, (iv)
"Indemnifiable Losses" means any and all damages, losses, liabilities,
obligations, costs and expenses actually incurred or suffered, and any and all
claims, demands or suits (by any person or entity, including without limitation
any Governmental Entity), including without limitation the costs and expenses of
any and all Actions, demands, assessments, judgments, settlements and
compromises relating thereto and including reasonable attorneys' fees and
expenses in connection therewith, after giving effect to the receipt of all
actual insurance proceeds and the realization of any tax savings and (v) "Third
Party Claim" means any Action made or brought by any Person which is not a party
to this Agreement or an Affiliate of a party to this Agreement.
(b) For purposes of this Article XI, any qualification based on
materiality or on Material Adverse Effect set forth in Sections 4.1 through 4.22
shall be disregarded, including, without limitation, in determining whether a
breach of any such representation or warranty has occurred and the extent of the
Indemnifiable Losses resulting therefrom.
(c) Notwithstanding any other provision hereof or of any applicable
Law:
(i) no Indemnitee will be entitled to make a claim against an
Indemnifying Party under Sections 11.3(a) or 11.3(d), in respect of
any breach of warranty or representation by the Indemnifying Party,
unless such claim exceeds $10,000 of Indemnifiable Losses, in which
event the Indemnitee will be entitled to make a claim against the
Indemnifying Party in the full amount of such claim;
(ii) no Indemnifying Party that is an Existing Member shall
have any obligation to indemnify any other Person for any amount
which, when aggregated with all Indemnifiable Losses theretofore
paid by such Existing Member, exceeds the sum of the allocable
portion of the Net Redemption Price and the allocable portion of the
Investor's Purchase Price paid to such Existing Member under this
Agreement; and
(iii) B/S shall not have any obligation to indemnify any other
Person for any amount in excess of the sum of the B/S Purchase Price
and the portion of the Sleepmaster Distribution payable to B/S under
this Agreement.
(d) If any claim for an Indemnifiable Loss is for, or arises out of,
a breach of the representations and warranties contained in Sections 4.5 through
4.13, Sections 4.15, 4.17(a), 4.19, 4.20 or 4.22, the Indemnitee will be
entitled to make a claim against the Indemnifying Party only if all
Indemnifiable Losses for or arising out of such representations and
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warranties, taken in the aggregate, exceed $500,000 (the "Indemnification
Threshold") and then to the full amount of such claims, subject to Section
11.2(c). The maximum aggregate liability of the Indemnifying Parties with
respect to such representations and warranties shall be $6,500,000 (the
"Indemnification Cap"); provided, that following the sixteen-month survival
period set forth in Section 12.1, the Indemnification Cap with respect to
Section 4.12 shall be reduced to $2,000,000.
(e) Notwithstanding Section 11.2(d), but subject to Section 11.2(c),
any claim for any Indemnifiable Loss for or arising out of a breach of the
representations and warranties contained in Sections 4.1, 4.3, 4.4, 4.14, 4.16,
4.17(b), 4.21, 5.1, 5.2, 5.3 or 5.4 shall not be subject to the Indemnification
Threshold and shall not be subject to the Indemnification Cap.
(f) Notwithstanding Section 11.2(d), but subject to Section 11.2(c),
any claim for any Indemnifiable Loss for or arising out of a breach of the
representations and warranties contained in Section 4.2 or Section 4.18 shall
not be subject to the Indemnification Threshold but shall be subject to the
Indemnification Cap on an aggregate basis taking into account all amounts paid
or payable for Indemnifiable Losses under Section 11.2(d).
(g) If and to the extent that any Indemnitee collects insurance
proceeds for an Indemnifiable Loss after the Indemnifying Party has reimbursed
or paid such Indemnifiable Loss, the Indemnitee shall pay over any such proceeds
to the Indemnifying Party or Parties pro rata to the amounts received; provided,
that in no event shall the Indemnitee be required to pay the Indemnifying Party
or Parties more than the amount received with respect to such Indemnifiable
Loss.
(h) If and to the extent that any Indemnifiable Loss incurred by the
Investor, the Company or Sleepmaster or an Investor Indemnitee, or any of them,
relates to, results from or arises out of any (i) breach of warranty or
representation made by the Existing Members in this Agreement or (ii)
nonfulfillment of any agreement or covenant on the part of the Existing Members
prior to the Release, then the Investor, the Company, and Sleepmaster and the
Investor Indemnitee shall be entitled to one, and only one, full recovery for
such Indemnifiable Loss on a joint and several basis from the Existing Members
on a joint and several basis, and the amount of the Indemnifiable Loss shall be
determined by reference to the Indemnifiable Loss incurred or suffered by the
Company, Sleepmaster or such Investor Indemnitee, as the case may be.
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2.90. Indemnification.
(a) Subject to Sections 11.1 and 11.2, following the Release Date,
B/S and the Existing Members will jointly and severally indemnify, defend and
hold harmless the Investor, the Company, Sleepmaster, their respective
Affiliates and any directors, officers, partners, employees, agents and
representatives of the Investor, the Company, Sleepmaster or their respective
Affiliates (each an "Investor Indemnitee"), from and against any and all
Indemnifiable Losses to the extent relating to, resulting from or arising out of
any (i) breach of warranty or representation made by the Existing Members, the
Company, Sleepmaster or B/S in Article IV of this Agreement or (ii)
nonfulfillment of any agreement or covenant on the part of the Company or
Sleepmaster prior to the Release under the terms of this Agreement or on the
part of the Company or Sleepmaster under this Agreement, but intended to be
performed after the Release.
(b) Subject to Sections 11.1 and 11.2, following the Release Date,
each of the Existing Members will, severally and not jointly, indemnify, defend
and hold harmless the Investor, the Company and Sleepmaster and their respective
Affiliates and any directors, officers, partners, employees, agents and
representatives of the Investor, the Company and Sleepmaster and their
respective Affiliates, from and against any and all Indemnifiable Losses to the
extent relating to, resulting from or arising out of any breach of warranty or
representation made by such Existing Member in Article V of this Agreement.
(c) Subject to Sections 11.1 and 11.2, following the Release Date,
each of the Existing Members will, severally and not jointly, indemnify, (i)
defend and hold harmless each other Existing Member and its Affiliates and any
directors, officers, partners, employees, agents and representatives of such
other Existing Member and its Affiliates, from and against any and all
Indemnifiable Losses to the extent relating to, resulting from or arising out of
any breach of warranty or representation made by such Existing Member in Article
V of this Agreement and (ii) contribute to any indemnification payments made by
any other Existing Member pursuant to Section 11.3(a) in proportion to the
Membership Interest of the Company (expressed as a percent of 100%) owned by
such Existing Member as of the Closing Date such that such Existing Member bears
its pro rata share of the indemnification payment so made.
(d) Subject to Sections 11.1 and 11.2, following the Release Date,
the Investor will and, with respect to clause (ii) below, the Company and
Sleepmaster will, indemnify, defend and hold harmless B/S and the Existing
Members and their respective Affiliates and their respective members, managers,
employees, agents or representatives, from and against any and all Indemnifiable
Losses to the extent relating to, resulting from or arising out of any (i)
breach of warranty or representation made by the Investor in Article VI of this
Agreement or (ii) nonfulfillment of any agreement or covenant on the part of the
Investor under the terms of this Agreement or on the part of the Company under
this Agreement, but intended to be performed after the Closing.
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2.91. Defense of Claims.
(a) Subject to Section 11.4(f), if any Indemnitee receives notice of
assertion or commencement of any Third Party Claim against such Indemnitee with
respect to which an Indemnifying Party is obligated to provide indemnification
under this Agreement, the Indemnitee will give such Indemnifying Party
reasonably prompt written notice thereof in compliance with the notice
provisions of Section 11.4(i), but in any event not later than 30 calendar days
after receipt of such notice of such Third Party Claim. Such notice (the "Third
Party Claim Notice") will describe the Third Party Claim in reasonable detail,
will include copies of all material written evidence thereof and will indicate
the estimated amount, if reasonably practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party shall
have 14 days from its receipt of a Third Party Claim Notice (the "Third Party
Claim Notice Period") to notify Indemnitee (i) whether the Indemnifying Party
disputes the indemnitee's right of indemnification with respect to such Third
Party Claim, and (ii) if the Indemnifying Party does not dispute such right of
indemnification, whether or not it desires to defend the Indemnitee against such
Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnitee within the
Third Party Claim Notice Period that (i) the Indemnifying Party does not dispute
the Indemnitee's right of indemnification and (ii) the Indemnifying Party
desires to defend against such Third Party Claim and, if the stated amount of
such Third Party Claim, together with all other previously resolved claims and
pending claims for indemnification hereunder, exceeds the Indemnification
Threshold, but is less than the Indemnification Cap, then the Indemnifying Party
shall have the right to assume and control the defense of such Third Party Claim
by appropriate proceedings with counsel reasonably acceptable to Indemnitee, at
the Indemnifying Party's sole cost and expense; provided that such rights shall
adhere and last only so long as (A) prior to assuming such defense, the
Indemnifying Party notifies the Indemnitee in writing within 30 days after the
Indemnitee has given notice of the Third Party claim that the Indemnifying Party
will indemnify the Indemnitee from and against the entirety of any adverse
consequences the Indemnitee may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the Indemnifying
Party provides the Indemnitee with evidence acceptable to the Indemnitee that
the Indemnifying Party will have the financial resources to defend against the
Third Party Claim and fulfill its indemnification obligations hereunder, (C) the
Third Party Claim involves only money damages and does not seek an injunction or
other equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the Indemnitee,
likely to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnitee, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently and
further provided that nothing in this proviso shall permit the Indemnification
Cap (as described in and qualified by Sections 11.2(a) through 11.2(h)) to be
exceeded. The Indemnitee may participate in, but not control, any such defense
or settlement, at its sole cost and expense.
(c) If the Indemnifying Party (i) disputes the Indemnitee's right of
indemnification with respect to a Third Party Claim, (ii) does not dispute such
right of indemnification but fails to promptly assume and prosecute the defense
of such Third Party Claim, (iii) does not dispute such right of indemnification
but a conflict or potential conflict
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exists between the Indemnifying Party and the Indemnitee or (iv) is not entitled
to assume defense of such Third Party Claim under Section 11.4(b), then the
Indemnitee shall be entitled to assume and control the defense of such Third
Party Claim with counsel reasonably acceptable to the Indemnifying Party (if any
of the Investor, the Company or Sleepmaster is an Indemnitee, the Existing
Members hereby agree that Kirkland & Ellis is acceptable for the purpose
hereof). If the Indemnifying Party does not assume the defense of a Third Party
Claim for any reason, it may still participate in, but not control, the defense
of such Third Party Claim at the Indemnifying Party's sole cost and expense.
(d) The party responsible for the defense of any Third Party Claim
(the "Responsible Party") shall, to the extent reasonably requested by the other
party, keep such other party informed as to the status of any third Party Claim
for which such party is not the Responsible Party, including, without
limitation, all settlement negotiations and offers. With respect to a Third
Party Claim for which the Indemnifying Party is the Responsible Party, the
Indemnitee shall make available to the Indemnifying Party and its
representatives all books and records of the Indemnitees relating to such Third
Party Claim and shall render to the Indemnifying Party such assistance and
access to records and the representatives of the Indemnitee as the Indemnifying
Party and its representatives may reasonably request, except that the Indemnitee
shall not be required to make available to the Indemnifying Party and its
representatives any books, records, documents or other information that the
Indemnitee reasonably determines to be confidential or subject to
attorney-client privilege unless and until the Indemnifying Party shall have
entered into such agreements as the Indemnitee reasonably deems to be necessary
in light of all surrounding circumstances (including, without limitation, the
Indemnifying Party's need for information in connection with the investigation
or defense of a Third Party Claim) to protect such confidentiality or privilege.
(e) Neither the Indemnifying Party, on the one hand, nor the
Indemnitee, on the other hand, shall enter into any settlement of any Third
Party Claim subject to indemnification under this Agreement without the prior
written consent of the other party, which consent shall not be unreasonably
withheld. The Responsible Party shall promptly notify the other party of each
settlement offer (including whether or not the Responsible Party is willing to
accept the proposed settlement offer) with respect to a Third Party Claim. Such
other party agrees to notify the Responsible Party with reasonable promptness
whether or not such party is willing to accept the proposed settlement offer.
Subject to Section 11.4(g), if an Indemnitee fails to consent to any settlement
offer of a Third Party Claim (whether or not the Indemnitee is the Responsible
Party with respect to such Third Party Claim), the Indemnitee may continue to
contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party with respect to such Third Party Claim
(including the reasonable costs and expenses of contesting or defending such
Third Party Claim incurred after the Indemnitee fails to consent to such
settlement offer) shall not exceed the full amount of such settlement offer,
plus the reasonable costs and expenses of contesting or defending such Third
Party Claim to the extent incurred before the Indemnitee failed to consent to
such settlement offer. If the Indemnifying Party fails to consent to any
settlement offer of a Third Party Claim that does not exceed the Indemnification
Cap (whether or not the Indemnifying Party is the Responsible Party with respect
to such Third Party Claim), the Indemnifying Party may continue to contest or
defend such Third Party Claim and, in such event, the Indemnifying Party shall
be liable to the
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Indemnitee for the amount of the Indemnification Loss ultimately recovered
against Indemnitee as a result of such Third Party Claim notwithstanding Section
11.2(d).
(f) A failure to give timely notice or to include any specified
information in any notice as provided in Section 11.4(a) will not affect the
rights or obligations of any party hereunder except and only to the extent that,
as a result of such failure, any party which was entitled to receive such notice
was deprived of its right to recover any payment under its applicable insurance
coverage or was otherwise damaged as a result of such failure.
(g) If any of the conditions in Section 11.4(b) is or becomes
unsatisfied, (i) the Indemnitee may defend against, and consent to the entry of
any judgment or enter into any settlement with respect to, the Third Party Claim
in any manner it may deem appropriate (and the Indemnitee need not consult with,
or obtain any consent from, any Indemnifying Party in connection therewith),
(ii) the Indemnifying Parties will reimburse the Indemnitee promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (iii) the Indemnifying Parties
will remain responsible for any adverse consequences the Indemnitee may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Article XI. No
provision of this Section shall render any Indemnitee liable for any amount in
excess of the liability to which it would be subject but for the provisions of
this Section 11.4(g).
(h) The Indemnifying Party will have a period of 30 calendar days
within which to respond in writing to any claim by an Indemnitee on account of
an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct
Claim"). If the Indemnifying Party does not so respond within such 30 calendar
day period, the Indemnifying Party will be deemed to have rejected such claim,
in which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article XI.
(i) For all purposes of this Section 11.4 and Section 11.5, notices
to the Existing Members shall be sufficient if given in the manner and at the
address set forth in Section 13.3 to the Representative of the Existing Members.
Any party or parties to this Agreement shall have the right to rely upon any
notices sent by, and all determinations made by, the representative of the other
party or parties acting pursuant to this Section.
2.92. Certain Payments to the Investor. Notwithstanding any other
provision of this Agreement, the Investor, the Company, Sleepmaster and any
Investor Indemnitee shall first satisfy the amount of any Indemnifiable Loss
suffered by the Investor, the Company or Sleepmaster, or any Investor
Indemnitee, by offset against the outstanding principal amount of the Investor
Notes exercised pro rata among the holders thereof, on a dollar-for-dollar basis
equal to the Indemnifiable Loss so suffered, before claiming for or obtaining
any additional payment for an Indemnifiable Loss.
2.93. Remedies Cumulative. The rights of indemnification set forth in
this Article XI do not displace, but are in addition to, any other legal
recourse available to the injured party including claims of fraud; provided,
that, if and to the extent that the Investor, the
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Company or Sleepmaster asserts any claim of fraud (whether under common law or
under federal or state securities laws) against any Existing Member, all claims
by the Investor, the Company and Sleepmaster arising out of the same alleged act
or omission by the Existing Member shall be merged into a single claim;
provided, that the party asserting such claim shall have the sole right to
select the forum and the theory of recovery for such claim.
ARTICLE XII
TERMINATION
2.94. Termination. At any time before the Release, this Agreement may be
terminated:
(i) by the mutual written consent of the parties;
(ii) by the Company, Sleepmaster or the Existing Members if there
has been a material misrepresentation, breach of warranty or breach of any
covenant or agreement contained herein by the Investor which is not cured
within twenty business days after the Investor has been notified of the
intent of the Company or the Existing Members to terminate this Agreement
pursuant to this clause (ii);
(iii) by the Investor, if there has been a material
misrepresentation, breach of warranty or breach of any covenant or
agreement contained herein by the Company or the Existing Members which is
not cured within twenty business days after the Company has been notified
of the Investor's intent to terminate this Agreement pursuant to this
clause (iii);
(iv) by the Company, Sleepmaster or the Existing Members if any
condition set forth in Article VIII has not been complied with or
performed at or before the Release and such non-compliance or
non-performance shall not have been cured or eliminated by the earlier of
(A) the date which is three Business Days after Sleepmaster obtains the
Serta Consent and (B) November 15, 1996 (the "Termination Date"); or
(v) by the Investor if any condition set forth in Article VII has
not been complied with or performed at or before the Release and such
non-compliance or non-performance shall not have been cured or eliminated
by the Termination Date.
2.95. Effect of Termination. In the event that this Agreement is
terminated pursuant to Section 12.1, all obligations of the parties (except for
Sections 10.5 and 13.10 and this Article XII shall terminate and each party will
return or destroy (and, if applicable, provide an affidavit of destruction duly
signed by such destroying party or an attorney thereof affirming such
destruction) all papers, documents, financial statements and other data
furnished to it by or
51
<PAGE> 57
on behalf of the other party (including any copies made by such first party),
and will maintain the confidentiality of all such information; provided, that
such termination shall not constitute a waiver by any party of any claim it may
have for damages caused by reason of a breach by the other party of a covenant
or agreement contained herein.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
2.96. Public Announcements. Prior to the Release Date, no party to this
Agreement will issue any press releases or otherwise make any public statements
with respect to this Agreement or the transactions contemplated hereby without
obtaining the prior written consent of the other parties, except as may be
required by law (in which case the disclosing party will advise the other
parties prior to making the disclosure). On or after the Release Date, the
Investor, the Existing Members and the Company shall cooperate to issue a
mutually agreeable press release.
2.97. Rights of Third Parties. Except as permitted pursuant to Section
13.4, nothing in this Agreement shall establish any enforceable rights, legal or
equitable, in any Person other than the parties hereto, including any employee
or member of the Company or Sleepmaster or any beneficiary of such employee. Any
claim, including claims for benefits, asserted by or on behalf of any person
with respect to such person's being employed by the Company or Sleepmaster shall
be governed solely by applicable employment policies and employee benefit plans
that the Company or Sleepmaster shall adopt on or after the Release Date,
construed in accordance with the applicable federal and state law.
2.98. Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be sufficiently given if delivered in
person, if mailed by certified mail, return receipt requested, postage prepaid,
if delivered by confirmed telefax or if sent by a nationally recognized
overnight courier, delivery prepaid, addressed as follows:
(a) if to the Company, to:
Sleepmaster Holdings L.L.C.
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036
Attn: Manager
Fax No.: (908) 381-3925
with a copy to:
52
<PAGE> 58
Blumenthal & Lynne, a Professional
Corporation
488 Madison Avenue
New York, New York 10022
Attn:: William A. Newman, Esq.
Fax No.: (212) 752-0097
or such other person or address as the Company may furnish to the Existing
Members and the Investor in writing.
(b) if to Sleepmaster, to:
Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036
Attn:: Manager
Fax No.: (908) 381-3925
with a copy to:
Blumenthal & Lynne, a Professional
Corporation
488 Madison Avenue
New York, New York 10022
Attn:: William A. Newman, Esq.
Fax No.: (212) 752-0097
or such other person or address as Sleepmaster may furnish to the Existing
Members and the Investor in writing.
(c) if to the Existing Members, to the Representative of the
Existing Members at his address set forth in the Operating Agreement.
with a copy to:
Blumenthal & Lynne, a Professional
Corporation
488 Madison Avenue
New York, New York 10022
Attn:: William A. Newman, Esq.
Fax No.: (212) 752-0097
or such other person or address as the Representative of the Existing Members
may furnish to the Investor and the Company in writing.
53
<PAGE> 59
(d) if to the Investor, to:
Sleep Investor L.L.C.
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Att.: Mr. John D. Weber
Fax No. (212) 888-2940
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Attn.: Kirk A. Radke, Esq.
Fax No. (212) 446-4900
or such other person or address as the Investor shall furnish the Company and
the Existing Members in writing.
All such written notices and communications delivered as aforesaid shall
be deemed given for purposes of this Agreement on the day such notice or
communication is received if delivered personally or by telefax, or, if
delivered by certified mail, as aforesaid, on the date that is four business
days after deposit in the mail or, if delivered by nationally recognized
overnight courier, two days after it has been so sent.
2.99. Parties in Interest. This Agreement will be binding upon, inure to
the benefit of and be enforceable by, the respective successors and permitted
assigns of the parties hereto but this Agreement shall not be assigned by any
party without the prior written consent of the other party; provided, that (i)
the Investor may or, in connection with the Closing, the Company or Sleepmaster
may, assign any or all of their respective rights and interests hereunder to one
or more of their sources of financing for collateral purposes only, (ii) the
Investor may assign any or all of its rights and interests hereunder to one or
more of its Affiliates, (iii) the Investor may designate one or more of its
Affiliates to perform its obligations hereunder and (iv) the Company may assign
any or all of its rights and interests hereunder to any subsequent purchaser of
the Business (in the situations described in clauses (i), (ii) or (iii) of this
proviso, the assigning party nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
2.100. Entire Agreement; Amendment; Waiver. This Agreement and the
agreements and documents referred to herein or delivered pursuant hereto contain
the entire understanding of the parties hereto with respect to its subject
matter. There are no representations, promises, warranties, covenants or
undertakings other than as expressly set forth herein or therein. This Agreement
supersedes all prior agreements and understandings between the parties hereto
with respect to its subject matter. This Agreement may be amended or modified
only by a written instrument duly executed by the parties hereto, and any
condition to a
54
<PAGE> 60
party's obligations hereunder may only be waived in writing by such party. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
2.101. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
2.102. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
2.103. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ITS PRINCIPLES OF CONFLICTS OF LAW.
2.104. Severability. In the event that any provision, or part thereof, of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
2.105. Expenses. Except as otherwise provided herein, each party shall be
responsible for its own legal fees and other costs and expenses incurred in
connection with this Agreement and the negotiation and consummation of the
transactions contemplated hereby. If required, the Investor shall pay the filing
fee under the H-S-R Act.
2.106. Incorporation of Exhibits and Schedules. All references contained
in this Agreement to Exhibits and Schedules shall, unless otherwise expressly
stated, refer to the Exhibits and Schedules attached hereto. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
2.107. Specific Performance. Each of the parties acknowledges and agrees
that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties agrees that
the other party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which it may be
entitled, at law or in equity.
2.108. Submission to Jurisdiction. Each of the parties submits to the
jurisdiction of any state or federal court sitting in New York, New York, in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each party also agrees not to bring
55
<PAGE> 61
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
2.109. Waiver of Jury Trial. Each of the parties waives any right to a
trial by jury with respect to any litigation which arises out of, or which is
related to, the transactions contemplated by this Agreement.
2.110. Time is of the Essence. Each of the parties agrees that time is of
the essence with respect to every date, every action and every delivery set
forth herein.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
By:
Name: Charles Schweitzer
Title: Manager
By:
Name: James P. Koscica
Title: Manager
By:
Name: Douglas A. Brown
Title: Manager
SLEEPMASTER L.L.C.
By:
Name: Charles Schweitzer
Title: Manager
By:
Name: James P. Koscica
Title: Manager
56
<PAGE> 62
By:
Name: Douglas A. Brown
Title: Manager
BROWN/SCHWEITZER HOLDINGS, INC.
By:
Name: Charles Schweitzer
Title: President
EXISTING MEMBERS:
Charles Schweitzer
James P. Koscica
Timothy DuPont
Michael Reilly
Harold M. Wit
ALLEN INVESTMENTS II, L.L.C.
By:
Name:________________________________
Title:
57
<PAGE> 63
Douglas A. Brown
DOUGLAS A. BROWN, VIP PLUS PROFIT
SHARING PLAN
By:
Name: Douglas A. Brown
Title:
Donald S. Brown
John S. Coates
Karl Dillon
JESSAND CORP. PROFIT SHARING PLAN
AND TRUST
By:
Name: James W. Donaghy
Title: Trustee
Alan Gelband
PANORAMA HOLDINGS, L.L.C.
By:
58
<PAGE> 64
Name: Peter R. Gennet
Title: Manager
Arnold Gussoff
HOLDING CAPITAL MANAGEMENT CORP.
By:
Name: James W. Donaghy
Title: President
Steven Leischner
William Colaianni
JO LEVINSON 1989 TRUST
By:
Name: Daniel Levinson
Title: Trustee
John M. McMahon
59
<PAGE> 65
KAPLAN, CHOATE ALTERNATIVE STRATEGIES
L.P.
By:
Name: David C. Patterson
Title: General Partner
Robert W. Plaster
Bennett Rosenthal
Dhiren Shah
WKM PARTNERS
By:
Name: James Wade
Title:
[Only if the Warrant has been Exercised]
NATIONSBANK COMMERCIAL CREDIT CORP.
By:
Name:
Title:
60
<PAGE> 66
INVESTOR:
SLEEP INVESTOR L.L.C.
By:
Name:
Title: Manager
61
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF FORMATION
OF
SLEEPMASTER L.L.C.
UNDER SECTION 42:2B-11 OF THE NEW JERSEY REVISED STATUTES
The undersigned, in order to form a limited liability company
pursuant to the provisions of the New Jersey Limited Liability Company Act,
hereby certifies:
1. The name of the limited liability company (the "Company")
is SLEEPMASTER L.L.C.
2. The address of the registered office of the Company is:
2001 Lower Road
Linden, New Jersey 07036
3. The name and address of the registered agent for service of
process required to be maintained by Section 42:2B-6 is:
Charles Schweitzer
c/o Sleepmaster Holdings L.L.C.
2001 Lower Road
Linden, New Jersey 07036
4. The Company initially has two members.
5. The initial operating agreement of the Company shall be
adopted by the members, and the power to make, alter and repeal the operating
agreement is reserved to the members in accordance with the provisions thereof.
6. The duration of the Company is limited and the latest date
on which the Company is to dissolve is December 31, 2035.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate of Formation and have certified this as their act and deed, this
14th day of December 1994.
By: /s/ Charles Schweitzer
Charles Schweitzer
By: /s/ James Koscica
James Koscica
By: /s/ Douglas Brown
Douglas Brown
<PAGE> 1
EXHIBIT 3.2
EXECUTION COPY
SLEEPMASTER L.L.C.
AMENDED AND RESTATED LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE
FOR INVESTMENT ONLY BY "ACCREDITED INVESTORS" AS THAT TERM IS DEFINED IN RULE
501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
UNDER STATE SECURITIES LAWS. WITHOUT SUCH REGISTRATION, SUCH INTERESTS MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL THAT (AMONG OTHER MATTERS) SUCH SALE, TRANSFER
OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT.
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THE
FOLLOWING AGREEMENT.
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
GENERAL................................................................................................. 1
1.1 Definitions.................................................................................... 1
1.2 Construction................................................................................... 7
ARTICLE 2
ORGANIZATION............................................................................................ 7
2.1 Formation; Firm Name; Continuation............................................................. 7
2.2 Name........................................................................................... 8
2.3 Offices; Agent................................................................................. 8
2.4 Existence...................................................................................... 8
2.5 Purposes....................................................................................... 8
2.6 Powers of the Company.......................................................................... 8
2.7 Foreign Qualification.......................................................................... 10
2.8 No State-Law Partnership....................................................................... 10
2.9 Treatment of Amendment for Tax Purposes........................................................ 10
ARTICLE 3
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS................................................. 10
3.1 Members........................................................................................ 10
3.2 No Liability of Members........................................................................ 11
3.3 Capital Contributions.......................................................................... 12
3.4 Issuance of Additional Interests; Additional Members........................................... 12
ARTICLE 4
INTENTIONALLY OMITTED................................................................................... 13
ARTICLE 5
DISTRIBUTIONS........................................................................................... 13
5.1 Generally...................................................................................... 13
5.2 Distributions.................................................................................. 13
ARTICLE 6
MANAGEMENT OF THE COMPANY............................................................................... 14
6.1 Managing Member; Delegation of Authority and Duties............................................ 14
6.2 Status of Managing Member; Eligibility to Serve................................................ 14
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
6.3 Resignation or Removal of Managing Member...................................................... 15
6.4 Board of Advisors.............................................................................. 15
6.5 Officers....................................................................................... 16
ARTICLE 7
MEMBERS; VOTING RIGHTS.................................................................................. 17
7.1 Meetings....................................................................................... 17
7.2 Voting Matters................................................................................. 18
7.3 Conversion of Class B Common Units............................................................. 18
7.4 Withdrawal; Resignation........................................................................ 19
ARTICLE 8
EXCULPATION AND INDEMNIFICATION......................................................................... 20
8.1 Performance of Duties; No Liability of Member and Officers..................................... 20
8.2 Competing Activities........................................................................... 20
8.3 Right to Indemnification....................................................................... 20
8.4 Advance Payment................................................................................ 21
8.5 Indemnification of Employees and Agents........................................................ 21
8.6 Reimbursement of Fees and Expenses............................................................. 21
8.7 Nonexclusivity of Rights....................................................................... 21
8.8 Insurance...................................................................................... 22
8.9 Savings Clause................................................................................. 22
ARTICLE 9
TAX RETURNS............................................................................................. 22
ARTICLE 10
BOOKS, REPORTS AND COMPANY COVENANTS.................................................................... 22
10.1 Maintenance of Books........................................................................... 22
10.2 Financial Statements and Other Information..................................................... 22
10.3 Inspection of Property......................................................................... 24
10.4 Regulatory Compliance Cooperation.............................................................. 24
10.5 Notice of Developments......................................................................... 25
10.6 SBA Matters.................................................................................... 25
10.7 Company Funds.................................................................................. 26
ARTICLE 11
TRANSFER OF INTERESTS................................................................................... 26
11.1 Restrictions................................................................................... 26
11.2 General Restrictions on Transfer............................................................... 26
11.3 Procedure for Transfers........................................................................ 27
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
11.4 Prospective Transferees........................................................................ 28
11.5 Legend......................................................................................... 28
11.6 Transfer Fees and Expenses..................................................................... 28
11.7 Limitations.................................................................................... 28
ARTICLE 12
DISSOLUTION AND LIQUIDATION............................................................................. 28
12.1 Events Causing Dissolution..................................................................... 28
12.2 Liquidation and Termination.................................................................... 29
12.3 Cancellation of Certificate.................................................................... 30
ARTICLE 13
GENERAL/MISCELLANEOUS PROVISIONS........................................................................ 30
13.1 Notices........................................................................................ 30
13.2 Governing Law.................................................................................. 30
13.3 Certificates of Units.......................................................................... 30
13.4 Entire Agreement............................................................................... 31
13.5 Effect of Waiver or Consent.................................................................... 31
13.6 Amendment or Modification...................................................................... 31
13.7 Binding Effect................................................................................. 32
13.8 Power of Attorney.............................................................................. 32
13.9 Indemnification and Reimbursement for Payments on Behalf of a Member........................... 32
13.10 Consent to Jurisdiction........................................................................ 33
13.11 WAIVER OF JURY TRIAL........................................................................... 33
13.12 Counterparts................................................................................... 33
13.13 Severability................................................................................... 33
13.14 Headings....................................................................................... 33
13.15 Parties in Interest............................................................................ 33
13.16 Further Assurances............................................................................. 33
13.17 Specific Performance; Remedies................................................................. 34
</TABLE>
(iii)
<PAGE> 5
SLEEPMASTER L.L.C.
AMENDED AND RESTATED LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT
of Sleepmaster L.L.C. is made as of November 14, 1996, by and among the Company
and each of the persons designated as a Member on Schedule A attached hereto, as
such may be amended from time to time in accordance with the terms hereof.
WHEREAS, certain members entered into the Limited Liability Company
Operating Agreement, dated as of December 14, 1994 (the "Original Agreement"),
and formed the Company pursuant to the New Jersey Limited Liability Company Act,
New Jersey Revised Statutes, Chapter 2B of Title 42 (the "Act"), by filing a
Certificate of Formation of the Company (the "Certificate") in accordance with
the Act;
WHEREAS, each of the parties hereto desires to amend and restate the
Original Agreement in its entirety as provided in this Agreement to (i) admit
the Investor as a Member, (ii) accept the resignation of Brown/Schweitzer, (iii)
provide for the conversion of the Original Membership Interests into the
Preferred and Common Units described herein, (i) cause the Company to be treated
as an association taxable as a corporation for federal and state income tax
purposes and (ii) provide for the continuation of the Company upon the terms set
forth in this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made and other good and valuable consideration, the Members hereby amend
and restate the Original Agreement in its entirety and agree as follows:
ARTICLE 1
GENERAL
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
"Act" has the meaning given that term in the Preamble.
"Additional Interests" has the meaning set forth in Section
3.4(a).
"Advisors" has the meaning set forth in Section 6.4.
"Affiliate" means, when used with reference to a specified
Person, any Person that directly or indirectly controls or is controlled by or
is under common control with the specified
<PAGE> 6
Person, and with respect to any individual, such individual's spouse or any
person within the first degree of kinship of such individual.
"Agreement" means this Amended and Restated Limited Liability
Company Operating Agreement, as it may be further amended from time to time.
"Bankruptcy" or "Bankrupt" means, with respect to any Member,
such Member's making an assignment for the benefit of creditors, becoming a
party to any liquidation or dissolution action or proceeding with respect to
such Member or any bankruptcy, reorganization, insolvency or other proceeding
for the relief of financially distressed debtors with respect to such Member, or
a receiver, liquidator, custodian or trustee being appointed for such Member or
a substantial part of such Member's assets and, if any of the same occur
involuntarily, the same not being dismissed, stayed or discharged within 90
days; or the entry of an order for relief against such Member under Title 11 of
the United States Code. A Member shall be deemed Bankrupt if the Bankruptcy of
such Member shall have occurred.
"Board" has the meaning set forth in Section 6.4.
"Brown/Schweitzer" means Brown/Schweitzer Holdings, Inc., a
Florida corporation.
"Capital Contribution" means the aggregate contributions made
(or deemed made) by a Member to the Company pursuant to Article 3 (including
both Common Capital and Preferred Capital) as of the date in question, as shown
opposite such Member's name on Schedule A, as the same may be amended from time
to time.
"Cause" means (i) a breach of the Managing Member's covenants
under this Agreement or any other agreements with the Company or its
Subsidiaries and such breach shall not have been cured within 30 days after
written notice to the Managing Member, (ii) the commission by the Managing
Member of a felony, a crime involving moral turpitude or other act causing
material harm to the standing and reputation of the Company or any of its
Subsidiaries, or (iii) the Managing Member's repeated wilful failure to comply
with the reasonable and lawful written directives of the Board.
"Certificate" has the meaning set forth in the Preamble.
"Class A Common Unit" means a Common Unit having the rights
and obligations specified with respect to Class A Common Units in this
Agreement.
"Class A Holder" means each record holder of any portion of a
Class A Common Unit.
"Class A Member" means each Class A Holder which is a Member.
"Class B Common Unit" means a Common Unit having the rights
and obligations specified with respect to Class B Common Units in this
Agreement.
-2-
<PAGE> 7
"Class B Holder" means each record holder of any portion of a
Class B Common Unit.
"Class B Member" means each Class B Holder which is a Member.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Common Capital" means, as of any date with respect to a
Member, the portion of such Member's Capital Contribution designated as Common
Capital opposite such Member's name on Schedule A.
"Common Units" means the Units representing a fractional part
of the Membership Interests of the Members and having the rights and obligations
specified with respect to Common Units in this Agreement.
"Company" means Sleepmaster L.L.C.
"Consent" means the consent, approval, ratification or
affirmative vote of the Members holding more than 50% in aggregate of the Common
Units.
"Credit Agreement" means the Secured Credit Agreement, dated
as of November 14, 1996, between Sleepmaster and First Source Financial LLP, as
amended, modified, supplemented or restated, and including any agreement
pursuant to which indebtedness thereunder is refinanced, as in effect from time
to time.
"Economic Interest" means a Member's or Economic Owner's share
of the Company's net profits, net losses and distributions pursuant to this
Agreement and the Act, but shall not include any right to participate in the
management or affairs of the Company, including the right to vote on, consent to
or otherwise participate in any decision of the Members, or any right to receive
information concerning the business and affairs of the Company, in each case to
the extent provided for herein or otherwise required by the Act.
"Economic Owner" means any owner of an Economic Interest who
is not a Member. No owner of an Economic Interest which is not a Member shall be
deemed a "member" (as that term is used in the Act) of the Company.
"Employment Agreements" means those certain Employments
Agreements among Sleepmaster, the Company and each of the Executives, dated as
of November 14, 1996.
"Entity" means a Person other than a natural person and
includes, without limitation, corporations (both non-profit and other
corporations), partnerships (both limited and general), trusts, joint ventures,
limited liability companies, and unincorporated associations.
"Executives" means Charles Schweitzer, James Koscica, Michael
Reilly and Timothy DuPont, and each shall be referred to individually as an
"Executive".
-3-
<PAGE> 8
"Family Group" means, with respect to a natural person, such
individual's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such individual and/or such individual's spouse, their
respective ancestors and/or descendants (whether natural or adopted).
"Fiscal Year" means the twelve month accounting period ending
on the last day of December in each year.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Incapacity" means (a) with respect to a natural person, the
Bankruptcy, death, incompetency or insanity of such individual and (b) with
respect to any other Person, the Bankruptcy, liquidation, dissolution or
termination of such Person.
"Investor" means Sleep Investor L.L.C., a Delaware limited
liability company.
"Managing Member" has the meaning set forth in Section 6.1.
"Members" means each Person identified on Schedule A hereto as
of the date hereof who has executed this Agreement or a counterpart hereof and
each Person who is hereafter admitted as a Member in accordance with the terms
of this Agreement and the Act. The Members shall constitute the "members" (as
that term is defined in the Act) of the Company. Notwithstanding any provision
of this Agreement to the contrary, the Members shall constitute a single class
or group of members of the Company for all purposes of the Act and this
Agreement.
"Membership Interest" means the limited liability company
interest of a Member in the Company at any particular time, including such
Member's Economic Interest and the right to any and all benefits to which a
Member may be entitled as provided in this Agreement, together with the
obligations of such Member to comply with all terms and provisions of this
Agreement.
"Option Agreements" means the Option Agreements expected to be
entered into between the Company and each of the Executives on or about November
14, 1996.
"Original Membership Interests" means the Membership Interests
(as defined in the Original Agreement) issued to the Original Members pursuant
to the terms and conditions of the Original Agreement.
"Person" means any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
Person as the context may require.
"Preferred Capital" means, as of any date with respect to a
Member, the portion of such Member's Capital Contribution designated as
Preferred Capital opposite such Member's name on Schedule A.
"Preferred Holder" means each record holder of a Preferred
Unit.
-4-
<PAGE> 9
"Preferred Member" means each Preferred Holder which is a
Member.
"Preferred Unit" means a Unit representing a fractional part
of the Membership Interests of all Members and having the preference rights and
other rights and obligations specified with respect to Preferred Units in this
Agreement.
"Profits" means items of Company income and gain determined
according to Section 4.2.
"Public Sale" means any sale of equity securities to the
public pursuant to an effective registration statement under the Securities Act
or to the public through a broker, dealer or market maker pursuant to the
provisions of Rule 144 adopted under the Securities Act (or any similar rule
then in force).
"Recapitalization Agreement" means that certain
Recapitalization, Redemption and Purchase Agreement dated as of October 31, 1996
by and among the Company, the Investor and certain other parties thereto.
"Restricted Securities" means (a) the Membership Interest or
any other interest in the Company held by Member or any of its Affiliates and
(b) any securities issued with respect to, or in exchange for, the securities
referred to in clause (a) above in connection with a conversion, combination of
shares, recapitalization, merger, consolidation or other reorganization,
including in connection with the consummation of any reorganization plan. As to
any particular Restricted Securities, such securities shall cease to be
Restricted Securities when they have (x) been distributed to the public pursuant
to a offering registered under the Securities Act or (y) sold to the public
through a broker, dealer or market maker in compliance with Rule 144 (or any
similar provision then in force) promulgated by the Securities and Exchange
Commission under the Securities Act.
"SBA" means the United States Small Business Administration,
and any successor agency performing the functions thereof.
"SBIC" means a Small Business Investment Company licensed by
an SBA under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of 1959, as
amended.
"SBIC Regulations" means the SBIC Act and the regulations
issued by the SBA thereunder, codified as Title 13 of the Code of Federal
Regulations ("13 CFR"), parts 107 and 121.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders
Agreement, dated as of November 14, 1996, by and among Sleepmaster Holdings
L.L.C., the Investor and certain other parties thereto, as such agreement is
amended, modified, supplemented or restated from time to time.
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"Subordinated Notes" means the 12% Senior Subordinated Notes
due 2006 issued by the Company to PMI Mezzanine Fund, L.P.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of units of 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 that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, limited
liability company, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, manager or a general partner of such partnership, limited
liability company, association or other business entity.
"Terminated Member" has the meaning set forth in Section 7.4.
"Transfer" means any direct or indirect sale, transfer,
conveyance, assignment, pledge, hypothecation, gift, delivery or other
disposition.
"Treasury Regulations" shall mean that except where the
context indicates otherwise, the permanent, temporary, proposed, or proposed and
temporary regulations of Department of the Treasury under the Code as such
regulations may be lawfully changed from time to time.
"Unit" means a Membership Interest of a Member in the Company
representing a fractional part of the Membership Interests of all Members and
shall include Common Units and Preferred Units; provided, that any class of
Units issued shall have designations, preferences or special rights set forth in
this Agreement and the Membership Interest represented by such class of Units
shall be determined in accordance with such designations, preferences or special
rights.
"Unit Equivalents" means (without duplication with any Units
or other Unit Equivalents) rights, warrants, options, convertible securities,
exchangeable securities, indebtedness or other rights, in each case exercisable
for or convertible or exchangeable into, directly or indirectly, Units or
securities exercisable for or convertible or exchangeable into Units, whether at
the time of issuance or upon the passage of time or the occurrence of some
future event.
"Unpaid Preferred Return" means, with respect to a Member, an
amount, determined as of the date of any distribution pursuant to Section 5.2,
equal to the excess of (i) the amount necessary to give the Member a 12%
compounded annual return with respect to his or its Unreturned Preferred Capital
over (ii) amounts previously distributed to such Member pursuant to Section
5.2(a)(i).
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"Unreturned Preferred Capital" means, with respect to each
Member, such Member's Preferred Capital reduced by all prior distributions made
to such Member by the Company pursuant to Section 5.2(a)(ii).
"Warrant" means (i) the warrant expected to be issued by the
Company on or about November 14, 1996 to the Warrantholder entitling the
Warrantholder to purchase certain Common Interests for the price and on the
other terms and conditions set forth therein and (ii) any Warrant issued in full
or partial substitution therefor in accordance with the terms thereof.
"Warrantholder" means PMI Mezzanine Fund, L.P. or its
designee, and any other Person who subsequently acquires a Warrant pursuant to
the terms of the Warrant and the applicable terms of this Agreement.
1.2 Construction. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine and neuter and the
singular number includes the plural number and vice versa. All references to
Articles and Sections refer to articles and sections of this Agreement, and all
references to Schedules are to Schedules attached hereto, each of which is made
a part hereof for all purposes.
ARTICLE 2
ORGANIZATION
2.1 Formation; Firm Name; Continuation.
(a) The Certificate was prepared, executed and filed in
accordance with the Act on December 19, 1994. The Members hereby continue the
existence of the Company under this Agreement and the Act. The rights, powers,
duties, obligations and liabilities of the Members shall be determined pursuant
to the Act and this Agreement. To the extent that the rights, powers, duties,
obligations and liabilities of any Member are different by reason of any
provision of this Agreement than they would be in the absence of such provision,
this Agreement shall, to the extent permitted by the Act, control.
(b) The name and mailing address of each Member of the Company
shall be listed on Schedule A attached hereto. The Managing Member shall be
required to update Schedule A from time to time as necessary to accurately
reflect the information therein. Any reference in this Agreement to Schedule A
shall be deemed to be a reference to Schedule A as amended and in effect from
time to time.
(c) The Managing Member, as an authorized Person within the
meaning of the Act, shall, at any time the Managing Member becomes aware that
any statement in the Certificate was false when made, or that any matter
described has changed making the Certificate false in any material respect,
promptly execute, deliver and file any and all amendments thereto and
restatements thereof in accordance with the Act.
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(d) Under the direction of the Board, the Managing Member
shall from time to time take all such actions as may be deemed by him or it to
be necessary or appropriate to effectuate and permit the continuation of the
Company as a limited liability company under the Act and qualify the Company to
act in any other state where the Managing Member deems qualification necessary
or desirable; provided, that the Managing Member will cause the Company not to
conduct business or engage in any action in any jurisdiction where the liability
of the Members is not limited to the same extent as under the Act. The Members
shall execute such certificates, documents and instruments and take such other
action as may be necessary to enable the Managing Member to fulfill his or its
responsibility under this Section 2.1(d).
2.2 Name. The name of the limited liability company continued by this
Agreement is Sleepmaster L.L.C. The business of the Company may be conducted
upon compliance with all applicable laws under any other name designated by the
Managing Member.
2.3 Offices; Agent. The registered office and the mailing address of
the Company in New Jersey shall be located at 2001 Lower Road, Linden, New
Jersey, 07036. Upon giving notice to all Members, the registered office and the
mailing address of the Company may each be changed by the Managing Member, in
which event the Managing Member shall further comply with Section 42:2B- 6b of
the Act.
2.4 Existence. The Company shall continue in perpetuity unless
terminated in accordance with the provisions of this Agreement or otherwise
dissolved pursuant to the laws of the State of New Jersey.
2.5 Purposes. The nature of the business or purposes to be conducted or
promoted by the Company is to engage in any lawful act or activity for which
limited liability companies may be organized under the Act. The Company may
engage in any and all activities necessary, desirable or incidental to the
accomplishment of the foregoing. Notwithstanding anything herein to the
contrary, nothing set forth herein shall be construed as authorizing the Company
to possess any purpose or power, or to do any act or thing, forbidden by law to
a limited liability company organized under the laws of the State of New Jersey.
2.6 Powers of the Company.
(a) Power and Authority. Subject to the provisions of
this Agreement, the Company shall have the power and authority to take any and
all actions necessary, appropriate, proper, advisable, convenient or incidental
to or for the furtherance of the purposes set forth in Section 2.5, including
the power:
(i) to conduct its business, carry on its
operations and have and exercise the powers granted to a
limited liability company by the Act in any state, territory,
district or possession of the United States, or in any foreign
country that may be necessary, convenient or incidental to the
accomplishment of the purpose of the Company;
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(ii) to acquire by purchase, lease, contribution of
property or otherwise, own, hold, operate, maintain, finance,
refinance, improve, lease, sell, convey, mortgage, transfer,
demolish or dispose of any real or personal property that may
be necessary, convenient or incidental to the accomplishment
of the purpose of the Company;
(iii) to enter into, perform and carry out contracts
of any kind, including contracts with any Member or any
Affiliate thereof, or any agent of the Company necessary to,
in connection with, convenient to or incidental to the
accomplishment of the purpose of the Company;
(iv) to purchase, take, receive, subscribe for or
otherwise acquire, own, hold, vote, use, employ, sell,
mortgage, lend, pledge, or otherwise dispose of, and otherwise
use and deal in and with, shares or other interests in or
obligations of domestic or foreign corporations, associations,
general or limited partnerships (including the power to be
admitted as a partner thereof and to exercise the rights and
perform the duties created thereby), trusts, limited liability
companies (including the power to be admitted as a member or
appointed as a manager thereof and to exercise the rights and
perform the duties created thereby) or individuals or direct
or indirect obligations of the United States or of any
government, state, territory, governmental district or
municipality or of any instrumentality of any of them;
(v) to lend money for any proper purpose, to invest
and reinvest its funds and to take and hold real and personal
property for the payment of funds so loaned or invested;
(vi) to sue and be sued, complain and defend, and
participate in administrative or other proceedings, in its
name;
(vii) to appoint employees and agents of the Company
and define their duties and fix their compensation;
(viii) to indemnify any Person in accordance with the
Act and to obtain any and all types of insurance;
(ix) to cease its activities and cancel its
Certificate;
(x) to negotiate, enter into, renegotiate, extend,
renew, terminate, modify, amend, waive, execute, acknowledge
or take any other action with respect to any lease, contract
or security agreement in respect of any assets of the Company;
(xi) to borrow money and issue evidences of
indebtedness and guaranty indebtedness (whether of the Company
or any of its Subsidiaries), and to secure the same by a
mortgage, pledge or other lien on the assets of the Company;
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<PAGE> 14
(xii) to pay, collect, compromise, litigate,
arbitrate or otherwise adjust or settle any and all other
claims or demands of or against the Company or to hold such
proceeds against the payment of contingent liabilities; and
(xiii) to make, execute, acknowledge and file any and
all documents or instruments necessary, convenient or
incidental to the accomplishment of the purpose of the
Company.
(b) Managing Member. Subject to the provisions of
this Agreement and the direction of the Board, (i) the Company, and the Managing
Member on behalf of the Company, may enter into and perform any and all
documents, agreements and instruments contemplated hereby, all without any
further act, vote or approval of any Member and (ii) the Managing Member may
authorize any Person (including any Member or officer) to enter into and perform
any document on behalf of the Company.
2.7 Foreign Qualification. The Managing Member shall cause the Company
to comply with all requirements necessary to qualify the Company as a foreign
limited liability company in any jurisdiction in which the Company owns property
or transacts business to the extent, in the reasonable judgment of the Managing
Member, such qualification or registration is necessary or advisable for the
protection of the limited liability of the Members or to permit the Company
lawfully to own property or transact business. The Managing Member may and, at
the request of the Managing Member or any officer, each Member shall, execute,
acknowledge, swear to and deliver any or all certificates and other instruments
conforming with this Agreement that are necessary or appropriate to qualify,
continue or terminate the Company as a foreign limited liability company in all
such jurisdictions in which the Company may conduct business.
2.8 No State-Law Partnership. The Members intend that the Company shall
not be a partnership (including, without limitation, a limited partnership) or
joint venture, and that no Member, Economic Owner, representative or officer
shall be a partner or joint venturer of any other Member, Economic Owner,
representative or officer, for any purposes.
2.9 Treatment of Amendment for Tax Purposes. The Members intend, solely
for federal and state income tax purposes, that each Member be treated, as of
the signing of this Agreement, as having exchanged its interest in the Company
(treated as a partnership) for a new interest in the Company (treated as a
corporation), followed by a termination of the Company as a partnership. Each
Member and the Company shall file all tax returns in a manner consistent with
such treatment.
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ARTICLE 3
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS
3.1 Members.
(a) List of Members; Admission. Subject to the following
sentence, the names, residence, business or mailing addresses, Capital
Contributions and the Units (both Preferred and Common) of the Members are set
forth on Schedule A, as such Schedule shall be amended from time to time in
accordance with the terms of this Agreement. Any reference in this Agreement to
Schedule A shall be deemed to be a reference to Schedule A as amended and in
effect from time to time. Upon (i) his or its execution of this Agreement or
counterpart thereof and (ii) receipt (or deemed receipt) of such Person's
Capital Contribution as set forth on Schedule A, each Person listed on Schedule
A is hereby admitted to the Company as a Member of the Company, with the
Membership Interests set forth on Schedule A, as of the date hereof .
(b) Loans by Members. No Member, as such, shall be required to
lend any funds to the Company or to make any additional contribution of capital
to the Company, except as otherwise required by applicable law or by this
Agreement. Any Member may, with the approval of the Board, make loans to the
Company, and any loan by a Member to the Company shall not be considered to be a
Capital Contribution.
(c) Representations and Warranties of Members. Each Member
hereby represents and warrants to and acknowledges with the Company that: (i)
such Member has such knowledge and experience in financial and business matters
and is capable of evaluating the merits and risks of an investment in the
Company and making an informed investment decision with respect thereto; (ii)
such Member is able to bear the economic and financial risk of an investment in
the Company for an indefinite period of time; (iii) such Member is acquiring or
has acquired interests in the Company for investment only and not with a view
to, or for resale in connection with, any distribution to the public or public
offering thereof; (iv) the interests in the Company have not been registered
under the securities laws of any jurisdiction and cannot be disposed of unless
they are subsequently registered and/or qualified under applicable securities
laws and the provisions of this Agreement have been complied with; (v) the
execution, delivery and performance of this Agreement have been duly authorized
by such Member and do not require such Member to obtain any consent or approval
that has not been obtained and do not contravene or result in a default under
any provision of any law or regulation applicable to such Member or other
governing documents or any agreement or instrument to which such Member is a
party or by which such Member is bound and (vi) this Agreement is valid, binding
and enforceable against such Member in accordance with its terms.
(d) Resignation. As a result of the consummation of the
transactions contemplated by the Recapitalization Agreement, Brown/Schweitzer
will cease to own any Membership Interest in the Company. Brown/Schweitzer has
submitted its resignation as a Member of the Company, and upon the consummation
of the sale of their Membership Interests pursuant to the Recapitalization
Agreement the resignation of Brown/Schweitzer shall be deemed accepted by the
Company and Brown/Schweitzer shall no longer be a Member.
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3.2 No Liability of Members.
(a) No Liability. Except as otherwise required by applicable
law and as expressly set forth in this Agreement, no Member shall have any
personal liability whatever in such Member's capacity as a Member, whether to
the Company, to any of the other Members, to the creditors of the Company or to
any other third party, for the debts, liabilities, commitments or any other
obligations of the Company or for any losses of the Company. Each Member shall
be liable only to make such Member's Capital Contribution to the Company and the
other payments provided expressly herein.
(b) Distribution. In accordance with the Act a member of a
limited liability company may, under certain circumstances, be required to
return amounts previously distributed to such member. It is the intent of the
Members that no distribution to any Member pursuant to Article 5 hereof shall be
deemed a return of money or other property paid or distributed in violation of
the Act. The payment of any such money or distribution of any such property to a
Member shall be deemed to be a compromise within the meaning of the Act, and the
Member receiving any such money or property shall not be required to return to
any Person any such money or property. However, if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, any
Member is obligated to make any such payment, such obligation shall be the
obligation of such Member and not of any other Member.
3.3 Capital Contributions. Each Member shall be deemed to have made a
Capital Contribution to the Company in the amount shown opposite such Member's
name on Schedule A hereto. Upon execution of this Agreement each Member shall
have the Preferred Capital and the Common Capital and shall be deemed to own the
number of Preferred Units and Common Units set forth opposite such Member's name
on Schedule A. The Company shall issue certificates to the Members representing
the Common Units and the Preferred Units held by each Member.
3.4 Issuance of Additional Interests; Additional Members.
(a) Additional Interests. Subject to Section 11.7, the Board
shall have the right to cause the Company to issue or sell to any Person
(including Members and Affiliates of Members) any of the following (which for
purposes of this Agreement shall be "Additional Interests"): (i) additional
Membership Interests or other interests in the Company (including new classes or
series thereof having different rights); (ii) obligations, evidences of
indebtedness or other securities or interests convertible into or exchangeable
for Membership Interests or other interests in the Company; and (iii) warrants,
options or other rights to purchase or otherwise acquire Membership Interests or
other interests in the Company. Subject to Section 3.4(b) below, the Board shall
determine the terms and conditions governing the issuance of such Additional
Interests, including the number and designation of such Additional Interests,
the preference (with respect to distributions, in liquidation or otherwise) over
any other Membership Interests and any required contributions in connection
therewith.
(b) Admission as a Member. Notwithstanding Section 3.4(a), in
order for a Person to be admitted as a Member of the Company, either with
respect to an Additional Interest or as a transferee of a Membership Interest
(subject in any event to the Securityholders Agreement): (i) such Person shall
have delivered to the Company a written undertaking to be bound by the terms
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<PAGE> 17
and conditions of this Agreement and shall have delivered such documents and
instruments as the Board determines to be necessary or appropriate in connection
with the issuance of such Additional Interest to such Person or to effect such
Person's admission as a Member (including, without limitation, any documents
required by Article 11); and (ii) the Managing Member or the Secretary of the
Company shall amend Schedule A without the further vote, act or consent of any
other Person to reflect such new Person as a Member; provided, that unless and
until each of the conditions (i) and (ii) above are met, any transferee of any
Membership and any Person who received any Additional Interest shall be an
Economic Owner with respect to such Membership Interest and such Membership
Interest shall constitute an Economic Interest. Upon satisfaction of clauses (i)
and (ii) above, such Person shall be deemed to have been admitted as a Member
and shall be listed as such on the books and records of the Company and
thereupon shall be issued his or its Membership Interest, including any Economic
Interest that corresponds to and is part of such Membership Interest. If an
Additional Interest is issued to an existing Member, the Managing Member or the
Secretary of the Company shall amend Schedule A without the further vote, act or
consent or any other Person to reflect the issuance of such Additional Interest
and, upon the amendment of such Schedule A, such Member shall be issued his or
its Additional Interest, including any Economic Interest that corresponds to and
is part of such Additional Interest.
(c) Rights of a Member. Any substitute Member admitted to the
Company pursuant to the requirements of this Section 3.4 shall succeed to all
rights and be subject to all the obligations of the transferring or assigning
Member with respect to the Membership Interest to which such Member was
substituted.
ARTICLE 4
INTENTIONALLY OMITTED
ARTICLE 5
DISTRIBUTIONS
5.1 Generally. Subject to the provisions of Section 42:2B-42 of the
Act, the Board shall have sole discretion regarding the amounts and timing of
distributions to Members, in each case subject to the retention and
establishment of reserves of, or payment to third parties of, such funds as it
deems necessary with respect to the reasonable business needs of the Company
which shall include the payment or the making of provision for the payment when
due of the Company's obligations, including the payment of any management or
administrative fees and expenses or any other obligations.
5.2 Distributions. (a) Distributions to be made on any date shall be
made in the following order and priority:
(i) First, to the Members in proportion to and to the
extent of their Unpaid Preferred Return;
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(ii) Second, to the Members in proportion to and to
the extent of their Unreturned Preferred Capital; and
(iii) Third, to the Members in proportion to their
Common Units.
(b) Notwithstanding Sections 5.1 (but subject to the
Act) or 5.2(a), the Company shall make a distribution to each Preferred Member
on November 14, 2008 (the "Scheduled Redemption Date") in an amount equal to the
full amount of such Preferred Member's Unpaid Preferred Return and Unreturned
Preferred Capital as of the Scheduled Redemption Date; provided, that if the
maturity date of the Subordinated Notes has been extended pursuant to an
amendment of the Subordinated Notes, the Scheduled Redemption Date shall be
extended to the earlier of (i) the twelve month anniversary of the extended
maturity date under the Subordinated Notes and (ii) November 14, 2011; provided
further, that the Scheduled Redemption shall only be extended one (1) time
pursuant to the terms of this Section 5.2(b).
ARTICLE 6
MANAGEMENT OF THE COMPANY
6.1 Managing Member; Delegation of Authority and Duties.
(a) Except as otherwise required by the Act, the business and
affairs of the Company shall be managed by a Member (the "Managing Member") who
shall at all times be subject to the direction of the Board. Charles Schweitzer
is hereby appointed as the initial Managing Member of the Company and, in such
capacity, shall manage the Company in accordance with this Agreement. The
actions of the Managing Member taken in such capacity and in accordance with
this Agreement shall bind the Company.
(b) Under the direction of the Board the Managing Member shall
have full, exclusive and complete discretion to manage and control the business
and affairs of the Company, to make all decisions affecting the business,
operations and affairs of the Company and to take all such actions as he or it
deems necessary or appropriate to accomplish the purpose of the Company as set
forth herein. Subject to the provisions of this Agreement, the Managing Member
shall have general and active management of the business and operations of the
Company. In addition, the Managing Member shall have such other powers and
duties as may be prescribed by the Board or this Agreement. The Managing Member
shall have the power and authority to delegate to the Executives or other
officers, agents or employees of the Company the Managing Member's rights and
powers to manage and control the business and affairs of the Company, as the
Managing Member may deem appropriate from time to time. Subject to the
limitations set forth herein, the Managing Member may authorize any Person to
enter into and perform under any document on behalf of the Company.
(c) The Board shall have the sole authority to remove the
Managing Member with or without Cause and to replace the removed Managing
Member, and any such removal shall be effective upon the Board's action. If such
Managing Member resigns and the business of the
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Company is continued as provided in Section 12.1(c) hereof, the Board shall have
the sole authority to replace the Managing Member. The Board shall have the sole
authority to terminate the employment of the Executives in accordance with the
terms and conditions of the Employment Agreements, and any such termination
shall be effective upon the Board's action.
(d) The Managing Member may resign at any time by giving
written notice to that effect to the Board. Unless otherwise directed by the
Board, any such resignation shall take effect at the time of the receipt of that
notice or any later effective time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. The effect of such resignation shall be as
set forth in Sections 6.3 and 7.4 below.
6.2 Status of Managing Member; Eligibility to Serve.
(a) Generally. The Managing Member shall be the sole "manager"
(as that term is used in the Act) of the Company, and neither the Advisors nor
the officers of the Company, in such capacity, shall be such "managers." No
Person who is not also a Member may be appointed or serve as the Managing
Member. The Managing Member may be an officer of the Company.
(b) Remuneration. The Managing Member, in his, her or its
capacity as such, shall not be entitled to remuneration for acting in the
Company business. This Section 6.2 shall in no way limit the employment of the
Executives contemplated by the Employment Agreements or the ownership of
Membership Interests by the Executives or any other Managing Member.
6.3 Resignation or Removal of Managing Member. In the event that the
Managing Member resigns or is removed by the Board, upon the resignation or
removal becoming effective, the Membership Interest owned by such Managing
Member shall be terminated except for the portion thereof that constitutes an
Economic Interest (which such Person shall continue to hold), and the former
Managing Member shall cease to be a Member and shall instead be an Economic
Owner with respect to such Economic Interest and thereafter the former Managing
Member shall be deemed a Terminated Member.
6.4 Board of Advisors.
(a) Establishment. There is hereby established a committee
(the "Board") comprised of natural persons (the "Advisors") having the authority
and duties set forth in this Agreement. Any decision to be made by the Board
shall require the approval of a majority of the Advisors.
(b) Number of Advisors; Term of Office. The business and
affairs of the Company shall be managed by or under the direction of the Board.
The authorized number of Advisors shall initially be five (5); provided, that
the number of Advisors can be increased by a vote of 80% of the Advisors;
provided, further that if there is a payment default under the PMI Senior
Indebtedness (as defined in the Securityholders Agreement dated as of the date
hereof) prior to payment in full of the Subordinated Notes, the authorized
number of Advisors shall automatically be increased by one (1). The Advisors
shall, except as hereinafter otherwise provided for filling
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vacancies, be elected at the annual meeting of Members and shall hold office
until their respective successors are elected and qualified or until their
earlier resignation or removal.
(i) The Members may, at any special meeting the notice of
which shall state that it is called for that purpose, remove, with or
without cause, any Advisor and fill the vacancy; provided that whenever
any Advisor shall have been elected by a particular Member or Members
pursuant to the Securityholders Agreement, such Advisor may be removed
and the vacancy filled only by the Members entitled to designate such
Advisor as set forth in the Securityholders Agreement. Vacancies caused
by any such removal and not filled by the Members at the meeting at
which such removal shall have been made, or any vacancy caused by the
death or resignation of any Advisor or for any other reason, and any
newly created advisorship resulting from any increase in the authorized
number of Advisors (and not filled by the Members entitled to designate
such Advisor as set forth in the Securityholders Agreement), may be
filled by the affirmative vote of a majority of the Advisors then in
office, although less than a quorum, and any Advisor so elected to fill
any such vacancy or newly created advisorship shall hold office until
his successor is elected and qualified or until his earlier resignation
or removal; provided, that such Advisor can be removed and replaced by
the Members which have the right to designate such Advisor pursuant to
the Securityholders Agreement.
(ii) When one or more Advisors shall resign effective at a
future date, such vacancy may be filled only by the Members entitled to
designate such Advisor as set forth in the Securityholders Agreement.
Vacancies caused by any such resignation and not filled by the Members
entitled to designate such Advisor, may be filled by the affirmative
vote of a majority of the Advisors then in office, including those who
are so resigning, shall have power to fill such vacancy or vacancies,
the vote thereon to take effect when such resignation or resignations
shall become effective, and each Advisor so chosen shall hold office as
herein provided in connection with the filling of other vacancies;
provided, that such Advisor can be removed and replaced by the Members
which have the right to designate such Advisor pursuant to the
Securityholders Agreement.
(c) Meetings of the Board. The Board shall meet at such time
and at such place as the Board may designate; provided, that the Board shall
meet not less than four (4) times in any twelve (12) month period. Special
meetings of the Board shall be held on the call of any Advisor or the Managing
Member upon at least four (4) days' (if the meeting is to be held in person) or
two (2) days' (if the meeting is to be held by telephone communications) oral or
written notice to the Advisors, or upon such shorter notice as may be approved
by the Advisors. Any Advisor may waive such notice as to himself or herself. A
record shall be maintained of meetings of the Board.
(i) Conduct of Meetings. Any meeting of the Advisors may be
held in person or telephonically.
(ii) Quorum. A majority of the Advisors who are then in office
shall constitute a quorum of the Board for purposes of conducting
business.
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(iii) Unanimous Written Consent. Unless otherwise prohibited
by law, any action to be taken at any meeting of the Board, or by any
committee thereof, may be taken without a meeting if all the members of
the Board or committee, as the case may be, consent thereto in writing
and the writing(s) are filed with the minutes of the proceedings of the
board or committee.
6.5 Officers.
(a) Appointment of Officers. There shall be four senior
officers of the Company as follows (i) Chief Executive Officer and President,
(ii) Executive Vice President and Chief Financial Officer, (iii) Vice President
of Sales and (iv) Vice President of Production. Except as otherwise provided in
this Agreement, the Managing Member may appoint other officers at any time.
(b) Removal, Resignation and Filling of Vacancy of Officers.
The Board may remove any officer of the Company with or without cause at any
time. Any officer may resign at any time by giving written notice to the
Managing Member and the Board. Unless otherwise directed by the Board, any such
resignation shall take effect at the date of the receipt of that notice or any
later time specified in that notice; and, unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary to make it
effective. In the event that an officer resigns or is removed by the Board, upon
the resignation or removal becoming effective, the Membership Interest owned by
such officer shall be terminated except for the portion thereof that constitutes
an Economic Interest (which such Person shall continue to hold subject to the
provisions of the Employment Agreement), and the former officer shall cease to
be a Member and shall instead be an Economic Owner with respect to such Economic
Interest and thereafter the former officer shall be deemed a Terminated Member.
(c) Salaries of Officers. Subject to the provisions of any
Employment Agreements and any other contract to which any officer and the
Company are party, the salaries of all officers of the Company shall be fixed by
a resolution of the Board.
(d) Duties of Officers Generally. The officers, in the
performance of their duties as such, shall owe to the Members duties of loyalty
and due care of the type owed by the officers of a corporation to the
stockholders of such corporation under the laws of the State of New Jersey.
(e) Chief Financial Officer. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Company, including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital and Units. The Chief Financial Officer shall have the
custody of the funds and securities of the Company, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company, and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
Managing Member. The Chief Financial Officer shall have such other powers and
perform such other duties as may from time to time be prescribed by the chief
executive officer or the Managing Member.
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ARTICLE 7
MEMBERS; VOTING RIGHTS
7.1 Meetings. Meetings of Members may be held from time to
time as called by the Managing Member or by a Member holding not less than 20%
of the outstanding Units of any class or series of Units, upon (10) ten days'
written notice (such notice may be waived by a Member in writing or by so
indicating at such meeting) if action of the Members is required to be taken
pursuant to the terms of this Agreement. The Managing Member may, or may appoint
another Member to, (and at least one Member shall), preside at meetings of
Members. A record shall be maintained of meetings of the Members.
(a) Any meeting of the Members may be held in person or
telephonically. Except as otherwise provided herein or by applicable law, a
majority of the Class A Common Units, represented in person or by proxy, shall
constitute a quorum of Members for purposes of conducting business.
(b) Unless otherwise prohibited by law, any action to be taken
at a meeting of the Members may be taken without a meeting if a consent of the
Members in writing, setting forth the action so taken, shall be signed by such
of the Members as shall be required to authorize, approve, ratify or otherwise
consent to such action under the Act and this Agreement; provided, however that
any such action approved by less than unanimous written consent of the Members
shall not be effective until ten (10) days after notice of such action shall
have been provided to Members entitled to vote who have not consented in
writing.
7.2 Voting Matters. Except as specifically provided herein or
otherwise required by applicable law (i) the Class A Members shall be entitled
to one vote per Class A Common Unit held by such Class A Member. Except as
specifically provided herein or otherwise required by applicable law, the Class
B Members and the Preferred Members shall have no right to vote on any matters
to be voted on by the Members of the Company; provided, that the Class B Members
shall have the right to vote each as a separate class on any merger or
consolidation of the Company with or into another entity or entities, or any
recapitalization or reorganization, in which the Class B Common Units (x) would
receive or be exchanged for consideration different on a per Common Unit basis
from consideration received with respect to or in exchange for the Class A
Common or (y) would otherwise be treated differently from the Class A Common
Units in connection with such transaction, except that the Class B Common Units
without such a separate class vote, may receive or be exchanged for nonvoting
securities (except as otherwise required by law) which are otherwise identical
on a per unit basis in amount and form to the voting securities received with
respect to or exchanged for the Class A Common Units so long as (A) such
nonvoting securities are convertible into such voting securities on the same
terms as the Class B Common Units are convertible into Class A Common Units, and
(B) all other consideration is equal on a per Common Unit basis.
7.3 Conversion of Class B Common Units.
(a) Each Class B Member shall be entitled at any time to
convert any or all of the outstanding Class B Common Units held by such Class B
Member into the same number of Class
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A Common Units. A Class B Holder or Class B Holders holding a majority of the
Class B Common Units can cause a conversion of 100% of the Class B Common Units
into the same number of Class A Common Units.
(b) Each conversion of Class B Common Units into Class A
Common Units shall be effected by written notice by such Class B Member to the
Company at its principal office stating that such Class B Member desires to
convert its Class B Common Units into Class A Common Units. Each conversion of
Class B Common Units shall be deemed to have been effected as of the close of
business on the date on which such notice has been received, and at such time
such Class B Common Units shall be deemed to have been cancelled and converted
into Class A Common Units, and at such time the Class A Common Units issuable
upon such conversion shall be deemed to be issued. At such time, the Company
shall promptly provide written notice to all Members of such conversion.
(c) The conversion of Class B Common Units into Class A Common
Units will be made without charge to the Class B Members electing conversion of
any issuance tax in respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of Class A Common
Units.
(d) All Class A Common Units issuable upon any conversion of
Class B Common Units shall, when issued, be duly and validly issued, and free
from all taxes, liens and charges. The Company shall take all such actions as
may be necessary to assure that all such Class A Common Units may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which Class A Common Units
may be listed (except for official notice of issuance which shall be immediately
transmitted by the Company upon issuance).
(e) The Company shall not close its books against the transfer
of Class B Common Units or Class A Common Units in any manner which would
interfere with the timely conversion of Class B Common Units. The Company shall
assist and cooperate with any Class B Holders required to make any governmental
filings or obtain any governmental approval prior to or in connection with any
conversion of Class B Common Units hereunder (including, without limitation,
making any filings required to be made by the Company).
7.4 Withdrawal; Resignation.
(a) Generally. Any Member may resign as a "member" (as that
term is used in the Act) of the Company by written notice to that effect to the
Company, and any such resignation shall be effective at the time such notice is
given or at such later effective time as may be specified in such notice. Unless
otherwise specified in such notice, the acceptance of the resignation shall not
be necessary to make it effective. A Member shall automatically cease to be a
Member as a result of his or its Incapacity. Upon any such resignation or
Incapacity of a Member, such Member becomes a "Terminated Member." Any Member
who is an employee or an officer of the Company or any of its Subsidiaries
(including any Executive) and whose employment with the Company or any of its
Subsidiaries is terminated for any reason shall be deemed a Terminated Member.
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(b) Share of a Terminated Member. In the event that a Member
becomes a Terminated Member, the Membership Interest owned by the Terminated
Member shall be terminated except for the portion thereof which constitutes an
Economic Interest (which such Person shall continue to hold), and such
Terminated Member (or his estate) shall retain such Terminated Member's Units
and Capital Account as adjusted pursuant to the terms hereof, shall be deemed an
Economic Owner only with respect to such Units and Capital Account hereunder and
shall receive allocations and Distributions pursuant to Articles 5 and 12 as if
still a Member.
(c) Effect of Termination. Except as provided in Section
12.1(a), the withdrawal or Incapacity or other termination of a Member shall not
affect the existence of the Company, and the remaining Members shall continue
the business of the Company under the terms of this Agreement. Thereafter, the
Terminated Member shall no longer be a Member for purposes of this Agreement and
shall have no rights, except as otherwise provided herein and shall not be
entitled to participate in any Company decision or determination (including,
without limitation, voting or consent rights with respect to amendments to this
Agreement or otherwise, except as provided herein), and the successors and
assigns of a Terminated Member will acquire only such Terminated Member's
Economic Interest as an Economic Owner.
ARTICLE 8
EXCULPATION AND INDEMNIFICATION
8.1 Performance of Duties; No Liability of Member and
Officers. No Member (including the Managing Member) shall have any duty to the
Company or any Member of the Company except as expressly set forth herein or in
other written agreements. No Member (including the Managing Member), Advisor or
officer of the Company shall be liable to the Company or to any Member for any
loss or damage sustained by the Company or to any Member, unless the loss or
damage shall have been the result of gross negligence, fraud or intentional
misconduct by the Member (including the Managing Member), Advisor or officer in
question. In performing such Person's duties, each such Person shall be entitled
to rely in good faith on the provisions of this Agreement and on information,
opinions, reports or statements (including financial statements and information,
opinions, reports or statements as to the value or amount of the assets,
liabilities, profits or losses of the Company or any facts pertinent to the
existence and amount of assets from which distributions to Members might
properly be paid) of the following other Persons or groups: one or more officers
or employees of the Company; any attorney, independent accountant, appraiser or
other expert or professional employed or engaged by or on behalf of the Company,
the Managing Member, the Board or any committee of the Board; or any other
Person who has been selected with reasonable care by or on behalf of the
Company, the Managing Member, the Board or any committee of the Board in each
case as to matters which such relying Person reasonably believes to be within
such other Person's competence. The preceding sentence shall in no way limit any
Person's right to rely on information to the extent provided in Section 42:2B-31
of the Act. No Member (including the Managing Member), Advisor or officer of the
Company shall be personally liable under any judgment of a court, or in any
other manner, for any debt, obligation or liability of the Company, whether that
liability or obligation arises in contract, tort or otherwise, solely by reason
of being a Member, Advisor or officer of the Company or any combination of the
foregoing.
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8.2 Competing Activities. Except as set forth herein and in
the Employment Agreements or as may otherwise be agreed in writing and subject
to the By-Laws of Serta, Inc.: (a) the Members, Advisors and the officers,
directors, security holders, partners, members, managers, agents, employees and
Affiliates of each of them, may engage or invest in, own and/or manage,
independently or with others, any business activity of any type or description,
including without limitation those that might be in direct or indirect
competition with the Company; (b) neither the Company nor any Member shall have
any right in or to any of such other ventures or activities or to the income or
proceeds derived therefrom; (c) neither the Members nor the Advisors, officers,
directors, securityholders, partners, members, managers, agents, employees or
Affiliates of any of them shall be obligated to present any investment
opportunity or prospective economic advantage to the Company, even if the
opportunity is of the character that, if presented to the Company, could be
taken advantage of by the Company; and (d) the Members, Advisors and the
officers, directors, securityholders, partners, members, managers, agents,
employees and Affiliates of each of them shall have the right to hold any
investment opportunity or prospective economic advantage for their own account
or to recommend such opportunity to Persons other than the Company.
8.3 Right to Indemnification. Subject to the limitations and
conditions as provided in this Article 8, each Person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or arbitrative (hereinafter a "Proceeding"), or any appeal in such a Proceeding
or any inquiry or investigation that could lead to such a Proceeding, by reason
of the fact that such Person, or a Person of which such Person is the legal
representative, is or was a Member, Advisor or officer shall be indemnified by
the Company to the fullest extent permitted by applicable law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment) against judgments, penalties (including excise and similar taxes
and punitive damages), fines, settlements and reasonable expenses (including,
without limitation, reasonable attorneys' fees and expenses) actually incurred
by such Person in connection with such Proceeding, appeal, inquiry or
investigation, and indemnification under this Article 8 shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder; provided, that such Person shall be entitled to
indemnification hereunder only if such Person acted in good faith and in a
manner such Person reasonably believed to be in or not opposed to the best
interest of the Company. The rights granted pursuant to this Article 8 shall be
deemed contract rights, and no amendment, modification or repeal of this Article
8 shall have the effect of limiting or denying any such rights with respect to
actions taken or Proceedings, appeals, inquiries or investigations arising prior
to any amendment, modification or repeal.
8.4 Advance Payment. The right to indemnification conferred in
this Article 8 shall include the right to be paid or reimbursed by the Company
the reasonable expenses incurred by a Person of the type entitled to be
indemnified under Section 8.3 who was, is or is threatened to be, made a named
defendant or respondent in a Proceeding in advance of the final disposition of
the Proceeding and without any determination as to the Person's ultimate
entitlement to indemnification; provided, however, that the payment of such
expenses incurred by any such Person in advance of the final disposition of a
Proceeding shall be made only upon delivery to the Company of a written
affirmation by such Person of his or her good faith belief that he has met the
standard of conduct
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necessary for indemnification under Article 8 and a written undertaking
(acceptable to the Board), by or on behalf of such Person, to repay all amounts
so advanced if it shall ultimately be determined that such indemnified Person is
not entitled to be indemnified under this Article 8 or otherwise.
8.5 Indemnification of Employees and Agents. The Company, at
the direction of the Board, may indemnify and advance expenses to an employee or
agent of the Company to the same extent and subject to the same conditions under
which it may indemnify and advance expenses under Sections 8.3 and 8.4.
8.6 Reimbursement of Fees and Expenses. The Company shall bear
all of the out-of-pocket expenses, including attorneys' and accountants' fees
and expenses, incurred in connection with the organization of the Company and
the operation and maintenance of the Company and its assets and business. The
Company shall reimburse the Members for all fees and expenses borne by them on
behalf of the Company in connection with the Company and its business.
8.7 Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article 8 shall not be
exclusive of any other right that a Member, Advisor, officer or other Person
indemnified pursuant to this Article 8 may have or hereafter acquire under any
law (common or statutory) or provision of this Agreement.
8.8 Insurance. The Company may, but is not obligated to,
purchase and maintain insurance, at its expense, to protect itself and any
Member, Advisor, officer, employee or agent of the Company who is or was serving
at the request of the Company as a manager, director, officer, partner,
venturer, proprietor, trustee, employee, agent, Advisor, or similar functionary
of a foreign or domestic limited liability company, corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise against any expense, liability or loss, whether or not the Company
would have the power to indemnify such Person against such expense, liability or
loss under this Article 8.
8.9 Savings Clause. If this Article 8 or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Company shall nevertheless indemnify and hold harmless each Person
indemnified pursuant to this Article 8 as to costs, charges and expenses
(including reasonable attorneys' fees and expenses), judgments, fines and
amounts paid in settlement with respect to any such Proceeding, appeal, inquiry
or investigation to the full extent permitted by any applicable portion of this
Article 8 that shall not have been invalidated and to the fullest extent
permitted by applicable law.
ARTICLE 9
TAX RETURNS
The Company shall cause to be prepared and filed all necessary
federal and state income tax returns for the Company, consistent with the
treatment of the Company as a corporation for tax purposes, and shall make any
elections the Managing Member may deem appropriate and in the best interests of
the Members. Each Member shall furnish to the Company all pertinent
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information in its possession relating to Company operations that is necessary
to enable the Company's income tax returns to be prepared and filed.
ARTICLE 10
BOOKS, REPORTS AND COMPANY COVENANTS
10.1 Maintenance of Books. The Company shall keep books and
records of accounts in accordance with GAAP and shall keep minutes of the
proceedings of its Members and each committee. The Fiscal Year shall be the
accounting year of the Company for financial reporting purposes.
10.2 Financial Statements and Other Information. The Company
shall, upon the request of any Member who holds more than 5% of the outstanding
Common Units, deliver to such Member:
(a) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each Fiscal Year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the Fiscal Year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the annual budget and to the corresponding period in the
preceding Fiscal Year, and all such statements shall be prepared in accordance
with GAAP, consistently applied, subject to the absence of footnote disclosures
and to normal year-end adjustments, and shall be accompanied by an officer's
certificate;
(b) within 45 days after the end of each quarterly accounting
period in each Fiscal Year, unaudited consolidating and consolidated statements
of income and cash flows of the Company and its Subsidiaries for such quarterly
period, and unaudited consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such quarterly period, setting
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding Fiscal Year, and all such statements shall be prepared
in accordance with GAAP, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments, and shall be
accompanied by an officer's certificate;
(c) within 90 days after the end of each Fiscal Year, audited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such Fiscal Year, and audited consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such Fiscal Year, setting forth in each case comparisons to the annual budget
and to the preceding Fiscal Year, all prepared in accordance with GAAP,
consistently applied, and accompanied by (i) with respect to the consolidated
portions of such statements, an opinion of an independent accounting firm of
recognized national standing, (ii) a certificate from such accounting firm,
addressed to the Board, stating that in the course of its examination nothing
came to its attention that caused it to believe that there was any default by
the Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or
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conditions of any material agreement to which the Company or any Subsidiary is a
party or, if such accountants have reason to believe any default by the Company
or any Subsidiary exists, a certificate specifying the nature and period of
existence thereof, and (iii) a copy of such firm's annual management letter to
the Board;
(d) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(e) at least 30 days prior to the end of each Fiscal Year, an
annual budget prepared on a monthly basis for the Company and its Subsidiaries
for the following Fiscal Year (displaying anticipated statements of income and
cash flows and balance sheets), and following preparation thereof quarterly
revisions of such budget and any other significant budgets prepared by the
Company or its Subsidiaries, and within 30 days after any monthly period in
which there is a material adverse deviation from the annual budget, an officer's
certificate explaining the deviation and what actions the Company has taken and
proposes to take with respect thereto; and
(f) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this Article 10 may reasonably request.
10.3 Inspection of Property. The Company shall permit any
Member, upon written demand under oath stating the purpose therefor, during
normal business hours and such other times as any such holder may reasonably
request, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries.
10.4 Regulatory Compliance Cooperation.
(a) Regulatory Violation. In the event that the Investor or
any of its Affiliates determines that it has a Regulatory Problem (as defined
below), the Company agrees to take all such actions as are reasonably requested
by the Investor in order (i) to effectuate and facilitate any Transfer by the
Investor of any securities of the Company then held by the Investor to any
Person designated by the Investor (ii) to permit the Investor (or any of its
Affiliates) to exchange all or a portion of any voting security then held by it
on a share-for-share basis for shares of a nonvoting security of the Company,
which nonvoting security shall be identical in all respects to the voting
security exchanged for it, except that it shall be nonvoting and shall be
convertible into a voting security on such terms as are requested by the
Investor in light of regulatory considerations then prevailing, and (iii) to
continue and preserve the respective allocation of the voting interests with
respect to the Company provided for in the Securityholders Agreement and with
respect to the Investor's ownership of the Common and Preferred Units. Such
actions may include, but shall not necessarily be limited to entering into such
additional agreements, adopting such amendments to this Agreement and taking
such additional actions as are reasonably requested by the Investor in order
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to effectuate the intent of the foregoing. For purposes of this Agreement, a
"Regulatory Problem" means any set of facts or circumstances wherein it has been
asserted by any governmental regulatory agency (or the Investor believes that
there is a substantial risk of such assertion) that the Investor is not entitled
to hold, or exercise any significant right with respect to, the Common and
Preferred Units.
(b) Use of Proceeds. The Company hereby agrees that: (i) the
Company will provide the Investor with a written summary certified by the
Company's President or Chief Financial Officer describing in reasonable detail
the Company's use of the proceeds received pursuant to the transactions
contemplated by the Recapitalization Agreement (including the intended use of
any such unused proceeds as of the date of such summary) (A) within 75 days of
the date hereof, and (B) at the end of each month thereafter until all of the
proceeds received hereunder have been used by the Company and its Subsidiaries,
and (ii) the Company will repurchase at the request of the Investor the
Membership Interest held by the Investor for an amount equal to the purchase
price thereof (plus any accrued interest or dividends thereon), payable in
immediately available funds, in the event that the Investor determines in its
reasonable good faith judgment that a Regulatory Violation (as defined below)
occurred. In the event of such repurchase, the Company shall pay for such
Membership Interest by a cashier's check, certified check or wire transfer
within 30 days after the Company's receipt of the repurchase request, and upon
such payment, the Investor shall deliver the certificates evidencing the
securities being repurchased.
For purposes of this Agreement, "Regulatory Violation" means
(a) a diversion of the proceeds from the transactions contemplated by the
Recapitalization Agreement described on the use of proceeds statement delivered
by the Company on the date hereof, if such diversion was effected without
obtaining the prior written consent of the Investor (which consent may be
withheld in the Investor's sole discretion) or (b) a change in the principal
business activity of the Company and its Subsidiaries to an ineligible business
activity (within the meaning of the SBIC Regulations), if such change occurs
within one year after the date hereof.
(c) Number of Class A Members. As long as the Investor holds
any Membership Interest, the Company shall notify the Investor (a) at least 15
days prior to taking any action after which the number of Class A Members would
be increased from fewer than 50 to 50 or more, and (b) of any other action or
occurrence after which the number of Class A Members was increased (or would
increase) from fewer than 50 to 50 or more, as soon as practicable after the
Company becomes aware that such other action or occurrence has occurred or is
proposed to occur.
(d) Economic Impact Information. Promptly after the end of
each Fiscal Year (but in any event prior to February 28 of each year) the
Company shall deliver to the Investor a written assessment of the economic
impact of the Investor's investment in the Company, specifying the full-time
equivalent jobs created or retained in connection with the investment, the
impact of the investment on the businesses of the Company in terms of expanded
revenue and taxes, and other economic benefits resulting from the investment,
including but not limited to, technology development or commercialization,
minority business development, urban or rural business development, expansion of
exports.
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10.5 Notice of Developments. The Company will give prompt
written notice to the Investor of any material adverse development causing a
breach of any of the above representations and warranties. No disclosure by the
Company pursuant to this Section 10.5, however, shall prevent or cure any
misrepresentation, breach of warranty, or breach of contract.
10.6 SBA Matters.
(a) Use of Proceeds. The Company, together with its
"affiliates" (as that term is defined in 13 CFR, Section 121.401), is a "small
business concern" within the meaning of the SBIC regulations, including 13 CFR
Section 121.802. The information regarding the Company and its affiliates set
forth in the SBA Form 480, Form 652 and Section A of Form 1031 is accurate and
complete. Copies of such forms shall have been completed by the Company and
delivered to the Investor at the Closing. Neither the Company nor any Subsidiary
presently engages in, or shall hereafter engage in, any activities, nor shall
the Company or any Subsidiary use directly or indirectly the proceeds from the
transactions contemplated by the Recapitalization Agreement for any purpose, for
which an SBIC is prohibited from providing funds by SBIC regulations, including
13 CFR Section 107.804 and Section 107.901.
(b) SBA Forms. The Company shall have delivered to the
Investor prior to the date hereof:
(i) duly completed and executed SBA Forms 480, 652
and Part A of 1031;
(ii) a business plan showing the Company's financial
projections (including balance sheets and income and cash flow statements) for
the period ending December 31, 2001;
(iii) a written statement from the Company regarding
its intended use of the proceeds of the transactions contemplated by the
Recapitalization Agreement; and
(iv) a list, after giving effect to the transactions
contemplated by this Agreement, of (a) the name of each of the Company's
Advisors, (b) the name and title of each of the Company's officers, and (c) the
name of each of the Company's Members setting forth the number and class of
Membership Interests held both prior to and following the consummation of the
Recapitalization Agreement.
10.7 Company Funds. The Company may not commingle the
Company's funds with the funds of any Member or the funds of any Affiliate of
any Member.
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ARTICLE 11
TRANSFER OF INTERESTS
11.1 Restrictions. Other than the Membership Interest Pledge pursuant
to the Credit Agreement, each Member acknowledges that he shall not Transfer any
interest in the Company except in accordance with the provisions of this Article
11. Any attempted Transfer in violation of the preceding sentence shall be
deemed null and void for all purposes, and the Company will not record any such
transfer on its books or treat any purported transferee as the owner of such
interests for any purpose. As used in this Article 11, references to a Transfer
of an "interest" shall mean any Transfer of any Membership Interest or other
Economic Interest or any interest in any portion of a Membership Interest or
Economic Interest.
11.2 General Restrictions on Transfer.
(a) Notwithstanding anything to the contrary in this
Agreement, no transferee of any interest received pursuant to a Transfer (but
excluding transferees that were Members immediately prior to such a Transfer,
who shall automatically become Members with respect to any additional interests
they so acquire) shall become a Member in respect of the interest so transferred
unless a Person is admitted as a Member as set forth in Section 3.4(b).
(b) No Transfer of a Membership Interest in the Company shall
be effective unless and until (i) written notice (including the name and address
of the purchaser or donee and the date of such Transfer) has been provided to
the Company and the non-transferring Member(s) and (ii) the transferee executes
a form of this Agreement or an amendment hereto in form and substance reasonably
satisfactory to the Board. No transferee of a Member's Membership Interest (or
any interest therein) may further Transfer such interest without complying with
the provisions of this Article 11.
(c) Following a Transfer of an interest that is permitted
under this Article 11, the transferee of such interest shall be treated as
having made all of the Capital Contributions in respect of, and received all of
the distributions received in respect of, such interest, shall succeed to the
Capital Account associated with such interest and shall receive allocations and
distributions under Articles 5 and 12 in respect of such interest as if such
transferee were a Member.
(d) Any Member who Transfers all of his interest in the
Company shall (i) cease to be a Member upon such Transfer, (ii) shall no longer
possess or have the power to exercise any rights or powers of a Member of the
Company and (iii) shall be deemed a Terminated Member.
11.3 Procedure for Transfers. Subject in all events to the general
restrictions on transfers contained in Sections 11.1 and 11.2, a Person may
Transfer all or any part of its Economic Interest in the Company in accordance
with this Section 11.3.
(a) No Transfer may be completed until the prospective
transferee executes and delivers to the Company and the other Members an
agreement to be bound by this Agreement in form and substance reasonably
acceptable to the Board. In addition, the Board may require the
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transferor and the transferee to execute, acknowledge and deliver to the
Company, for the benefit of the remaining Members, such instruments of transfer,
assignment and assumption and such other certificates, representations and
documents, and to perform all such other acts which the Board may deem necessary
or desirable to:
(i) ensure that such transferee will become an
Economic Owner;
(ii) preserve the Company after the completion of
such sale, transfer, assignment, or substitution under the laws of each
jurisdiction in which the Company is qualified, organized or does business;
(iii) maintain the status of the Company as a
corporation for federal income tax purposes; and
(iv) assure compliance with any applicable state and
federal laws including securities laws and regulations.
Each Member agrees that, if it is a transferor, upon request of the Board it
shall indemnify the Company and the remaining Members against any and all loss,
damage, or expense (including, without limitation, tax liabilities or loss of
tax benefits) arising directly or indirectly as a result of any Transfer or
purported Transfer in violation of this Section 11.
(b) In connection with the Transfer of any Restricted
Securities, the holder thereof will deliver written notice to the Company
describing in reasonable detail the Transfer or proposed Transfer. In addition,
if the holder of such Restricted Securities delivers to the Company an opinion
of such counsel that no subsequent Transfer of such Restricted Securities will
require registration under the Securities Act, the Company will promptly upon
such contemplated Transfer deliver new certificates or instruments, as the case
may be, for such Restricted Securities which do not bear the restrictive legend
relating to the Securities Act as set forth below. If the Company is not
required to deliver new certificates or instruments, as the case may be, for
such Restricted Securities not bearing such legend, the holder thereof will not
Transfer the same until the prospective transferee has confirmed to the Company
in writing its agreement to be bound by the conditions contained in this Section
11.3.
11.4 Prospective Transferees. Subject to the terms of this Agreement,
the Company, the Managing Member and each Executive agree to cooperate, as may
reasonably be requested, in order to provide any information and access to any
information to any prospective transferee in connection with a proposed
Transfer.
11.5 Legend. The certificates representing the Units will bear the
following legend:
"THE UNITS REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED AS OF NOVEMBER 14, 1996, HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
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REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE TRANSFER OF THE UNITS REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN
A LIMITED LIABILITY COMPANY OPERATING AGREEMENT, GOVERNING THE
ISSUER (THE "COMPANY") AND BY AND AMONG CERTAIN INVESTORS. A
COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
11.6 Transfer Fees and Expenses. The transferor and transferee of any
Membership Interest or Economic Interest shall be jointly and severally
obligated to reimburse the Company for all reasonable expenses (including
attorneys' fees and expenses) of any Transfer or proposed Transfer, whether or
not consummated.
11.7 Limitations. Notwithstanding anything to the contrary in this
Agreement, no Unit or Economic Interest may be transferred if such transfer
would result in the Company having more than 100 "beneficial owners" as defined
and determined by the Investment Company Act of 1940, as amended from time to
time.
ARTICLE 12
DISSOLUTION AND LIQUIDATION
12.1 Events Causing Dissolution.
(a) The Company shall continue in full force and effect,
except that the Company shall be dissolved prior thereto upon the happening of
any of the following events or by operation of law:
(i) the Company shall be dissolved upon the written
consent of all Members or the entry of a decree of judicial dissolution under
Section 42:2B-49 of the Act; and
(ii) any event which shall make it unlawful for the
existence of the Company to be continued.
(b) In the event of a Bankruptcy of a Member that does not
cause the Company to dissolve as provided in subsection (a), such Member shall
cease to be a Member for all purposes hereunder unless upon the Consent of the
Members, such Bankrupt Member is permitted to remain a Member hereunder.
(c) The death, retirement, resignation, expulsion, incapacity,
Bankruptcy or dissolution of a Member, or the occurrence of any other event that
terminates the continued membership of a Member in the Company, shall not cause
a dissolution of the Company, and the Company shall continue in existence
subject to the terms and conditions of this Agreement.
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12.2 Liquidation and Termination. On dissolution of the Company, the
Managing Member or such other or additional Member or Members as designated by
the Board shall act as liquidator(s). The liquidator(s) shall proceed diligently
to wind up the affairs of the Company and make final distributions as provided
herein and in the Act. The costs of liquidation shall be borne as a Company
expense. Until final distribution, the liquidator(s) shall continue to operate
the Company properties with all of the power and authority of Managing Member
and Members, subject to the power of the Board to remove and replace such
liquidator(s). The steps to be accomplished by the liquidator(s) are as follows:
(a) As promptly as possible after dissolution and again after
final liquidation, the liquidator(s) shall cause a proper accounting to be made
by a recognized firm of certified public accountants of the Company's assets,
liabilities and operations through the last day of the calendar month in which
the dissolution occurs or the final liquidation is completed, as applicable.
(b) The liquidator(s) shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and obligations of the Company
(including, without limitation, all expenses incurred in liquidation) or
otherwise make adequate provision for payment and discharge thereof (including,
without limitation, the establishment of a cash fund for contingent liabilities
in such amount and for such term as the liquidator may reasonably determine).
(c) All remaining assets of the Company shall be distributed
to the Members in accordance with Section 5.2(a) hereof by the end of the
taxable year of the Company during which the liquidation of the Company occurs
(or, if later, 90 days after the date of the liquidation).
The liquidator(s) shall cause only cash and securities to be distributed in any
liquidation. The distribution of cash and/or property to a Member in accordance
with the provisions of this Section 12.2 constitutes a complete return to the
Member of its Capital Contributions and a complete distribution to the Member of
its interest in the Company and all the Company's property and constitutes a
compromise to which all Members have consented within the meaning of the Act. To
the extent that a Member returns funds to the Company, it has no claim against
any other Member for those funds.
12.3 Cancellation of Certificate. On completion of the
distribution of Company assets as provided herein, the Company is terminated,
and shall file a certificate of cancellation of the Company pursuant to Section
42:2B-14(b) of the Act and take such other actions as may be necessary to
terminate the Company.
ARTICLE 13
GENERAL/MISCELLANEOUS PROVISIONS
13.1 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be given either by
depositing that writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering that
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<PAGE> 35
writing to the recipient in person, by courier, or by facsimile transmission;
and a notice, request, or consent given under this Agreement is effective on
receipt by the Person who receives it. All notices, requests and consents to be
sent to a Member must be sent to or made at the address (or facsimile number)
given for that Member on Schedule A, or such other address (or facsimile number)
as that Member may specify by notice to the other Members. Any notice, request
or consent to the Company or the Managing Member must be given to the Managing
Member or, if appointed, the Secretary of the Company at the Company's chief
executive offices. Whenever any notice is required to be given by law or this
Agreement, a written waiver thereof, signed by the Person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
13.2 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW
YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING INTERPRETATION OF THE LAWS
GOVERNING LIMITED LIABILITY COMPANIES SHALL BE GOVERNED BY THE ACT.
13.3 Certificates of Units.
(a) Every holder of Units in the Company shall be entitled to
have a certificate, signed by, or in the name of the Company, by the president
and a vice-president of the Company, certifying the number of Units owned by
such holder in the Company. In case any officer(s) who have signed any such
certificate(s) shall cease to be such officer(s) of the Company whether because
of death, resignation or otherwise before such certificate(s) have been
delivered by the Company, such certificate(s) may nevertheless be issued and
delivered as though the Person or Persons who signed such certificate(s) had not
ceased to be such officer(s) of the Company. All certificates for Units shall be
consecutively numbered or otherwise identified. The name of the Person to whom
the Units represented thereby are issued, with the number of Units and date of
issue, shall be entered on the books of the Company. Units of the Company shall
only be transferred on the books of the Company by the holder of record thereof
or by such holder's attorney duly authorized in writing, upon surrender to the
Company of the certificate(s) for such Units endorsed by the appropriate
Person(s), with such evidence of the authenticity of such endorsement, transfer,
authorization, and other matters as the Company may reasonably require, and
accompanied by all necessary transfer stamps. In that event, it shall be the
duty of the Company to issue a new certificate to the Person entitled thereto,
cancel the old certificate(s), and record the transaction on its books. The
Board may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both
in connection with the transfer of any class or series of securities of the
Company.
(b) The Board may direct a new certificate(s) to be issued in
place of any certificate(s) previously issued by the Company alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the Person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate(s), the Board may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed
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<PAGE> 36
certificate(s), or his or her legal representative, to give the Company a bond
sufficient to indemnify the Company against any claim that may be made against
the Company on account of the loss, theft or destruction of any such certificate
or the issuance of such new certificate.
13.4 Entire Agreement. This Agreement, together with the
Securityholders Agreement, the Recapitalization Agreement, and the Employment
Agreements and the Warrant, each dated as of the date hereof, constitutes the
entire agreement of the Members relating to the Company and supersedes all prior
contracts or agreements with respect to the Company, whether oral or written.
13.5 Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by that
Person of its obligations hereunder or with respect to the Company is not a
consent or waiver to or of any other breach or default in the performance by
that Person of the same or any other obligations of that Person hereunder or
with respect to the Company. Failure on the part of a Person to complain of any
act of any Person or to declare any Person in default hereunder or with respect
to the Company, irrespective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that default
until the applicable statute-of-limitations period has run.
13.6 Amendment or Modification. This Agreement and any provision hereof
may be amended or modified from time to time only by a written instrument
adopted by the Board; provided, however, that: (a) except as otherwise expressly
provided herein, an amendment or modification (other than amendments or
modifications adding new classes of interests or issuing Additional Interests)
reducing disproportionately a Member's Units or other interest in profits or
losses or in distributions or increasing a Member's Capital Contribution, or
otherwise disproportionately affecting the rights of such Member, shall be
effective only with that Member's consent, (b) an amendment or modification
reducing the required interest for any consent or vote in this Agreement shall
be effective only with the consent or vote of Members or the Board having the
interest theretofore required, and (c) no subdivision, reclassification or
amendment of any class or series of Units, including, without limitation, the
definitions thereof, shall be effective without the prior approval of a majority
of the Class A Members, the Class B Members and the Preferred Members, in each
case voting as a separate class.
13.7 Binding Effect. Subject to the restrictions on Transfers set forth
in this Agreement, this Agreement is binding on and shall inure to the benefit
of the Members and their respective heirs, legal representatives, successors and
permitted assigns.
13.8 Power of Attorney. Each Member hereby irrevocably constitutes and
appoints the Managing Member his or its true and lawful attorney-in-fact and
agent with full power and authority to act in his name, place and stead to
execute, acknowledge, swear to, deliver, file, record and publish any document
required to be filed on behalf of the Company:
(a) to qualify or continue the Company as a limited liability
company;
(b) to accomplish the purposes and carry out the powers of the
Company as set forth in this Agreement;
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(c) to effect the dissolution and termination of the Company;
or
(d) to effect transfers, admissions, withdrawals and
substitution of Members as specifically provided under the terms of this
Agreement, including any amendment to Schedule A necessary to reflect the same.
No person shall take any action as an attorney-in-fact of any Member which would
in any way increase the liability of such Member beyond the liability expressly
set forth in this Agreement. This power of attorney is coupled with an interest
and shall be irrevocable.
13.9 Indemnification and Reimbursement for Payments on Behalf of a
Member. If the Company is obligated to pay any amount to a governmental agency
(or otherwise makes a payment) because of a Member's status or otherwise
specifically attributable to a Member (including, without limitation, federal,
state or local withholding taxes imposed with respect to any issuance of Units
or other interests to a Member or any payments to a Member, federal withholding
taxes with respect to foreign Persons, state personal property taxes, state
unincorporated business taxes, etc.), then such Member (the "Indemnifying
Member") shall indemnify the Company in full for the entire amount paid
(including, without limitation, any interest, penalties and expenses associated
with such payments). The amount to be indemnified shall be charged against the
Capital Account of the Indemnifying Member, and, at the option of the Board,
either:
(i) promptly upon notification of an obligation to indemnify
the Company, the Indemnifying Member shall make a cash payment to the
Company equal to the full amount to be indemnified (and the amount paid
shall be added to the Indemnifying Member's Capital Account but shall
not be treated as a Capital Contribution), or
(ii) the Company shall reduce distributions that would
otherwise be made to the Indemnifying Member, until the Company has
recovered the amount to be indemnified (provided that the amount of
such reduction shall be deemed to have been distributed for all
purposes of this Agreement, but such deemed distribution shall not
further reduce the Indemnifying Member's Capital Account).
An Indemnifying Member's obligation to make contributions to the Company under
this Section 13.9 shall survive the termination, dissolution, liquidation and
winding up of the Company and, for purposes of this Section 13.9, the Company
shall be treated as continuing in existence. The Company may pursue and enforce
all rights and remedies it may have against each Indemnifying Member under this
Section 13.9, including instituting a lawsuit to collect such contribution with
interest calculated at prime rate plus five percentage points per annum (but not
in excess of the highest rate per annum permitted by law).
13.10 Consent to Jurisdiction. Each Member irrevocably submits to the
jurisdiction of any state or federal court sitting in New York, New York for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby. Each Member further agrees that service
of any process, summons, notice or document by U.S. certified or registered mail
to such Member's respective address set forth on Schedule A shall be effective
service of process in any action, suit or proceeding in New York with respect to
any matters to which
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it has submitted to jurisdiction as set forth above in the immediately preceding
sentence. Each Member irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in any state or federal court
sitting in New York, New York, and hereby irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in such court has been brought in an inconvenient forum.
13.11 WAIVER OF JURY TRIAL. EACH MEMBER HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY WITH RESPECT TO ANY LITIGATION WHICH ARISES OUT OF, OR WHICH IS
RELATED TO, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
13.12 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original for all purposes, but all of
which taken together shall constitute only one agreement. The production of any
executed counterpart of this Agreement shall be sufficient for all purposes
without producing or accounting for any other counterpart thereof.
13.13 Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision or provisions herein
(a) are determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid or (b) would cause any Member to be bound by the
obligations of the Company under the laws of any state or locale as the same may
now or hereafter exist, such provision or provisions shall be deemed void and of
no effect.
13.14 Headings. All section headings or captions contained in this
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement.
13.15 Parties in Interest. Nothing herein shall be construed to be to
the benefit of or enforceable by any third party including, but not limited to,
any creditor of the Company.
13.16 Further Assurances. The Members will execute and deliver such
further instruments and do such further acts and things as may be required to
carry out the intent and purposes of this Agreement.
13.17 Specific Performance; Remedies. The Company and the Members shall
be entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement
(including costs of enforcement) and to exercise any and all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company or any Member may in its or his sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance or injunctive relief (without posting a bond or other security) in
order to enforce or prevent any violation or threatened violation of the
provisions of this Agreement. No remedy conferred upon or reserved to the
Company or any Member by this Agreement is intended to be exclusive of any other
remedy. Each and every such remedy shall be cumulative and shall be in addition
to any other remedy given to the Company or any Member hereunder or now or
hereafter existing at law or in equity or by statute.
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* * * * *
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<PAGE> 40
IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year first above written.
SLEEPMASTER L.L.C.
By: /s/ Charles Schweitzer
_______________________________
Name: Charles Schweitzer
Title: President and Chief
Executive Officer
SLEEPMASTER HOLDINGS L.L.C.
By: /s/ Charles Schweitzer
_______________________________
Name: Charles Schweitzer
Managing Member
SLEEP INVESTOR L.L.C.
By: /s/ John Weber
_______________________________
Name: John Weber
Title: Vice President of CVC,
it Managing Member
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<PAGE> 41
EXECUTION COPY
AMENDMENT NO. 1 TO THE SLEEPMASTER
L.L.C. AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
This AMENDMENT NO. 1 TO THE SLEEPMASTER L.L.C AMENDED AND
RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT (this "Amendment") is
dated as of May 12, 1999.
Sleepmaster, L.L.C., Sleepmaster Holdings, L.L.C. and Sleep
Investor, L.L.C. are parties to a certain Sleepmaster L.L.C. Amended and
Restated Limited Liability Company Operating Agreement dated as of November 14,
1996 (the "Sleepmaster L.L.C. Agreement"). Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in the
Sleepmaster L.L.C. Agreement.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, the parties hereto agree as follows:
7. Amendments to the Sleepmaster L.L.C. Agreement. Pursuant to
Section 13.6 of the Sleepmaster L.L.C. Agreement, the Sleepmaster L.L.C.
Agreement is hereby amended as follows:
Section 5.2(b) is hereby amended by deleting the date
"November 14, 2008" appearing in the second line thereof and substituting
"November 14, 2009" therefor.
8. Miscellaneous.
(a) This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which,
when taken together, shall constitute one and the same instrument.
(b) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE
TO THE CHOICE OF LAW OR CONFLICTS OF LAW PRINCIPLES THEREOF.
(c) Except as amended hereby, the Sleepmaster L.L.C.
Agreement shall remain in full force and effect.
(d) Time is of the essence for each and every
provision of this Agreement.
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<PAGE> 42
IN WITNESS WHEREOF, the Parties hereto have caused this
Amendment to be duly executed as of the date and year first above written.
Sleepmaster Holdings L.L.C.
By: /s/ James P. Koscica
Name: James P. Koscica
Title: Executive Vice President
Sleep Investor L.L.C.
By: /s/ James P. Koscica
Name: James P. Koscica
Title: Executive Vice President
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
SLEEPMASTER FINANCE CORPORATION
ARTICLE ONE
The name of the corporation is Sleepmaster Finance Corporation
(hereinafter called the "Corporation").
ARTICLE TWO
The address of the Corporation's registered office in the
state of Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in the City
of Wilmington, County of New Castle. The name of its registered agent at such
address is Corporation Service Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE FOUR
The total number of shares which the Corporation shall have
the authority to issue is One Thousand (1,000) shares, all of which shall be
shares of Common Stock, with a par value of $0.01 (One Cent) per share.
ARTICLE FIVE
The name and mailing address of the incorporator is as
follows:
Name Address
Laura-Jayne Urso c/o Kirkland & Ellis
153 East 53rd Street
39th Floor
New York, NY 10022
<PAGE> 2
ARTICLE SIX
The directors shall have the power to adopt, amend or repeal
By-Laws, except as may be otherwise be provided in the By-Laws.
ARTICLE SEVEN
The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of the State of Delaware.
ARTICLE EIGHT
Section 1. Nature of Indemnity. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he (or a person of whom
he is the legal representative), is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent which it is empowered to do so by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as provided
in Section 2 of this Article Eight, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article Eight shall
be a contract right and, subject to Sections 2 and 5 of this Article Eight,
shall include the right to payment by the Corporation of the expenses incurred
in defending any such proceeding in advance of its final disposition. The
Corporation may, by action of the Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and
Officers. Any indemnification of a director or officer of the Corporation under
Section 1 of this Article
2
<PAGE> 3
Eight or advance of expenses under Section 5 of this Article Eight shall be made
promptly, and in any event within 30 days, upon the written request of the
director or officer. If a determination by the Corporation that the director or
officer is entitled to indemnification pursuant to this Article Eight is
required, and the Corporation fails to respond within sixty days to a written
request for indemnity, the Corporation shall be deemed to have approved the
request. If the Corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within 30 days, the right to indemnification or
advances as granted by this Article Eight shall be enforceable by the director
or officer in any court of competent jurisdiction. Such person's costs and
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation Law
of the State of Delaware for the Corporation to indemnify the claimant for the
amount claimed, but the burden of such defense shall be on the Corporation.
Neither the failure of the Corporation (including the Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the General Corporation Law of the State of Delaware, nor
an actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Section 3. Nonexclusivity of Article Eight. The rights to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Article Eight shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may purchase and
maintain insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the Corporation would have the power
to indemnify such person against such liability under this Article Eight.
3
<PAGE> 4
Section 5. Expenses. Expenses incurred by any person described
in Section 1 of this Article Eight in defending a proceeding shall be paid by
the Corporation in advance of such proceeding's final disposition unless
otherwise determined by the Board of Directors in the specific case upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
Section 6. Employees and Agents. Persons who are not covered
by the foregoing provisions of this Article Eight and who are or were employees
or agents of the Corporation, or who are or were serving at the request of the
Corporation as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, may be indemnified to the extent authorized
at any time or from time to time by the Board of Directors.
Section 7. Contract Rights. The provisions of this Article
Eight shall be deemed to be a contract right between the Corporation and each
director or officer who serves in any such capacity at any time while this
Article Eight and the relevant provisions of the General Corporation Law of the
State of Delaware or other applicable law are in effect, and any repeal or
modification of this Article Eight or any such law shall not affect any rights
or obligations then existing with respect to any state of facts or proceeding
then existing.
Section 8. Merger or Consolidation. For purposes of this
Article Eight, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
Eight with respect to the resulting or surviving corporation as he or she would
have with respect to such constituent corporation if its separate existence had
continued.
4
<PAGE> 5
ARTICLE NINE
The Corporation reserves the right to amend or repeal any
provisions contained in this Certificate of Incorporation from time to time and
at any time in the manner now or hereafter prescribed by the laws of the State
of Delaware, and all rights conferred upon stockholders and directors are
granted subject to such reservation.
5
<PAGE> 6
I, the undersigned, being the sole incorporator hereinbefore
named, for the purpose of forming a corporation in pursuance of the General
Corporation Law of the State of Delaware, do make and file this Certificate,
hereby declaring and certifying that the facts herein stated are true, and
accordingly have hereunto set my hand this 30th of April 1999.
/s/ Laura-Jayne Urso
---------------------------
Laura-Jayne Urso
Sole Incorporator
6
<PAGE> 1
EXHIBIT 3.4
EFFECTIVE: April 30, 1999
BY-LAWS
OF
SLEEPMASTER FINANCE CORPORATION
A DELAWARE CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be located at 1013 Centre Road, Wilmington
Delaware 19805, in the County of New Castle. The name of the corporation's
registered agent at such address shall be Corporation Service Company. The
registered office and/or registered agent of the corporation may be changed from
time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. The date,
time and place of the annual meeting may be determined by resolution of the
board of directors or as set by the president of the corporation.
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose (including, without limitation, the filling of board
vacancies and newly created directorships), and may be held at such time and
place, within or without the State of Delaware, as shall be stated in a notice
of meeting or in a duly executed waiver of notice thereof. Such meetings may be
called at any time by five or more members of the board of directors and shall
be called by the president upon the written request of holders of shares
entitled to cast not less than fifty percent (50%) of the outstanding shares of
any series or class of the corporation's Capital Stock.
<PAGE> 2
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the board of directors, the president or the secretary, and if mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. Except as otherwise provided by applicable law or by
the Certificate of Incorporation, a majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time in accordance with Section
7 of this Article, until a quorum shall be present or represented.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment
<PAGE> 3
a new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 8. Vote Required. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law, the certificate of incorporation, or any contractual arrangement
a different vote is required, in which case such express provision shall govern
and control the decision of such question. Where a separate vote by class is
required, the affirmative vote of the majority of shares of such class present
in person or represented by proxy at the meeting shall be the act of such class.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him, her or
it by proxy. Every proxy must be signed by the stockholder granting the proxy or
by his, her or its attorney-in-fact. No proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
Section 11. Action by Written Consent. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than a majority of
the shares entitled to vote, or, if greater, not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in the state
of Delaware, or the corporation's principal place of business, or an officer or
agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested provided, however, that no consent or consents
delivered by certified or registered mail shall be deemed delivered until such
consent or consents are actually
<PAGE> 4
received at the registered office. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered to the
corporation as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action are so recorded.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. Any action taken pursuant to such written consent or
consents of the stockholders shall have the same force and effect as if taken by
the stockholders at a meeting thereof.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the board shall be seven (7), which number may be
increase or decreased from time to time by resolution of the board. The
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote in the
election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article III. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors;
provided however, whenever the holders of any class or series are entitled to
elect one or more directors by the provisions of the corporation's certificate
of incorporation, the provisions of this section shall apply, in respect to the
removal without cause or a director or directors so elected, to the vote of the
holders of the outstanding shares of that class or series and not to the vote of
the outstanding shares as a whole; provided further, in the event any of the
stockholders of the corporation have entered into an agreement which provides
for the manner in which the directors of the corporation are to be elected, and
such stockholders have so caused the election of such directors, a director(s)
may be removed from the board of directors only in accordance with such
agreement (as the same may be amended from time to time, the "Stockholders
Agreement"), for so long as (i) such agreement has been filed with the
corporation and (ii) has not been terminated. Any director may resign at any
time upon written notice to the corporation.
Section 4. Vacancies. Except as otherwise provided by the certificate
of incorporation of the corporation or any amendments thereto, vacancies and
newly created directorships resulting from any increase in the authorized number
of directors may be
<PAGE> 5
filled by a majority vote of the holders of the corporation's outstanding stock
entitled to vote thereon. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected
board of directors shall be held without other notice than this bylaw
immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president or vice president on at least 24 hours notice to each
director, either personally, by telephone, by mail, or by telegraph; in like
manner and on like notice the president must call a special meeting on the
written request of at least a majority of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the board of directors. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these bylaws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee(s) shall have such name(s) as may be determined from time to time by
resolution adopted by the board of directors. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors when
required.
Section 9. Committee Rules. Each committee of the board of directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member(s) thereof present at any meeting and not disqualified
from voting, whether or not such member(s) constitute a quorum, may unanimously
appoint
<PAGE> 6
another member of the board of directors to act at the meeting in place of any
such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of
the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by
the corporation's certificate of incorporation, any action required or permitted
to be taken at any meeting of the board of directors, or of any committee
thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing(s)
are filed with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by
the board of directors and shall consist of a chairman, if any is elected, a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. Any number of offices may be held by the same person, except
that no person may simultaneously hold the office of president and secretary. In
its discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. The president shall appoint other officers to serve for such terms as he
or she deems desirable. Vacancies may be filled or new offices created and
filled at any meeting of the board of directors.
<PAGE> 7
Each officer shall hold office until a successor is duly elected and qualified
or until his or her earlier death, resignation or removal as hereinafter
provided.
Section 3. Removal. Any officer or agent elected by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. The Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be a member of the board, an officer of the
Corporation, and, if present, shall preside at each meeting of the board of
directors or shareholders. He shall advise the president, and in the president's
absence, other officer of the Corporation, and shall perform such other duties
as may from time to time be assigned to him by the board of directors.
Section 7. The President. The president shall be the chief executive
officer of the corporation. In the absence of the Chairman of the Board or if a
Chairman of the Board shall have not been elected, the president shall preside
at all meetings of the stockholders and board of directors at which he or she is
present; subject to the powers of the board of directors, shall have general
charge of the business, affairs and property of the corporation, and control
over its officers, agents and employees; and shall see that all orders and
resolutions of the board of directors are carried into effect. The president
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board of directors to some other officer or
agent of the corporation. The president shall have such other powers and perform
such other duties as may be prescribed by the board of directors or as may be
provided in these by-laws.
Section 8. Vice-presidents. The vice-president, if any, or if there
shall be more than one, the vice-presidents in the order determined by the board
of directors shall, in the absence or disability of the president, act with all
of the powers and be subject to all the restrictions of the president. The
vice-presidents shall also perform such other duties and have such other powers
as the board of directors, the president or these by-laws may, from time to
time, prescribe.
<PAGE> 8
Section 9. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these by-laws or by law; shall have such powers
and perform such duties as the board of directors, the president or these
by-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his or her signature. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by the
board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
president, or secretary may, from time to time, prescribe.
Section 10. The Treasurer and Assistant Treasurer. The treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the president and the board of directors, at its regular meeting
or when the board of directors so requires, an account of the corporation; shall
have such powers and perform such duties as the board of directors, the
president or these by-laws may, from time to time, prescribe. If required by the
board of directors, the treasurer shall give the corporation a bond (which shall
be rendered every six years) in such sums and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful performance of
the duties of the office of treasurer and for the restoration to the
corporation, in case of death, resignation, retirement, or removal from office,
of all books, papers, vouchers, money, and other property of whatever kind in
the possession or under the control of the treasurer belonging to the
corporation. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall in
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the president or
treasurer may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
<PAGE> 9
Section 12. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, the president or a vice-president and the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by such holder in the corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
corporation or its employee or (2) by a registrar, other than the corporation or
its employee, the signature of any such chairman of the board, president,
vice-president, secretary, or assistant secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
corporation. Shares of stock of the corporation shall only be transferred on the
books of the corporation by the holder of record thereof or by such holder's
attorney duly authorized in writing, upon surrender to the corporation of the
certificate or certificates for such shares endorsed by the appropriate person
or persons, with such evidence of the authenticity of such endorsement,
transfer, authorization, and other matters as the corporation may reasonably
require, and accompanied by all necessary stock transfer stamps. In that event,
it shall be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate or certificates, and record the
transaction on its books. The board of directors may appoint a bank or trust
company organized under the laws of the United States or any state thereof to
act as its transfer agent or registrar, or both in connection with the transfer
of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may,
<PAGE> 10
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen, or destroyed certificate or certificates, or his
or her legal representative, to give the corporation a bond sufficient to
indemnify the corporation against any claim that may be made against the
corporation on account of the loss, theft or destruction of any such certificate
or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not
<PAGE> 11
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other
orders for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer
or officers, or any agent or agents, of the corporation to enter into any
contract or to execute and
<PAGE> 12
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
<PAGE> 13
Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these by-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by a majority vote. The fact
that the power to adopt, amend, alter, or repeal the by-laws has been conferred
upon the board of directors shall not divest the stockholders of the same
powers.
<PAGE> 1
EXHIBIT 3.5
ARTICLES OF INCORPORATION
OF
PALM BEACH BEDDING COMPANY
We, the undersigned, hereby associate ourselves together for
the purpose of becoming a corporation under the laws of the State of Florida, by
and under the provisions of the statutes of the State providing for the
formation, liability, rights, privileges and immunities of a corporation for
profit.
ARTICLE I.
Corporate Name.
The name of this corporation is PALM BEACH BEDDING COMPANY
(hereinafter referred to as the "corporation").
ARTICLE II.
Nature of Business.
The general nature of the business and objects and purposes
proposed to be transacted, promoted or carried on are to do any and all of the
things hereinafter mentioned, as fully and to the same extent as natural persons
might or could do, viz:
A. To engage in the business of the manufacture and sale of
all types of bedding for wholesale and retail consumption; to purchase and
manufacture all necessary items of equipment pertinent for the construction of
all types of bedding and mattresses; to manufacture and purchase any and all raw
materials necessary for the manufacture of such bedding and mattresses; to
engage in the purchase, sale and manufacture of cotton felt batts; to
<PAGE> 2
engage in the manufacture, sale and purchase of cotton felt; to buy, sell,
lease, mortgage and any all equipment necessary for the accomplishment of the
manufacture of such cotton felt.
1. To buy, sell, manufacture, repair, alter and exchange, let
or hire, export and deal in all kinds of articles and things which may be
required for the purposes of any of the said businesses, or commonly supplied or
dealt in by persons engaged in any such businesses, or which may seem capable of
being profitably dealt with in connection with any of the said businesses.
2. To guarantee, to acquire by purchase, subscription or
otherwise, hold for investment, or otherwise, sell, assign, transfer, mortgage,
pledge or otherwise dispose of the shares of the capital stock of, or any bonds,
securities or evidences of indebtedness created by any other corporation or
corporations of the State of Florida, or any other state or government, domestic
or foreign; and while the owner of any such stocks, bonds, securities or
evidences of indebtedness, to exercise all the rights, powers and privileges of
ownership, including the right to vote thereon for any and all purposes; to aid
by loan, subsidy, guaranty, or in any other manner whatsoever so far as the same
my be permitted in the case of corporations organized under the General
Corporation Laws of the State of Florida, any corporation whose stocks, bonds,
securities or other obligations are or may be in any manner and at any time
owned, held or guaranteed, and to do any and all other acts or things for the
preservation, protection, improvement or enhancement in value of any such
stocks, bonds, securities or other obligations; and to do all and any such acts
or things designed to accomplish any such purpose.
3. To borrow money and contract debts when necessary for the
transaction of its business or for the exercise of its corporate rights,
privileges or franchises, or for any other lawful purpose of its incorporation;
to issue bonds, promissory notes, bills of
-2-
<PAGE> 3
exchange, debentures and other obligations and evidences of indebtedness payable
at a specified time or times, or payable upon the happening of a specified event
or events, secured or unsecured, from time to time, for moneys borrowed, on in
payment for property acquired, or for any of the other objects or purposes of
the corporation or for any of the objects of its business; to secure the same by
mortgage or mortgages, or deed or deeds of trust, or pledge or other lien upon
any or all of the property, rights, privileges or franchises of the corporation,
wheresoever situated, acquired or to be acquired; and to confer upon the holder
of any debentures, bonds or other evidences indebtedness of the corporation,
secured or unsecured, the right to convert the principal thereof into any
preferred or common stock of the corporation now or hereafter authorized, upon
such terms and conditions as shall be fixed by the Board of Directors; to sell,
pledge or otherwise dispose of any or all debentures or other bonds, notes and
other obligations in such manner and upon such terms as the Board of Directors
may deem judicious, subject, however, to the provisions of Article III hereof.
4. To acquire by purchase, subscription or otherwise, and to
hold for investment, and to own, hold, sell, vote and handle shares of stock in
other corporations.
5. To acquire in any manner, enjoy, utilize, hold, sell,
assign, lease, mortgage or otherwise dispose of, letters patent of the United
States or of any foreign country, patents, patent rights, licenses and
privileges, inventions, improvements and processes, copyrights, trade marks and
trade names or pending applications therefor, relating to or useful in
connection with any business of the corporation or any other corporation in
which the corporation may have an interest as a stockholder or otherwise.
6. To act as financial, business and purchasing agent for
domestic and foreign corporations, individuals, partnerships, associations,
state governments or other bodies.
-3-
<PAGE> 4
7. To acquire, hold, own dispose of and generally deal in
grants, concessions, franchises and contracts of every kind; to cause to be
formed, to promote and to aid in any way in the formation of any corporation,
domestic or foreign.
8. To have one or more offices, conduct its business and
promote its objects within and without the State of Florida, in other states,
the District of Columbia, the territories, possessions and dependencies of the
United States, and in foreign countries, without restriction as to place or
amount.
9. To do all and everything necessary and proper for the
accomplishment of any of the purposes or the attaining of any of the objects or
the furtherance of any of the powers enumerated in this Certificate of
Incorporation or any amendment thereof, necessary or incidental to the
protection and benefit of the corporation, as principal, agent, director,
trustee or otherwise, and in general, either alone or in association with other
corporations, firms or individuals, to carry on any lawful business necessary or
incidental to the accomplishment of the purposes or the attainment of the
objects or the furtherance of such purposes or objects of the corporation,
whether or not such business is similar in nature to the purposes and objects
set forth in this Certificate of Incorporation or any amendment thereof.
10. To manufacture, purchase or otherwise acquire, and to own
and mortgage, pledge, sell, assign and transfer or otherwise dispose of, and to
invent, trade, deal in and deal with goods, wares, merchandise and other
personal property of every class and description whatsoever.
The foregoing paragraphs shall be construed as enumerating both objects
and powers of the corporation; and it is hereby expressly provided that the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the powers of this corporation.
-4-
<PAGE> 5
ARTICLE III.
Capital Stock.
The amount of the total authorized capital stock of the
corporation shall be One Thousand (1000) shares of Common Stock with par value
of $100.00 per share.
The whole or any part of the capital stock of said corporation
shall be payable in lawful money of the United States of America, or property,
labor or services at a just valuation to be fixed by the Directors. Property or
labor may also be purchased with the capital stock at such valuation as shall be
fixed by the Directors.
ARTICLE IV.
Initial Capital.
The amount of capital with which the corporation shall begin
business shall be Five Thousand Dollars ($5,000.00).
ARTICLE V.
Corporate Existence.
The corporation shall have perpetual existence.
ARTICLE VI.
Principal Office.
The principal place of business of said corporation is to be
located in West Palm Beach, Palm Beach County, Florida, with the privilege,
however, of having branch offices or places of business at any other place or
places within or without the State of Florida, or in foreign countries.
-5-
<PAGE> 6
ARTICLE VII.
Number of Directors.
The affairs of the corporation shall be conducted by a Board
of not less than three nor more than seven Directors, who shall be required to
be stockholders in said corporation.
ARTICLE VIII.
Initial Directors and Officers.
The names and post office addresses of the first Board of
Directors and Officers of the corporation who, subject to the provisions of this
Certificate of Incorporation and the ByLaws and General Corporation Law of the
State of Florida shall hold office for the first year of the corporation's
existence, or until their successors are elected and have qualified, are as
follows:
<TABLE>
<CAPTION>
Name Post Office Address Office
- ---- ------------------- ------
<S> <C> <C>
MARTIN DUBBIN P.O. Box 1910 President
West Palm Beach, Florida
SAMUEL J. BUBIS P.O. Box 1910 Vice-President
West Palm Beach, Florida
LEAH DUBBIN P.O. Box 1910 Secretary
West Palm Beach, Florida
MELVIN FRIED P.O. Box 1910 Treasurer
West Palm Beach, Florida
MARTIN DUBBIN As above Director
SAMUEL J. BUBIS As above Director
LEAH DUBBIN As above Director
MELVIN FRIED As above Director
</TABLE>
-6-
<PAGE> 7
ARTICLE IX.
Subscribers.
The names and post office addresses of each subscriber to this
Certificate of Incorporation, and a statement of the number of shares of stock
which they agree to take are as follows:
<TABLE>
<CAPTION>
Name Post Office Address Shares Consideration
- ---- ------------------- ------ -------------
<S> <C> <C> <C>
MARTIN DUBBIN P.O. Box 1910 501 $50,100.00
West Palm Beach, Florida
SAMUEL J. BUBIS P.O. Box 1910 2 200.00
West Palm Beach, Florida
LEAH DUBBIN P.O. Box 1910 495 49,500.00
West Palm Beach, Florida
MELVIN FRIED P.O. Box 1910 2 200.00
West Palm Beach, Florida
</TABLE>
ARTICLES X.
Amendment.
These articles of incorporation may be amended in the manner
provided by law. Every amendment shall be approved by the Board of Directors,
proposed by them to the stockholders, and approved at a stockholders' meeting by
a majority of the stock entitled to vote thereon.
ARTICLE XI.
Special Charter Provisions.
The original incorporators of the corporation shall have the
right upon its organization, to assign and deliver their subscriptions of stock
as set forth in Article IX hereof to any other person, or to firms or
corporations who may hereafter become subscribers to the capital
-7-
<PAGE> 8
stock of the corporation, who, upon acceptance of such assignment, shall stand
in lieu of the original incorporators, and assume and carry out all the rights,
liabilities and duties entailed by said subscriptions, subject to the laws of
the State of Florida, and the execution of the necessary instruments of
assignment.
The number of Directors of the corporation may be increased or
decreased to not less than three (3) nor more than seven (7) as may be provided
by the By-Laws. The By-Laws may prescribe the number of Directors necessary to
constitute a quorum of the Board of Directors, which number may be less than the
majority of the whole Board of Directors. In case of vacancy in the Board of
Directors, through death, resignation, disqualification or other cause, such
vacancy shall be filled for the unexpired term by the affirmative vote of a
majority of the remaining Directors. In case of any increase in the number of
Directors, the additional Directors shall be elected by the affirmative vote of
a majority of the Directors then in office.
In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
(a) Subject to the By-Laws, if any, adopted by the
stockholders, to make, alter, amend, or repeal the By-Laws of the corporation;
(b) If the By-Laws so provide, to designate by
resolution two or more of their number to constitute an Executive Committee,
which Committee, to the extent provided in the resolution or in the By-Laws of
the corporation, shall have and may exercise any or all of the powers of the
Board of Directors in the management of the business, affairs and property of
the corporation during the intervals between the meetings of the Board of
Directors, so far as may be permitted by law.
-8-
<PAGE> 9
(c) From time to time to determine whether and to
what extent and what times and place and under what conditions and regulations
the accounts and books of the corporation (other than the stock ledger) or any
of them shall be open to inspection of stockholders; and no stockholder shall
have any right of inspecting any account, book or document of the corporation
except as conferred by statute, unless authorized by a resolution of the
stockholders or Directors.
The corporation may at any meeting of its Board of Directors,
sell, lease, or exchange all of its property and assets, including its good
will, and its corporate franchise or any property or assets essential to its
corporate business, upon such terms and conditions, either for cash, for the
securities of any other corporation or corporations, or for such other
consideration as its Board of Directors may deem expedient and for the best
interest of the corporation when and as authorized by the affirmative vote of
the holders of record of at least two-thirds of the stock of each class issued
and outstanding given at a stockholders' meeting duly called for that purpose,
or when authorized by the written consent of the holders of record of at least
two-thirds of the stock of each class issued and outstanding.
Both stockholders and Directors shall have power, if the
By-Laws so provide, to hold their meetings either within or without the State of
Florida, to have one or more offices and to keep the books of the corporation,
subject to the provisions of the laws of the State of Florida, within or without
the State of Florida, at such places as may from time to time be designated by
the Board of Directors.
No contract or other transaction between the corporation and
any other corporation in the absence of fraud, shall be affected or invalidated
by the fact that any or more of the Directors of the corporation is or are
interested in, or is a Director or officer or are
-9-
<PAGE> 10
Directors or officers of such other corporation, and any Director or Directors,
individually or jointly, may be a party or parties to, or may be interested in
any such contract or transaction of the corporation or in which the corporation
is interested, and no contract, act or transaction of the corporation with any
person or persons, firm or corporation in the absence of fraud, shall be
affected or invalidated by the fact that any Director or Directors of the
corporation is a party or are parties to or interested in such contract, act or
transaction, or in any way connected with such person or persons, firm or
corporation, and each and every person who may become a Director of the
corporation is hereby relieved from any liability that might otherwise exist
from thus contracting with the corporation for the benefit of himself or any
firm, association or corporation in which he may be in anywise interested. Any
Director of the corporation may vote upon any contract or other transaction
between the corporation and any subsidiary or controlled company without regard
to the fact that he is also a Director of such subsidiary or controlled company.
In Witness Whereof, the undersigned have made and subscribed
this Certificate of Incorporation at West Palm Beach, Palm Beach County,
Florida, for the uses and purposes aforesaid, on this 10th day of February,
1958.
/s/ Martin Dubbin (SEAL)
----------------------------------
Martin Dubbin
/s/ Samuel J. Bubis (SEAL)
----------------------------------
Samuel J. Bubis
/s/ Leah Dubbin (SEAL)
----------------------------------
Leah Dubbin
/s/ Melvin Fried (SEAL)
----------------------------------
Melvin Fried
-10-
<PAGE> 11
STATE OF FLORIDA )
)
COUNTY OF PALM BEACH )
Personally appeared before me, the undersigned authority,
MARTIN DUBBIN, SAMUEL J. BUBIS, LEAH DUBBIN and MELVIN FRIED, each of whom is to
me well known and known to me to be the persons described in and who executed
the foregoing Certificate of Incorporation, and each of them acknowledged before
me, according to law, that they made and subscribed the same of the uses and
purposes therein mentioned and set forth.
Witness my hand and official seal at West Palm Beach, Palm
Beach County, Florida, this 10th day of February, 1958.
/s/ Emily Ferguson
----------------------------------
Emily Ferguson
Notary Public, State of Florida at Large
My Commission Expires July 18, 1960
-11-
<PAGE> 12
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
Palm Beach Bedding Company, a Florida corporation, under its
corporate seal and the hands of its President, Martin Dubbin, and Secretary,
Melvin Fried, hereby certifies that:
I.
The Board of Directors of said corporation at a meeting called
and held on July 13, 1959, adopted the following Resolutions:
Be It Resolved by the Board of Directors, of Palm Beach
Bedding Company, a Florida corporation, that said Board deems its advisable and
hereby declares it to be advisable that Article III of the Certificate of
Incorporation be amended, changed and altered so as to read as follows:
The amount of the total authorized capital stock of the
corporation shall be Two Thousand Five Hundred (2500) shares of common stock
with par value of $100.00 per share.
The whole or any part of the capital stock of said corporation
shall be payable in lawful money of the United States of America, or property,
labor or services at a just valuation to be fixed by the Directors. Property or
labor may also be purchased with the capital stock at such valuation as shall be
fixed by the Directors.
Be It Further Resolved by said Board of Directors that a
special meeting of the stockholders of record entitled to vote for the
consideration of said amendment, be, and the same is hereby called to beheld at
the office of Sidney M. Dubbin, Attorney for the corporation, 531 Pan-A
Building, West Palm Beach, Florida, July 16, 1959, at 1:00 o'clock in the
afternoon.
<PAGE> 13
II.
The meeting of the stockholders of the corporation called by
the Board of Directors as aforesaid was held on July 16, 1959, and at said
special meeting of the stockholders said amendment of the Certificate of
Incorporation was duly adopted by the unanimous vote of all the stockholders.
In Witness Whereof said corporation has caused this
Certificate to be signed in its name by its President and its corporate seal to
be hereunto affixed and attested by its Secretary, this the 16th day of July,
1959.
PALM BEACH BEDDING COMPANY,
a Florida corporation,
(SEAL)
By: /s/ Martin Dubbin
---------------------------------
President
Attest: /s/ Melvin Fried
-------------------------
Secretary
STATE OF FLORIDA )
: SS.
COUNTY OF PALM BEACH )
On this day personally appeared before me the undersigned
officer duly authorized by the laws of the State of Florida to take
acknowledgments of deeds, MARTIN DUBBIN, President of Palm Beach Bedding
Company, and acknowledged that he executed the above and foregoing Certificate
of Amendment as such officer for and on behalf of said corporation after having
been duly authorized so to do.
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<PAGE> 14
PALM BEACH BEDDING COMPANY
(a Florida corporation)
Pursuant to Section 607.1105 of the Florida Business
Corporation Act (the "FBCA"), SLEEPMASTER ACQUISITION CORP., a Florida
corporation ("Sub"), and PALM BEACH BEDDING COMPANY, a Florida corporation
("PBBC"), do hereby adopt the following Articles of Merger:
I. The Plan of Merger, dated as of March 2, 1998 (the "Merger
Agreement"), between the parties to the merger is attached hereto as Exhibit A
and incorporated herein by reference thereto.
II. The Merger Agreement, providing for the merger of Sub with
and into PBBC (the "Merger"), was adopted by the shareholders of Sub on February
27, 1998, and by the shareholders of PBBC on March 2, 1998.
III. At the Effective Date (as defined below), PBBC will
continue its existence as the surviving corporation under its present name
pursuant to Section 607.1106 of the FBCA.
IV. The Merger shall become effective as of the close of
business on the date of filing these Articles of Merger with the Department of
State of the State of Florida (the "Effective Date").
IN WITNESS WHEREOF, these Articles of Merger have been
executed by a duly authorized officer of each of Sub and PBBC on this 2nd day of
March, 1998.
SLEEPMASTER ACQUISITION CORP.
Name: /s/ Charles Schweitzer
---------------------------------
Charles Schweitzer
Title: President
PALM BEACH BEDDING COMPANY
Name: /s/ Michael W. Bubis
---------------------------------
Michael W. Bubis
Title: President
-3-
<PAGE> 15
EXHIBIT A
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is made and entered into as
of the 2nd day of March, 1998 by and among SLEEPMASTER, L.L.C., a New Jersey
limited liability company ("Sleepmaster"), SLEEPMASTER ACQUISITION CORP., a
Florida corporation ("Sub") and a wholly-owned subsidiary of Sleepmaster, and
PALM BEACH BEDDING COMPANY, a Florida corporation ("PBBC").
Sleepmaster, Sub and PBBC desire to effect the statutory
merger of Sub with and into PBBC, with PBBC to survive such merger.
1. Constituent Corporations. Sub and PBBC shall be parties to
the merger (the "Merger") of Sub with and into PBBC.
2. Terms and Conditions of Merger.
(a) Sub (the "Constituent Corporation") shall,
pursuant to the provisions of the Florida Business Corporation Act (the "FBCA"),
be merged with and into PBBC, which shall continue to exist pursuant to the laws
of the State of Florida. Upon the effective time of the Merger (as set forth in
Section 7) (the "Effective Time"), the separate corporate existence of the
Constituent Corporation shall cease. The separate corporate existence of PBBC
with all its rights, powers, immunities, purposes and franchises shall continue
unaffected by the Merger.
(b) The consideration for the Merger (the "Closing
Merger Consideration") shall consist of the sum of Thirty-Two Million Dollars
($32,000,000) plus an amount equal to certain cash and cash equivalents of PBBC
(as agreed upon by the parties prior to the Effective Time), such Closing Merger
Consideration to be paid as provided in Section 3 below. Notwithstanding the
foregoing, the Closing Merger Consideration shall be subject to a post-closing
adjustment, to be agreed upon by the parties after the Effective Time, based
upon the preparation by Sleepmaster and the Surviving Corporation of a financial
statement of PBBC as of the Effective Time.
3. Capital Stock; Conversion of Shares.
(a) At the Effective Time, each share of common
stock, par value $5.00 per share, of PBBC ("PBBC Common") issued and outstanding
immediately prior to the Effective Time shall cease to be issued and outstanding
and shall be converted into and become, without any action on the part of the
holders thereof, the right to receive the Closing Merger Consideration divided
by the aggregate number of issued and outstanding shares of PBBC Common held by
all holders thereof immediately prior to the Effective Time.
<PAGE> 1
EXHIBIT 3.6
BY-LAWS
of
PALM BEACH BEDDING COMPANY
ARTICLE I. MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders of
this corporation shall be held at 10:00 A.M. on the first Monday in April of
each year beginning in 1958.
Section 2. Special Meetings. Special meetings of the stockholders shall
be held when directed by the President or the Board of Directors, or when
requested in writing by stockholders who hold a majority of the stock having the
right and entitled to vote at such meeting. A meeting requested by stockholders
shall be called for a date not less than ten nor more than sixty days after the
request is made. The call for the meeting shall be issued by the Secretary,
unless the President, Board of Directors, or stockholders requesting the calling
of the meeting shall designate another person to do so.
Section 3. Place. Meetings of stockholders may be held either within or
without the State of Florida.
Section 4. Notice. A notice of each meeting of stockholders, signed by
the Secretary, shall be mailed to each stockholder having the right and entitled
to vote at such meeting, at his address as it appears on the records of the
corporation, not less than ten nor more than sixty days before the date set for
the meeting.
The notice shall state the purpose of the meeting and the time and
place it is to be held. Such a notice shall be sufficient for that meeting and
any adjournment thereof. If any stockholder shall transfer any of his stock
after notice, it shall not be necessary to notify the transferee. Any
stockholder may waive notice of any meeting either before, at or after the
meeting.
<PAGE> 2
Section 5. Record Date. The Board of Directors may fix a date not more.
than forty days prior to the date set for a meeting of stockholders as the
record date as of which the stockholders of record who have the right to and are
entitled to notice of and to vote at the meeting and any adjournment thereof
shall be determined, but in such case notice that such day has been fixed shall
be published at least five days before the day so fixed in a newspaper published
in the city, town or county where the principal office of the corporation is
located and in each city or town where an agency for transfer of shares is
maintained.
Section 6. Voting. Every stockholder having the right and entitled to
vote at a meeting of stockholders shall be entitled, upon each proposal
presented at the meeting, to one vote for each share of voting stock recorded in
his name on the books of the corporation on the record date fixed as provided in
Section 5, or if no such record date was fixed, on the day of the meeting. The
books of record of stockholders shall be produced at any stockholders' meeting
upon the request of any stockholder. Shares of its own stock owned by this
corporation shall not be voted directly or indirectly, or counted as outstanding
for the purpose of any stockholders' quorum or vote.
Section 7. Quorum. A majority of the stock entitled to vote shall
constitute a quorum at any stockholders' meeting.
Section 8. Proxies. At any meeting of stockholders or any adjournment
thereof, any stockholder of record having the right and entitled to vote thereat
may be represented and vote by a proxy appointed by an instrument in writing. In
the event that any such instrument shall designate two or more persons to act as
proxies, a majority of such persons present at the meeting, or, if only one be
present, that one, shall have all of the powers conferred by the instrument upon
all the persons so designated unless the instrument shall otherwise provide.
Section 9. Validation. When stockholders who hold four-fifths of the
voting stock having the right and entitled to vote at any meeting shall be
present at such meeting, however called or notified, and shall sign a written
consent thereto on the record of the meeting, the acts of such meeting shall be
as valid as if legally called and notified.
-2-
<PAGE> 3
ARTICLE II. DIRECTORS
Section 1. Function. The business of this corporation shall be managed
and its corporate powers exercised by the Board of Directors.
Section 2. Number. This corporation shall have four (4) Directors.
Section 3. Qualification. All of the members of the Board of Directors
shall be of full age, and at least one shall be a citizen of the United States.
It shall be necessary for Directors to be stockholders.
Section 4. Election and Term. The Directors shall be chosen at the
annual meeting of the stockholders, by a plurality of the votes cast at such
election, and shall hold office until the next annual meeting of the
stockholders and the election and qualification of their successors.
Section 5. Vacancies. Vacancies in the Board of Directors shall be
filled until the next annual meeting of stockholders by the Directors remaining
in office.
Section 6. Quorum. The presence of a majority of all the Directors
shall be necessary at any meeting to constitute a quorum to transact business,
three (3) of the Directors constituting a quorum. The act of a majority of
Directors present at a meeting where a quorum is present shall be the act of the
Board of Directors.
Section 7. Place of Meeting. Directors' meetings may be held within or
without the State of Florida.
Section 8. Time of Meeting. Meetings of the Board of Directors shall be
held immediately following the annual meeting of stockholders each year, at such
times thereafter as the Board of Directors may fix, and at other times upon the
call of the President or by three (3) of the Directors. Notice of each special
meeting shall be given by the Secretary to each Director not
-3-
<PAGE> 4
less than five days before the meeting, unless each Director shall waive notice
thereof before, at, or after the meeting.
Section 9. Executive Committee. The Board of Directors may, by
resolution, designate two or more of their number to constitute an Executive
Committee, who, to the extent provided in such resolution, shall have and may
exercise the powers of the Board of Directors.
ARTICLE III. OFFICERS
Section 1. Officers. This corporation shall have a President and a
Vice-President, who shall be Directors, a Secretary and a Treasurer, who shall
also be Directors. They shall be chosen by the Board of Directors at the first
meeting of the Board of Directors held following each annual meeting of
stockholders, and shall serve until their successors are chosen and qualify. All
other officers, agents and factors shall be chosen, serve for such terms and
have such duties as may be determined by the Board of Directors. Any person may
hold two or more offices, except that the President may not also be the
Secretary or Assistant Secretary. No person holding two or more offices shall
sign any instrument in the capacity of more than one office.
Section 2. President. The President shall be the chief executive
officer of the corporation, shall have general and active management of the
business and affairs of the corporation subject to the directions of the Board
of Directors, and shall preside at all meetings of the stockholders and Board of
Directors.
Section 3. The Vice-President. The Vice President shall act for and on
behalf of the corporation in the absence of the President and in such absence
shall have all of the powers that the President of the corporation has, and
shall continue in such capacity of general and active management as would the
President until such time as a new President is chosen by the Board of
Directors.
Section 4. Secretary. The Secretary shall have custody of, and
maintain, all of the corporate records except the financial records; shall
record the minutes of all meetings of the
-4-
<PAGE> 5
stockholders and Board of Directors, send out all notices of meetings, and
perform such other duties as may be prescribed by the Board of Directors or
President.
Section 5. Treasurer. The Treasurer shall have custody of all corporate
funds and financial records, shall keep full and accurate accounts of receipts
and disbursements and render account thereof at the annual meetings of
stockholders and whenever else required by the Board of Directors or President,
and shall perform such other duties as may be prescribed by the Board of
Directors or President.
ARTICLE IV. STOCK CERTIFICATES
Section 1. Authorized Issuance. This corporation may issue the shares
of stock authorized by its Certificate of Incorporation and none other.
Section 2. Issuance. Every stockholder shall be entitled to have, for
each kind, class or series of stock held, a certificate certifying the number of
shares thereof held of record by him. Certificates shall be signed by the
President or a Vice-President and the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, and sealed with the seal of the
corporation. The seal may be facsimile, engraved or printed. When such
certificate is signed by a transfer agent or an assistant transfer agent, other
than the corporation itself, or by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any of those officers named herein
may be facsimile.
Section 3. Transfer. No transfer of stock shall be valid against this
corporation until it shall have been registered upon the corporation's books in
the following manner: The person named as the stockholder in the stock
certificate, or his attorney in fact so constituted in writing, shall surrender
such stock certificate and in writing direct the transfer thereof.
Section 4. Stock Book. This corporation shall keep at its office in the
State of Florida, or in the office of its transfer agent wherever located, a
book (or books, if more than one kind, class or series of stock is outstanding)
to be known as the stock book, containing the names,
-5-
<PAGE> 6
alphabetically arranged, with the address, of every stockholder, showing the
number of shares of each kind, class or series of stock held or recorded by him.
If the stock book is kept in the office of the transfer agent, the corporation
shall keep at its office in the State of Florida copies of the stock lists
prepared from the stock book and sent to it from time to time by the transfer
agent. The stock book or books shall show the current status, but if the
transfer agent is located elsewhere a reasonable time shall be allowed for
transit of mail.
Section 5. Inspection. The stock book or stock lists shall be open for
at least three business hours each business day for inspection by any judgment
creditor of the corporation or any person who shall have been for at least six
months immediately preceding his demand a record holder of not less than one per
cent of the outstanding shares of this corporation, or by any officer, Director,
or any committee or person holding or authorized in writing by the holders of at
least five per cent of all the outstanding shares of this corporation. Persons
so entitled to inspect stock books or stock lists may make extracts therefrom.
This right of inspection shall not extend to any person who has used or proposes
to use the information so obtained otherwise than to protect his interest in
this corporation, or has within two years sold or offered for sale any list of
stockholders of this corporation or any other corporation, or has aided or
abetted any person in procuring any stock list for any such purpose.
ARTICLE V. DIVIDENDS
Section 1. Payment. Dividends may be paid to stockholders from the net
earnings or from the surplus of the assets over the liabilities including
capital, but not otherwise. When the Board of Directors shall so determine,
dividends may be paid in stock.
ARTICLE VI. SEAL
Section 1. Form. The corporate seal shall have the name of the
corporation and the word "seal" inscribed thereon, and may be facsimile,
engraved, printed, or an impression seal.
-6-
<PAGE> 7
ARTICLE VII. AMENDMENT
Section 1. By Directors. These By-Laws may be amended, consistent with
any By-Laws adopted by the stockholders, or any part thereof that has not been
adopted by the stockholders may be repealed, by the Board of Directors, at any
meeting by a majority vote of the Directors present and voting.
Section 2. By Stockholders. These By-Laws may be amended, or repealed
wholly or in part by a majority of the stockholders entitled to vote thereon
present at any stockholders' meeting, if notice of the proposed action was
included in the notice of the meeting or is waived in writing by a majority of
the stockholders entitled to vote thereon.
-7-
<PAGE> 1
EXHIBIT 3.7
ARTICLES OF INCORPORATION
TO THE DEPARTMENT OF STATE:
COMMONWEALTH OF PENNSYLVANIA:
In compliance with the requirements of the "BUSINESS CORPORATION LAW,"
approved the 5th day of May, A.D. 1933, P.L. 364, as amended, the undersigned,
desiring that they may be incorporated as a business corporation, do hereby
certify:
1st. The name of the corporation is Herr Manufacturing Company
---------------------------
2nd. The location and post office address of its initial registered
office in this Commonwealth is 118 South Christian Street, Lancaster, Lancaster
------------------------------------------------
(number) (street) (city) (county)
3rd. The purpose or purposes of the corporation are: To produce,
process, manufacture, buy, sell and deal in metal, wood, plastic, synthetic and
natural materials, articles made in whole or in part therefrom, and personal
property of every class and description, and to buy, hold, sell and lease real
estate necessary and appropriate for its corporate purposes.
4th. The term of its existence is perpetual.
5th. The authorized capital stock of the corporation is $200,000.00
divided into (1) 2,000 shares of common stock of the par value of $100.00 per
share. Common stock shall have preemptive rights only insofar as voting stock is
concerned and shall hold and possess exclusively all preemptive rights of the
corporation.
6th. The value of the property with which the corporation will being
business is $900.00.
7th. The name and addresses of the first directors:
NAME ADDRESS, INCLUDING STREET AND NUMBER, IF ANY
John K. Herr 1020 Marietta Avenue, Lancaster, Pa.
- --------
(1) There should be set forth the number and par value of all shares having
par value, the number of shares without par value, and the stated
applicable thereto. If the shares are to be divided into classes, a description
of each class, and a statement of preferences, qualifications, , restrictions,
and the special or relative rights granted to, or imparted upon, the shares of
each class.
<PAGE> 2
John K. Herr, Jr. 1517 Biltmore Avenue, Lancaster, Pa.
Richard F. Herr 871 Grand View Blvd., Lancaster, Pa.
William F. Herr Columbia R.D. #2, Pa.
Elizabeth M. Witmer 808 North 16th Street, Harrisburg Pa.
8th. The names and addresses of the incorporators and the number and
class of shares subscribed by each are:
<TABLE>
<CAPTION>
NAME ADDRESS,
(INCLUDING STREET AND NUMBER, IF ANY) NO. AND CLASS OF SHARES
<S> <C> <C>
John K. Herr 1020 Marietta Ave., Lancaster, Pa. 500 common
John K. Herr, Jr. 1517 Biltmore Ave., Lancaster, Pa. 100 Common
Richard F. Herr 871 Grand View Blvd., Lancaster, Pa. 100 Common
William F. Herr Columbia R.D. #2, Pa. 100 Common
Elizabeth M. Witmer 808 North 16th St., Harrisburg Pa. 100 Common
</TABLE>
9th. The number of incorporators who are citizens of the United States
five .
/s/John K. Herr (SEAL) /s/ William F. Herr (SEAL)
--------------------------- ------------------------------
(John K. Herr) (William F. Herr)
/s/ John K. Herr, Jr. (SEAL) /s/ Elizabeth H. Witmer (SEAL)
--------------------------- ------------------------------
(John K. Herr, Jr.) (Elizabeth H. Witmer)
/s/ Richard F. Herr (SEAL) (SEAL)
--------------------------- ------------------------------
(Richard F. Herr)
Commonwealth of Pennsylvania )
) SS:
County of Lancaster )
Before me, a Notary Public in and for the county
aforesaid, personally came the above named, JOHN K. HERR, JOHN K. HERR, JR.,
RICHARD F. HERR, WILLIAM F. HERR, and ELIZABETH H. WITMER
-2-
<PAGE> 3
who, in due form of law, acknowledged the foregoing instrument to be their act
and deed for the purposes therein specified.
Witness my hand and seal of office the 3rd day of February A.D. 1953.
/s/ Elizabeth C. Dysinger
---------------------------------
Notary Public
Approved and filed in the Department of State, 4th day of February A.D. 1953.
-3-
<PAGE> 4
<TABLE>
<S> <C>
Microfilm Number _____________ Filed with the Department of State on Feb 01 1994
Entity Number: 159359 /s/ Smith
-------------------------------------
Secretary of the Commonwealth
</TABLE>
ARTICLES OF MERGER-DOMESTIC BUSINESS CORPORATION
DSCS: 15-1926 (REV 90)
In compliance with the requirements of 15 Pa.C.S. Section 1926
(relating to articles of merger or consolidation), the undersigned business
corporations, desiring to effect a merger, hereby state that:
1. The name of the corporation surviving the merger is: HERR MANUFACTURING
COMPANY
2. (Check and complete on the of following):
X The surviving corporation is a domestic business corporation
and the (a) address of its current registered office in the
Common wealth or (b) name of its commercial registered
provider and the county of venue is (the Department hereby
authorized to correct the following information to conform to
the records of the Department):
<TABLE>
<S> <C>
(a) 625 Fountain Avenue, P.O. Box 4623, Lancaster, Pennsylvania 17604-4623 Lancaster
(Number and Street) (City) (State) (Zip) (County)
(b) c/o:
(Name of Commercial Registered Office Provider) (County)
</TABLE>
For a corporation represented by a commercial registered
office provider, the county in (b) shall be deemed the county
in which the corporation is located for venue and official
publication purposes.
____The surviving corporation is a qualified foreign
business corporation incorporated under the laws of
________ and the (a) address of its current office in
this Commonwealth or (b) name of its commercial
registered office provider and the country of venue
is (the Department is hereby authorized to correct
the following information to conform to the records
of the Department):
<TABLE>
<S> <C>
(a)
(Number and Street) (City) (State) (Zip) (County)
(b) c/o:
(Name of Commercial Registered Office Provider) (County)
</TABLE>
For a corporation represented by a commercial registered
office provider, the county in (b) shall be deemed the county
in which the corporation is located for venue and official
publication purposes.
____The surviving corporation is a nonqualified
foreign business corporation incorporated under the
laws of ________ and the address of its principal
office under the laws of such domiciliary
jurisdiction is:
<TABLE>
<S> <C>
(Number and Street) (City) (State) (Zip) (County)
</TABLE>
3. The name and the address of the registered office in this Commonwealth
or name of its commercial registered office provider and the county of
venue of each other domestic business corporation and qualified foreign
business corporation which is a party to the plan of merger are as
follows:
<PAGE> 5
<TABLE>
<S> <C> <C>
Name of Corporation Address of Registered Office or Name of Commercial Registered Office Provider County
Herr Equipment Company 625 Fountain Avenue, P.O. Box 4623, Lancaster, PA 17604-4623 Lancaster
</TABLE>
4. (Check and if appropriate complete, one of the following):
X The plan of merger shall be effective upon filing these Articles of
Merger in the Department of State.
<TABLE>
<S> <C>
The plan of merger shall be effective on at
---------------- -------------------------------
Date Hour
</TABLE>
5. The manner in which the plan of merger was adopted by each domestic
corporation is as follows:
<TABLE>
<CAPTION>
Name of Corporation Manner of adoption
<S> <C>
Herr Manufacturing Company Unanimous Written Consent of Shareholders and Directors
Herr Equipment Company Unanimous Written Consent of Shareholders and Directors
</TABLE>
6. (Strike out this paragraph if no foreign corporation is a party to the
merger). The plan was authorized, adopted or approved, as the case may
be, by the foreign business corporation (or each of the foreign
business corporations) party to the plan in accordance with the laws of
the jurisdiction in which it is incorporated.
7. (Check, and if appropriate complete, one of the following):
The plan of merger is set forth in full in Exhibit A attached
hereto and made a part hereof.
X Pursuant to 15 Pa.C.S. Section 1901 (relating to omission of certain
provisions from filed plans) the provisions, if any, of the plan of
merger that amend or constitute the operative Articles of
Incorporation of the surviving corporation as in affect subsequent
to the effective date of the plan are set forth in full in Exhibit A
attached hereto and made a part hereof. The full text of the plan of
merger is on file at the principal place of business of the
surviving corporation, the address of which is:
118 South Christian Street Lancaster PA Lancaster County
Number and Street City State Zip
-2-
<PAGE> 6
IN TESTIMONY WHEREOF, the undersigned corporation or each
undersigned corporation has caused these Articles of Merger to be signed by a
duly authorized officer thereof this 28th day of January, 1994.
HERR MANUFACTURING COMPANY
(Name of Corporation)
By: /s/ Stuart W. Herr
----------------------------------
(Signature)
TITLE: President
HERR EQUIPMENT COMPANY
(Name of Corporation)
By: /s/ John K. Herr, Jr.
----------------------------------
(Signature)
TITLE: President
-3-
<PAGE> 7
EXHIBIT A
ARTICLES OF INCORPORATION
TO THE DEPARTMENT OF STATE:
COMMONWEALTH OF PENNSYLVANIA:
In compliance with the requirements of the "BUSINESS CORPORATION LAW"
approved the 5th day of May, A.D. 1933, P. L. 364, as amended, the undersigned,
desiring that they may be incorporated as a business corporation, do hereby
certify:
1st. The name of the corporation is Herr Manufacturing Company.
2nd. The location and post office address of its initial registered
office in this Commonwealth is 118 South Christian Street, Lancaster, Lancaster
County.
3rd. The purpose or purposes of the corporation are:
To produce, process, manufacture, buy, sell and deal in metal, wood, plastic,
synthetic and natural materials, articles made in whole or in part therefrom,
and personal property of every class and description, and to buy, hold, sell and
lease real estate necessary and appropriate for its corporate purposes.
4th. The term of its existence is perpetual.
5th. The authorized capital stock of the corporation is $200,000.00
divided into 2,000 shares of common stock of the par value of $100.00 per share.
Common stock shall have preemptive rights only insofar as voting stock is
concerned and shall hold and possess exclusively all preemptive rights of the
corporation.
6th. The value of the property with which the corporation will begin
business is $900.00.
<PAGE> 8
7th. The name and addresses of the first directors:
NAME ADDRESS
John K. Herr 1020 Marietta Avenue, Lancaster, Pa.
John K. Herr, Jr. 1517 Biltmore Avenue, Lancaster, Pa.
Richard F. Herr 871 Grand View Blvd., Lancaster, Pa.
William F. Herr Columbia R.D. #2, Pa.
Elizabeth M. Witmer 808 North 16th Street, Harrisburg, Pa.
8th. The names and addresses of the incorporators and the number and
class of shares subscribed by each are:
<TABLE>
<CAPTION>
NAME ADDRESS NO. AND CLASS OF SHARES
<S> <C> <C>
John K. Herr 1020 Marietta Ave., Lancaster, Pa. 500 common
John K. Herr, Jr. 1517 Biltmore Ave., Lancaster, Pa. 100 common
Richard F. Herr 871 Grand View Blvd., Lancaster, Pa. 100 common
William F. Herr Columbia R.D. #2, Pa. 100 common
Elizabeth M. Witmer 808 North 16th St., Harrisburg Pa. 100 common
</TABLE>
9th. The number of incorporators who are citizens of the United States
is five.
/s/ John K. Herr (SEAL) /s/ William F. Herr (SEAL)
---------------------------- ---------------------------------
(John K. Herr) (William F. Herr)
/s/ John K. Herr, Jr. (SEAL) /s/ Elizabeth H. Witmer (SEAL)
---------------------------- ---------------------------------
(John K. Herr, Jr.) (Elizabeth H. Witmer)
/s/ Richard F. Herr (SEAL) (SEAL)
---------------------------- ---------------------------------
(Richard F. Herr)
-2-
<PAGE> 9
Commonwealth of Pennsylvania )
) SS.:
County of Lancaster )
Before me, a Notary Public in and for the county aforesaid, personally
came the above named, JOHN K. HERR, JOHN K. HERR, JR., RICHARD F. HERR, WILLIAM
F. HERR, and ELIZABETH H. WITMER, who, in due form of law, acknowledged the
foregoing instrument to be their act and deed for the purposes therein
specified.
Witness my hand and seal of office the 3rd day of February A.D. 1953.
(NOTARY SEAL)
/s/ Elizabeth C. Dysinger
----------------------------------
Notary Public
My Commission Expires Feb. 1, 1957
Approved and filed in the Department of State, 4th day of February,
A.D. 1953.
/s/ Gene D. Smith
----------------------------------
Secretary of the Commonwealth
-3-
<PAGE> 1
EXHIBIT 3.8
07/26/96
BY-LAWS
OF
HERR MANUFACTURING COMPANY
ARTICLE I - OFFICES
1. The registered office of the corporation shall be at 18
Prestige Lane, Lancaster, Pennsylvania, 17603.
2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
1. The corporate seal shall have inscribed thereon the name of
the corporation, the year of organization and the words "Corporate Seal,
Pennsylvania".
ARTICLE III SHAREHOLDERS' MEETING
1. Meetings of the shareholders shall be held at the office of
the corporation at I8 Prestige Lane, Lancaster, Pennsylvania, 17603, or at such
other place or places, either within or without the Commonwealth of
Pennsylvania, as may from time to time be selected.
<PAGE> 2
2. The annual meeting of the shareholders, shall be held on the
third Friday of January in each year at 11:00 o'clock A.M. when they shall elect
a Board of Directors, and transact such other business as may properly be
brought before the meeting. If the annual meeting shall not be called and held
within six months after the designated time, any shareholder may call such
meeting.
3. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares entitled to vote shall constitute a quorum at
all meetings of the shareholders for the transaction of business except as
otherwise provided by law, by Articles of Incorporation or by these By-Laws. If
however, such quorum shall not be present or represented at any meeting of the
shareholders, those entitled to vote thereat, present in person or represented
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until the requisite number of
shares shall be present. In the case of any meeting called for the election of
directors, adjournment or adjournments may be taken only from day to day until
such directors have been elected, and those who attend the second of such
adjourned meetings, although less than a quorum, shall nevertheless constitute a
quorum for the purpose of electing directors.
4. At each meeting of the shareholders every shareholder having
the right to vote shall be entitled to vote in person or by proxy appointed by
an instrument in writing subscribed by such shareholder and delivered to the
secretary at the meeting. No unrevoked proxy shall be valid after eleven months
from the date of its execution, unless a longer time is expressly provided
therein, but in no event shall a proxy, unless coupled an interest, be voted on
after three years from the date of its execution. In all elections for directors
cumulative voting shall be allowed. Upon demand made by a shareholder at any
election for directors before the voting
-2-
<PAGE> 3
begins, the election shall be by ballot. No share shall be voted at any meeting
upon which any installment is due and unpaid. The original share ledger or
transfer book, or a duplicate thereof kept in this Commonwealth shall be prima
facie evidence of the right of the person named therein to vote thereon.
5. Written notice of the annual meeting shall be mailed to each
shareholder entitled to vote thereat, at such address as appears on the books of
the corporation, at least five days prior to the meeting.
6. In advance of any meeting of shareholders, the Board of
Directors may appoint judges of election, who need not be shareholders, to act
at such meeting or any adjournment thereof. If judges of election be not so
appointed, the chairman of any such meeting may, and on the request of any
shareholder or his proxy, shall make such appointment at the meeting. The number
of judges shall be one or three. If appointed at a meeting on the request of one
or more shareholders or proxies, the majority of shares present and entitled to
vote shall determine whether one or three judges are to be appointed. On request
of the chairman of the meeting, or of any shareholder or his proxy, the judges
shall make a report in writing of any challenge or question or matter determined
by them, and execute a certificate of any fact found by them. No person who is a
candidate for office shall act as a judge.
7. Special meetings of the shareholders may be called at any time
by the President, or the Board of Directors, or the holders of not less than
one-fifth of all the shares outstanding and entitled to vote. At any time, upon
written request of any person entitled to call a special meeting, it shall be
the duty of the Secretary to call a special meeting of the shareholders, to be
held at such time as the secretary may fix, not less than ten nor more than
sixty days after receipt of the request.
-3-
<PAGE> 4
8. Business transacted at all special meetings shall be confined
to the objects stated in the call and matters germane thereto.
9. Written notice of a special meeting of shareholders stating
the time and place and object thereof, shall be mailed, postage prepaid, to each
shareholder entitled to vote thereat at such address as appears on the books of
the corporation, at least five days before such meeting, unless a greater period
of notice is required by statute in a particular case.
10. The officer or agent having charge of the transfer books shall
make at least five days before each meeting of shareholders, a complete list of
the shareholders entitled to vote at the meeting, arranged in alphabetical
order, with the address of and the number of shares held by each, which list
shall be subject to inspection by any shareholder at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting, and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original share ledger or transfer
book, or a duplicate thereof kept in this Commonwealth, shall be prima facie
evidence as to who are the entitled to examine such list or share ledger or
transfer book,or to vote in person or by proxy, at any meeting of shareholders.
ARTICLE IV - DIRECTORS
1. The business of this corporation shall be managed by its Board
of Directors, 8 in number, who need not be residents of this Commonwealth or
shareholders in the corporation. They shall be elected by the shareholders, at
the annual meeting of shareholders of the corporation, and each director shall
be elected for the term of one year, and until his successor shall be elected
and shall qualify.
-4-
<PAGE> 5
2. In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles or by these By-Laws directed or required to be exercised or done by
the shareholders.
3. The meetings of the Board of Directors may be held at such
place within this Commonwealth, or elsewhere, as a majority of the directors may
from time to time appoint, or as may be designated in the notice calling the
meeting.
4. Each newly elected Board may meet at such place and time as
shall fixed by the shareholders at the meeting at which such directors are
elected and no notice shall be necessary to the newly elected directors in order
legally to constitute the meeting, or they may meet at such place and time as
may be fixed by the consent in writing of all the directors.
5. Regular meetings of the Board shall be held on the third
Friday in January, April, July, and October of each year at 9:30 o'clock A.M. at
the registered office of the company, or at such other time and place as shall
be determined by the Board.
6. Special meetings of the Board may be called by the President
on 3 days notice to each director, either personally or by mail or by telegram;
special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of two directors.
7. A majority of the directors in office shall be necessary to
constitute a quorum for the transaction of business, and the acts of a majority
of the directors present at a meeting at which a quorum is present shall be the
acts of the Board of Directors. If all the directors shall severally or
collectively consent in writing to any action to be taken by the corporation,
such action shall be as valid corporate action as though it had been authorized
at a meeting of the Board of Directors.
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<PAGE> 6
8. Directors as such, shall not receive any stated salary for
their services, but by resolution of the Board, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board PROVIDED, that nothing herein contained shall be construed
to preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
ARTICLE V - OFFICERS
1. The executive officers of the corporation shall be chosen by
the directors and shall be a Chief Executive Officer, a President and Chief
Operating Officer, a Secretary, and a Treasurer. The Board of Directors may also
choose a Chairman, a Vice-President, and such other officers and agents as it
shall deem necessary, who shall hold their offices for such terms and shall have
such authority and shall perform such duties as from to time shall be prescribed
by the Board. Any two or more offices may be held by the same person, except the
offices of President and Secretary. It shall not be necessary for the officers
to be directors.
2. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
3. The officers of the corporation shall hold office for one year
and until their successors are chosen and have qualified. Any officer elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in their judgement the best interests of the corporation will be served
thereby.
4. The Chief Executive Officer shall be the Chief Executive
Officer of the corporation, and the President and Chief Operating Officer shall
be the chief operating officer of
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the corporation, and they shall have the responsibility for the general and
active management of the business of the corporation, and shall see that all
orders and resolutions of the board are carried into effect, subject, however,
to the right of the directors to delegate any specific powers, except such as
may be by statute exclusively conferred on the Chief Executive Officer or
President and Chief Operating Officer, to any other officer or officers of the
corporation. They shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation. They shall each be EX-OFFICIO a member
of all committees, and shall have the general powers and duties of supervision
and management usually vested in the office of Chief Executive Officer or
President and Chief Operating Officer of a corporation. Whenever any statute or
these By-laws confer upon the President the right to call any meeting or take
any other action, such right may be exercised either by the Chief Executive
Officer or by the President and Chief Operating Officer.
5. The Secretary shall attend all sessions of the Board and all
meetings of the shareholders and act as clerk thereof, and record all the votes
of the corporation and the minutes of all its transactions in a book to be kept
for that purpose; and shall perform like duties for all committees of the Board
of Directors when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or President,
and under whose supervision he shall be. He shall keep in safe custody the
corporate seal of the corporation, and when authorized by the Board, affix the
same to any instrument requiring it.
6. The Treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of
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<PAGE> 8
the corporation. He shall disburse the funds of the corporation as may be
ordered by the Board, taking proper vouchers for such disbursements, and shall
render to the President and Directors, at the regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the corporation.
7. The Chairman of the Board of Directors shall preside at all
meetings of the shareholders and directors.
ARTICLE VI - VACANCIES
1. If the office of any officer or agent, one or more, becomes
vacant for any reason, the Board of Directors may choose a successor or
successors, who shall hold office for the unexpired term in respect of which
such vacancy occurred.
2. Vacancies in the Board of Directors shall be filled by a
majority of the remaining members of the Board though less than a quorum, and
each Person so elected shall be a director until his successor is elected by the
shareholders, who may make such election at the next annual meeting of the
shareholders or at any special meeting duly called for that purpose and held
prior thereto.
ARTICLE VII - CORPORATE RECORDS
1. There shall be kept at the registered office of the
corporation an original or duplicate record of the proceedings of the
shareholders and of the directors, and the original or a copy of its by-laws,
including all amendments or alterations thereto to date, certified by the
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<PAGE> 9
Secretary of the corporation. An original or duplicate share register shall also
be kept at the registered office, or at the office of a transfer agent or
registrar within this Commonwealth, giving the names of the shareholders in
alphabetical order, and showing their respective addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the shares, and the number and date of cancellation of every certificate
surrendered for cancellation.
2. Every shareholder shall have a right to examine, in person or
by agent or attorney, at any reasonable time or times, for any reasonable
purpose, the share register, books or records of account, and records of the
proceedings of the shareholders and directors, and make extracts therefrom.
ARTICLE VIII - CAPITAL STOCK
1. The share certificates of the corporation shall be numbered
and registered in the share ledger and transfer books of the corporation, as
they are issued. They shall be signed by the President and the Secretary and
shall bear the corporate seal.
2. Transfers of shares shall be made on the books of the
corporation upon surrender of the certificates therefor, endorsed by the person
named in the certificate or by attorney, lawfully constituted in writing. No
transfer shall be made inconsistent with the provisions of the Uniform Stock
Transfer Act, approved the fifth day of May, one thousand nine hundred eleven
(Pamphlet Laws, one hundred twenty-six), and its amendments and supplements.
3. The Board of Directors may fix a time, not more than seventy
days, prior to the date of any meeting of shareholders, or the date fixed for
the payment of any dividend or
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<PAGE> 10
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or go into effect, as a
record date for the determination of the shareholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of any such
dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect to any such change, conversion, or exchange of
shares. In such case, only such shareholders as shall be shareholders of record
on the date so fixed shall be entitled to notice of, and to vote at, such
meeting, or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after any record date
fixed, as aforesaid. The Board of Directors may close the books of the
corporation against transfers of shares during the whole or any part of such
period, and in such case, written or printed notice thereof shall be mailed at
least ten days before the closing thereof to each shareholder of record at the
address appearing on the records of the corporation or supplied by him to the
corporation for the purpose of notice. While the stock transfer books of the
corporation are closed, no transfer of shares shall be made thereon. If no
record date is fixed for the determination of shareholders entitled to receive
notice of, or vote at, a shareholders' meeting, transferees of shares which are
transferred on the books of the corporation within ten days next preceding the
date of such meeting shall not be entitled to notice of or vote at such meeting.
4. Any person claiming a share certificate to be lost or
destroyed shall make an affidavit or affirmation of that fact and advertise the
same in such manner as the Board of Directors may require, and shall give the
corporation a bond of indemnity with sufficient surety to protect the
corporation or any person injured by the issue of a new certificate from any
liability or expense which it or they may incur by reason of the original
certificate remaining outstanding,
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<PAGE> 11
whereupon a new certificate may be issued of the same tenor and for the same
number of shares as the one alleged to be lost or destroyed, but always subject
to the approval of the Board of Directors.
5. Subject to the provisions of the statutes, the Board of
Directors may declare and pay dividends upon the outstanding shares of the
corporation out of its surplus from time to time and to such extent as they deem
advisable, in cash, property or in shares of the corporation.
6. Before payment of any dividend there may be set aside out of
the net profits of the corporation such sum or sums as the directors, from time
to time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interests of the corporation, and the directors may
abolish any such reserve in the manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
1. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers as the Board of Directors may from
time to time designate.
2. The fiscal year shall begin the 1st day of January of each
year.
3. Whenever written notice is required to be given to any person,
it may be given to such person, either personally or by sending a copy thereof
through the mail, or by telegram, charges prepaid, to his address appearing on
the books of the corporation, or supplied by him to the corporation for the
purpose of notice. If the notice is sent by mail or by telegraph, it shall be
deemed to have been given to the person entitled thereto when deposited in the
United States
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<PAGE> 12
mail or with a telegraph office for transmission to such person. Such notice
shall specify the place, day and hour of the meeting and, in the case of a
special meeting, the general nature of the business to be transacted.
4. Whenever any written notice is required by statute, or by the
Articles or By-Laws of this corporation, a waiver thereof in writing, signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. Except
in the case of a special meeting, neither the business to be transacted at nor
the purpose of the meeting need be specified in the waiver of notice of such
meeting. Attendance of a person, either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
ARTICLE X - ANNUAL STATEMENT
1. The President and Board of Directors shall present at each
annual meeting a full and complete statement of the business and affairs of the
corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board of Directors shall deem advisable and
need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
1. These By-Laws may be altered, amended or repealed by the
affirmative vote of a majority of the shares issued and outstanding and entitled
to vote thereat at any regular or special
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meeting of the shareholders, if notice of the proposed alteration, amendment or
repeal be contained in the notice of the meeting.
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<PAGE> 1
EXHIBIT 3.9
CERTIFICATE OF FORMATION, LIMITED LIABILITY COMPANY
- --------------------------------------------------------------------------------
This is to certify that there is hereby organized a Limited liability
Company under and by virtue of the New Jersey Limited Liability Company Act
(N.J.S.A. 42:2B-1 et seq.).
1. The name of the Limited Liability Company is:
Lower Road Associates, L.L.C.
2. The purpose for which this Limited Liability Company is organized is to
engage in any activity within the purposes for which Limited Liability
Companies may be formed pursuant to the New Jersey Limited Liability
Company Act.
3. The name and address of the registered agent is:
James P. Koscica, 2001 Lower Road, Linden, NJ 07036
4. The Company has two or more members.
5. Additional provisions:
In witness whereof, the undersigned has been authorized to sign this
Certificate of Formation.
Dated: April 6, 1998 /s/ Ruth Schneider
----------------------------------------
Ruth Schneider, Executive Vice President
(Name/Title)
Filed for: Capitol Information Service, Inc.
172 West State Street
George A. Kalosieh, Esq. Trenton, NJ 08608
15-01 Broadway
Fair Lawn, NJ 07410 218989
-------------
<PAGE> 1
EXHIBIT 3.10
OPERATING AGREEMENT
LOWER ROAD ASSOCIATES, LLC
THIS OPERATING AGREEMENT is entered into as of the day as of the 9 day
of June, 1998 between SLEEPMASTER HOLDINGS LLC, and SLEEP INVESTOR LLC, both
located at 2001 Lower Road, Linden, New Jersey, (the "Members").
WHEREAS, the Members operate a limited liability company formed under
the laws of the State of New Jersey (N.J. S.A. section 42:2B-1 et seq., herein
referred to as the "Act") and desire to set forth their respective rights and
obligations with respect to such limited liability company, as provided in this
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
stated herein, the parties agree as follows:
1. NAME AND FORMATION
The Members join together pursuant to this Agreement as a "limited
liability company" as of April 6, 1998. The Members filed a certificate of
formation, in accordance with the Act, with the Secretary of the State of New
Jersey on said date. The LLC shall conduct business as a limited liability
company pursuant to the terms of this Agreement and the provisions of all
applicable law.
The business and affairs of the LLC shall be conducted under the name
LOWER ROAD ASSOCIATES, LLC and such name shall be used at all times in
connection with the business and affairs of the LLC.
2. PURPOSE
<PAGE> 2
The LLC is organized to conduct business as a purchasing agent or to
conduct such other business of any nature as the Members may from time to time
find necessary and desirable.
3. TERM
The term of the LLC began on April 6. 1998, and shall terminate upon
the first of the following to occur:
(a) April 6, 2028
(b) The sale or other disposition of all or substantially all of the
LLC property and the distribution of the net proceeds thereof to the Members,
their heirs or assigns; or
(c) The retirement, removal, death, liquidation, dissolution or
insolvency of any Member provided, however, that the LLC existence shall not
terminate if, within forty- five (45) days after such event, all the Remaining
Member elects to reconstitute and continue the LLC pursuant to the provisions
contained in Paragraph 13, herein.
4. PRINCIPAL OFFICE
The principal office of the LLC shall be 2001 Lower Road, Linden, New
Jersey 07036, or other such place as the Members from time to time may
determine.
5. CAPITAL CONTRIBUTIONS; PERCENTAGE INTERESTS
(a) The capital of the LLC shall consist of the assets listed on
Schedule A, attached hereto.
(b) No Member shall be required to make any additional contribution to
the capital of the LLC.
(c) No interest shall be paid on any contributions to the capital of
the LLC, except as hereinafter specifically provided.
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<PAGE> 3
6. FISCAL YEAR: ACCOUNTING BASIS: INCOME AND CAPITAL ACCOUNT
(a) The fiscal year of the LLC shall be the calendar year unless
otherwise determined by the LLC and the books of the LLC shall be kept on a cash
basis of accounting. The LLC shall elect to compute depreciation allowable under
the Internal Revenue Code or at such rates and by such methods as are acceptable
to the company's accountant and with respect to their property shall deduct
rather than elect to capitalize all expenses allowable as deductions under the
Internal Revenue Code on the LLC property. In addition to other proper accounts,
an income account and a capital account shall be maintained for each Member.
(b) The income account of each Member shall be credited with its share
of LLC net Profit as hereinafter defined, if any, for each fiscal year, and
shall be charged with its share of LLC Net Loss, as hereinafter defined, if any
for each fiscal year. Furthermore, the income account shall be charged with any
amounts distributed to each Member by the LLC.
(c) The capital account of each Member shall be credited with the
capital contributions, if any, made by it hereunder, and such capital account
shall be charged with amounts distributed to it, if any, as a return of its
capital contributions. The balance, at any time, in the capital account of each
Member shall hereinafter be referred to as its undistributed capital account.
7. ALLOCATION AND DISTRIBUTIONS
(a) For the purposes of this Agreement, the term "Positive Cash Flow"
shall mean that the receipts of the LLC exceed its expenses. For purposes of
this Agreement, the term "Negative Cash Flow" shall mean that the receipts of
the LLC are exceeded by its expenses. "Net Capital Receipts" shall mean the
gross proceeds available to the LLC from all extraordinary receipt of proceeds
(other than a capital contribution by either of the Members) after payment of
all sums
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currently due from the Partnership minus the expenses incurred in the collection
of such proceeds. "Operating Expenses" shall mean all current operating expenses
in connection with the operation of the LLC excluding for the purpose hereof the
expenses incurred in the collection of Net Capital Receipts.
"Profits and Losses" shall mean the income or losses of the LLC after
all expenses incurred in connection with the LLC business have been paid or
provided for. Profits and Losses shall not include any gain or loss realized by
the LLC on the sale or other disposition of the LLC property or any other assets
of the LLC. Consistent with the foregoing definition, Profit and Losses shall be
determined in accordance with generally accepted accounting principles.
(b) The Members agree that their respective proportionate interests in
the LLC as set forth in Exhibit A, as the same may be adjusted hereunder, shall
apply to the assets and liabilities of the LLC, the income and expenses of the
LLC and to distributions with respect to the LLC whether distributions of
Positive Cash Flow, Net Capital Receipts or distributions from capital (as
hereinafter defined).
(c) Except as provided in Section 7(d) hereof, the earnings of each
Member shall be in direct proportion to the interest of each Member in the LLC
as set forth on Exhibit A regardless of the amount of time devoted by the
respective Members to the business of the LLC, unless otherwise agreed to in
writing by all Members. Each Member shall have the right, but is not obligated
to, withdraw her respective share of Net Capital Receipts of the LLC at the end
of each year.
(d) All taxable income, gain, loss, deductions or credits (or items
thereof) shall be allocated or debited, among the Members in accordance with
their respective proportionate interest in the LLC as set forth on Exhibit A
attached hereto, at the end of each fiscal year during
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<PAGE> 5
the term of this Agreement, or at such shorter intervals or on such other date
as the Members shall determine.
8. EMPLOYMENT OF AGENTS
The Members hereby consent to the employment, when and if required, of
such brokers, managing and other agents, accountants, and attorneys, as the
Members may from time to time determine. The fact that a Member, or a member of
his family is employed by, or directly or indirectly interested in or connected
with, any person. firm or corporation employed by the LLC to render or perform a
service, or from which the LLC may purchase any property, shall not prohibit the
Members from employing such person, firm or corporation, or from otherwise
dealing with him or it, and neither the LLC nor any of the Members herein shall
have any rights in or to any income or profits derived therefrom as a
consequence of the LLC relationship herein created. In the event that the
Members employ or deal with any company in which either of them has an interest
directly or indirectly, such employment or dealing shall be only for services
rendered or goods delivered and such services or goods shall be paid for values
commensurate with their fair market value to the LLC and comparable to such
prices as would be paid if said Member had no interest therein.
9. BANK ACCOUNT OR ACCOUNTS
All funds of the LLC are to be deposited in such bank account or
accounts as shall be designated by the Members. Withdrawals from any such bank
account or accounts shall be made by either Member. Withdrawals in excess of
$10,000 must be approved by all Members.
10. TITLE TO THE LLC PROPERTY
Title to the Partnership property shall be held in the name of the LLC.
11. BOOKS OF THE LLC
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The LLC shall maintain full and accurate books in its principal office
or such office as shall be designated for such purpose by the Members, and each
Member shall have the right to inspect and examine such books at reasonable
times. The books shall be closed and balanced at the end of each calendar year.
Annual statements showing the profit and loss for the calendar year and
indicating the share of profit or loss of each Member for income tax purposes
shall be prepared by the accountants for the LLC and distributed to all the
Members within a reasonable time after the closing of each calendar year. Copies
of all income tax returns of the LLC shall be furnished to all Members.
12. ASSIGNMENT OF LLC INTERESTS
Under no circumstances may either Member, during his or her lifetime,
dispose of his or her interest in the LLC, in any manner, without the written
consent of the other Member.
13. TERMINATION OF A MEMBER
The termination of a Member shall dissolve and terminate the LLC
unless, however, within forty-five (45) days of the death of such Member, the
remaining Member or Members elect to reconstitute and continue the LLC with the
other Members. Should the remaining Members choose to continue the operations of
the LLC, the terminating Member's interest in the LLC shall be transferred to
the surviving Member or Members, in the same proportion as the surviving Members
have interest in the LLC,
14. PURCHASE PRICE OF TERMINATING MEMBER
The Members of the LLC will, concurrently with the execution of this
Agreement, agree in writing upon the value of the LLC. The written statement
containing the agreed valuation shall be subscribed by the parties and shall be
sent to each Member of the LLC upon the execution of this Agreement. Such
statement shall be substantially in the form set forth in Exhibit B annexed
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hereto. Commencing with the first day of January, 1999, and at least annually
thereafter, the Members and the LLC shall execute a certificate of agreed value,
in writing, fixing the value of the total value theretofore agreed upon. The
members may fix the value of the LLC as often as they deem necessary. Once the
purchase price has been determined, the LLC will issue to the terminating
member, a Note in said amount. Said Note shall be payable in five (5) annual
installments with interest at a rate of eight (8%) percent.
Interest shall be paid on the unpaid principal balance of the Note
until the entire Note has been satisfied. The first annual installment shall
become payable on the sixtieth (60th) day following the date of termination of
the Member and annually thereafter until the entire Note, including accrued
interest has been satisfied.
15. DISTRIBUTIONS UPON DISSOLUTION AND TERMINATION OF LLC
Except as otherwise provided in this Agreement, in the event of the
dissolution and termination of the LLC, the Members shall proceed to the
liquidation of the LLC and the proceeds of such liquidation shall be applied and
distributed in the following order or priority:
(a) To the payment of debts and liabilities of the LLC (other than any
loans or advances that may have been made by the Members to the LLC and the
expenses of liquidation.
(b) To the setting up of any reserves which the Managing Member may
deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the LLC or of the Members arising out of or in connection with
the LLC. Such reserves shall be paid over by the Managing Member to an
attorney-at-law of the State of New Jersey as Escrowee, to be held by him for
the purpose of disbursing such reserves in payment of any of the aforementioned
contingencies, and, at the expiration of such period as the Managing Member
shall deem
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advisable, to distribute the balance thereafter remaining in the manner
hereinafter provided. No reserves shall be held for longer than two (2) years.
(c) To the repayment of any loans or advances which may have been made
by any of the Members to the LLC, but if the amount available for such repayment
shall be insufficient, then pro rata on account thereof.
(d) Any balance remaining shall be distributed as follows:
(i) In the event that the LLC assets shall have been sold the
not proceeds shall be distributed first to each Member in the manner provided in
Section 7 hereof.
(ii) (a) In the event of liquidation other than a sale, the
LLC assets may be distributed in kind, each Member receiving an undivided
interest in the LLC's assets subject to its liabilities in satisfaction of his
interest as provided in Section 7.
(b) In the event of liquidating distribution of the
LLC Property in kind, the fair market value of such Property shall be determined
as follows: If all of the Members agree on a value for the property, such agreed
upon value shall be its fair market value. If all of the Members fail to agree
on a value, then each Member shall appoint an appraiser who is a member of the
American Institute of Appraisers and said appraisers shall together appoint a
third appraiser who is a member of the American Institute of Appraisers. The
fair market value of such property shall be determined by each of said
appraisers. The average of said appraisals shall be determined, and shall
represent the fair market value of the LLC property; such determination of fair
market value of the LLC property shall be binding upon all panics hereto.
16. LIQUIDATION OF ASSETS
A reasonable time shall be allowed for the orderly liquidation of the
assets of the LLC and the discharge of liabilities to creditors so as to enable
the each Member to minimize the
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<PAGE> 9
normal losses attendant upon a liquidation. Each of the Members shall be
furnished with a statement prepared by the LLC's then Certified Public
Accountants, which shall set forth the assets and liabilities of the LLC as at
the date of complete liquidation. Upon the Members' complying with the
distribution plan set forth in Section 14 hereof (including payment over to the
Attorney-Escrowee if there are sufficient funds therefor), the LLC shall cease
to be such and terminate.
17. VOTING and MANAGING MEMBER
All business decisions, whether day-to-day or extraordinary, shall be
made by the Managing Member. Such decisions include, but are not limited to,
depositing and withdrawing funds, signing checks, opening accounts, transferring
funds, taking out loans, secure LLC property, and sign documents on behalf of
the LLC.
The Members agree that SLEEP MASTER HOLDINGS LLC shall be the Managing
Member. Should SLEEP MASTER HOLDINGS LLC fail to serve as Managing Member for
any reason, then SLEEP INVESTOR, LLC shall serve as Managing Member.
18. NOTICES
All notices provided for in this Agreement shall be sent, postage
prepaid, by registered or certified mail, return receipt requested, and shall be
effective when duly mailed, directed to the other Member at the addresses herein
set forth.
19. MISCELLANEOUS PROVISIONS
(a) This Agreement shall be binding upon and the benefits shall inure
to all parties and their heirs, successors, designees, and assigns.
(b) This Agreement and the rights of the parties hereunder shall be
interpreted in accordance with the laws of the State of New Jersey.
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<PAGE> 10
IN WITNESS WHEREOF, we have hereunto set our hands and seals to this
thirteen (13) page Agreement, including the page containing Schedules A and B,
the day and year first above written.
WITNESS: SLEEPMASTER HOLDINGS LLC
/s/ Barbara Heath /s/ James Koscica
- --------------------------- ---------------------------
by: JAMES KOSCICA, Member
WITNESS: SLEEP INVESTOR, LLC
/s/ Barbara Heath /s/ James Koscica
- --------------------------- ---------------------------
by: JAMES KOSCICA
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<PAGE> 11
EXHIBIT A
INTERESTS OF MEMBERS
<TABLE>
<CAPTION>
Interest Value of Total
Name Percentage Contributions
- ---- ---------- --------------
<S> <C> <C>
SLEEPMASTER HOLDINGS LLC 99.9875% $99.9875
SLEEP INVESTOR, LLC .0125 $ .0125
TOTAL
</TABLE>
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<PAGE> 12
EXHIBIT B
FAIR MARKET VALUE OF
LOWER ROAD ASSOCIATES, LLC
Date 6/9/98
--------------
Fair Market Value $ 100.00
-------------
SLEEPMASTER HOLDINGS LLC
/s/ James Koscica
- ---------------------------
by: JAMES KOSCICA, Member
SLEEP INVESTOR, LLC
/s/ James Koscica
- ---------------------------
by: JAMES KOSCICA
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<PAGE> 13
EXECUTION COPY
AMENDMENT NO. 1
TO THE
LOWER ROAD ASSOCIATES L.L.C. OPERATING AGREEMENT
This AMENDMENT NO. 1 TO THE LOWER ROAD ASSOCIATES L.L.C. OPERATING
AGREEMENT (this "Amendment") is dated as of February 26, 1999.
Sleepmaster, L.L.C. is the sole member of that certain Lower Road
Associates L.L.C. Operating Agreement dated as of June 9, 1998 (the "LRA L.L.C.
Agreement"). Capitalized terms used but not otherwise defined herein shall have
the meanings assigned to such terms in the LRA L.L.C. Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto agree as follows:
1. Amendment to the LRA L.L.C. Agreement. The LRA L.L.C.
Agreement is hereby amended as follows:
Section 17 to the LRA L.L.C. Agreement is amended in its entirety to
read as follows:
" All business decisions, whether day-to-day or extraordinary, shall be
made by the officers appointed by the Managing Member. Such decisions include,
but are not limited to, depositing and withdrawing funds, signing checks,
opening accounts, transferring of funds, taking out loans, secure the LLC
property and sign documents on behalf of the LLC and the Managing Member.
Sleepmaster L.L.C. shall be the sole Managing Member."
2. Miscellaneous.
(1) This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which,
when taken together, shall constitute one and the same instrument.
(2) This Amendment shall be governed by and construed in
accordance with the internal laws of the State of New York, without reference to
the choice of law or conflicts of law principles thereof.
(3) Except as amended hereby, the LRA L.L.C. Agreement
shall remain in full force and effect.
(4) Time is of the essence for each and every provision
of this Agreement.
<PAGE> 14
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
duly executed as of the date and year first above written.
Sleepmaster L.L.C.
Managing Member
By: /s/ James P. Koscica
-------------------------------------
Name: James P. Koscica
Title: Executive Vice President
<PAGE> 1
EXHIBIT 4.1
SLEEPMASTER L.L.C.
SLEEPMASTER FINANCE CORPORATION
AS ISSUERS,
HERR MANUFACTURING COMPANY
PALM BEACH BEDDING COMPANY
LOWER ROAD ASSOCIATES, LLC
AS GUARANTORS,
AND
UNITED STATES TRUST COMPANY OF NEW YORK
AS TRUSTEE
----------------------
INDENTURE
DATED AS OF MAY 18, 1999
----------------------
$115,000,000
11% SENIOR SUBORDINATED NOTES DUE 2009
<PAGE> 2
Reconciliation and tie between Trust Indenture Act of 1939, as amended,
and Indenture, dated as of May 18, 1999
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
----------- -------
<S> <C>
Section 310 (a)(1).......................................... 609
(a)(2).......................................... 609
(b)............................................. 608, 610
Section 311 (a)............................................. 613
(c)............................................. Not Applicable
Section 312 (a)............................................. 701
(b)............................................. 702
(c)............................................. 702
Section 313 (a)............................................. 703
Section 314 (a)............................................. 704
(a)(4).......................................... 1019
(b)............................................. Not Applicable
(c)(1).......................................... 103, 104, 404, 1201
(c)(2).......................................... 103, 104, 404, 1201
(d)............................................. Not Applicable
(e)............................................. 103
Section 315 (a)............................................. 601(b)
(b)............................................. 602
(c)............................................. 601(a)
(d)............................................. 601(c), 603
(e)............................................. 514
Section 316 (a)(last sentence).............................. 101 ("Outstanding")
(a)(1)(A)....................................... 502, 512
(a)(1)(B)....................................... 513
(a)(2).......................................... Not Applicable
(b)............................................. 508
(c)............................................. 105
Section 317 (a)(1).......................................... 503
(a)(2).......................................... 504
(b)............................................. 1003
Section 318 (a)............................................. 108
</TABLE>
<PAGE> 3
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of this Indenture.
-2-
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PARTIES...................................................................... 1
RECITALS..................................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION
Section 101. Definitions................................................... 2
"Acquired Indebtedness".................................... 2
"Additional Securities".................................... 2
"Affiliate"................................................ 3
"Applicable Premium"....................................... 3
"Applicable Procedures".................................... 3
"Asset Sale"............................................... 3
"Average Life to Stated Maturity".......................... 4
"Bankruptcy Law"........................................... 4
"Board of Directors"....................................... 4
"Board Resolution"......................................... 4
"Business Day"............................................. 4
"Capital Lease Obligation"................................. 4
"Capital Stock"............................................ 4
"Cedel".................................................... 5
"Change of Control"........................................ 5
"Commission"............................................... 6
"Company".................................................. 6
"Company Request" or "Company Order"....................... 6
"Comparable Treasury Issue"................................ 6
"Comparable Treasury Price"................................ 6
"Consolidated Fixed Charge Coverage Ratio"................. 6
"Consolidated Income Tax Expense".......................... 7
"Consolidated Interest Expense"............................ 8
"Consolidated Net Income (Loss)"........................... 8
"Consolidated Net Tangible Assets"......................... 9
"Consolidated Non-cash Charges"............................ 9
"Consolidation"............................................ 9
"Corporate Trust Office"................................... 9
"Credit Facility".......................................... 9
"Currency Hedging Agreements".............................. 9
</TABLE>
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<TABLE>
<S> <C>
"Default"................................................. 10
"Depositary".............................................. 10
"Designated Senior Indebtedness".......................... 10
"Disinterested Director".................................. 10
"Euroclear"............................................... 10
"Event of Default"........................................ 10
"Exchange Act"............................................ 10
"Exchange Offer".......................................... 10
"Exchange Offer Registration Statement"................... 10
"Fair Market Value"....................................... 10
"Finance Corp."........................................... 11
"GAAP".................................................... 11
"Global Securities"....................................... 11
"Guarantee"............................................... 11
"Guaranteed Debt"......................................... 11
"Guarantor"............................................... 11
"Holder".................................................. 11
"Indebtedness"............................................ 12
"Indenture"............................................... 12
"Indenture Obligations"................................... 12
"Independent Investment Banker"........................... 13
"Initial Securities"...................................... 13
"Initial Purchasers"...................................... 13
"Interest Payment Date"................................... 13
"Interest Rate Agreements"................................ 13
"Investment".............................................. 13
"Issue Date".............................................. 13
"Lien".................................................... 13
"Majority Owned Restricted Subsidiary".................... 14
"Maturity"................................................ 14
"Moody's"................................................. 14
"Net Cash Proceeds"....................................... 14
"Non-U.S. Person"......................................... 14
"Officers' Certificate"................................... 14
"Opinion of Counsel"...................................... 15
"Opinion of Independent Counsel".......................... 15
"Outstanding"............................................. 15
"Pari Passu Indebtedness"................................. 16
"Paying Agent"............................................ 16
"Permitted Holders"....................................... 16
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
"Permitted Investment".................................... 16
"Person".................................................. 17
"Predecessor Security".................................... 17
"Preferred Stock"......................................... 17
"Prospectus".............................................. 17
"Public Equity Offering".................................. 17
"Purchase Money Obligation"............................... 17
"Qualified Capital Stock"................................. 18
"Redeemable Capital Stock"................................ 18
"Redemption Date"......................................... 18
"Redemption Price"........................................ 18
"Reference Treasury Dealer"............................... 18
"Reference Treasury Dealer Quotations".................... 18
"Registration Rights Agreement"........................... 19
"Registration Statement".................................. 19
"Regular Record Date"..................................... 19
"Regulation S"............................................ 19
"Regulation S Global Securities".......................... 19
"Responsible Officer"..................................... 19
"Restricted Subsidiary"................................... 19
"Rule 144A"............................................... 19
"Rule 144A Global Securities"............................. 20
"S&P"..................................................... 20
"Securities".............................................. 20
"Securities Act".......................................... 20
"Senior Indebtedness"..................................... 20
"Senior Guarantor Indebtedness"........................... 20
"Senior Representative"................................... 21
"Series B Global Securities".............................. 21
"Shelf Registration Statement"............................ 21
"Sleep Investor Promissory Notes"......................... 21
"Special Preferred Stock"................................. 21
"Special Record Date"..................................... 22
"Stated Maturity"......................................... 22
"Subordinated Indebtedness"............................... 22
"Subsidiary".............................................. 22
"Successor Security"...................................... 22
"Tax Amounts"............................................. 22
"Taxable Income".......................................... 23
"Temporary Cash Investments".............................. 23
"Treasury Rate"........................................... 23
"Trustee"................................................. 24
</TABLE>
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<TABLE>
<S> <C>
"Trust Indenture Act"..................................... 24
"Unrestricted Subsidiary"................................. 24
"Unrestricted Subsidiary Indebtedness".................... 24
"Voting Stock"............................................ 24
"Wholly Owned Restricted Subsidiary"...................... 24
Section 102. Other Definitions............................................ 25
Section 103. Compliance Certificates and Opinions......................... 26
Section 104. Form of Documents Delivered to Trustee....................... 27
Section 105. Acts of Holders.............................................. 28
Section 106. Notices, etc., to the Trustee, the Company,
Finance Corp. and any Guarantor.............................. 29
Section 107. Notice to Holders; Waiver.................................... 30
Section 108. Conflict with Trust Indenture Act............................ 30
Section 109. Effect of Headings and Table of Contents..................... 31
Section 110. Successors and Assigns....................................... 31
Section 111. Separability Clause.......................................... 31
Section 112. Benefits of Indenture........................................ 31
SECTION 113. GOVERNING LAW................................................ 31
Section 114. Legal Holidays............................................... 31
Section 115. Independence of Covenants.................................... 32
Section 116. Schedules and Exhibits....................................... 32
Section 117. Counterparts................................................. 32
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.............................................. 33
Section 202. Form of Face of Security..................................... 34
Section 203. Form of Reverse of Securities................................ 48
Section 204. Form of Guarantee............................................ 58
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.............................................. 59
Section 302. Denominations................................................ 60
Section 303. Execution, Authentication, Delivery and Dating............... 60
Section 304. Temporary Securities......................................... 62
Section 305. Registration, Registration of Transfer and Exchange.......... 62
Section 306. Book Entry Provisions for Global Securities.................. 64
Section 307. Special Transfer and Exchange Provisions..................... 65
</TABLE>
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<TABLE>
<S> <C>
Section 308. Mutilated, Destroyed, Lost and Stolen Securities............. 69
Section 309. Payment of Interest; Interest Rights Preserved............... 70
Section 310. CUSIP Numbers................................................ 71
Section 311. Persons Deemed Owners........................................ 71
Section 312. Cancellation................................................. 72
Section 313. Computation of Interest...................................... 72
ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. Option to Effect Defeasance or Covenant
Defeasance................................................... 73
Section 402. Defeasance and Discharge..................................... 73
Section 403. Covenant Defeasance.......................................... 73
Section 404. Conditions to Defeasance or Covenant Defeasance.............. 74
Section 405 Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions.......... 76
Section 406 Reinstatement................................................ 77
ARTICLE FIVE
REMEDIES
Section 501 Events of Default............................................ 78
Section 502 Acceleration of Maturity; Rescission and Annulment........... 80
Section 503 Collection of Indebtedness and Suits for
Enforcement by Trustee....................................... 81
Section 504 Trustee May File Proofs of Claim............................. 82
Section 505 Trustee May Enforce Claims without Possession of Securities.. 83
Section 506 Application of Money Collected............................... 83
Section 507 Limitation on Suits.......................................... 83
Section 508 Unconditional Right of Holders to Receive Principal, Premium
and Interest................................................. 84
Section 509 Restoration of Rights and Remedies........................... 84
Section 510 Rights and Remedies Cumulative............................... 85
Section 511 Delay or Omission Not Waiver................................. 85
Section 512 Control by Holders........................................... 85
Section 513 Waiver of Past Defaults...................................... 85
Section 514 Undertaking for Costs........................................ 86
Section 515 Waiver of Stay, Extension or Usury Laws...................... 86
Section 516 Remedies Subject to Applicable Law........................... 87
</TABLE>
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<TABLE>
<S> <C>
ARTICLE SIX
THE TRUSTEE
Section 601 Duties of Trustee............................................ 88
Section 602 Notice of Defaults........................................... 89
Section 603 Certain Rights of Trustee.................................... 89
Section 604 Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof................ 91
Section 605 Trustee and Agents May Hold Securities; Collections; etc..... 91
Section 606 Money Held in Trust.......................................... 91
Section 607 Compensation and Indemnification of Trustee and Its Prior
Claim........................................................ 91
Section 608 Conflicting Interests........................................ 92
Section 609 Trustee Eligibility.......................................... 92
Section 610 Resignation and Removal; Appointment of
Successor Trustee............................................ 93
Section 611 Acceptance of Appointment by Successor....................... 94
Section 612 Merger, Conversion, Consolidation or Succession to Business.. 95
Section 613 Preferential Collection of Claims Against
Company...................................................... 96
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUERS
Section 701 Issuers to Furnish Trustee Names and Addresses of Holders.... 97
Section 702 Disclosure of Names and Addresses of Holders................. 97
Section 703 Reports by Trustee........................................... 97
Section 704 Reports by Company and Guarantors........................... 98
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 801 Company and Guarantors May Consolidate, etc.,
Only on Certain Terms........................................ 100
Section 802 Successor Substituted........................................ 103
</TABLE>
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<TABLE>
<S> <C>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901 Supplemental Indentures and Agreements without Consent of
Holders..................................................... 104
Section 902 Supplemental Indentures and Agreements with Consent of
Holders...................................................... 105
Section 903 Execution of Supplemental Indentures and Agreements.......... 106
Section 904 Effect of Supplemental Indentures............................ 107
Section 905 Conformity with Trust Indenture Act.......................... 107
Section 906 Reference in Securities to Supplemental Indentures........... 107
Section 907 Notice of Supplemental Indentures............................ 107
ARTICLE TEN
COVENANTS
Section 1001 Payment of Principal, Premium and Interest................... 108
Section 1002 Maintenance of Office or Agency.............................. 108
Section 1003 Money for Security Payments to Be Held in Trust.............. 108
Section 1004 Corporate Existence.......................................... 110
Section 1005 Payment of Taxes and Other Claims............................ 110
Section 1006 Maintenance of Properties.................................... 111
Section 1007 Maintenance of Insurance..................................... 111
Section 1008 Limitation on Indebtedness................................... 111
Section 1009 Limitation on Restricted Payments............................ 115
Section 1010 Limitation on Transactions with Affiliates................... 121
Section 1011 Limitation on Liens.......................................... 122
Section 1012 Limitation on Sale of Assets................................. 124
Section 1013 Limitation on Issuances of Guarantees of and Pledges for
Indebtedness................................................. 129
Section 1014 Limitation on Senior Subordinated Indebtedness............... 130
Section 1015 Purchase of Securities upon a Change of Control.............. 130
Section 1016 Limitation on Subsidiary Capital Stock....................... 137
Section 1017 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries....................................... 138
Section 1018 Limitations on Unrestricted Subsidiaries..................... 139
Section 1019 Limitation on Activities of Finance Corp..................... 140
Section 1020 Provision of Financial Statements............................ 141
Section 1021 Statement by Officers as to Default.......................... 141
Section 1022 Waiver of Certain Covenants.................................. 142
</TABLE>
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<TABLE>
<S> <C>
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101 Rights of Redemption......................................... 143
Section 1102 Applicability of Article..................................... 143
Section 1103 Election to Redeem; Notice to Trustee........................ 144
Section 1104 Selection by Trustee of Securities to Be Redeemed............ 144
Section 1105 Notice of Redemption......................................... 144
Section 1106 Deposit of Redemption Price.................................. 145
Section 1107 Securities Payable on Redemption Date........................ 146
Section 1108 Securities Redeemed or Purchased in Part..................... 146
ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 1201 Satisfaction and Discharge of Indenture...................... 147
Section 1202 Application of Trust Money................................... 148
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
Section 1301 Securities Subordinate to Senior Indebtedness................ 149
Section 1302 Payment Over of Proceeds Upon Dissolution, etc............... 149
Section 1303 Suspension of Payment When Designated Senior Indebtedness in
Default...................................................... 150
Section 1304 Payment Permitted if No Default.............................. 152
Section 1305 Subrogation to Rights of Holders of Senior Indebtedness...... 152
Section 1306 Provisions Solely to Define Relative Rights.................. 153
Section 1307 Trustee to Effectuate Subordination.......................... 153
Section 1308 No Waiver of Subordination Provisions........................ 153
Section 1309 Notice to Trustee............................................ 154
Section 1310 Reliance on Judicial Orders or Certificates.................. 155
Section 1311 Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.............................. 155
Section 1312 Article Applicable to Paying Agents.......................... 156
Section 1313 No Suspension of Remedies.................................... 156
Section 1314 Trustee's Relation to Senior Indebtedness.................... 156
</TABLE>
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<TABLE>
<S> <C>
ARTICLE FOURTEEN
GUARANTEES
Section 1401 Guarantors' Guarantee........................................ 157
Section 1402 Continuing Guarantee; No Right of Set-Off; Independent
Obligation................................................... 157
Section 1403 Guarantee Absolute........................................... 158
Section 1404 Right to Demand Full Performance............................. 161
Section 1405 Waivers...................................................... 161
Section 1406 The Guarantors Remain Obligated in Event the Issuers Are No
Longer Obligated to Discharge Indenture Obligations.......... 163
Section 1407 Fraudulent Conveyance; Contribution;
Subrogation.................................................. 163
Section 1408 Guarantee Is in Addition to Other Security................... 164
Section 1409 Release of Security Interests................................ 164
Section 1410 No Bar to Further Actions.................................... 164
Section 1411 Failure to Exercise Rights Shall Not Operate as a Waiver; No
Suspension of Remedies....................................... 164
Section 1412 Trustee's Duties; Notice to Trustee.......................... 165
Section 1413 Successors and Assigns....................................... 165
Section 1414 Release of Guarantee......................................... 165
Section 1415 Execution of Guarantee....................................... 166
Section 1416 Guarantee Subordinate to Guarantor Senior Indebtedness....... 166
Section 1417 Payment Over of Proceeds Upon Dissolution of the
Guarantor, etc............................................... 167
Section 1418 Default on Guarantor Senior Indebtedness..................... 168
Section 1419 Payment Permitted by Each of the Guarantors if
No Default................................................... 169
Section 1420 Subrogation to Rights of Holders of Guarantor
Senior Indebtedness.......................................... 169
Section 1421 Provisions Solely to Define Relative Rights.................. 169
Section 1422 Trustee to Effectuate Subordination.......................... 170
Section 1423 No Waiver of Subordination Provisions........................ 170
Section 1424 Notice to Trustee by Each of the Guarantors.................. 171
Section 1425 Reliance on Judicial Orders or Certificates.................. 172
Section 1426 Rights of Trustee as a Holder of Guarantor Senior
Indebtedness; Preservation of Trustee's Rights............... 172
Section 1427 Article Applicable to Paying Agents.......................... 172
Section 1428 No Suspension of Remedies.................................... 173
Section 1429 Trustee's Relation to Guarantor Senior
Indebtedness................................................. 173
</TABLE>
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<PAGE> 13
TESTIMONIUM
SIGNATURES AND SEALS
ACKNOWLEDGMENTS
ANNEX A Form of Intercompany Note
SCHEDULE I Individuals/Entities holding Sleep Investor Promissory Notes
EXHIBIT A Regulation S Certificate
EXHIBIT B Restricted Securities Certificate
EXHIBIT C Unrestricted Securities Certificate
APPENDIX I Form of Transfer Notice
APPENDIX II Form of Transferee Certificate
-x-
<PAGE> 14
INDENTURE, dated as of May 18, 1999, between Sleepmaster L.L.C., a
New Jersey limited liability company (the "Company") and Sleepmaster Finance
Corporation, a Delaware corporation ("Finance Corp." and, together with the
Company, the "Issuers"), and Herr Manufacturing Company, a Pennsylvania
corporation, Palm Beach Bedding Company, a Florida corporation and Lower Road
Associates, LLC, a New Jersey limited liability company (each a "Guarantor" and
collectively, the "Guarantors"), and United States Trust Company of New York, a
bank and trust company organized under the New York Banking Law, as trustee (the
"Trustee").
RECITALS OF THE COMPANY AND THE GUARANTORS
The Issuers have duly authorized the creation of an issue of 11%
Senior Subordinated Notes due 2009, Series A (the "Series A Securities"), and an
issue of 11% Senior Subordinated Notes due 2009, Series B (the "Series B
Securities" and, together with the Series A Securities, the "Securities"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Issuers has duly authorized the execution and delivery of this
Indenture and the Securities;
Each Guarantor has duly authorized the issuance of a Guarantee of
the Securities, of substantially the tenor hereinafter set forth, and to provide
therefor, each Guarantor has duly authorized the execution and delivery of this
Indenture and its Guarantee;
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act that are required to be part of and to
govern indentures qualified under the Trust Indenture Act;
All acts and things necessary have been done to make (i) the
Securities, when duly issued and executed by each of the Issuers and
authenticated and delivered hereunder, the valid obligations of each of the
Issuers, (ii) the Guarantees, when executed by each of the Guarantors and
delivered hereunder, the valid obligation of each of the Guarantors and (iii)
this Indenture a valid agreement of each of the Issuers and each of the
Guarantors in accordance with the terms of this Indenture;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
- 1 -
<PAGE> 15
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States of America; and
(f) all references herein to particular Sections or Articles refer
to this Indenture unless otherwise so indicated.
Certain terms used principally in Article Four are defined in
Article Four.
"Acquired Indebtedness" means Indebtedness of a Person (1) existing
at the time such Person becomes a Restricted Subsidiary or (2) assumed in
connection with the acquisition of assets from such Person, in each case, other
than Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or such acquisition, as the case may be.
Acquired Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary, as the case may be.
"Additional Securities" means up to $50.0 million aggregate
principal amount of Securities (other than the Initial Securities) issued under
this Indenture in accordance with Sections 303 and 1108 hereof, as part of the
same series as the Initial Securities. The Initial Securities and any Additional
Securities subsequently issued under
- 2 -
<PAGE> 16
this Indenture shall be treated as a single class for all purposes under this
Indenture, including, without limitation, waivers, amendments, redemptions, and
offers to purchase.
"Affiliate" means, with respect to any specified Person: (1) any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person; (2) any other Person that
owns, directly or indirectly, 10% or more of any class or series of such
specified Person's (or any of such Person's direct or indirect parent's) Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin; or
(3) any other Person 10% or more of the Voting Stock of which is beneficially
owned or held directly or indirectly by such specified Person. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Applicable Premium" means, with respect to a Security to be
redeemed at any redemption date, the excess of (A) the present value at such
time of (1) the redemption price of such Security at May 15, 2004, plus (2) all
required interest payments (excluding accrued but unpaid interest to the date of
redemption) due on such Security through May 15, 2004, computed using a discount
rate equal to the Treasury Rate plus 50 basis points, over (B) the then
outstanding principal amount of such Security.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, Euroclear and Cedel,
in each case to the extent applicable to such transaction and as in effect at
the time of such transfer or transaction.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of: (1) any
Capital Stock of any Restricted Subsidiary; (2) all or substantially all of the
properties and assets of any division or line of business of the Company or any
Restricted Subsidiary; or (3) any other properties or assets of the Company or
any Restricted Subsidiary other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties and assets (A) that is governed by the provisions
described under Article Eight hereof," (B) that is by the Company to any
Majority Owned Restricted Subsidiary, or by any Restricted Subsidiary to the
Company or any Majority Owned Restricted Subsidiary in accordance with the terms
of the Indenture, (C) to an Unrestricted Subsidiary to the extent permitted by
the terms of Section 1009 hereof; (D) that is of obsolete
- 3 -
<PAGE> 17
equipment in the ordinary course of business, or (E) the Fair Market Value of
which in the aggregate does not exceed $500,000 in any transaction or series of
related transactions.
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (1) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such principal
payment by (2) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state law or foreign
law relating to bankruptcy, insolvency, receivership, winding up, liquidation,
reorganization or relief of debtors or any amendment to, succession to or change
in any such law.
"Board of Directors" means the board of directors of the Company,
Finance Corp. or any Guarantor, as the case may be, or any duly authorized
committee of such board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company, Finance Corp. or any
Guarantor, as the case may be, to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions or trust companies in
The City of New York or the city in which the Corporate Trust Office of the
Trustee is located are authorized or obligated by law, regulation or executive
order to close.
"Capital Lease Obligation" of any Person means any obligation of
such Person and its Restricted Subsidiaries on a Consolidated basis under any
capital lease of (or other agreement conveying the right to use) real or
personal property which, in accordance with GAAP, is required to be recorded as
a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations, rights in or other equivalents (however designated) of such
Person's capital stock, other equity interests whether now outstanding or issued
after the date hereof, partnership or membership interests (whether general or
limited), limited liability company interests, any other interest or
participation that confers on a Person that right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person,
including any Preferred Stock, and any rights (other than debt securities
- 4 -
<PAGE> 18
convertible into Capital Stock), warrants or options exchangeable for or
convertible into such Capital Stock.
"Cedel" means Cedel, S.A. (or any successor securities clearing
agency).
"Change of Control" means the occurrence of any of the following
events: (1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total outstanding Voting Stock of the Company or Finance Corp.;
(2) during any period of two consecutive years, individuals who (a) at the
beginning of such period constituted the board of directors of the Company or
Finance Corp. (together with any new directors whose election to such board or
whose nomination for election by the stockholders of the Company or Finance
Corp. was approved by a vote of a majority of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of such board of directors then in office or (b) were
designated by the Permitted Holders cease for any reason to constitute a
majority of such board of directors then in office; (3) the Company or Finance
Corp. consolidates with or merges with or into any Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with or merges into or with
the Company or Finance Corp., in any such event pursuant to a transaction in
which the outstanding Voting Stock of the Company or Finance Corp. is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company or Finance
Corp. is changed into or exchanged for (1) Voting Stock of the surviving
corporation which is not Redeemable Capital Stock or (2) cash, securities and
other property (other than Capital Stock of the surviving corporation) in an
amount which could be paid by the Company as a Restricted Payment as described
under Section 1009 hereof (and such amount shall be treated as a Restricted
Payment subject to the provisions of Section 1009 hereof and (B) immediately
after such transaction, no "person" or "group," other than Permitted Holders, is
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have beneficial ownership of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
surviving corporation; or (4) the Company or Finance Corp. is liquidated or
dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions under Article Eight herein. For
purposes of this definition, any transfer of an equity interest of an entity
that was formed for the purpose of acquiring voting stock of
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<PAGE> 19
the Company or Finance Corp. will be deemed to be a transfer of such portion of
such voting stock as corresponds to the portion of the equity of such entity
that has been so transferred.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of the Indenture such Commission is not existing and
performing the duties now assigned to it under the Securities Act, Exchange Act
and Trust Indenture Act then the body performing such duties at such time.
"Company" means Sleepmaster, L.L.C., a limited liability company
under the laws of New Jersey, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person. To the extent necessary to comply
with the requirements of the provisions of Sections 310 through 317 of the Trust
Indenture Act as they are applicable to the Company, the term "Company" shall
include any other obligor with respect to the Securities for purposes of
complying with such provisions.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Issuers by, in the case of each Issuer, any one
of its Chairman of the Board, its President, its Chief Executive Officer, its
Chief Financial Officer or a Vice President (regardless of Vice Presidential
designation), and by any one of its Treasurer, an Assistant Treasurer, its
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Comparable Treasury Issue" means the United States Treasury
Security selected by an Independent Investment Banker, having a maturity
comparable to the first redemption date of the Securities, that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of a comparable
maturity to the first redemption date of such Securities.
"Comparable Treasury Price" means, with respect to any redemption
date, (A) the average of the Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for
any period, the ratio of (a) the sum of Consolidated Net Income (Loss), and in
each case to the extent deducted in computing Consolidated Net Income (Loss) for
such period, Consolidated Interest Expense, Consolidated Income Tax Expense and
Consolidated Non-cash Charges for such period, of such Person and its Restricted
Subsidiaries on a
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<PAGE> 20
Consolidated basis, all determined in accordance with GAAP, less all noncash
items increasing Consolidated Net Income for such period and less all cash
payments during such period relating to noncash charges that were added back to
Consolidated Net Income in determining the Consolidated Fixed Charge Coverage
Ratio in any prior period to (b) the sum of Consolidated Interest Expense for
such period, plus cash and noncash dividends (except for dividends on Qualified
Capital Stock paid in shares of Qualified Capital Stock) paid on any Preferred
Stock of such Person and its Restricted Subsidiaries on a Consolidated basis
during such period, in each case after giving pro forma effect (as calculated in
accordance with Article 11 of Regulation S-X under the Securities Act of 1933 as
in effect on the date of the Indenture) to (1) the incurrence of the
Indebtedness giving rise to the need to make such calculation and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, on the first day of such period; (2) the
incurrence, repayment or retirement of any other Indebtedness by the Issuers and
their Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average daily balance
of such Indebtedness during such period); (3) in the case of Acquired
Indebtedness or any acquisition occurring at the time of the incurrence of such
Indebtedness, the related acquisition, assuming such acquisition had been
consummated on the first day of such period; and (4) any acquisition or
disposition by the Issuers and their Restricted Subsidiaries of any company or
any business or any assets out of the ordinary course of business, whether by
merger, stock purchase or sale or asset purchase or sale, or any related
repayment of Indebtedness, in each case since the first day of such period,
assuming such acquisition or disposition had been consummated on the first day
of such period; provided that (1) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness computed on a pro
forma basis and (A) bearing a floating interest rate shall be computed as if the
rate in effect on the date of computation had been the applicable rate for the
entire period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of such Person, a fixed
or floating rate of interest, shall be computed by applying at the option of
such Person either the fixed or floating rate and (2) in making such
computation, the Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness under a revolving credit facility computed on a pro
forma basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period.
"Consolidated Income Tax Expense" of any Person means, for any
period, the provision for federal, state, local and foreign income taxes of such
Person and its Consolidated Restricted Subsidiaries for such period as
determined in accordance with GAAP.
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<PAGE> 21
"Consolidated Interest Expense" of any Person means, without
duplication, for any period, the sum of (a) the interest expense of such Person
and its Restricted Subsidiaries for such period, on a Consolidated basis,
including, without limitation, (1) amortization of debt discount, (2) the net
costs associated with Interest Rate Agreements and Currency Hedging Agreements
(including amortization of discounts), (3) the interest portion of any deferred
payment obligation, (4) all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers acceptance financing and (5)
accrued interest, plus (b)(1) the interest component of the Capital Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period and (2) all capitalized
interest of such Person and its Restricted Subsidiaries plus (c) the interest
expense under any Guaranteed Debt of such Person and any Restricted Subsidiary
to the extent not included under clause (a)(4) above, whether or not paid by
such Person or its Restricted Subsidiaries, less (d) for purposes of calculating
the Consolidated Fixed Charge Coverage Ratio, amortization of deferred financing
costs incurred in connection with the offering of the Securities (other than any
Additional Securities), entering into of the Credit Facility as in effect on the
date of the Indenture and the transactions related thereto and any other
deferred financing costs incurred prior to the date of this Indenture.
"Consolidated Net Income (Loss)" of any Person means, for any
period, the Consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a Consolidated basis as determined in accordance
with GAAP, adjusted, to the extent included in calculating such net income (or
loss), by excluding, without duplication, (1) all extraordinary gains or losses
net of taxes (less all fees and expenses relating thereto), (2) the portion of
net income (or loss) of such Person and its Restricted Subsidiaries on a
Consolidated basis allocable to minority interests in unconsolidated Persons or
Unrestricted Subsidiaries to the extent that cash dividends or distributions
have not actually been received by such Person or one of its Consolidated
Restricted Subsidiaries, (3) net income (or loss) of any Person combined with
such Person or any of its Restricted Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (4) any gain
or loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (5) gains or losses, net of taxes (less all fees and expenses
relating thereto), in respect of dispositions of assets other than in the
ordinary course of business, (6) the net income of any Restricted Subsidiary to
the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the time permitted, 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, (7) any
restoration to net income of any contingency reserve, except to the extent
provision for such reserve was made out of income accrued at any time following
the date
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<PAGE> 22
of this Indenture, or (8) any net gain arising from the acquisition of any
securities or extinguishment, under GAAP, of any Indebtedness of such Person.
"Consolidated Net Tangible Assets" of any Person means as of any
date of determination, the total assets, less goodwill, patents, trade names,
trade marks, copyrights, franchises and other intangible assets, and less
deferred tax assets, if any, in each case as shown on the balance sheet of the
Company and its Restricted Subsidiaries for the most recently ended fiscal
quarter for which financial statements are available, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Non-cash Charges" of any Person means, for any period,
the aggregate depreciation, amortization and other non-cash charges of such
Person and its Restricted Subsidiaries on a Consolidated basis for such period,
as determined in accordance with GAAP (excluding any non-cash charge which
requires an accrual or reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation
of the accounts of such Person and each of its subsidiaries if and to the extent
the accounts of such Person and each of its Restricted Subsidiaries would
normally be consolidated with those of such Person, all in accordance with GAAP.
The term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 114 West
47th Street, New York, New York 10036.
"Credit Facility" means the Credit Facility, dated as of the Issue
Date, among the Company, the Guarantors, the lending institutions named therein
and First Union National Bank as administrative agent, as such agreement, in
whole or in part, may be amended, renewed, extended, substituted, refinanced,
restructured, replaced, supplemented or otherwise modified from time to time
(including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplementations or
other modifications of the foregoing, including increases in commitments
(provided that the incurrence of Indebtedness permitted by such increased
commitments satisfies the provisions under Section 1008 hereof).
"Currency Hedging Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar agreements
or arrangements designed to protect against the fluctuations in currency values.
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<PAGE> 23
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depositary" means, with respect to the Securities issued in the
form of one or more Book-Entry Securities, The Depository Trust Company ("DTC"),
its nominees and successors, or another Person designated as Depositary by the
Company, which must be a clearing agency registered under the Exchange Act.
"Designated Senior Indebtedness" means (1) all Senior Indebtedness
under the Credit Facility and (2) any other Senior Indebtedness which at the
time of determination has an aggregate principal amount outstanding of at least
$20 million and which is specifically designated in the instrument evidencing
such Senior Indebtedness or the agreement under which such Senior Indebtedness
arises as "Designated Senior Indebtedness" by the Company.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to such transaction or series of related transactions.
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute, and the rules and regulations promulgated by
the Commission thereunder.
"Exchange Offer" means the exchange offer by the Company and the
Guarantors of Series B Securities for Series A Securities to be effected
pursuant to Section 2.1 of the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the registration
statement under the Securities Act contemplated by Section 2.1 of the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length free market transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy. Fair Market Value shall
be determined by the Board
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<PAGE> 24
of Directors of the Company acting in good faith and shall be evidenced by a
resolution of the Board of Directors.
"Finance Corp." means Sleepmaster Finance Corp., a corporation
organized under the laws of Delaware, until a successor Person shall have become
such pursuant to the applicable provisions of this Indenture.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied, which are in effect on the date of this Indenture.
"Global Securities" means the Rule 144A Global Securities, the
Regulation S Global Securities and the Series B Global Securities to be issued
as Book-Entry Securities issued to the Depositary in accordance with Section
306.
"Guarantee" means the guarantee by any Guarantor of the Company's
and Finance Corp.'s Indenture Obligations.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (1)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (2) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (3) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for property
or services without requiring that such property be received or such services be
rendered), (4) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial condition of
the debtor or to cause such debtor to achieve certain levels of financial
performance or (5) otherwise to assure a creditor against loss; provided that
the term "guarantee" shall not include endorsements for collection or deposit,
in either case in the ordinary course of business.
"Guarantor" means any Subsidiary which is a guarantor of the
Securities, including any Person that is required after the date hereof to
execute a guarantee of the Securities pursuant to Section 1011 or Section 1013
until a successor replaces such party pursuant to the applicable provisions of
this Indenture and, thereafter, shall mean such successor.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
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<PAGE> 25
"Indebtedness" means, with respect to any Person, without
duplication, (1) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit issued under
letter of credit facilities, acceptance facilities or other similar facilities,
(2) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (3) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade payables arising in the ordinary course
of business, (4) all obligations under Interest Rate Agreements or Currency
Hedging Agreements of such Person, (5) all Capital Lease Obligations of such
Person, (6) all Indebtedness referred to in clauses (1) through (5) above of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien, upon or with respect to
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (7) all Guaranteed Debt of such Person, (8) all
Redeemable Capital Stock issued by such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends, (9) Preferred Stock of any Restricted Subsidiary of the Company or
any Guarantor and (10) any amendment, supplement, modification, deferral,
renewal, extension, refunding or refinancing of any liability of the types
referred to in clauses (1) through (9) above. For purposes hereof, the "maximum
fixed repurchase price" of any Redeemable Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Redeemable Capital Stock, such Fair Market Value to be determined
in good faith by the board of directors of the issuer of such Redeemable Capital
Stock.
"Indenture" means this instrument as originally executed (including
all exhibits and schedules thereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Issuers and any
other obligor under this Indenture or under the Securities, including any
Guarantor, to pay principal of, premium, if any, and interest when due and
payable, and all other amounts due or to become due under or in connection with
this Indenture, the Securities and the
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<PAGE> 26
performance of all other obligations to the Trustee and the holders under the
Indenture and the Securities, according to the respective terms hereof and
thereof.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by the Trustee after consultation with the Issuers.
"Initial Securities" means the first $115.0 million aggregate
principal amount of the Securities issued under this Indenture on the date
hereof.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and First Union Capital Markets Corp.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Interest Rate Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan (including guarantees), or other extension of
credit or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities issued or owned by
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP.
"Issue Date" means the original issue date of the Securities under
this Indenture.
"Lien" means any mortgage or deed of trust, charge, pledge, lien
(statutory or otherwise), privilege, security interest, assignment, deposit,
arrangement, easement, hypothecation, claim, preference, priority or other
encumbrance upon or with respect to any property of any kind (including any
conditional sale, capital lease or other title retention agreement, any leases
in the nature thereof, and any agreement to give any security interest), real or
personal, movable or immovable, now owned or hereafter acquired. A Person will
be deemed to own subject to a Lien any property which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capitalized Lease Obligation or other title retention agreement.
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<PAGE> 27
"Majority Owned Restricted Subsidiary" means any Restricted
Subsidiary at least 90% of the Capital Stock of which is beneficially owned by
the Company.
"Maturity" means, when used with respect to the Securities, the date
on which the principal of the Securities becomes due and payable as therein
provided or as provided in this Indenture, whether at Stated Maturity, the Offer
Date or the Redemption Date and whether by declaration of acceleration, Offer in
respect of Excess Proceeds, Change of Control Offer in respect of a Change of
Control, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor
rating agency.
"Net Cash Proceeds" means with respect to any Asset Sale by any
Person, the proceeds thereof (without duplication in respect of all Asset Sales)
in the form of cash or Temporary Cash Investments including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Temporary Cash Investments (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary) net of (1) brokerage commissions and other
reasonable fees and expenses (including fees and expenses of counsel and
investment bankers) related to such Asset Sale, (2) provisions for all taxes
payable as a result of such Asset Sale, (3) payments made to retire Indebtedness
where payment of such Indebtedness is secured by the assets or properties the
subject of such Asset Sale, (4) amounts required to be paid to any Person (other
than the Company or any Restricted Subsidiary) owning a beneficial interest in
the assets subject to the Asset Sale and (5) appropriate amounts to be provided
by the Company or any Restricted Subsidiary, as the case may be, as a reserve,
in accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee.
"Non-U.S. Person" means a Person that is not a "U.S. person" as
defined in Regulation S under the Securities Act.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, the President, the Chief Executive Officer, the Chief Financial
Officer or a Vice President (regardless of Vice Presidential designation), and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, Finance Corp. or any
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<PAGE> 28
Guarantor, as the case may be, and in form and substance reasonably satisfactory
to, and delivered to, the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, Finance Corp., any Guarantor or the Trustee, unless an
Opinion of Independent Counsel is required pursuant to the terms of this
Indenture, and who shall be acceptable to the Trustee, and which opinion shall
be in form and substance reasonably satisfactory to the Trustee.
"Opinion of Independent Counsel" means a written opinion of counsel
which is issued by a Person who is not an employee, director or consultant
(other than non-employee legal counsel) of the Company, Finance Corp. or any
Guarantor and who shall be acceptable to the Trustee, and which opinion shall be
in form and substance reasonably satisfactory to the Trustee.
"Outstanding" when used with respect to Securities means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company, Finance Corp. or any Affiliate
thereof) in trust or set aside and segregated in trust by the Company, Finance
Corp. or any Affiliate thereof (if the Company, Finance Corp., or any Affiliate
thereof shall act as its own Paying Agent) for the Holders of such Securities;
provided that if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision therefor reasonably
satisfactory to the Trustee has been made;
(c) Securities, to the extent provided in Sections 402 and 403, with
respect to which the Issuers have effected defeasance or covenant defeasance as
provided in Article Four; and
(d) Securities in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to the
Trustee and the Issuers proof reasonably satisfactory to each of them that such
Securities are held by a bona fide purchaser in whose hands the Securities are
valid obligations of the Issuers;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization,
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<PAGE> 29
direction, notice, consent or waiver hereunder, Securities owned by the Issuers,
any Guarantor, or any other obligor upon the Securities or any Affiliate of the
Issuers, any Guarantor or such other obligor shall be disregarded and deemed not
to be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustee knows to be so
owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
reasonable satisfaction of the Trustee the pledgee's right so to act with
respect to such Securities and that the pledgee is not the Company, Finance
Corp., any Guarantor or any other obligor upon the Securities or any Affiliate
of the Company, Finance Corp., any Guarantor or such other obligor.
"Pari Passu Indebtedness" means (a) with respect to the Company, any
Indebtedness of the Company that is equal in right of payment to the Securities,
(b) with respect to Finance Corp., any Indebtedness of Finance Corp. that is
equal in right of payment to the Securities and (c) with respect to any
Guarantee, Indebtedness which ranks equal in right of payment to such Guarantee.
"Paying Agent" means any Person (including the Company or Finance
Corp.) authorized by the Company or Finance Corp. to pay the principal of,
premium, if any, or interest on, any Securities on behalf of the Issuers.
"Permitted Holders" means (1) Citicorp Venture Capital, Ltd., a New
York Corporation, and its Affiliates (provided that for purposes of this
provision only the definition of "Affiliate" shall not include clauses (2) or
(3) included in the definition thereof) and (2) Charles Schweitzer, James
Koscica, Michael Reilly, Timothy Dupont and Michael Bubis, their respective
spouses and children, and trusts for their benefit or for the benefit of their
spouses and/or children.
"Permitted Investment" means (1) Investments in any Majority Owned
Restricted Subsidiary or any Person which, as a result of such Investment, (a)
becomes a Majority Owned Restricted Subsidiary or (b) is merged or consolidated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Majority Owned Restricted Subsidiary; (2)
Indebtedness of the Company or a Restricted Subsidiary described under clauses
(4), (5) and (6) of the definition of "Permitted Indebtedness;" (3) Investments
in any of the Securities; (4) Temporary Cash Investments; (5) Investments
acquired by the Company or any Restricted Subsidiary in connection with an Asset
Sale permitted under Section 1012 herein to the extent such Investments are
non-cash proceeds as permitted under such Section; (6) Investments in existence
on the date of the Indenture; and (7) Investments, in addition to those listed
in clauses (1) to (6), not to exceed $5 million at any one time outstanding. In
connection with any assets or property contributed or transferred to any Person
as an Investment,
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<PAGE> 30
such property and assets shall be equal to the Fair Market Value (as determined
by the Company's Board of Directors) at the time of Investment.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 308 in exchange for a
mutilated Security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock" means, with respect to any Person, any Capital
Stock of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Prospectus" means the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Series A Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Public Equity Offering" means an underwritten public offering of
common stock (other than Redeemable Capital Stock) of the Company with gross
proceeds to the Company of at least $40 million pursuant to a registration
statement that has been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on Form S-4 (or any
successor form covering substantially the same transactions), Form S-8 (or any
successor form covering substantially the same transactions) or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien
on assets related to the business of the Company and any additions and
accessions thereto, which are purchased by the Company at any time after the
Securities are issued; provided that (1) the security agreement or conditional
sales or other title retention contract pursuant to which the Lien on such
assets is created (collectively a "Purchase
- 17 -
<PAGE> 31
Money Security Agreement") shall be entered into within 90 days after the
purchase or substantial completion of the construction of such assets and shall
at all times be confined solely to the assets so purchased or acquired, any
additions and accessions thereto and any proceeds therefrom, (2) at no time
shall the aggregate principal amount of the outstanding Indebtedness secured
thereby be increased, except in connection with the purchase of additions and
accessions thereto and except in respect of fees and other obligations in
respect of such Indebtedness and (3)(A) the aggregate outstanding principal
amount of Indebtedness secured thereby (determined on a per asset basis in the
case of any additions and accessions) shall not at the time such Purchase Money
Security Agreement is entered into exceed 100% of the purchase price to the
Company of the assets subject thereto or (B) the Indebtedness secured thereby
shall be with recourse solely to the assets so purchased or acquired, any
additions and accessions thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by
its terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be, required to be redeemed prior to the final Stated Maturity of the
principal of the Securities or is redeemable at the option of the holder thereof
at any time prior to such final Stated Maturity (other than upon a change of
control of the Company or Finance Corp. in circumstances where the holders of
the Securities would have similar rights), or is convertible into or
exchangeable for debt securities at any time prior to such final Stated Maturity
at the option of the holder thereof.
"Redemption Date" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the price at which it
is to be redeemed pursuant to this Indenture.
"Reference Treasury Dealer" means each of Merrill Lynch, Pierce,
Fenner & Smith Incorporated and three other primary U.S. Government securities
dealers in The City of New York to be selected by the Company and their
respective successors.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each
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<PAGE> 32
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 3:30 p.m., New York time, on the third
business day preceding such redemption date.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of May 18, 1999 among the Company, Finance Corp., the
Guarantors and the Initial Purchasers.
"Registration Statement" means any registration statement of the
Company, Finance Corp. and the Guarantors which covers any of the Series A
Securities (and related guarantees) or Series B Securities (and related
guarantees) pursuant to the provisions of the Registration Rights Agreement, and
all amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the May 1 or November 1 (whether or not a Business Day) next
preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act, as
amended from time to time.
"Regulation S Global Securities" means one or more permanent global
Securities in registered form representing the aggregate principal amount of
Securities sold in reliance on Regulation S under the Securities Act.
"Responsible Officer" when used with respect to the Trustee means
any officer or employee assigned to the Corporate Trust Office or any agent of
the Trustee appointed hereunder, including any vice president, assistant vice
president, secretary, assistant secretary, or any other officer or assistant
officer of the Trustee or any agent of the Trustee appointed hereunder to whom
any corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company by a Board
Resolution delivered to the Trustee as an Unrestricted Subsidiary pursuant to
and in compliance with Section 1018 herein.
"Rule 144A" means Rule 144A under the Securities Act, as amended
from time to time.
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<PAGE> 33
"Rule 144A Global Securities" means one or more permanent global
Securities in registered form representing the aggregate principal amount of
Securities sold in reliance on Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Rating Group, a division of McGraw
Hill, Inc. or any successor rating agency.
"Securities" shall have the meaning set forth in the Recitals. This
Initial Securities and the Additional Securities shall be treated as a single
class for all purposes under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute, and the rules and regulations promulgated by the
Commission thereunder.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Company (other than as otherwise provided in
this definition), whether outstanding on the date of this Indenture or
thereafter created, incurred or assumed, and whether at any time owing, actually
or contingent, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Securities. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (1) Indebtedness evidenced by the Securities
(including any Additional Securities), (2) Indebtedness that is subordinate or
junior in right of payment to any Indebtedness of the Company, (3) Indebtedness
which when incurred and without respect to any election under Section 1111(b) of
Title 11 United States Code, is without recourse to the Company, (4)
Indebtedness which is represented by Redeemable Capital Stock, (5) any liability
for foreign, federal, state, local or other taxes owed or owing by the Company
to the extent such liability constitutes Indebtedness, (6) Indebtedness of the
Company to a Subsidiary or any other Affiliate of the Company or any of such
Affiliate's Subsidiaries, (7) to the extent it might constitute Indebtedness,
amounts owing for goods, materials or services purchased in the ordinary course
of business or consisting of trade accounts payable owed or owing by the
Company, and amounts owed by the Company for compensation to employees or
services rendered to the Company, (8) that portion of any Indebtedness which at
the time of issuance is issued in violation of the Indenture and (9)
Indebtedness evidenced by any guarantee of any Subordinated Indebtedness or Pari
Passu Indebtedness.
"Senior Guarantor Indebtedness" means the principal of, premium, if
any, and interest on any Indebtedness of any Guarantor (other than as otherwise
provided in this definition), whether outstanding on the date of this Indenture
or thereafter created, incurred or assumed, and whether at any time owing,
actually or contingent, unless, in the
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<PAGE> 34
case of any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to any Guarantee.
Notwithstanding the foregoing, "Senior Guarantor Indebtedness" shall not include
(1) Indebtedness evidenced by the Guarantees (including any guarantee by a
Guarantor of Additional Securities), (2) Indebtedness that is subordinated or
junior in right of payment to any Indebtedness of any Guarantor, (3)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 United States Code, is without recourse to any
Guarantor, (4) Indebtedness which is represented by Redeemable Capital Stock,
(5) any liability for foreign, federal, state, local or other taxes owed or
owing by any Guarantor to the extent such liability constitutes Indebtedness,
(6) Indebtedness of any Guarantor to a Subsidiary or any other Affiliate of the
Company or any of such Affiliate's Subsidiaries, (7) to the extent it might
constitute Indebtedness, amounts owing for goods, materials or services
purchased in the ordinary course of business or consisting of trade accounts
payable owed or owing by such Guarantor, and amounts owed by such Guarantor for
compensation to employees or services rendered to such Guarantor, (8) that
portion of any Indebtedness which at the time of issuance is issued in violation
of the Indenture and (9)Indebtedness evidenced by any guarantee of any
Subordinated Indebtedness or Pari Passu Indebtedness.
"Senior Representative" means the agent or representative of
holders of any Designated Senior Indebtedness.
"Series B Global Securities" means one or more permanent Global
Securities in registered form representing the aggregate principal amount of
Series B Securities exchanged for Series A Securities pursuant to the Exchange
Offer.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company and the Guarantors pursuant to Section 2.2 of the
Registration Rights Agreement, which covers all of the Registrable Securities
(as defined in the Registration Rights Agreement) on an appropriate form under
Rule 415 under the Securities Act, or any similar rule that may be adopted by
the Commission, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Sleep Investor Promissory Notes" means the Junior Subordinated
Notes, dated November 14, 1996, as in effect on the date of this Indenture, of
Sleep Investor L.L.C. issued to each of the individuals and entities listed on
Schedule I hereto.
"Special Preferred Stock" means Preferred Stock of the Company, in
an aggregate amount not to exceed $40 million, which after the Issue Date is
issued to and
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<PAGE> 35
held solely by Citicorp Venture Capital Ltd. or Sleepmaster Holdings L.L.C.,
provided that (1) dividends on such Preferred Stock are not payable until the
earlier of the Stated Maturity of the Securities and the date on which the
Securities have been repaid in full and (2) such Preferred Stock is not
Redeemable Capital Stock.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Indebtedness
or any installment of interest thereon, the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company,
Finance Corp. or a Guarantor subordinated in right of payment to the
Securities or a Guarantee, as the case may be.
"Subsidiary" of a Person means (1) any corporation more than 50% of
the outstanding voting power of the Voting Stock of which is owned or
controlled, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person, or by such Person and one or more other
Subsidiaries thereof, (2) any limited partnership of which such Person or any
Subsidiary of such Person is a general partner, or (3) any other Person in which
such Person, or one or more other Subsidiaries of such Person, or such Person
and one or more other Subsidiaries, directly or indirectly, has more than 50% of
the outstanding partnership or similar interests or has the power, by contract
or otherwise, to direct or cause the direction of the policies, management and
affairs thereof.
"Successor Security" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that evidenced
by, such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 308 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Tax Amounts" means, with respect to a calendar year or portion
thereof, an amount equal to the sum of (1) the federal income tax that would be
imposed on the Taxable Income (as defined below) of the Company for such
calendar year or portion thereof at the highest marginal tax rate applicable to
corporate taxpayers in such calendar year or portion thereof, and (2) the state
and local income tax that would be imposed on the Taxable Income of the Company
for such calendar year or portion thereof in the state and local jurisdictions
in which the Company qualifies as a corporation within the meaning of state and
local provisions which are analogous to Section 7701 of the Internal
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<PAGE> 36
Revenue Code, at the highest marginal tax rates applicable to corporate
taxpayers in such jurisdictions, in each case computed taking into account all
available deductions or credits for federal, state or local income tax purposes
of state and local income taxes described in clause (2) (such rate, the
"Applicable Tax Rate").
"Taxable Income" means the taxable income of the Company computed
as if the Company filed a tax return for such calendar year as the parent of a
consolidated group of corporations that includes the company and each domestic
Subsidiary of the Company (provided that any amount distributed by the Company
to Sleepmaster Holdings LLC to allow Sleep Investor LLC to make current cash
interest payments on the Sleep Investor Promissory Notes shall be treated as a
deduction from Taxable Income), except that such taxable income shall be reduced
by any tax losses of the Company for prior years which were available to offset
the taxable income of the Company and were not previously taken into account
hereunder for prior years.
"Temporary Cash Investments" means (1) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the full
faith and credit of the United States of America, (2) any certificate of
deposit, maturing not more than one year after the date of acquisition, issued
by, or time deposit of, a commercial banking institution that is a member of the
Federal Reserve System and that has combined capital and surplus and undivided
profits of not less than $500 million, whose debt has a rating, at the time as
of which any investment therein is made, of "P-1" (or higher) according to
Moody's or "A-1" (or higher) according to S&P, (3) commercial paper, maturing
not more than one year after the date of acquisition, issued by a corporation
(other than an Affiliate or Subsidiary of the Company) organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia with a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P and (4) any money market deposit accounts issued or offered by
a domestic commercial bank having capital and surplus in excess of $500 million;
provided that the short term debt of such commercial bank has a rating, at the
time of Investment, of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
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<PAGE> 37
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, or any successor statute.
"Unrestricted Subsidiary" means any Subsidiary of the Company (other
than a Guarantor) designated as such pursuant to and in compliance with Section
1018 herein.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted
Subsidiary means Indebtedness of such Unrestricted Subsidiary (1) as to which
neither the Company, Finance Corp. nor any Restricted Subsidiary is directly or
indirectly liable (by virtue of the Company, Finance Corp. or any such
Restricted Subsidiary being the primary obligor on, guarantor of, or otherwise
liable in any respect to, such Indebtedness), except Guaranteed Debt of the
Company, Finance Corp. or any Restricted Subsidiary to any Affiliate, in which
case (unless the incurrence of such Guaranteed Debt resulted in a Restricted
Payment at the time of incurrence) the Company shall be deemed to have made a
Restricted Payment equal to the principal amount of any such Indebtedness to the
extent guaranteed at the time such Affiliate is designated an Unrestricted
Subsidiary and (2) which, upon the occurrence of a default with respect thereto,
does not result in, or permit any holder of any Indebtedness of the Company,
Finance Corp. or any Subsidiary to declare, a default on such Indebtedness of
the Company, Finance Corp. or any Restricted Subsidiary or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity; provided that
notwithstanding the foregoing any Unrestricted Subsidiary may guarantee the
Securities.
"Voting Stock" of a Person means Capital Stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time Capital Stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary
all the Capital Stock (other than directors' qualifying shares or shares of
foreign Restricted Subsidiaries required to be owned by foreign nationals
pursuant to applicable law) of which is owned by the Company or another Wholly
Owned Restricted Subsidiary.
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<PAGE> 38
Section 102. Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Act" 105
"Agent Members" 306
"Change of Control Offer" 1015
"Change of Control Purchase Date" 1015
"Change of Control Purchase Notice" 1015
"Change of Control Purchase Price" 1015
"control" 101
"covenant defeasance" 403
"Defaulted Interest" 309
"defeasance" 402
"Defeasance Redemption Date" 404
"Defeased Securities" 401
"Designation" 1018
"Designation Amount" 1018
"DTC" 101
"Excess Proceeds" 1012
"Funds" 203
"incur" 1008
"Initial Period" 1303
"Non-payment Default" 1303
"Offer" 1012
"Offer Date" 1012
"Offered Price" 1012
"Pari Passu Debt Amount" 1012
"Pari Passu Offer" 1012
"Payment Blockage Period" 1303
"Payment Default" 1303
"Permitted Indebtedness" 1008
"Permitted Guarantor Junior Securities" 1417
"Permitted Junior Securities" 1302
"Permitted Payment" 1009
"Private Placement Legend" 202
"Purchase Money Security Agreement" 101
"refinancing" 1008
"Registration Default" 202
"Required Filing Date" 1019
"Restricted Payments" 1009
"Restricted Period" 201
</TABLE>
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<PAGE> 39
<TABLE>
<S> <C>
"Revocation" 1018
"Securities" Recitals
"Security Amount" 1012
"Security Register" 305
"Security Registrar" 305
"Series A Securities" Recitals
"Series B Securities" Recitals
"Special Payment Date" 309
"Surviving Entity" 801
"Surviving Guarantor Entity" 801
"transfer" 101
"U.S. Government Obligations" 404
</TABLE>
Section 103. Compliance Certificates and Opinions.
Upon any application or request by the Issuers to the Trustee to
take any action under any provision of this Indenture, the Issuers and any
Guarantor (if applicable) and any other obligor on the Securities (if
applicable) shall furnish to the Trustee an Officers' Certificate in a form and
substance reasonably acceptable to the Trustee stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with, and an Opinion of Counsel in a form and
substance reasonably acceptable to the Trustee stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of such certificates or opinions is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
individual or firm signing such opinion has read and understands such covenant
or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary to
enable him or it to
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<PAGE> 40
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been complied with.
Section 104. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate of an officer of the Company, Finance Corp., any
Guarantor or other obligor on the Securities may be based, insofar as it relates
to legal matters, upon a certificate or opinion of, or representations by,
counsel, unless such officer knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to the
matters upon which his certificate or opinion is based are erroneous. Any such
certificate or opinion may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Company, Finance Corp., any Guarantor or other obligor on the Securities
stating that the information with respect to such factual matters is in the
possession of the Company, Finance Corp., any Guarantor or other obligor on the
Securities, unless such officer or counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous. Opinions of Counsel required to be
delivered to the Trustee may have qualifications customary for opinions of the
type required and counsel delivering such Opinions of Counsel may rely on
certificates of the Company, Finance Corp., any Guarantor or government or other
officials customary for opinions of the type required, including certificates
certifying as to matters of fact, including that various financial covenants
have been complied with.
Any certificate or opinion of an officer of the Company, Finance
Corp., any Guarantor or other obligor on the Securities may be based, insofar as
it relates to accounting matters, upon a certificate or opinion of, or
representations by, an accountant or firm of accountants in the employ of the
Company, Finance Corp. or any Guarantor unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the accounting matters upon which his
certificate or opinion may be based are erroneous. Any certificate or opinion of
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<PAGE> 41
any independent firm of public accountants filed with the Trustee shall contain
a statement that such firm is independent with respect to the Company, Finance
Corp. and any Guarantors.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 105. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Issuers. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Issuers, if made in the
manner provided in this Section 105.
(b) The ownership of Securities shall be proved by the Security
Register.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Security shall bind every future Holder
of the same Security or the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be done by the Trustee, any Paying Agent or the Company,
Finance Corp., any Guarantor or any other obligor of the Securities in reliance
thereon, whether or not notation of such action is made upon such Security.
(d) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
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<PAGE> 42
(e) If the Issuers shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Issuers may, at their option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of such Holders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
Act, but the Issuers shall have no obligation to do so. Notwithstanding Trust
Indenture Act Section 316(c), any such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such first solicitation is
completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for purposes of determining
whether Holders of the requisite proportion of Securities then Outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for this purpose the
Securities then Outstanding shall be computed as of such record date; provided
that no such request, demand, authorization, direction, notice, consent, waiver
or other Act by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not later
than six months after such record date.
(f) For purposes of this Indenture, any action by the Holders which
may be taken in writing may be taken by electronic means or as otherwise
reasonably acceptable to the Trustee.
Section 106. Notices, etc., to the Trustee, the Company, Finance Corp.
and any Guarantor.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company, Finance Corp. or
any Guarantor or any other obligor on the Securities shall be sufficient for
every purpose (except as provided in Section 501(c)) hereunder if in writing and
mailed, first-class postage prepaid, or delivered by recognized overnight
courier, to or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Department, or at any other address previously furnished in
writing to the Holders or the Company, Finance Corp., any Guarantor or any other
obligor on the Securities by the Trustee; or
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<PAGE> 43
(b) the Company, Finance Corp. or any Guarantor by the Trustee or
any Holder shall be sufficient for every purpose (except as provided in Section
501(c)) hereunder if in writing and mailed, first-class postage prepaid, or
delivered by recognized overnight courier, to the Company, Finance Corp. or such
Guarantor addressed to it c/o Sleepmaster L.L.C., 2001 Lower Road, Linden, New
Jersey 07036-6520, Attention: Chief Financial Officer, or at any other address
previously furnished in writing to the Trustee by the Company, Finance Corp. or
such Guarantor.
Section 107. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, or delivered by
recognized overnight courier, to each Holder affected by such event, at its
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner shall
be conclusively deemed to have been received by such Holder whether or not
actually received by such Holder. Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Section 108. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
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<PAGE> 44
Section 109. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 110. Successors and Assigns.
All covenants and agreements in this Indenture by the Issuers and
the Guarantors shall bind their respective successors and assigns, whether so
expressed or not.
Section 111. Separability Clause.
In case any provision in this Indenture or in the Securities or
Guarantees shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 112. Benefits of Indenture.
Nothing in this Indenture or in the Securities or Guarantees,
express or implied, shall give to any Person (other than the parties hereto and
their successors hereunder, any Paying Agent and the Holders) any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 113. GOVERNING LAW.
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 114. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Maturity or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on such Interest Payment Date or Redemption Date, or at
the Maturity or Stated Maturity and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
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<PAGE> 45
Section 115. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
Section 116. Schedules and Exhibits.
All schedules and exhibits attached hereto are by this reference
made a part hereof with the same effect as if herein set forth in full.
Section 117. Counterparts.
This Indenture may be executed in any number of counterparts, each
of which shall be deemed an original; but all such counterparts shall together
constitute but one and the same instrument.
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<PAGE> 46
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.
The Securities, the Guarantees and the Trustee's certificate of
authentication thereon shall be in substantially the forms set forth in this
Article Two, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted hereby and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities exchange,
any organizational document or governing instrument or applicable law or as may,
consistently herewith, be determined by the officers executing such Securities
and Guarantees, as evidenced by their execution of the Securities and
Guarantees. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
Series A Securities offered and sold in reliance on Rule 144A shall
be issued initially in the form of one or more Rule 144A Global Securities,
substantially in the form set forth in Section 202, deposited upon issuance with
the Trustee, as custodian for the Depositary, registered in the name of the
Depositary, or its nominee, in each case for credit to an account of a direct or
indirect participant of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Rule 144A Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Series A Securities offered and sold in reliance on Regulation S
shall be issued in the form of one or more Regulation S Global Securities,
substantially in the form set forth in Section 202, deposited upon issuance with
the Trustee, as custodian for the Depositary, registered in the name of the
Depositary, or its nominee in each case for credit by the Depositary to an
account of a direct or indirect participant of the Depositary, duly executed by
the Issuers and authenticated by the Trustee as hereinafter provided; provided,
however, that upon such deposit through and including the 40th day after the
later of the commencement of the Offering and the original issue date of the
Securities (such period through and including such 40th day, the "Restricted
Period"), all such
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<PAGE> 47
Securities shall be credited to or through accounts maintained at the Depositary
by or on behalf of Euroclear or Cedel unless exchanged for interests in the Rule
144A Global Securities in accordance with the transfer and certification
requirements described below. The aggregate principal amount of the Regulation S
Global Securities may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian for the Depositary or its
nominee, as hereinafter provided.
Series B Securities exchanged for Series A Securities shall be
issued initially in the form of one or more Series B Global Securities,
substantially in the form set forth in Section 202, deposited upon issuance with
the Trustee, as custodian for the Depositary, registered in the name of the
Depositary or its nominee, in each case for credit to an account of a direct or
indirect participant of the Depositary, duly executed by the Issuers and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Series B Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Section 202. Form of Face of Security.
(a) The form of the face of any Series A Securities authenticated
and delivered hereunder shall be substantially as follows:
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for a Series B
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, then such Initial Security shall
bear the legend set forth below (the "Private Placement Legend") on the face
thereof:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION AS SET FORTH BELOW.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
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<PAGE> 48
UNDER THE SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION,
(2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR
TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE
OF THE ISSUERS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE ISSUERS, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A INSIDE THE UNITED STATES, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
OUTSIDE THE UNITED STATES PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS IN AN OFFSHORE TRANSACTION WITHIN THE MEANING OF REGULATION
S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE ISSUERS' AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES (D) OR (E) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF
THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. AS USED HEREIN, THE
TERMS "UNITED STATES," "OFFSHORE TRANSACTION," AND "U.S. PERSON"
HAVE THE RESPECTIVE MEANINGS
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<PAGE> 49
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
- 36 -
<PAGE> 50
[Legend if Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307
OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,
OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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<PAGE> 51
SLEEPMASTER L.L.C.
SLEEPMASTER FINANCE CORPORATION
11% SENIOR SUBORDINATED NOTE DUE 2009, SERIES A
CUSIP NO. ______________
No. __________ $_______________________
Sleepmaster L.L.C., a New Jersey limited liability company
(herein called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to) and Sleepmaster Finance Corporation, a
Delaware corporation (herein called "Finance Corp.," which term includes any
successor Person under the Indenture hereinafter referred to, and, together with
the Company, the "Issuers"), for value received, hereby promise to pay to
_________ or registered assigns, the principal sum of _________ United States
dollars on May 15, 2009, at the office or agency of the Issuers referred to
below, and to pay interest thereon from May 18, 1999, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semiannually on May 15 and November 15 in each year, commencing November 15,
1999 at the rate of 11% per annum, subject to adjustments as described in the
second following paragraph, in United States dollars, until the principal hereof
is paid or duly provided for. Interest shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
The Holder of this Series A Security is entitled to the
benefits of the Registration Rights Agreement among the Issuers, the Guarantors
and the Initial Purchasers, dated May 18, 1999, pursuant to which, subject to
the terms and conditions thereof, the Issuers and the Guarantors are obligated
to consummate the Exchange Offer pursuant to which the Holder of this Security
(and the related Guarantees) shall have the right to exchange this Security (and
the related Guarantees) for 11% Senior Subordinated Notes due 2009, Series B and
related guarantees (herein called the "Series B Securities") in like principal
amount as provided therein. In addition, the Issuers and the Guarantors have
agreed to use their best efforts to register the Securities for resale under the
Securities Act through a Shelf Registration Statement in the event that the
Exchange Offer is not consummated within 175 calendar days after the original
issue of the Securities or under certain other circumstances. The Series A
Securities and the Series B Securities are together (including related
Guarantees) referred to as the "Securities." The Series A Securities rank pari
passu in right of payment with the Series B Securities.
In the event that (a) the Exchange Offer Registration
Statement is not filed with the Commission on or prior to the 45th calendar day
following the date of original
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<PAGE> 52
issue of the Series A Securities, (b) the Exchange Offer Registration Statement
has not been declared effective on or prior to the 135th calendar day following
the date of original issue of the Series A Securities, (c) the Exchange Offer is
not consummated on or prior to the 175th calendar day following the date of
original issue of the Series A Securities, (d) a Shelf Registration Statement
required to be filed is not declared effective on or prior to the later of 175
days after the original issue of the Securities or 40 days after the Shelf
Registration Statement is requested, if applicable, or (e) the Shelf
Registration Statement is declared effective but shall thereafter become
unusable for more than 30 days in the aggregate (each such event referred to in
clauses (a) through (e) above, a "Registration Default"), the interest rate
borne by the Series A Securities shall be increased by one-quarter of one
percent per annum upon the occurrence of any Registration Default, which rate
(as increased as aforesaid) will increase by an additional one quarter of one
percent each 90-day period that such additional interest continues to accrue
under any such circumstance, with an aggregate maximum increase in the interest
rate equal to one percent (1%) per annum. Immediately following the cure of all
Registration Defaults the accrual of additional interest with respect to the
particular Registration Default will cease.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the May 1 or November 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the interest rate borne by the Series A Securities, to the
extent lawful, shall forthwith cease to be payable to the Holder on such Regular
Record Date, and may either be paid to the Person in whose name this Security
(or any Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such defaulted interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by this Indenture not inconsistent with the requirements of such
exchange, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on,
this Security, and exchange or transfer of the Security, will be made at the
office or agency of the Issuers in The City of New York maintained for that
purpose (which initially will be a corporate trust office of the Trustee located
at 114 West 47th Street, New York, NY), or at such other office or agency as may
be maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for
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<PAGE> 53
payment of public and private debts; provided, however, that payment of interest
may be made at the option of the Issuers by check mailed to the address of the
Person entitled thereto as such address shall appear on the Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
This Security is entitled to the benefits of the Guarantees by
the Guarantors of the punctual payment when due and performance of the Indenture
Obligations made in favor of the Trustee for the benefit of the Holders.
Reference is made to Article Fourteen of the Indenture for a statement of the
respective rights, limitations of rights, duties and obligations under the
Guarantees of the Guarantors.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuers have caused this instrument to
be duly executed by the manual or facsimile signature of their authorized
officers.
SLEEPMASTER L.L.C.
By:
--------------------------------
Name:
Title:
Attest:
- ----------------------------
Authorized Officer
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<PAGE> 54
SLEEPMASTER FINANCE CORPORATION
By:
--------------------------------
Name:
Title:
Attest:
- ----------------------------
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Subordinated Notes due 2009,
Series A referred to in the within-mentioned Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
--------------------------------
Authorized Signatory
Dated:
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<PAGE> 55
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Issuers
pursuant to Section 1012 or Section 1015, as applicable, of the Indenture, check
the Box: [ ].
If you wish to have a portion of this Security purchased by
the Issuers pursuant to Section 1012 or Section 1015 as applicable, of the
Indenture, state the amount (in original principal amount):
$ _______________.
Date: ___________________ Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: __________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
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<PAGE> 56
(b) The form of the face of any Series B Securities
authenticated and delivered hereunder shall be substantially as follows:
[Legend if Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A
SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES
OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUERS OR THEIR AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
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<PAGE> 57
SLEEPMASTER L.L.C.
SLEEPMASTER FINANCE CORPORATION
11% SENIOR SUBORDINATED NOTE DUE 2009, SERIES B
CUSIP NO. ______________
No. __________ $_______________________
Sleepmaster L.L.C., a New Jersey limited liability company
(herein called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to) and Sleepmaster Finance Corporation, a
Delaware corporation (herein called "Finance Corp.," which term includes any
successor Person under the Indenture hereinafter referred to, and, together with
the Company, the "Issuers"), for value received, hereby promise to pay to
________ or registered assigns, the principal sum of ___________ United States
dollars on May 15, 2009, at the office or agency of the Issuers referred to
below, and to pay interest thereon from May 18, 1999, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semiannually on May 15 and November 15 in each year, commencing November 15,
1999 at the rate of 11% per annum, in United States dollars, until the principal
hereof is paid or duly provided for; provided that to the extent interest has
not been paid or duly provided for with respect to the Series A Security
exchanged for this Series B Security, interest on this Series B Security shall
accrue from the most recent Interest Payment Date to which interest on the
Series A Security which was exchanged for this Series B Security has been paid
or duly provided for. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
This Series B Security was issued pursuant to the Exchange
Offer pursuant to which the 11% Senior Subordinated Notes due 2009, Series A,
and related Guarantees (herein called the "Series A Securities") in like
principal amount were exchanged for the Series B Securities and related
Guarantees. The Series B Securities rank pari passu in right of payment with the
Series A Securities.
In addition, for any period in which the Series A Security
exchanged for this Series B Security was outstanding, in the event that (a) the
Exchange Offer Registration Statement is not filed with the Commission on or
prior to the 45th calendar day following the date of original issue of the
Series A Securities, (b) the Exchange Offer Registration Statement has not been
declared effective on or prior to the 135th calendar day following the date of
original issue of the Series A Securities, (c) the Exchange Offer is not
consummated on or prior to the 175th calendar day following the
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<PAGE> 58
date of original issue of the Series A Securities, (d) a Shelf Registration
Statement required to be filed is not declared effective on or prior to the
later of 175 days after the original issue of the Securities or 40 days after
the Shelf Registration Statement is requested, if applicable, or (e) the Shelf
Registration Statement is declared effective but shall thereafter become
unusable for more than 30 days in the aggregate (each such event referred to in
clauses (a) through (e) above, a "Registration Default"), the interest rate
borne by the Series A Securities shall be increased by one-quarter of one
percent per annum upon the occurrence of any Registration Default, which rate
(as increased as aforesaid) will increase by an additional one quarter of one
percent each 90-day period that such additional interest continues to accrue
under any such circumstance, with an aggregate maximum increase in the interest
rate equal to one percent (1%) per annum. Immediately following the cure of a
Registration Default the accrual of additional interest with respect to the
particular Registration Default will cease; provided that, to the extent
interest at such increased interest rate has been paid or duly provided for with
respect to the Series A Security, interest at such increased interest rate, if
any, on this Series B Security shall accrue from the most recent Interest
Payment Date to which such interest on the Series A Security has been paid or
duly provided for; provided, however, that, if after any such reduction in
interest rate, a different event specified in clause (a), (b), (c), (d) or (e)
above occurs, the interest rate shall again be increased pursuant to the
foregoing provisions.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the May 1 or November 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the interest rate borne by the Series B Securities, to the
extent lawful, shall forthwith cease to be payable to the Holder on such Regular
Record Date, and may either be paid to the Person in whose name this Security
(or any Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such defaulted interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on,
this Security, and exchange or transfer of the Security, will be made at the
office or agency of the Issuers in The City of New York maintained for such
purpose (which initially will be a corporate trust office of the Trustee located
at 114 West 47th Street, New York, NY), or at
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<PAGE> 59
such other office or agency as may be maintained for such purpose, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Issuers by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
This Security is entitled to the benefits of the Guarantees by
the Guarantors of the punctual payment when due and performance of the Indenture
Obligations made in favor of the Trustee for the benefit of the Holders.
Reference is made to Article Fourteen of the Indenture for a statement of the
respective rights, limitations of rights, duties and obligations under the
Guarantees of the Guarantors.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuers have caused this instrument to
be duly executed by the manual or facsimile signature of their authorized
officers.
SLEEPMASTER L.L.C.
By:
----------------------------------
Name:
Title:
Attest:
- ----------------------------
Authorized Officer
- 46 -
<PAGE> 60
SLEEPMASTER FINANCE CORPORATION
By:
----------------------------------
Name:
Title:
Attest:
- ----------------------------
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Subordinated Notes due 2009,
Series B referred to in the within-mentioned Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
----------------------------------
Authorized Signatory
Dated:
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<PAGE> 61
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Issuers
pursuant to Section 1012 or Section 1015, as applicable, of the Indenture, check
the Box: [ ].
If you wish to have a portion of this Security purchased by
the Issuers pursuant to Section 1012 or Section 1015 as applicable, of the
Indenture, state the amount (in original principal amount):
$ _______________.
Date: ___________________ Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: __________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
Section 203. Form of Reverse of Securities.
(a) The form of the reverse of the Series A Securities shall
be substantially as follows:
SLEEPMASTER L.L.C.
SLEEPMASTER FINANCE CORPORATION
11% Senior Subordinated Note due 2009, Series A
This Security is one of a duly authorized issue of Securities
of the Issuers designated as their 11% Senior Subordinated Notes due 2009,
Series A (herein called the "Securities"), limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount to
$165,000,000 (of which $115.0 million are Initial
- 48 -
<PAGE> 62
Securities and up to $50.0 million may be issued as Additional Securities)
issued under and subject to the terms of an indenture (herein called the
"Indenture") dated as of May 18, 1999, among the Issuers, the Guarantors and
United States Trust Company of New York, as trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Issuers, the Guarantors, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
The Securities are subject to redemption at any time on or
after May 15, 2004, at the option of the Issuers, in whole or in part, on not
less than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an
integral multiple thereof, at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning May 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2004...................................... 105.500%
2005...................................... 103.667%
2006...................................... 101.833%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to May 15, 2002, the
Issuers, at their option, may use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Securities issued under the Indenture (including the principal amount of any
Additional Securities) at a redemption price equal to 111% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Redemption Date; provided that at least 65% of the aggregate principal
amount of Securities remains (including the principal amount of any Additional
Securities) outstanding immediately after the occurrence of such redemption. In
order to effect the foregoing redemption, the Company must mail a notice of
redemption no later than 20 days after the closing of the related Public Equity
Offering and must consummate such redemption within 45 days of the closing of
the Public Equity Offering.
In addition, the Securities may be redeemed upon a Change of
Control at any time prior to May 15, 2004, at the option of the Issuers, in
whole and not in part, within 60 days of such Change of Control, at a redemption
price equal to (i) 100% of the
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<PAGE> 63
principal amount of thereof plus (ii) accrued and unpaid interest, if any, to
the Redemption Date) plus (iii) the Applicable Premium, if any. In no event will
the redemption price of the Securities be less than 105.5% (the Redemption Price
for the Securities on May 15, 2004) of the principal amount of the Securities,
plus accrued and unpaid interest to the applicable Redemption Date.
If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities or portions thereof to be redeemed in
compliance with the requirements of the principal national securities exchange,
if any, on which the Securities are listed, or if the Securities are not so
listed, pro rata, by lot or by any other method the Trustee shall deem fair and
reasonable.
Upon the occurrence of a Change of Control, each Holder may
require the Issuers to purchase such Holder's Securities in whole or in part in
integral multiples of $1,000, at a purchase price in cash in an amount equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase, pursuant to a Change of Control Offer in accordance
with the procedures set forth in the Indenture.
Under certain circumstances, if all or a portion of the Net
Cash Proceeds received by the Company from any Asset Sale are not required to be
applied to repay permanently any Senior Indebtedness or any Senior Guarantor
Indebtedness, or if the Company determines not to apply such Net Cash Proceeds
to the permanent prepayment of such Senior Indebtedness or Senior Guarantor
Indebtedness, or if no such Senior Indebtedness or Senior Guarantor Indebtedness
is then outstanding, and if the Company has not invested such Net Cash Proceeds
in properties and assets that replace the properties and assets that were the
subject of the Asset Sale or in properties and assets which will be used in the
businesses of the Company or its Restricted Subsidiaries existing on the date of
the Indenture or in businesses reasonably related thereto and such Net Cash
Proceeds not used or invested exceeds a specified amount, the Company will be
required to apply such proceeds to the repayment of the Securities and certain
Indebtedness ranking pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
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<PAGE> 64
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time
of (a) the entire Indebtedness on the Securities and (b) certain restrictive
covenants and related Defaults and Events of Default, in each case upon
compliance with certain conditions set forth therein.
The Indenture permits, with certain exceptions (including
certain amendments permitted without the consent of any Holders and certain
amendments which require the consent of all the Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuers and the Guarantors and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Issuers and the Trustee
with the consent of the Holders of at least a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities at the time Outstanding, on behalf of the Holders of
all the Securities, to waive compliance by the Issuers and the Guarantors with
certain provisions of the Indenture and the Securities and the Guarantees and
certain past Defaults under the Indenture and the Securities and the Guarantees
and their consequences. Any such consent or waiver by or on behalf of the Holder
of this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Security.
The Securities are, to the extent and manner provided in
Article Thirteen of the Indenture, subordinated and subject in right of payment
to the prior payment in full of all Senior Indebtedness.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, Finance Corp., any Guarantor or any other obligor on the Securities (in
the event such Guarantor or such other obligor is obligated to make payments in
respect of the Securities), which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on, this Security at the times,
place, and rate, and in the coin or currency, herein prescribed.
- 51 -
<PAGE> 65
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Issuers in the Borough of Manhattan, The
City of New York, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Issuers and the Security Registrar duly
executed by, the Holder hereof or its attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the Rule 144A Global
Securities or the Regulation S Global Securities if (i) such Depositary (A) has
notified the Issuers that it is unwilling or unable to continue as Depositary
for such Global Security or (B) has ceased to be a clearing agency registered as
such under the Exchange Act, and in either case the Issuers fail to appoint a
successor Depositary within 90 days, (ii) the Issuers, at their option, notifies
the Trustee in writing that it elects to cause the issuance of the Securities in
certificated form or (iii) there shall have occurred and be continuing an Event
of Default or any event which after notice or lapse of time or both would be an
Event of Default with respect to such Global Security. Upon any such issuance,
the Trustee is required to register such certificated Series A Securities in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof). All such certificated Series A Securities would be
required to include the Private Placement Legend.
Series A Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series A Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
At any time when the Issuers are not subject to Sections 13 or
15(d) of the Exchange Act, upon the written request of a Holder of a Series A
Security, the Issuers will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Holder or to a prospective
purchaser of such Series A Security who such Holder informs the Issuers is
reasonably believed to be a "Qualified Institutional Buyer" within the meaning
of Rule 144A under the Securities Act, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
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<PAGE> 66
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Issuers may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, Finance Corp., any Guarantor, the Trustee and any agent
of the Company, Finance Corp., any Guarantor or the Trustee may treat the Person
in whose name this Security is registered as the owner hereof for all purposes,
whether or not this Security is overdue, and none of the Company, Finance Corp.,
any Guarantor, the Trustee nor any such agent shall be affected by notice to the
contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
[The Transferee Certificate, in the form of Appendix I hereto,
will be attached to the Series A Security.]
(b) The form of the reverse of the Series B Securities shall
be substantially as follows:
SLEEPMASTER L.L.C.
SLEEPMASTER FINANCE CORPORATION
11% Senior Subordinated Note due 2009, Series B
This Security is one of a duly authorized issue of Securities
of the Issuers designated as their 11% Senior Subordinated Notes due 2009,
Series B (herein called the "Securities"), limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount to
$165,000,000 (of which $115.0 million are Initial Securities and up to $50.0
million may be issued as Additional Securities) issued under and subject to the
terms of an indenture (herein called the "Indenture") dated as of May _ , 1999,
among the Issuers, the Guarantors and United States Trust Company of New York,
as trustee (herein called the "Trustee," which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Issuers, the Guarantors, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.
- 53 -
<PAGE> 67
The Securities are subject to redemption at any time on or
after May 15, 2004, at the option of the Issuers, in whole or in part, on not
less than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an
integral multiple thereof, at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning May 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2004...................................... 105.500%
2005...................................... 103.667%
2006...................................... 101.833%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to May 15, 2002, the
Issuers, at their option, may use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Securities issued under the Indenture (including the principal amount of any
Additional Securities) at a redemption price equal to 111% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Redemption Date; provided that at least 65% of the aggregate principal
amount of Securities remains (including the principal amount of any Additional
Securities) outstanding immediately after the occurrence of such redemption. In
order to effect the foregoing redemption, the Company must mail a notice of
redemption no later than 20 days after the closing of the related Public Equity
Offering and must consummate such redemption within 45 days of the closing of
the Public Equity Offering.
In addition, the Securities may be redeemed upon a Change of
Control at any time prior to May 15, 2004, at the option of the Issuers, in
whole and not in part, within 60 days of such Change of Control, at a redemption
price equal to (i) 100% of the principal amount of thereof plus (ii) accrued and
unpaid interest, if any, to the Redemption Date) plus (iii) the Applicable
Premium, if any. In no event will the redemption price of the Securities be less
than 105.5% (the Redemption Price for the Securities on May 15, 2004) of the
principal amount of the Securities, plus accrued and unpaid interest to the
applicable Redemption Date.
If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities or portions thereof to be redeemed in
compliance with the requirements of the principal national securities exchange,
if any, on which the Securities are listed, or if
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<PAGE> 68
the Securities are not so listed, pro rata, by lot or by any other method the
Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may
require the Issuers to purchase such Holder's Securities in whole or in part in
integral multiples of $1,000, at a purchase price in cash in an amount equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase, pursuant to a Change of Control Offer in accordance
with the procedures set forth in the Indenture.
Under certain circumstances, if all or a portion of the Net
Cash Proceeds received by the Company from any Asset Sale are not required to be
applied to repay permanently any Senior Indebtedness or any Senior Guarantor
Indebtedness, or if the Company determines not to apply such Net Cash Proceeds
to the permanent prepayment of such Senior Indebtedness or Senior Guarantor
Indebtedness, or if no such Senior Indebtedness or Senior Guarantor Indebtedness
is then outstanding, and if the Company has not invested such Net Cash Proceeds
in properties and assets that replace the properties and assets that were the
subject of the Asset Sale or in properties and assets which will be used in the
businesses of the Company or its Restricted Subsidiaries existing on the date of
the Indenture or in businesses reasonably related thereto and such Net Cash
Proceeds not used or invested exceeds a specified amount, the Company will be
required to apply such proceeds to the repayment of the Securities and certain
Indebtedness ranking pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time
of (a) the entire Indebtedness on the Securities and (b) certain restrictive
covenants and related
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<PAGE> 69
Defaults and Events of Default, in each case upon compliance with certain
conditions set forth therein.
The Indenture permits, with certain exceptions (including
certain amendments permitted without the consent of any Holders and certain
amendments which require the consent of all the Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuers and the Guarantors and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Issuers and the Trustee
with the consent of the Holders of at least a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities at the time Outstanding, on behalf of the Holders of
all the Securities, to waive compliance by the Issuers and the Guarantors with
certain provisions of the Indenture and the Securities and the Guarantees and
certain past Defaults under the Indenture and the Securities and the Guarantees
and their consequences. Any such consent or waiver by or on behalf of the Holder
of this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Security.
The Securities are, to the extent and manner provided in
Article Thirteen of the Indenture, subordinated and subject in right of payment
to the prior payment in full of all Senior Indebtedness.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, Finance Corp., any Guarantor or any other obligor on the Securities (in
the event such Guarantor or such other obligor is obligated to make payments in
respect of the Securities), which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on, this Security at the times,
place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Issuers in the Borough of Manhattan, The
City of New York, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Issuers and the Security Registrar duly
executed by, the Holder hereof or its attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the Rule 144A Global
Securities or the
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<PAGE> 70
Regulation S Global Securities if (i) such Depositary (A) has notified the
Company that it is unwilling or unable to continue as Depositary for such Global
Security or (B) has ceased to be a clearing agency registered as such under the
Exchange Act, and in either case the Issuers fail to appoint a successor
Depositary within 90 days, (ii) the Issuers, at their option, notifies the
Trustee in writing that it elects to cause the issuance of the Securities in
certificated form or (iii) there shall have occurred and be continuing an Event
of Default or any event which after notice or lapse of time or both would be an
Event of Default with respect to such Global Security. Upon any such issuance,
the Trustee is required to register such certificated Series B Securities in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof).
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Issuers may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, Finance Corp., any Guarantor, the Trustee and any agent
of the Company, Finance Corp., any Guarantor or the Trustee may treat the Person
in whose name this Security is registered as the owner hereof for all purposes,
whether or not this Security is overdue, and none of the Company, Finance Corp.,
any Guarantor, the Trustee nor any such agent shall be affected by notice to the
contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
[The Transferee Certificate, in the form of Appendix II
hereto, will be attached to the Series B Security.]
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<PAGE> 71
Section 204. Form of Guarantee.
The form of Guarantee shall be set forth on the Securities
substantially as follows:
GUARANTEE
For value received, each of the undersigned hereby absolutely, fully
and unconditionally and irrevocably guarantees, jointly and severally with each
other Guarantor, to the holder of this Security the payment of principal of,
premium, if any, and interest on this Security upon which these Guarantees are
endorsed in the amounts and at the time when due and payable whether by
declaration thereof, or otherwise, and interest on the overdue principal and
interest, if any, of this Security, if lawful, and the payment or performance of
all other obligations of the Issuers under the Indenture or the Securities, to
the holder of this Security and the Trustee, all in accordance with and subject
to the terms and limitations of this Security and Article Fourteen of the
Indenture. This Guarantee will not become effective until the Trustee duly
executes the certificate of authentication on this Security. These Guarantees
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to conflict of law principles thereof.
Dated:
HERR MANUFACTURING COMPANY
PALM BEACH BEDDING COMPANY
LOWER ROAD ASSOCIATES, LLC
By
--------------------------------
Name:
Title:
Attest:
-------------------------
Name:
Title:
- 58 -
<PAGE> 72
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $165,000,000 in
principal amount of Securities (of which $115.0 million are Initial Securities
and up to $50.0 million may be issued as Additional Securities), except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Section 303, 304, 305,
306, 307, 308, 906, 1012, 1015 or 1108.
The Securities shall be known and designated as the "11%
Senior Subordinated Notes due 2009" of the Issuers. The Stated Maturity of the
Securities shall be May 15, 2009, and the Securities shall each bear interest at
the rate of _____% per annum, as such interest rate may be adjusted as set forth
in the Securities, from May 18, 1999, or from the most recent Interest Payment
Date to which interest has been paid, payable semiannually on May 15 and
November 15 in each year, commencing November 15, 1999, until the principal
thereof is paid or duly provided for. Interest on any overdue principal,
interest (to the extent lawful) or premium, if any, shall be payable on demand.
The principal of, premium, if any, and interest on, the
Securities shall be payable and the Securities shall be exchangeable and
transferable at an office or agency of the Issuers in The City of New York
maintained for such purposes (which initially will be a corporate trust office
of the Trustee located at 114 West 47th Street, New York, NY); provided,
however, that payment of interest may be made at the option of the Issuers by
check mailed to addresses of the Persons entitled thereto as shown on the
Security Register.
For all purposes hereunder, the Series A Securities and the
Series B Securities will be treated as one class and are together referred to as
the "Securities." The Series A Securities rank pari passu in right of payment
with the Series B Securities.
The Securities shall be subject to repurchase by the Issuers
pursuant to an Offer as provided in Section 1012.
Holders shall have the right to require the Issuers to
purchase their Securities, in whole or in part, in the event of a Change of
Control pursuant to Section 1015.
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<PAGE> 73
The Securities shall be redeemable as provided in Article
Eleven and in the Securities.
The Indebtedness evidenced by the Securities shall rank junior
to and be subordinated in right of payment to the prior payment in full of all
other Senior Indebtedness. The Securities shall be senior subordinated
Indebtedness of the Issuers ranking equal to all other existing and future
senior subordinated Indebtedness of the Issuers and senior to all Subordinated
Indebtedness of the Issuers.
At the election of the Issuers, the entire Indebtedness on the
Securities or certain of the Issuers' obligations and covenants and certain
Events of Default thereunder may be defeased as provided in Article Four.
Section 302. Denominations.
The Securities shall be issuable only in fully registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
Section 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Issuers by
one of its Chairman of the Board, its President, its Chief Executive Officer,
its Chief Financial Officer or one of its Vice Presidents, attested by its
President, its Secretary or one of its Assistant Secretaries. The signatures of
any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Issuers shall bind
the Issuers, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Issuers may deliver Securities executed by the
Issuers to the Trustee (with Guarantees endorsed thereon) for authentication,
together with a Company Order for the authentication and delivery of such
Securities; and the Trustee in accordance with such Company Order shall
authenticate and deliver such Securities as provided in this Indenture and not
otherwise.
Each Security shall be dated the date of its authentication.
No Security or Guarantee endorsed thereon shall be entitled to
any benefit under this Indenture or be valid or obligatory for any purpose
unless there appears on
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such Security a certificate of authentication substantially in the form provided
for herein duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, Finance Corp. or any Guarantor, pursuant
to Article Eight, shall, in a single transaction or through a series of related
transactions, be consolidated or merged with or into any other Person or shall
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person, and the successor
Person resulting from such consolidation or surviving such merger, or into which
the Company, Finance Corp. or such Guarantor shall have been merged, or the
successor Person which shall have participated in the sale, assignment,
conveyance, transfer, lease or other disposition as aforesaid, shall have
executed an indenture supplemental hereto with the Trustee pursuant to Article
Eight, any of the Securities authenticated or delivered prior to such
consolidation, merger, sale, assignment, conveyance, transfer, lease or other
disposition may, from time to time, at the request of the successor Person, be
exchanged for other Securities executed in the name of the successor Person with
such changes in phraseology and form as may be appropriate, but otherwise in
substance of like tenor as the Securities surrendered for such exchange and of
like principal amount; and the Trustee, upon Company Request of the successor
Person, shall authenticate and deliver Securities as specified in such request
for the purpose of such exchange. If Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section 303 in exchange or substitution for or upon registration of
transfer of any Securities, such successor Person, at the option of the Holders
but without expense to them, shall provide for the exchange of all Securities at
the time Outstanding for Securities authenticated and delivered in such new
name.
The Trustee may appoint an authenticating agent acceptable to
the Issuers to authenticate Securities on behalf of the Trustee. Unless limited
by the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Security Registrar or Paying
Agent to deal with the Issuers and their Affiliates.
If an officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates such Security such Security
shall be valid nevertheless.
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Section 304. Temporary Securities.
Pending the preparation of definitive Securities, the Issuers
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as conclusively evidenced by their
execution of such Securities.
If temporary Securities are issued, the Issuers will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Issuers designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Issuers shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged the temporary Securities shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities.
Section 305. Registration, Registration of Transfer and Exchange.
The Issuers shall cause the Trustee to keep, so long as it is
the Security Registrar, at the Corporate Trust Office of the Trustee, or such
other office as the Trustee may designate, a register (the register maintained
in such office or in any other office or agency designated pursuant to Section
1002 being herein sometimes referred to as the "Security Register") in which,
subject to such reasonable regulations as the Security Registrar may prescribe,
the Issuers shall provide for the registration of Securities and of transfers of
Securities. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Issuers may change the Security Registrar or appoint one or more
co-Security Registrars without notice.
Upon surrender for registration of transfer of any Security at
the office or agency of the Issuers designated pursuant to Section 1002, the
Issuers shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series of any authorized denomination or denominations, of a like
aggregate principal amount.
Furthermore, any Holder of the Global Security shall, by
acceptance of such Global Security, agree that transfers of beneficial interests
in such Global Security may be
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effected only through a book-entry system maintained by the Holder of such
Global Security (or its agent), and that ownership of a beneficial interest in a
Security shall be required to be reflected in a book entry.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination or denominations, of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any Securities are so surrendered for exchange,
the Issuers shall execute, and the Trustee shall authenticate and deliver,
Securities of the same series which the Holder making the exchange is entitled
to receive; provided that no exchange of Series A Securities for Series B
Securities shall occur until an Exchange Offer Registration Statement shall have
been declared effective by the Commission and that the Series A Securities
exchanged for the Series B Securities shall be canceled.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Issuers, evidencing
the same Indebtedness, and entitled to the same benefits under this Indenture,
as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer, or for exchange, repurchase or redemption, shall (if so required by
the Issuers or the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Issuers and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made to a Holder for any
registration of transfer, exchange or redemption of Securities, except for any
tax or other governmental charge that may be imposed in connection therewith,
other than exchanges pursuant to Sections 303, 304, 305, 308, 906, 1012, 1015 or
1108 not involving any transfer.
The Issuers shall not be required (a) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of the Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing or (b) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of Securities being redeemed in part.
Every Security shall be subject to the restrictions on
transfer provided in the legend required to be set forth on the face of each
Security pursuant to Section 202, and the restrictions set forth in this Section
305, and the Holder of each Security, by such Holder's acceptance thereof (or
interest therein), agrees to be bound by such restrictions on transfer.
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Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any Global Security, whether pursuant to this Section 305,
Section 304, 308, 906 or 1108 or otherwise, shall also be a Global Security and
bear the legend specified in Section 202.
Section 306. Book Entry Provisions for Global Securities.
(a) Each Global Security initially shall (i) be registered in
the name of the Depositary for such Global Security or the nominee of such
Depositary, (ii) be deposited with, or on behalf of, the Depositary or with the
Trustee as custodian for such Depositary and (iii) bear legends as set forth in
Section 202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under such Global Security, and the Depositary may be treated by
the Issuers, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Issuers or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a holder of any
Security.
(b) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities registered,
and no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or a
nominee thereof unless (i) such Depositary (A) has notified the Issuers that it
is unwilling or unable to continue as Depositary for such Global Security or (B)
has ceased to be a clearing agency registered as such under the Exchange Act,
and in either case the Issuers fail to appoint a successor Depositary within 90
days, (ii) the Issuers, at their option, execute and deliver to the Trustee a
Company Order stating that they elect to cause the issuance of the Securities in
certificated form and that all Global Securities shall be exchanged in whole for
Securities that are not Global Securities (in which case such exchange shall be
effected by the Trustee) or (iii) there shall have occurred and be continuing an
Event of Default or any event which after notice or lapse of time or both would
be an Event of Default with respect to such Global Security.
(c) If any Global Security is to be exchanged for other
Securities or canceled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Trustee, as Security Registrar, for exchange or
cancellation as provided in this Article Three. If any Global Security is to be
exchanged for other Securities or canceled
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in part, or if another Security is to be exchanged in whole or in part for a
beneficial interest in any Global Security, then either (i) such Global Security
shall be so surrendered for exchange or cancellation as provided in this Article
Three or (ii) the principal amount thereof shall be reduced or increased by an
amount equal to the portion thereof to be so exchanged or canceled, or equal to
the principal amount of such other Security to be so exchanged for a beneficial
interest therein, as the case may be, by means of an appropriate adjustment made
on the records of the Trustee, as Security Registrar, whereupon the Trustee, in
accordance with the Applicable Procedures, shall instruct the Depositary or its
authorized representative to make a corresponding adjustment to its records.
Upon any such surrender or adjustment of a Global Security, the Trustee shall,
subject to this Section 306(c) and as otherwise provided in this Article Three,
authenticate and deliver any Securities issuable in exchange for such Global
Security (or any portion thereof) to or upon the order of, and registered in
such names as may be directed by, the Depositary or its authorized
representative. Upon the request of the Trustee in connection with the
occurrence of any of the events specified in the preceding paragraph, the
Issuers shall promptly make available to the Trustee a reasonable supply of
Securities that are not in the form of Global Securities. The Trustee shall be
entitled to rely upon any order, direction or request of the Depositary or its
authorized representative which is given or made pursuant to this Article Three
if such order, direction or request is given or made in accordance with the
Applicable Procedures.
(d) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global Security
or any portion thereof, whether pursuant to this Article Three or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all purposes
under the Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members.
Section 307. Special Transfer and Exchange Provisions.
(a) Certain Transfers and Exchanges. Transfers and exchanges
of Securities and beneficial interests in a Global Security of the kinds
specified in this Section 307 shall be made only in accordance with this Section
307.
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(i) Rule 144A Global Security to Regulation S Global
Security. If the owner of a beneficial interest in the Rule
144A Global Security wishes at any time to transfer such
interest to a Person who wishes to acquire the same in the
form of a beneficial interest in the Regulation S Global
Security, such transfer may be effected only in accordance
with the provisions of this paragraph and paragraph (iv) below
and subject to the Applicable Procedures. Upon receipt by the
Trustee, as Security Registrar, of (a) an order given by the
Depositary or its authorized representative directing that a
beneficial interest in the Regulation S Global Security in a
specified principal amount be credited to a specified Agent
Member's account and that a beneficial interest in the Rule
144A Global Security in an equal principal amount be debited
from another specified Agent Member's account and (b) a
Regulation S Certificate in the form of Exhibit A hereto,
satisfactory to the Trustee and duly executed by the owner of
such beneficial interest in the Rule 144A Global Security or
his attorney duly authorized in writing, then the Trustee, as
Security Registrar but subject to paragraph (iv) below, shall
reduce the principal amount of the Rule 144A Global Security
and increase the principal amount of the Regulation S Global
Security by such specified principal amount as provided in
Section 306(c).
(ii) Regulation S Global Security to Rule 144A Global
Security. If the owner of a beneficial interest in the
Regulation S Global Security wishes at any time to transfer
such interest to a Person who wishes to acquire the same in
the form of a beneficial interest in the Rule 144A Global
Security, such transfer may be effected only in accordance
with this paragraph (ii) and subject to the Applicable
Procedures. Upon receipt by the Trustee, as Security
Registrar, of (a) an order given by the Depositary or its
authorized representative directing that a beneficial interest
in the Rule 144A Global Security in a specified principal
amount be credited to a specified Agent Member's account and
that a beneficial interest in the Regulation S Global Security
in an equal principal amount be debited from another specified
Agent Member's account and (b) if such transfer is to occur
during the Restricted Period, a Restricted Securities
Certificate in the form of Exhibit B hereto, satisfactory to
the Trustee and duly executed by the owner of such beneficial
interest in the Regulation S Global Security or his attorney
duly authorized in writing, then the Trustee, as Security
Registrar, shall reduce the principal amount of the Regulation
S Global Security and increase the principal amount of the
Rule 144A Global Security by such specified principal amount
as provided in Section 306(c).
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(iii) Exchanges between Global Security and
Non-Global Security. A beneficial interest in a Global
Security may be exchanged for a Security that is not a Global
Security as provided in Section 307(b), provided that, if such
interest is a beneficial interest in the Rule 144A Global
Security, or if such interest is a beneficial interest in the
Regulation S Global Security and such exchange is to occur
during the Restricted Period, then such interest shall bear
the Private Placement Legend (subject in each case to Section
307(b).
(iv) Regulation S Global Security to be Held Through
Euroclear or Cedel during Restricted Period. The Issuers shall
use their best efforts to cause the Depositary to ensure that,
until the expiration of the Restricted Period, beneficial
interests in the Regulation S Global Security may be held only
in or through accounts maintained at the Depositary by
Euroclear or Cedel (or by Agent Members acting for the account
thereof), and no person shall be entitled to effect any
transfer or exchange that would result in any such interest
being held otherwise than in or through such an account;
provided that this paragraph (iv) shall not prohibit any
transfer or exchange of such an interest in accordance with
paragraph (ii) above. Notwithstanding anything otherwise
stated herein, during the Restricted Period, holders of
beneficial interests in the Regulation S Global Security may
not transfer such interest to a person that takes delivery
thereof in the form of an interest in the Rule 144A Global
Security; upon the expiration of the Restricted Period, such
interest in the Regulation S Global Security may be
transferred to a person who takes delivery in the form of an
interest in the Rule 144A Global Security provided that (for
persons other than distributors (as defined in Regulation S))
such person delivers a certificate in the Form of Exhibit C
hereto to the Trustee.
(b) Private Placement Legends. Rule 144A Securities and their
Successor Securities and Regulation S Securities and their Successor Securities
shall bear a Private Placement Legend, subject to the following:
(i) subject to the following clauses of this Section
307(b), a Security or any portion thereof which is exchanged,
upon transfer or otherwise, for a Global Security or any
portion thereof shall bear the Private Placement Legend borne
by such Global Security while represented thereby;
(ii) subject to the following Clauses of this Section
307(b), a new Security which is not a Global Security and is
issued in exchange for another Security (including a Global
Security) or any portion thereof, upon
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transfer or otherwise, shall bear the Private Placement Legend
borne by such other Security;
(iii) Exchange Securities, and all other Securities
sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act, together with
their respective Successor Securities, shall not bear a
Private Placement Legend;
(iv) at any time after the Securities may be freely
transferred without registration under the Securities Act or
without being subject to transfer restrictions pursuant to the
Securities Act, a new Security which does not bear a Private
Placement Legend may be issued in exchange for or in lieu of a
Security (other than a Global Security) or any portion thereof
which bears such a legend if the Trustee has received an
Unrestricted Securities Certificate substantially in the form
of Exhibit C hereto, satisfactory to the Trustee and duly
executed by the Holder of such legended Security or his
attorney duly authorized in writing, and after such date and
receipt of such certificate, the Trustee shall authenticate
and deliver such a new Security in exchange for or in lieu of
such other Security as provided in this Article Three;
(v) a new Security which does not bear a Private
Placement Legend may be issued in exchange for or in lieu of a
Security (other than a Global Security) or any portion thereof
which bears such a legend if, in the Company's judgment,
placing such a legend upon such new Security is not necessary
to ensure compliance with the registration requirements of the
Securities Act, and the Trustee, at the direction of the
Issuers, shall authenticate and deliver such a new Security as
provided in this Article Three; and
(vi) notwithstanding the foregoing provisions of this
Section 307(b), a Successor Security of a Security that does
not bear a particular form of Private Placement Legend shall
not bear such form of legend unless the Issuers have
reasonable cause to believe that such Successor Security is a
"restricted security" within the meaning of Rule 144, in which
case the Trustee, at the direction of the Issuers, shall
authenticate and deliver a new Security bearing a Private
Placement Legend in exchange for such Successor Security as
provided in this Article Three.
By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security
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set forth in this Indenture and in the Private Placement Legend and agrees that
it will transfer such Security only as provided in this Indenture.
The Security Registrar shall retain copies of all letters,
notices and other written communications received pursuant to Section 306 or
this Section 307. The Issuers shall have the right to inspect and make copies of
all such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Security Registrar.
Section 308. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee,
or (b) the Issuers and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Issuers, any Guarantor and the Trustee, such security or indemnity, in each
case, as may be required by them to save each of them harmless, then, in the
absence of notice to the Company, Finance Corp., any Guarantor or the Trustee
that such Security has been acquired by a bona fide purchaser, the Issuers shall
execute and upon a Company Request the Trustee shall authenticate and deliver,
in exchange for any such mutilated Security or in lieu of any such destroyed,
lost or stolen Security, a replacement Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding and each Guarantor
shall execute a replacement Guarantee.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Issuers in their
discretion may, instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Securities under this
Section, the Issuers may require the payment of a sum sufficient to pay all
documentary, stamp or similar issue or transfer taxes or other governmental
charges that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every replacement Security and Guarantee issued pursuant to
this Section in lieu of any destroyed, lost or stolen Security shall constitute
an original additional contractual obligation of the Issuers and any Guarantor,
whether or not the destroyed, lost or stolen Security shall be at any time
enforceable by anyone, and shall be entitled to all benefits of this Indenture
equally and proportionately with any and all other Securities duly issued
hereunder.
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The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 309. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on the Stated Maturity of such interest shall be paid
to the Person in whose name the Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
payment.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on the Stated Maturity of such interest,
and interest on such defaulted interest at the then applicable interest rate
borne by the Securities, to the extent lawful (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest"), shall
forthwith cease to be payable to the Holder on the Regular Record Date; and such
Defaulted Interest may be paid by the Issuers, at their election in each case,
as provided in Subsection (a) or (b) below:
(a) The Issuers may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or any
relevant Predecessor Securities) are registered at the close
of business on a Special Record Date for the payment of such
Defaulted Interest, which shall be fixed in the following
manner. The Issuers shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each
Security and the date (not less than 30 days after such
notice) of the proposed payment (the "Special Payment Date"),
and at the same time the Issuers shall deposit with the
Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such
deposit prior to the Special Payment Date, such money when
deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Subsection
provided. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be
not more than 15 days and not less than 10 days prior to the
date of the Special Payment Date and not less than 10 days
after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Issuers in
writing of such Special Record Date. In the name and at the
expense of the Issuers, the Trustee shall cause notice of the
proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at its address as it appears in the
Security Register, not less than 10 days prior to such Special
Record Date. Notice of
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the proposed payment of such Defaulted Interest and the
Special Record Date and Special Payment Date therefor having
been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Securities are registered on such
Special Record Date and shall no longer be payable pursuant to
the following Subsection (b).
(b) The Issuers may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by this
Indenture not inconsistent with the requirements of such
exchange, if, after written notice given by the Issuers to the
Trustee of the proposed payment pursuant to this Subsection,
such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 309, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
Section 310. CUSIP Numbers.
The Issuers in issuing the Securities may use "CUSIP"
numbers (if then generally in use), and the Issuers, or the Trustee on behalf of
the Issuers, shall use CUSIP numbers in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice shall state that
no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other identification
numbers printed on the Securities; and provided further, however, that failure
to use CUSIP numbers in any notice of redemption or exchange shall not affect
the validity or sufficiency of such notice.
Section 311. Persons Deemed Owners.
Prior to and at the time of due presentment of a Security for
registration of transfer, the Issuers, any Guarantor, the Trustee and any agent
of the Issuers, any Guarantor or the Trustee may treat the Person in whose name
any Security is registered as the owner of such Security for the purpose of
receiving payment of principal of, premium, if any, and (subject to Section 309)
interest on, such Security and for all other purposes whatsoever, whether or not
such Security is overdue, and none of the Company, Finance Corp., any Guarantor,
the Trustee nor any agent of the Company, Finance Corp., any Guarantor or the
Trustee shall be affected by notice to the contrary.
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Section 312. Cancellation.
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Issuers and any
Guarantor may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company, Finance
Corp. or such Guarantor may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly canceled by the Trustee. No Securities
shall be authenticated in lieu of or in exchange for any Securities canceled as
provided in this Section 312, except as expressly permitted by this Indenture.
All canceled Securities held by the Trustee shall be destroyed and certification
of their destruction delivered to the Issuers, unless by a Company Order
received by the Trustee prior to such destruction, the Issuers shall direct that
the canceled Securities be returned to it. The Trustee shall provide the Issuers
a list of all Securities that have been canceled from time to time as requested
by the Issuers.
Section 313. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
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ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. Option to Effect Defeasance or Covenant Defeasance.
The Issuers may, at their option by Board Resolution, at any
time, with respect to the Securities, elect to have either Section 402 or
Section 403 be applied to all of the Outstanding Securities (the "Defeased
Securities"), upon compliance with the conditions set forth below in this
Article Four.
Section 402. Defeasance and Discharge.
Upon the Issuers' exercise under Section 401 of the option
applicable to this Section 402, the Company, Finance Corp., each Guarantor and
any other obligor upon the Securities, if any, shall be deemed to have been
discharged from its obligations with respect to the Defeased Securities on the
date the conditions set forth in Section 404 below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Issuers, each
Guarantor and any other obligor under this Indenture shall be deemed to have
paid and discharged the entire Indebtedness represented by the Defeased
Securities, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 405 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Issuers and upon Company Request, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of Defeased Securities to receive, solely from the trust fund described
in Section 404 and as more fully set forth in such Section, payments in respect
of the principal of, premium, if any, and interest on, such Securities, when
such payments are due, (b) the Issuers' obligations with respect to such
Defeased Securities under Sections 304, 305, 308, 1002 and 1003, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder, including,
without limitation, the Trustee's rights under Section 607, and (d) this Article
Four. Subject to compliance with this Article Four, the Issuers may exercise its
option under this Section 402 notwithstanding the prior exercise of its option
under Section 403 with respect to the Securities.
Section 403. Covenant Defeasance.
Upon the Issuers' exercise under Section 401 of the option
applicable to this Section 403, the Issuers and each Guarantor shall be released
from their obligations under any covenant or provision contained or referred to
in Sections 1005 through 1020, inclusive, and the provisions of clause (iii) of
Section 801(a), with respect to the Defeased
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Securities, on and after the date the conditions set forth in Section 404 below
are satisfied (hereinafter, "covenant defeasance"), and the Defeased Securities
shall thereafter be deemed to be not "Outstanding" for the purposes of any
direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Defeased
Securities, the Issuers and each Guarantor may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such Section, whether directly or indirectly, by reason of any reference
elsewhere herein to any such Section or by reason of any reference in any such
Section to any other provision herein or in any other document and such omission
to comply shall not constitute a Default or an Event of Default under Section
501(c) or (g) but, except as specified above, the remainder of this Indenture
and such Defeased Securities shall be unaffected thereby.
Section 404. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 402 or Section 403 to the Defeased Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee as trust funds, in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, (a) cash in United
States dollars in an amount, (b) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in accordance
with their terms and with no further reinvestment will provide, not later than
one day before the due date of payment, money in an amount, or (c) a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants or a nationally recognized
investment banking firm expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the Trustee
to pay and discharge, the principal of, premium, if any, and interest on, the
Defeased Securities, on the Stated Maturity of such principal or interest (or on
any date after May 15, 2004 (such date being referred to as the "Defeasance
Redemption Date"), if at or prior to electing to exercise either its option
applicable to Section 402 or its option applicable to Section 403, the Company
has delivered to the Trustee an irrevocable notice to redeem the Defeased
Securities on the Defeasance Redemption Date). For this purpose, "U.S.
Government Obligations" means securities that are (i) direct obligations of the
United States of America for the timely payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer
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thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect to
any such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt;
(2) In the case of an election under Section 402, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in the
United States stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date
hereof, 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 Independent
Counsel in the United States shall confirm that, the Holders of the Outstanding
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
(3) In the case of an election under Section 403, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in the
United States to the effect that the Holders of the Outstanding Securities 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 on the date of such deposit or insofar as Section 501(g) or (h) is
concerned, at any time during the period ending on the 91st day after the date
of deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period);
(5) Such defeasance or covenant defeasance shall not cause the
Trustee for the Securities to have a conflicting interest in violation of and
for purposes of the Trust Indenture Act with respect to any securities of the
Company, Finance Corp. or any Guarantor;
(6) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a Default under, this Indenture or any
other material
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agreement or instrument to which the Company, Finance Corp., any Guarantor or
any Restricted Subsidiary is a party or by which it is bound;
(7) Such defeasance or covenant defeasance shall not result in
the trust arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(8) The Company shall have delivered to the Trustee an Opinion
of Independent Counsel in the United States 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;
(9) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Securities or any Guarantee over the
other creditors of the Company, Finance Corp. or any Guarantor with the intent
of defeating, hindering, delaying or defrauding creditors of the Company,
Finance Corp., any Guarantor or others;
(10) No event or condition shall exist that would prevent the
Issuers from making payments of the principal of, premium, if any, and interest
on the Securities on the date of such deposit or at any time ending on the 91st
day after the date of such deposit; and
(11) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Independent Counsel, each stating that
all conditions precedent (other than conditions which cannot be satisfied for 91
days) provided for relating to either the defeasance under Section 402 or the
covenant defeasance under Section 403, as the case may be, have been complied
with.
Opinions of Counsel or Opinions of Independent Counsel
required to be delivered under this Section shall be in form and substance
reasonably satisfactory to the Trustee and may have qualifications customary for
opinions of the type required and counsel delivering such opinions may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, which certificates shall be limited as to matters
of fact, including that various financial covenants have been complied with.
Section 405. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all United States dollars and U.S. Government Obligations (including the
proceeds thereof)
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deposited with the Trustee pursuant to Section 404 in respect of the Defeased
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (excluding the Issuers or any of their
Affiliates acting as Paying Agent), as the Trustee may determine, to the Holders
of such Securities of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law.
The Issuers shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 404 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is imposed, assessed or for the account of the Holders of the Defeased
Securities.
Anything in this Article Four to the contrary notwithstanding,
the Trustee shall deliver or pay to the Issuers from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 404 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect defeasance or covenant defeasance.
Section 406. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United
States dollars or U.S. Government Obligations in accordance with Section 402 or
403, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' obligations under this Indenture and the
Securities and any Guarantor's obligations under any Guarantee shall be revived
and reinstated, with present and prospective effect, as though no deposit had
occurred pursuant to Section 402 or 403, as the case may be, until such time as
the Trustee or Paying Agent is permitted to apply all such United States dollars
or U.S. Government Obligations in accordance with Section 402 or 403, as the
case may be; provided, however, that if the Issuers make any payment to the
Trustee or Paying Agent of principal of, premium, if any, or interest on any
Security following the reinstatement of its obligations, the Trustee or Paying
Agent shall promptly pay any such amount to the Holders of the Securities and
the Issuers shall be subrogated to the rights of the Holders of such Securities
to receive such payment from the United States dollars and U.S. Government
Obligations held by the Trustee or Paying Agent.
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ARTICLE FIVE
REMEDIES
Section 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) there shall be a default in the payment of any interest on
any Security when it becomes due and payable, and such default shall continue
for a period of 30 days (whether or not prohibited by the subordination
provisions of the Indenture);
(b) there shall be a default in the payment of the principal
of (or premium, if any, on) any Security at its Maturity (upon acceleration,
optional or mandatory redemption, if any, required repurchase or otherwise)
(whether or not prohibited by the subordination provisions of the Indenture);
(c) (i) there shall be a default in the performance, or
breach, of any covenant or agreement of the Company, Finance Corp. or any
Guarantor under this Indenture or any Guarantee (other than a default in the
performance, or breach, of a covenant or agreement which is specifically dealt
with in clause (a), (b) or in clause (ii), (iii) or (iv) of this clause (c)) and
such default or breach shall continue for a period of 30 days after written
notice has been given, by certified mail, (1) to the Company by the Trustee or
(2) to the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Outstanding Securities; (ii) there shall be a default in
the performance or breach of Article Eight herein; (iii) the Issuers shall have
failed to make or consummate an Offer in accordance with the provisions of
Section 1012 herein; or (iv) the Issuers shall have failed to make or consummate
a Change of Control Offer in accordance with the provisions of Section 1015
herein;"
(d) one or more defaults shall have occurred under any of the
agreements, indentures or instruments under which the Company, Finance Corp.,
any Guarantor or any Restricted Subsidiary then has outstanding Indebtedness in
excess of $5 million, individually or in the aggregate, and either (i) such
default results from the failure to pay such Indebtedness at its stated final
Maturity or (ii) such default or defaults have resulted in the acceleration of
the Maturity of such Indebtedness;
(e) any Guarantee shall for any reason cease to be, or shall
for any reason be asserted in writing by any Guarantor, the Company or Finance
Corp. not to be,
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in full force and effect and enforceable in accordance with its terms, except to
the extent contemplated by this Indenture and any such Guarantee, or Finance
Corp. shall for any reason cease to be, or shall for any reason be asserted in
writing by the Company, any Guarantor or Finance Corp. not to be, a co-obligor
pursuant to the Securities, except to the extent contemplated by this Indenture;
(f) one or more judgments, orders or decrees of any court or
regulatory or administrative agency for the payment of money in excess of $5
million, either individually or in the aggregate, shall be rendered against the
Company, Finance Corp., any Guarantor or any Restricted Subsidiary or any of
their respective properties and shall not be discharged and either (i) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or (ii) there shall have been a period of 60 consecutive days
during which a stay of enforcement of such judgment or order, by reason of an
appeal or otherwise, shall not be in effect;
(g) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company,
Finance Corp., any Guarantor or any Restricted Subsidiary in an involuntary case
or proceeding under any applicable Bankruptcy Law or (ii) a decree or order
adjudging the Company, Finance Corp., any Guarantor or any Restricted Subsidiary
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company, Finance Corp., any Guarantor or any
Restricted Subsidiary under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company, Finance Corp., any Guarantor or any Restricted
Subsidiary or of any substantial part of their respective properties, or
ordering the winding up or liquidation of their affairs, and any such decree or
order for relief shall continue to be in effect, or any such other decree or
order shall be unstayed and in effect, for a period of 60 consecutive days; or
(h) (i) the Company, Finance Corp., any Guarantor or any
Restricted Subsidiary commences a voluntary case or proceeding under any
applicable Bankruptcy Law or any other case or proceeding to be adjudicated
bankrupt or insolvent, (ii) the Company, Finance Corp., any Guarantor or any
Restricted Subsidiary consents to the entry of a decree or order for relief in
respect of the Company, such Guarantor or such Restricted Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or proceeding against it,
(iii) the Company, Finance Corp., any Guarantor or any Restricted Subsidiary
files a petition or answer or consent seeking reorganization or relief under any
applicable federal or state law, (iv) the Company, Finance Corp., any Guarantor
or any Restricted Subsidiary (1) consents to the filing of such petition or the
appointment of, or taking possession by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company, Finance
Corp., any Guarantor or such Restricted
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Subsidiary or of any substantial part of their respective properties, (2) makes
an assignment for the benefit of creditors or (3) admits in writing its
inability to pay its debts generally as they become due or (v) the Company,
Finance Corp., any Guarantor or any Restricted Subsidiary takes any corporate
action in furtherance of any such actions in this paragraph (h).
Section 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default
specified in Sections 501(g) and (h) within) shall occur and be continuing with
respect to this Indenture, the Trustee or the holders of not less than 25% in
aggregate principal amount of the Securities then Outstanding may, and the
Trustee at the request of such holders shall, declare all unpaid principal of,
premium, if any, and accrued interest on all Securities to be due and payable
immediately, by a notice in writing to the Issuers (and to the Trustee if given
by the holders of the Securities) and upon any such declaration, such principal,
premium, if any, and interest shall become due and payable immediately. If an
Event of Default specified in clause (g) or (h) of Section 501 occurs and is
continuing, then all the Securities shall ipso facto become and be due and
payable immediately in an amount equal to the principal amount of the
Securities, together with accrued and unpaid interest, if any, to the date the
Securities become due and payable, without any declaration or other act on the
part of the Trustee or any holder. Thereupon, the Trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of the
Securities by appropriate judicial proceedings.
After a declaration of acceleration with respect to the
Securities, but before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
holders of a majority in aggregate principal amount of Securities Outstanding by
written notice to the Issuers and the Trustee, may rescind and annul such
declaration and its consequences if
(a) the Company has paid or deposited with the Trustee a
sum sufficient to pay (1) all sums paid or advanced
by the Trustee under this Indenture and the
reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (2)
all overdue interest on all Outstanding Securities,
(3) the principal of, and premium, if any, on any
Outstanding Securities which have become due
otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the
Securities and (4) to the extent that payment of such
interest is lawful, interest upon overdue interest at
the rate borne by the Securities;
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(b) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of
principal of, premium, if any, and interest on the
Securities which have become due solely by such
declaration of acceleration, have been cured or
waived as provided in Section 513.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company, Finance Corp. and each Guarantor covenant that if
(a) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or
(b) default is made in the payment of the principal of or
premium, if any, on any Security at the Stated Maturity thereof or otherwise,
the Company, Finance Corp. and such Guarantor will, upon demand of the Trustee,
pay to it, for the benefit of the Holders of such Securities, the whole amount
then due and payable on such Securities for principal and premium, if any, and
interest, with interest upon the overdue principal and premium, if any, and, to
the extent that payment of such interest shall be legally enforceable, upon
overdue installments of interest, at the rate borne by the Securities; and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company, Finance Corp. or any Guarantor, as the case
may be, fails to pay such amounts forthwith upon such demand, the Trustee, in
its own name and as trustee of an express trust, may institute a judicial
proceeding for the collection of the sums so due and unpaid and may prosecute
such proceeding to judgment or final decree, and may enforce the same against
the Company, Finance Corp. or any Guarantor or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company, Finance Corp., any
Guarantor or any other obligor upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders under this Indenture or any Guarantee by such appropriate private
or judicial proceedings as the
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Trustee shall deem most effectual to protect and enforce such rights, including
seeking recourse against any Guarantor pursuant to the terms of any Guarantee,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein or therein, or
to enforce any other proper remedy, including, without limitation, seeking
recourse against any Guarantor pursuant to the terms of a Guarantee, or to
enforce any other proper remedy, subject however to Section 512. No recovery of
any such judgment upon any property of the Company or any Guarantor shall affect
or impair any rights, powers or remedies of the Trustee or the Holders.
Section 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Issuers or any other obligor,
including any Guarantor, upon the Securities or the property of the Issuers or
of such other obligor or their creditors, the Trustee (irrespective of whether
the principal of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Issuers for the payment of overdue principal
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(a) to file and prove a claim for the whole amount of
principal, and premium, if any, and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the
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rights of any Holder thereof, or to authorize the Trustee to vote in respect of
the claim of any Holder in any such proceeding.
Section 505. Trustee May Enforce Claims without Possession of
Securities.
All rights of action and claims under this Indenture, the
Securities or the Guarantees may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which such judgment has been recovered.
Section 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or in
lieu of any proceeding contemplated by this Article shall be applied, subject to
applicable law, in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid upon
the Securities for principal, premium, if any, and interest, in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Issuers, provided that all sums due and owing to the
Holders and the Trustee have been paid in full as required by this Indenture.
Section 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
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(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as trustee hereunder;
(c) such Holder or Holders have offered to the Trustee a
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Trustee for 15 days after its receipt of such notice,
request and offer (and if requested, provision) of indemnity has failed to
institute any such proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 15-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Security or any Guarantee to affect, disturb or prejudice
the rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
any Security or any Guarantee, except in the manner provided in this Indenture
and for the equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right based on the terms stated herein,
which is absolute and unconditional, to receive payment of the principal of,
premium, if any, and (subject to Section 309) interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption or repurchase, on the Redemption Date or the repurchase date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Guarantee and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, Finance Corp., any
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Guarantor, any other obligor on the Securities, the Trustee and the Holders
shall, subject to any determination in such proceeding, be restored severally
and respectively to their former positions hereunder, and thereafter all rights
and remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
Section 512. Control by Holders.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture (including, without limitation, Section 507) or any
Guarantee, expose the Trustee to personal liability, or be unduly prejudicial to
Holders not joining therein; and
(b) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may on behalf of the Holders of a majority
in aggregate principal
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amount of the Outstanding Securities or the Holders of all Outstanding
Securities waive any past Default hereunder and its consequences, except a
Default
(a) in the payment of the principal of, premium, if any, or
interest on any Security (which may only be waived with the consent of each
Holder of Securities affected); or
(b) in respect of a covenant or a provision hereof which under
this Indenture cannot be modified or amended without the consent of the Holder
of each Security Outstanding affected by such modification or amendment.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant,
but the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on, any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
Section 515. Waiver of Stay, Extension or Usury Laws.
Each of the Company, Finance Corp. and the Guarantors
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury or other law
wherever enacted, now or at any time hereafter in force, which would prohibit or
forgive the Company, Finance Corp. or any Guarantor from paying all or any
portion of the principal of, premium, if any, or interest on the Securities
contemplated herein or in the Securities or which may affect the covenants or
the performance of this Indenture; and each of the Company, Finance Corp. and
the
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Guarantors (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
Section 516. Remedies Subject to Applicable Law.
All rights, remedies and powers provided by this Article Five
may be exercised only to the extent that the exercise thereof does not violate
any applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable or
not entitled to be recorded, registered or filed under the provisions of any
applicable law.
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ARTICLE SIX
THE TRUSTEE
Section 601. Duties of Trustee.
Subject to the provisions of Trust Indenture Act Sections
315(a) through 315(d):
(a) if a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs;
(b) except during the continuance of a Default or an Event of
Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are
adverse to the Trustee; and
(2) in the absence of bad faith or willful misconduct
on its part, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this Subsection (c) does not limit the effect of
Subsection (b) of this Section 601;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless
it is proved that the Trustee was negligent in ascertaining
the pertinent facts; and
(3) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith, in
accordance with a direction of the Holders of a majority in
principal amount of Outstanding Securities relating to the
time, method and place of conducting any proceeding for any
remedy
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available to the Trustee, or exercising any trust or power
confirmed upon the Trustee under this Indenture;
(d) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it;
(e) whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
Subsections (a), (b), (c) and (d) of this Section 601; and
(f) the Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree with the Issuers.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
Section 602. Notice of Defaults.
Within 30 days after a Responsible Officer of the Trustee
receives notice of the occurrence of any Default, the Trustee shall transmit by
mail to all Holders and any other Persons entitled to receive reports pursuant
to Section 313(c) of the Trust Indenture Act, as their names and addresses
appear in the Security Register, notice of such Default hereunder known to the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of a Default in the payment of the principal of,
premium, if any, or interest on any Security, the Trustee shall be protected in
withholding such notice if and so long as a trust committee of Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601 hereof and Trust
Indenture Act Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon receipt by it of any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of Indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
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(b) any request or direction of the Issuers mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) the Trustee may consult with counsel of its selection and
any advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon in accordance with such
advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee security or indemnity satisfactory to the
Trustee against the costs, expenses and liabilities which might be incurred
therein;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of the negligence, bad faith or willful misconduct of
the Trustee;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security or other paper or
document unless requested in writing to do so by the Holders of not less than a
majority in aggregate principal amount of the Securities then Outstanding;
provided that, if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such expenses or liabilities as
a condition to proceeding; the reasonable expenses of every such investigation
so requested by the Holders of not less than 25% in aggregate principal amount
of the Securities Outstanding shall be paid by the Issuers or, if paid by the
Trustee or any predecessor Trustee, shall be repaid by the Issuers upon demand;
provided, further, the Trustee in its discretion may make such further inquiry
or investigation into such facts or matters as it may deem fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Issuers,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the
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Trustee shall not be responsible for any misconduct or negligence on the part of
any agent or attorney appointed with due care by it hereunder.
Section 604. Trustee Not Responsible for Recitals,
Dispositions of Securities or Application of Proceeds Thereof.
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Issuers and the Guarantors, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in any Statement of Eligibility and Qualification on Form
T-1 to be supplied to the Issuers will be true and accurate subject to the
qualifications set forth therein. The Trustee shall not be accountable for the
use or application by the Issuers of Securities or the proceeds thereof.
Section 605. Trustee and Agents May Hold Securities;
Collections; etc.
The Trustee, any Paying Agent, Security Registrar or any other
agent of the Issuers, in its individual or any other capacity, may become the
owner or pledgee of Securities, with the same rights it would have if it were
not the Trustee, Paying Agent, Security Registrar or such other agent and,
subject to Trust Indenture Act Sections 310 and 311, may otherwise deal with the
Issuers and receive, collect, hold and retain collections from the Issuers with
the same rights it would have if it were not the Trustee, Paying Agent, Security
Registrar or such other agent.
Section 606. Money Held in Trust.
All moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Except for funds or securities
deposited with the Trustee pursuant to Article Four, the Trustee shall be
required to invest all moneys received by the Trustee, until used or applied as
herein provided, in Temporary Cash Investments in accordance with the directions
of the Issuers.
Section 607. Compensation and Indemnification of Trustee and
Its Prior Claim.
The Issuers covenant and agree to pay to the Trustee from time
to time, and the Trustee shall be entitled to, reasonable compensation for all
services rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust) and the Issuers covenant and agree to
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pay or reimburse the Trustee and each predecessor Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by or on
behalf of the Trustee in accordance with any of the provisions of this Indenture
(including the reasonable compensation and the expenses and disbursements of its
counsel and of all agents and other persons not regularly in its employ) except
any such expense, disbursement or advance as may arise from its negligence, bad
faith or willful misconduct. The Issuers also covenant and agree to indemnify
the Trustee and each predecessor Trustee for, and to hold it harmless against,
any claim, loss, liability, tax, assessment or other governmental charge (other
than taxes applicable to the Trustee's compensation hereunder) or expense
incurred without negligence, bad faith or willful misconduct on its part,
arising out of or in connection with the acceptance or administration of this
Indenture or the trusts hereunder and its duties hereunder, including
enforcement of this Section 607 and also including any liability which the
Trustee may incur as a result of failure to withhold, pay or report any tax,
assessment or other governmental charge, and the costs and expenses of defending
itself against or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
obligations of the Issuers under this Section 607 to compensate and indemnify
the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and
each predecessor Trustee for reasonable expenses, disbursements and advances
shall constitute an additional obligation hereunder and shall survive the
satisfaction and discharge of this Indenture and the resignation or removal of
the Trustee and each predecessor Trustee.
Section 608. Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b)
of the Trust Indenture Act.
Section 609. Trustee Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a) and which
shall have a combined capital and surplus of at least $100,000,000, to the
extent there is an institution eligible and willing to serve. If the Trustee
does not have a Corporate Trust Office in The City of New York, the Trustee may
appoint an agent in The City of New York reasonably acceptable to the Issuers to
conduct any activities which the Trustee may be required under this Indenture to
conduct in The City of New York. If such Trustee publishes reports of condition
at least annually, pursuant to law or to the requirements of federal, state,
territorial or District of Columbia supervising or examining authority, then for
the purposes of this Section 609, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance
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with the provisions of this Section 609, the Trustee shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 610. Resignation and Removal; Appointment of Successor
Trustee.
(a) No resignation or removal of the Trustee and no
appointment of a successor trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor trustee under
Section 611.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may at any time resign by giving written notice thereof to the
Issuers no later than 20 Business Days prior to the proposed date of
resignation. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee by written instrument executed by authority
of the Board of Directors of the Issuers, a copy of which shall be delivered to
the resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance by a successor trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may, or any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper, appoint and prescribe a successor trustee.
(c) The Trustee may be removed at any time for any cause or
for no cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Issuers.
(d) If at any time:
(1) the Trustee shall fail to comply with the
provisions of Trust Indenture Act Section 310(b) after written
request therefor by the Issuers or by any Holder who has been
a bona fide Holder of a Security for at least six months,
(2) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after written request
therefor by the Issuers or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control
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of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,
then, in any case, (i) the Issuers by a Board Resolution may remove the Trustee,
or (ii) subject to Section 514, the Holder of any Security who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Issuers, by a Board Resolution, shall promptly appoint a
successor trustee and shall comply with the applicable requirements of Section
611. If, within 60 days after such resignation, removal or incapability, or the
occurrence of such vacancy, the Issuers has not appointed a successor Trustee, a
successor trustee shall be appointed by the Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the Issuers and the
retiring Trustee. Such successor trustee so appointed shall forthwith upon its
acceptance of such appointment become the successor trustee and supersede the
successor trustee appointed by the Issuers. If no successor trustee shall have
been so appointed by the Issuers or the Holders of the Securities and accepted
appointment in the manner hereinafter provided, the Trustee or the Holder of any
Security who has been a bona fide Holder for at least six months may, subject to
Section 514, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor trustee.
(f) The Issuers shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor trustee and the
address of its Corporate Trust Office or agent hereunder.
Section 611. Acceptance of Appointment by Successor.
Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Issuers and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee as if originally named as
Trustee hereunder; but, nevertheless, on the written request of the Issuers or
the successor trustee, upon payment of its charges pursuant to Section 607 then
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unpaid, such retiring Trustee shall pay over to the successor trustee all moneys
at the time held by it hereunder and shall execute and deliver an instrument
transferring to such successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee, the Issuers shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers.
No successor trustee with respect to the Securities shall
accept appointment as provided in this Section 611 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 609.
Upon acceptance of appointment by any successor trustee as
provided in this Section 611, the Issuers shall give notice thereof to the
Holders of the Securities, by mailing such notice to such Holders at their
addresses as they shall appear on the Security Register. If the acceptance of
appointment is substantially contemporaneous with the appointment, then the
notice called for by the preceding sentence may be combined with the notice
called for by Section 610. If the Issuers fail to give such notice within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be given at the expense of the Issuers.
Section 612. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee (including the trust created by this
Indenture) shall be the successor of the Trustee hereunder, provided that such
corporation shall be eligible under Trust Indenture Act Section 310(a) and this
Article Six and shall have a combined capital and surplus of at least
$100,000,000 and have a Corporate Trust Office or an agent selected in
accordance with Section 609, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Securities shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor Trustee and deliver
such Securities so authenticated; and, in case at that time any of the
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the
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name of the successor trustee; and in all such cases such certificate shall have
the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have; provided that the right
to adopt the certificate of authentication of any predecessor Trustee or to
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
Section 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the
Issuers (or other obligor under the Securities), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Issuers (or any such other obligor). A Trustee who has resigned or
been removed shall be subject to Trust Indenture Act Section 311(a) to the
extent indicated therein.
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUERS
Section 701. Issuers to Furnish Trustee Names and Addresses of
Holders.
The Issuers will furnish or cause to be furnished to the
Trustee
(a) semiannually, not more than 10 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request
in writing, within 30 days after receipt by the Issuers of any such request, a
list of similar form and content to that in subsection (a) hereof as of a date
not more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 702. Disclosure of Names and Addresses of Holders.
Holders may communicate pursuant to Trust Indenture Act
Section 312(b) with other Holders with respect to their rights under this
Indenture or the Securities, and the Trustee shall comply with Trust Indenture
Act Section 312(b). The Issuers, the Trustee, the Security Registrar and any
other Person shall have the protection of Trust Indenture Act Section 312(c).
Further, every Holder of Securities, by receiving and holding the same, agrees
with the Issuers and the Trustee that none of the Company, Finance Corp. nor the
Trustee or any agent of each of them shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders in
accordance with Trust Indenture Act Section 312, regardless of the source from
which such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
Trust Indenture Act Section 312.
Section 703. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with
the first May 15 after the issuance of Securities, the Trustee, if so required
under the Trust Indenture Act, shall transmit by mail to all Holders, in the
manner and to the extent provided in Trust Indenture Act Section 313(c), a brief
report dated as of such May 15 in accordance with and with respect to the
matters required by Trust Indenture Act Section 313(a). The Trustee shall also
transmit by mail to all Holders, in the manner and
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to the extent provided in Trust Indenture Act Section 313(c), a brief report in
accordance with and with respect to the matters required by Trust Indenture Act
Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to
this Section 703 shall, at the time of such transmission, be mailed to the
Company and filed with each stock exchange, if any, upon which the Securities
are listed and also with the Commission. The Issuers will notify the Trustee
promptly if the Securities are listed on any stock exchange.
Section 704. Reports by Company and Guarantors.
The Company, Finance Corp. and each Guarantor, as the case may
be, shall:
(a) file with the Trustee, within 15 days after the Company,
Finance Corp. or any Guarantor, as the case may be, is required to file the same
with the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may from time to time by rules and regulations prescribe)
which the Company, Finance Corp. or any Guarantor may be required to file with
the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or,
if the Company, Finance Corp. or any Guarantor, as the case may be, is not
required to file information, documents or reports pursuant to either of said
Sections, then it shall (i) deliver to the Trustee annual audited financial
statements of the Company and its Subsidiaries, prepared on a Consolidated basis
in conformity with GAAP, within 120 days after the end of each fiscal year of
the Company, and (ii) file with the Trustee and, to the extent permitted by law,
the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations;
(b) file with the Trustee and the Commission, in accordance
with the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to compliance by
the Company, Finance Corp. or any Guarantor, as the case may be, with the
conditions and covenants of this Indenture as are required from time to time by
such rules and regulations (including such information, documents and reports
referred to in Trust Indenture Act Section 314(a)); and
(c) within 15 days after the filing thereof with the Trustee,
transmit by mail to all Holders in the manner and to the extent provided in
Trust Indenture Act Section 313(c), such summaries of any information, documents
and reports required to be
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filed by the Company, Finance Corp. or any Guarantor, as the case may be,
pursuant to Section 1019 hereunder and subsections (a) and (b) of this Section
as are required by rules and regulations prescribed from time to time by the
Commission.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 801. Company and Guarantors May Consolidate, etc.,
Only on Certain Terms.
(a) The Company will not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
Person or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
Persons, or permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions, if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company and its Restricted Subsidiaries on a Consolidated basis to
any other Person or group of Persons, unless at the time and after giving effect
thereto
(1) either (a) the Company will be the continuing
corporation or limited liability company or (b) the
Person (if other than the Company) formed by such
consolidation or into which the Company is merged or
the Person which acquires by sale, assignment,
conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a
Consolidated basis (the "Surviving Entity") will be a
corporation or limited liability company duly
organized and validly existing under the laws of the
United States of America, any state thereof or the
District of Columbia and such Person expressly
assumes, by a supplemental indenture, in a form
reasonably satisfactory to the Trustee, all the
obligations of the Company under the Securities and
this Indenture and the Registration Rights Agreement,
as the case may be, and the Securities and this
Indenture and the Registration Rights Agreement will
remain in full force and effect as so supplemented
(and any Guarantees will be confirmed as applying to
such Surviving Entity's obligations);
(2) immediately before and immediately after giving
effect to such transaction on a pro forma basis (and
treating any Indebtedness not previously an
obligation of the Company or any of its Restricted
Subsidiaries which becomes the obligation of the
Company or any of its Restricted Subsidiaries as a
result of such transaction as having
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been incurred at the time of such
transaction), no Default or Event of Default
will have occurred and be continuing;
(3) immediately after giving effect to such transaction
on a pro forma basis (on the assumption that the
transaction occurred on the first day of the
four-quarter period for which financial statements
are available ending immediately prior to the
consummation of such transaction with the appropriate
adjustments with respect to the transaction being
included in such pro forma calculation), either (a)
the Company (or the Surviving Entity if the Company
is not the continuing obligor hereunder) could incur
$1.00 of additional Indebtedness (other than
Permitted Indebtedness) under Section 1008 herein; or
(b) the Consolidated Fixed Charge Coverage Ratio of
the Company (or the Surviving Entity if the Company
is not the continuing obligor under the Indenture)
immediately following such transaction is at least
1.75 to 1.0 and such Consolidated Fixed Charge
Coverage Ratio is higher than the Consolidated Fixed
Charge Coverage Ratio immediately prior to such
transaction; provided that nothing in this clause (3)
shall prohibit a merger between the Company and an
Affiliate of the Company incorporated solely for the
purpose of reincorporation of the Company in another
state of the United States or for conversion of the
Company from a limited liability company to a
corporation;
(4) at the time of each transaction each of the Issuers,
unless it is the other party to the transaction
described above, will have by supplemental indenture
confirmed that it is an issuer under this Indenture
and the Securities;
(5) at the time of the transaction each Guarantor, if
any, unless it is the other party to the transactions
described above, will have by supplemental indenture
confirmed that its Guarantee shall apply to such
Person's obligations under the Indenture and the
Securities; and
(6) at the time of the transaction the Company or the
Surviving Entity will have delivered, or caused to be
delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each to the
effect that such consolidation, merger, transfer,
sale, assignment, conveyance, transfer, lease or
other transaction and the supplemental indenture in
respect thereof comply with this Indenture and that
all conditions
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precedent herein provided for relating to
such transaction have been complied with.
(b) Each Guarantor will not, and the Company will not permit a
Guarantor to, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person (other
than the Company or any Guarantor) or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets to
any Person or group of Persons (other than the Company or any Guarantor) or
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Guarantor and its Restricted Subsidiaries on a Consolidated basis to any other
Person or group of Persons (other than the Company or any Guarantor), unless at
the time and after giving effect thereto
(1) either (a) the Guarantor will be the continuing
entity in the case of a consolidation or merger
involving the obligor or (b) the Person (if other
than the Guarantor ) formed by such consolidation or
into which such Guarantor is merged or the Person
which acquires by sale, assignment, conveyance,
transfer, lease or disposition all or substantially
all of the properties and assets of the Guarantor and
its Restricted Subsidiaries on a Consolidated basis
(the "Surviving Guarantor Entity") will be duly
organized and validly existing under the laws of the
United States of America, any state thereof or the
District of Columbia and such Person expressly
assumes, by a supplemental indenture, in a form
reasonably satisfactory to the Trustee, all the
obligations of such Guarantor under its Guarantee of
the Securities and this Indenture and the
Registration Rights Agreement and such Guarantee,
Indenture and Registration Rights Agreement will
remain in full force and effect;
(2) immediately before and immediately after giving
effect to such transaction on a pro forma basis, no
Default or Event of Default will have occurred and be
continuing; and
(3) at the time of the transaction such Guarantor or the
Surviving Guarantor Entity will have delivered, or
caused to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each
to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, lease or
other transaction and the supplemental
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indenture in respect thereof comply with
this Indenture and that all conditions
precedent therein provided for relating to
such transaction have been complied with;
(c) Notwithstanding the foregoing, the provisions of Section
801(b) shall not apply to any Guarantor whose Guarantee of the Securities is
unconditionally released and discharged in accordance with paragraph (c) under
the provisions of Section 1013.
Section 802. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company, Finance Corp. and any Guarantor, if any,
in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company, Finance Corp. or such Guarantor, as the
case may be, is merged, the successor Person to which such sale, assignment,
conveyance, transfer, lease or disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company, Finance
Corp. or such Guarantor, as the case may be, under this Indenture, the
Securities and/or the related Guarantee, as the case may be, with the same
effect as if such successor had been named as the Company, Finance Corp. or such
Guarantor, as the case may be, herein, in the Securities and/or in the
Guarantee, as the case may be, and the Company, Finance Corp. or such Guarantor,
as the case may be, shall be discharged (other than in a transaction that
results in the transfer of assets constituting or accounting for less than 95%
of the Consolidated assets (as of the last balance sheet date available to the
Company) of the Company or the Consolidated revenue of the Company (as of the
last 12-month period for which financial statements are available)) from all
obligations and covenants under the Indenture and the Securities or its
Guarantee, as the case may be; provided that in the case of a transfer by lease,
the predecessor shall not be released from the payment of principal and interest
on the Securities or its Guarantee, as the case may be.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Agreements without
Consent of Holders.
Without the consent of any Holders, the Company, Finance Corp.
the Guarantors, if any, and any other obligor under the Securities when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto or agreements or
other instruments with respect to the Indenture, the Securities or any
Guarantee, in form and substance satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the
Company, Finance Corp. or a Guarantor or any other obligor upon the Securities,
and the assumption by any such successor of the covenants of the Company,
Finance Corp. or such Guarantor or obligor herein and in the Securities and in
any Guarantee in accordance with Article Eight;
(b) to add to the covenants of the Company, Finance Corp., any
Guarantor or any other obligor upon the Securities for the benefit of the
Holders or to surrender any right or power conferred upon the Company, Finance
Corp. or any Guarantor or any other obligor upon the Securities, as applicable,
herein, in the Securities or in any Guarantee;
(c) to cure any ambiguity, or to correct or supplement any
provision herein or in any supplemental indenture, in the Securities or in any
Guarantee which may be defective or inconsistent with any other provision
herein, in the Securities or in any Guarantee or make any other provisions with
respect to matters or questions arising under this Indenture, the Securities or
any Guarantee; provided that, in each case, such provisions shall not adversely
affect the interest of the Holders;
(d) to comply with the requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the Trust
Indenture Act, as contemplated by Section 905 or otherwise;
(e) to add a Guarantor pursuant to the requirements of Section
1013 hereof or otherwise;
(f) to evidence and provide the acceptance of the appointment
of a successor Trustee hereunder; or
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(g) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the Holders as additional
security for the payment and performance of the Company's and any Guarantor's
Indenture Obligations, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture or
otherwise.
Section 902. Supplemental Indentures and Agreements with
Consent of Holders.
Except as permitted by Section 901, with the consent of the
Holders of at least a majority in aggregate principal amount of the Outstanding
Securities (including consents obtained in connection with a tender offer or
exchange offer for Securities), by Act of said Holders delivered to the Company,
Finance Corp., each Guarantor, if any, and the Trustee, the Company, Finance
Corp. and each Guarantor (if a party thereto) when authorized by Board
Resolutions, and the Trustee may (i) enter into an indenture or indentures
supplemental hereto or agreements or other instruments with respect to any
Guarantee in form and substance satisfactory to the Trustee, for the purpose of
adding any provisions to or amending, modifying or changing in any manner or
eliminating any of the provisions of this Indenture, the Securities or any
Guarantee (including but not limited to, for the purpose of modifying in any
manner the rights of the Holders under this Indenture, the Securities or any
Guarantee) or (ii) waive compliance with any provision in this Indenture, the
Securities or any Guarantee (other than waivers of past Defaults covered by
Section 513 and waivers of covenants which are covered by Section 1021);
provided, however, that no such supplemental indenture, agreement or instrument
shall, without the consent of the Holder of each Outstanding Security affected
thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, or change to an earlier date any Redemption Date of,
or waive a default in the payment of the principal of, premium, if any, or
interest on, any such Security or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which the principal of any such Security or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date);
(b) amend, change or modify the obligation of the Issuers to
make and consummate an Offer with respect to any Asset Sale or Asset Sales in
accordance with Section 1012 or the obligation of the Issuers to make and
consummate a Change of Control Offer in the event of a Change of Control in
accordance with Section 1015, including, in each case, amending, changing or
modifying any definitions related thereto;
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(c) reduce the percentage in principal amount of such
Outstanding Securities, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver or compliance with certain provisions of this Indenture;
(d) modify any of the provisions of this Section 902 or
Section 513 or 1021, except to increase the percentage of such Outstanding
Securities required for such actions or to provide that certain other provisions
of this Indenture cannot be modified or waived without the consent of the Holder
of each such Security affected thereby;
(e) except as otherwise permitted under Article Eight, consent
to the assignment or transfer by the Company, Finance Corp. or any Guarantor of
any of its rights and obligations hereunder; or
(f) amend or modify any of the provisions of this Indenture
relating to the subordination of the Securities or any Guarantee in any manner
adverse to the Holders of the Securities or any Guarantee.
Upon the written request of the Company, Finance Corp. and
each Guarantor, if any, accompanied by a copy of Board Resolutions authorizing
the execution of any such supplemental indenture or Guarantee, and upon the
filing with the Trustee of evidence of the consent of Holders as aforesaid, the
Trustee shall join with the Company, Finance Corp. and each Guarantor in the
execution of such supplemental indenture or Guarantee.
It shall not be necessary for any Act of Holders under this
Section 902 to approve the particular form of any proposed supplemental
indenture or Guarantee or agreement or instrument relating to any Guarantee, but
it shall be sufficient if such Act shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures and
Agreements.
In executing, or accepting the additional trusts created by,
any supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Trust
Indenture Act Sections 315(a) through 315(d) and Section 602 hereof) shall be
fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate stating that the execution of such supplemental indenture, agreement
or instrument (a) is authorized or permitted by this Indenture and (b) does not
violate the provisions of any agreement or instrument evidencing any other
Indebtedness of the Company, Finance Corp., any Guarantor or any other
Restricted Subsidiary. The Trustee may, but shall not be obligated to, enter
into any such supplemental indenture,
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agreement or instrument which affects the Trustee's own rights, duties
or immunities under this Indenture, any Guarantee or otherwise.
Section 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the Trust Indenture Act as then in
effect.
Section 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article Nine may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Issuers shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplemental indenture may be
prepared and executed by the Issuers and each Guarantor and authenticated and
delivered by the Trustee in exchange for Outstanding Securities.
Section 907. Notice of Supplemental Indentures.
Promptly after the execution by the Issuers, any Guarantor and
the Trustee of any supplemental indenture pursuant to the provisions of Section
902, the Company shall give notice thereof to the Holders of each Outstanding
Security affected, in the manner provided for in Section 106, setting forth in
general terms the substance of such supplemental indenture. Any failure of the
Issuers to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
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ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest.
The Issuers shall duly and punctually pay the principal of,
premium, if any, and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
The Issuers shall maintain an office or agency where
Securities may be presented or surrendered for payment. The Issuers also will
maintain in The City of New York an office or agency where Securities may be
surrendered for registration of transfer, redemption or exchange and where
notices and demands to or upon the Issuers in respect of the Securities and this
Indenture may be served. The office of the Trustee, at its Corporate Trust
Office initially located at 114 West 47th Street, New York, New York 10036, will
be such office or agency of the Issuers, unless the Issuers shall designate and
maintain some other office or agency for one or more of such purposes. The
Issuers will give prompt written notice to the Trustee of the location and any
change in the location of any such offices or agencies. If at any time the
Issuers shall fail to maintain any such required offices or agencies or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the office of the
Trustee and the Issuers hereby appoint the Trustee such agent as its agent to
receive all such presentations, surrenders, notices and demands.
The Issuers may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes, and may from time
to time rescind such designation. The Issuers will give prompt written notice to
the Trustee of any such designation or rescission and any change in the location
of any such office or agency.
The Trustee shall initially act as Paying Agent for the
Securities.
Section 1003. Money for Security Payments to Be Held in Trust.
If the Company, Finance Corp. or any of their Affiliates shall
at any time act as Paying Agent, it will, on or before each due date of the
principal of, premium, if any, or interest on any of the Securities, segregate
and hold in trust for the benefit of the Holders entitled thereto a sum
sufficient to pay the principal, premium, if any, or interest
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so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
action or failure so to act.
If the Company, Finance Corp. or any of their Affiliates is
not acting as Paying Agent, the Issuers will, on or before each due date of the
principal of, premium, if any, or interest on any of the Securities, deposit
with a Paying Agent a sum in same day funds sufficient to pay the principal,
premium, if any, or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Issuers will promptly notify the
Trustee of such action or any failure so to act.
If the Issuers are not acting as Paying Agent, the Issuers
will cause each Paying Agent other than the Trustee to execute and deliver to
the Trustee an instrument in which such Paying Agent shall agree with the
Trustee, subject to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on the Securities in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Issuers or
any Guarantor (or any other obligor upon the Securities) in the making of any
payment of principal, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights and
liabilities of such Paying Agent.
The Issuers may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Issuers or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Issuers, in trust for the payment of the principal of, premium,
if any,
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or interest on any Security and remaining unclaimed for two years after such
principal and premium, if any, or interest has become due and payable shall
promptly be paid to the Issuers on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Issuers for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Issuers as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Issuers cause to be published once, in the New York Times and The
Wall Street Journal (national edition), and mail to each such Holder, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such notification,
publication and mailing, any unclaimed balance of such money then remaining will
promptly be repaid to the Issuers.
Section 1004. Corporate Existence.
Subject to Article Eight, the Issuers shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence or limited liability company existence and related rights
and franchises (charter and statutory) of the Company, Finance Corp. (which
shall remain a corporation) and each Restricted Subsidiary; provided, however,
that the Company shall not be required to preserve any such right or franchise
or the corporate existence or limited liability company existence of any such
Restricted Subsidiary if the Board of Directors of the Company shall determine
that the preservation thereof is no longer necessary or desirable in the conduct
of the business of the Company and its Restricted Subsidiaries as a whole; and
provided, further, however, that the foregoing shall not prohibit a sale,
transfer or conveyance of a Restricted Subsidiary or any of its assets in
compliance with the terms of this Indenture.
Section 1005. Payment of Taxes and Other Claims.
The Issuers shall pay or discharge or cause to be paid or
discharged, on or before the date the same shall become due and payable, (a) all
taxes, assessments and governmental charges levied or imposed upon the Company,
Finance Corp. or any of the Company's Restricted Subsidiaries shown to be due on
any return of the Company, Finance Corp. or any of the Company's Restricted
Subsidiaries or otherwise assessed or upon the income, profits or property of
the Company, Finance Corp. or any of the Company's Restricted Subsidiaries if
failure to pay or discharge the same could reasonably be expected to have a
material adverse effect on the ability of the Company, Finance Corp. or any
Guarantor to perform its obligations hereunder and (b) all lawful claims for
labor, materials and supplies, which, if unpaid, would by law become a Lien upon
the property of the Company, Finance Corp. or any of the Company's Restricted
Subsidiaries, except for any Lien permitted to be incurred under Section 1011,
if failure to pay or discharge the same could reasonably be expected to have a
material adverse effect
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on the ability of the Company, Finance Corp. or any Guarantor to perform its
obligations hereunder; provided, however, that the Issuers shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings properly instituted and diligently
conducted and in respect of which appropriate reserves (in the good faith
judgment of management of the Issuers) are being maintained in accordance with
GAAP.
Section 1006. Maintenance of Properties.
The Issuers shall cause all material properties owned by the
Company, Finance Corp. or any of the Company's Restricted Subsidiaries or used
or held for use in the conduct of the Company's business or the business of any
of the Company's Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order (ordinary wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the reasonable judgment of the Issuers may be consistent with sound business
practice and necessary so that the business carried on in connection therewith
may be properly conducted at all times; provided, however, that nothing in this
Section shall prevent the Issuers from discontinuing the maintenance of any of
such properties if such discontinuance is, in the reasonable judgment of the
Issuers, desirable in the conduct of the Company's business or the business of
any of the Company's Restricted Subsidiaries; and provided, further, however,
that the foregoing shall not prohibit a sale, transfer or conveyance of a
Restricted Subsidiary or any of its properties or assets in compliance with the
terms of this Indenture.
Section 1007. Maintenance of Insurance.
The Issuers shall at all times keep all of the Company's and
the Company's Restricted Subsidiaries' properties which are of an insurable
nature insured with insurers, believed by the Issuers in good faith to be
financially sound and responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties in the same general geographic areas in
which the Company and its Restricted Subsidiaries operate, except where the
failure to do so could not reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), earnings, business affairs or
prospects of the Company and its Restricted Subsidiaries, taken as a whole.
Section 1008. Limitation on Indebtedness.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, create, issue, incur, assume, guarantee or otherwise
in any manner
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become directly or indirectly liable for the payment of or otherwise incur,
contingently or otherwise (collectively, "incur"), any Indebtedness (including
any Acquired Indebtedness), unless such Indebtedness is incurred by the Company
or a Guarantor or constitutes Acquired Indebtedness of a Restricted Subsidiary
and, in each case, the Company's Consolidated Fixed Charge Coverage Ratio for
the most recent four full fiscal quarters for which financial statements are
available immediately preceding the incurrence of such Indebtedness taken as one
period is at least equal to or greater than 2:1.
Notwithstanding the foregoing, the Company and, to the extent
specifically set forth below, the Restricted Subsidiaries may incur each and all
of the following (collectively, the "Permitted Indebtedness"):
(i) Indebtedness of the Company (and guarantees thereof by the
Guarantors) under the Credit Facility in an aggregate principal amount then
classified as having been incurred in reliance on this clause (i) at any one
time outstanding not to exceed the greater of (a) $25 million under any
revolving credit facility thereof and in respect of letters of credit thereunder
minus the amount by which any commitments thereunder are permanently reduced and
minus the aggregate amount of Net Cash Proceeds of Asset Sales applied to
permanently reduce the commitments with respect to such Indebtedness pursuant to
Section 1012; and (b) the sum of (1) 80% of the consolidated net book value of
the accounts receivable and (2) 60% of the net book value of the inventory, in
each case of the Company and its Restricted Subsidiaries as set forth on the
latest available consolidated balance sheet of the Company determined in
accordance with GAAP;
(ii) Indebtedness of the Issuers pursuant to the Securities
(other than any Additional Securities) and Indebtedness of any Guarantor
pursuant to a Guarantee of the Securities (other than any Additional
Securities);
(iii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of the Indenture;
(iv) Indebtedness of the Company owing to a Restricted
Subsidiary; provided that any Indebtedness of the Company owing to a Restricted
Subsidiary that is not a Guarantor is made pursuant to an intercompany note in
the form attached to this Indenture as Annex A and is unsecured and is
subordinated in right of payment from and after such time as the Securities
shall become due and payable (whether at Stated Maturity, acceleration or
otherwise) to the payment and performance of the Company's obligations under the
Securities; provided, further, that any disposition, pledge or transfer of any
such Indebtedness to a Person (other than a disposition, pledge or transfer to a
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Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness
by the Company or other obligor not permitted by this clause (iv);
(v) Indebtedness of a Majority Owned Restricted Subsidiary
owing to the Company or another Majority Owned Restricted Subsidiary; provided
that any such Indebtedness is made pursuant to an intercompany note in the form
attached to this Indenture as Annex A; provided, further, that (a) any
disposition, pledge or transfer of any such Indebtedness to a Person (other than
a disposition, pledge or transfer to the Company or a Majority Owned Restricted
Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the
obligor not permitted by this clause (v), and (b) any transaction pursuant to
which any Majority Owned Restricted Subsidiary, which has Indebtedness owing to
the Company or any other Wholly Owned Restricted Subsidiary, ceases to be a
Majority Owned Restricted Subsidiary shall be deemed to be the incurrence of
Indebtedness by such Majority Owned Restricted Subsidiary that is not permitted
by this clause (v);
(vi) guarantees of any Restricted Subsidiary made in accordance with
Section 1013 herein;
(vii) obligations of the Company or any Restricted Subsidiary entered
into in the ordinary course of business (a) pursuant to Interest Rate Agreements
designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates in respect of Indebtedness of the Company or any
Restricted Subsidiary as long as such obligations do not exceed the aggregate
principal amount of such Indebtedness then outstanding or (b) under any Currency
Hedging Agreements, relating to (1) Indebtedness of the Company or any
Restricted Subsidiary and/or (2) obligations to purchase or sell assets or
properties, in each case, incurred in the ordinary course of business of the
Company or any Restricted Subsidiary; provided, however, that such Currency
Hedging Agreements do not increase the Indebtedness or other obligations of the
Company or any Restricted Subsidiary outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(viii) Indebtedness of the Company or any Restricted
Subsidiary represented by Capital Lease Obligations or Purchase Money
Obligations or other Indebtedness incurred or assumed in connection with the
acquisition or development of real or personal, movable or immovable, property
in each case incurred for the purpose of financing or refinancing all or any
part of the purchase price or cost of construction or improvement of property
(including common stock) used in the business of the Company, in an aggregate
principal amount outstanding at any time pursuant to this clause (viii) not to
exceed the greater of $7.5 million or 10% of the Company's Consolidated Net
Tangible Assets; provided that the principal amount of any Indebtedness
permitted under this clause (viii) did not in each case at the time of
incurrence exceed the Fair Market Value,
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as determined by the Company in good faith, of the acquired or constructed asset
or improvement so financed;
(ix) Acquired Indebtedness, Indebtedness incurred to finance
acquisitions, or Indebtedness incurred to refinance Acquired Indebtedness or
Indebtedness incurred to finance acquisitions, in any such case of the Company
or any Guarantor, provided that after giving pro forma effect thereto (a) the
Company's Consolidated Fixed Charge Coverage Ratio is less than 2.0:1 but
greater than or equal to 1.75:1 and (b) the Company's Consolidated Fixed Charge
Coverage Ratio increases as a consequence of such incurrence and related
acquisition;
(x) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (ii), (iii) or (ix) of this definition of "Permitted
Indebtedness," including any successive refinancings so long as the borrower
under such refinancing is the Company or, if not the Company, the same as the
borrower of the Indebtedness being refinanced and the aggregate principal amount
of Indebtedness represented thereby (or if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue price of
such Indebtedness plus any accreted value attributable thereto since the
original issuance of such Indebtedness) is not increased by such refinancing
plus the lesser of (I) the stated amount of any premium or other payment
required to be paid in connection with such a refinancing pursuant to the terms
of the Indebtedness being refinanced or (II) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness, plus, in
either case, the amount of expenses of the Company incurred in connection with
such refinancing and (A) in the case of any refinancing of Indebtedness that is
Subordinated Indebtedness, such new Indebtedness is made subordinated to the
Securities at least to the same extent as the Indebtedness being refinanced and
(B) in the case of Pari Passu Indebtedness or Subordinated Indebtedness, as the
case may be, such refinancing does not reduce the Average Life to Stated
Maturity or the Stated Maturity of such Indebtedness;
(xi) any guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of the
Company that was not prohibited from being incurred pursuant to any of the terms
of this Indenture;
(xii) Indebtedness incurred by the Company 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 to letters of credit in respect to workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that upon
the drawing of such letters of credit or the incurrence of
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such Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(xiii) Indebtedness arising from agreements of the Company or
a Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, asset or Restricted Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any portion
of such business, assets or Restricted Subsidiary for the purpose of financing
such acquisition; provided that (I) such Indebtedness is not reflected on the
balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote or footnotes to financial statements and
not otherwise reflected on the balance sheet will not be deemed to be reflected
on such balance sheet for purposes of this clause (I)) and (II) the maximum
assumable liability in respect of such Indebtedness shall at no time exceed the
gross cash proceeds actually received by the Company and/or such Restricted
Subsidiary in connection with such disposition;
(xiv) obligations in respect of performance and surety bonds
and completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business; and
(xv) Indebtedness of the Company in addition to that described
in clauses (i) through (xiv) above, and any renewals, extensions, substitutions,
refinancings or replacements of such Indebtedness, so long as the aggregate
principal amount of all such Indebtedness shall not exceed $10 million
outstanding at any one time in the aggregate.
For purposes of determining compliance with this Section 1008,
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness permitted by this covenant, the Company in its sole
discretion shall classify such item of Indebtedness and only be required to
include the amount of such Indebtedness as one of such types. In addition, the
Company may, at any time, change the classification of an item of Indebtedness
(or any portion thereof) to any other clause or to the first paragraph hereof
provided that the Company would be permitted to incur such item of Indebtedness
(or portion thereof) pursuant to such other clause or the first paragraph
hereof, as the case may be, at such time of reclassification except for
Redeemable Capital Stock outstanding on the date of the Indenture.
Section 1009. Limitation on Restricted Payments.
(a) The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly:
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(i) declare or pay any dividend on, or make any
distribution on account of, any shares of the
Company's Capital Stock (other than dividends or
distributions payable solely in shares of its
Qualified Capital Stock or in options, warrants or
other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem, defease or otherwise acquire or
retire for value, directly or indirectly, the
Company's Capital Stock, any Capital Stock of any
Subsidiary of the Company (other than Capital Stock
of any Wholly Owned Restricted Subsidiary of the
Company or any Restricted Subsidiary if as a result
of such purchase, redemption, defeasance, acquisition
or retirement, such Restricted Subsidiary becomes a
Majority Owned Restricted Subsidiary), any Capital
Stock of any entity that owns, directly or
indirectly, a majority of the Capital Stock of the
Company, or options, warrants or other rights to
acquire any of the aforementioned Capital Stock;
(iii) make any principal payment on, or repurchase, redeem,
defease, retire or otherwise acquire for value, prior
to any required or mandatory principal payment,
sinking fund payment or maturity, any Subordinated
Indebtedness;
(iv) declare or pay any dividend or distribution on any
Capital Stock of any Restricted Subsidiary to any
Person (other than (a) to the Company or any of its
Wholly Owned Restricted Subsidiaries or (b) dividends
or distributions made by a Restricted Subsidiary on a
pro rata basis to all stockholders of such Restricted
Subsidiary); or
(v) make any Investment in any Person (other than any
Permitted Investments)
(any of the foregoing actions described in clauses (i) through (v), other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") (the amount of any such Restricted Payment, if other than
cash, shall be the Fair Market Value of the assets proposed to be transferred,
as determined by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a Board Resolution), unless
(1) immediately before and immediately after giving effect to such
proposed Restricted Payment on a pro forma basis, no Default
or Event of Default shall have occurred and be continuing and
such Restricted Payment shall not be an event which is, or
after notice or lapse of time or both, would be,
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an "event of default" under the terms of any Indebtedness of
the Company or its Restricted Subsidiaries;
(2) immediately before and immediately after giving effect to such
Restricted Payment on a pro forma basis, the Company could
incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the provisions described under Section
1008 herein; and
(3) after giving effect to the proposed Restricted Payment, the
aggregate amount of all such Restricted Payments declared or
made after the date of this Indenture and all Designation
Amounts does not exceed the sum of:
(A) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the
period beginning on the first day of the Company's
fiscal quarter beginning after the date of this
Indenture and ending on the last day of the Company's
last fiscal quarter ending prior to the date of the
Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income shall be a loss, minus 100%
of such loss);
(B) the aggregate net cash proceeds (including the Fair
Market Value of property other than cash, provided
that such Fair Market Value is determined by the
Board of Directors of the Company in good faith and
evidenced by a Board Resolution set forth in an
Officer's Certificate delivered to the Trustee and,
if the Fair Market Value is in excess of $5 million,
an opinion as to the value thereof issued by an
investment banking firm of national standing, (a copy
of which shall be delivered to the Trustee), which
opinion shall provide a specific value which, or a
range of values the lowest point of which, is not
lower than the value set forth in the Board
Resolution, and provided further that such property
is related, ancillary or complementary to any
business of the Company and its Restricted
Subsidiaries) received after the date of this
Indenture by the Company either (x) as capital
contributions in the form of common equity to the
Company or (y) from the issuance or sale (other than
to any of its Subsidiaries) of Qualified Capital
Stock of the Company or any options, warrants or
rights to purchase such Qualified Capital Stock of
the Company (except, in each case, to the extent such
proceeds are used to purchase, redeem or otherwise
retire Capital Stock or Subordinated Indebtedness as
set forth below in clause (ii) or (iii) of paragraph
(b) below) (and excluding the net cash proceeds from
the issuance of Qualified Capital Stock financed,
directly or
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indirectly, using funds borrowed from the Company or
any Subsidiary until and to the extent such borrowing
is repaid);
(C) the aggregate net cash proceeds (including the Fair
Market Value of property other than cash, provided
that such Fair Market Value is determined by the
Board of Directors of the Company in good faith and
evidenced by a Board Resolution set forth in an
Officer's Certificate delivered to the Trustee and,
if the Fair Market Value is in excess of $5 million,
an opinion as to the value thereof issued by an
investment banking firm of national standing (a copy
of which shall be delivered to the Trustee), which
opinion shall provide a specific value which, or a
range of values the lowest point of which, is not
lower than the value set forth in the Board
Resolution and provided further that such property is
related, ancillary or complementary to any business
of the Company and its Restricted Subsidiaries)
received after the date of this Indenture by the
Company (other than from any of its Subsidiaries)
upon the exercise of any options, warrants or rights
to purchase Qualified Capital Stock of the Company
(and excluding the net cash proceeds from the
exercise of any options, warrants or rights to
purchase Qualified Capital Stock financed, directly
or indirectly, using funds borrowed from the Company
or any Subsidiary until and to the extent such
borrowing is repaid);
(D) the aggregate net cash proceeds received after the
date of this Indenture by the Company from the
conversion or exchange, if any, of debt securities or
Redeemable Capital Stock of the Company or its
Restricted Subsidiaries into or for Qualified Capital
Stock of the Company plus, to the extent such debt
securities or Redeemable Capital Stock were issued
after the date of this Indenture, the aggregate of
net cash proceeds from their original issuance (and
excluding the net cash proceeds from the conversion
or exchange of debt securities or Redeemable Capital
Stock financed, directly or indirectly, using funds
borrowed from the Company or any Subsidiary until and
to the extent such borrowing is repaid); and
(E) (a) in the case of the disposition or repayment of
any Investment constituting a Restricted Payment made
after the date of this Indenture, an amount (to the
extent not included in Consolidated Net Income) equal
to the lesser of the return of capital with respect
to such Investment and the initial amount of such
Investment, in either case, less the cost of the
disposition of such Investment and net of
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taxes, and (b) in the case of the designation of an
Unrestricted Subsidiary as a Restricted Subsidiary
(as long as the designation of such Subsidiary as an
Unrestricted Subsidiary was deemed a Restricted
Payment), the Fair Market Value of the Company's
interest in such Subsidiary provided that such amount
shall not in any case exceed the amount of the
Restricted Payment deemed made at the time the
Subsidiary was designated as an Unrestricted
Subsidiary.
(b) Notwithstanding the foregoing, and in the case of clauses
(ii) through (xi) below, so long as no Default or Event of Default is continuing
or would arise therefrom, the foregoing provisions shall not prohibit the
following actions (each of clauses (i) through (iv) being referred to as a
"Permitted Payment"):
(i) the payment of any dividend within 60 days after the date
of declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this Section and such payment
shall have been deemed to have been paid on such date of declaration and shall
not have been deemed a "Permitted Payment" for purposes of the calculation
required by paragraph (a) of this Section 1009;
(ii) the repurchase, redemption, or other acquisition or
retirement for value of any shares of any class of Capital Stock of the Company
in exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu of
the issuance of fractional shares or scrip), or out of the Net Cash Proceeds of
a substantially concurrent issuance and sale for cash (other than to a
Subsidiary) of, other shares of Qualified Capital Stock of the Company; provided
that the Net Cash Proceeds from the issuance of such shares of Qualified Capital
Stock are excluded from clause (3)(B) of paragraph (a) of this Section 1009;
(iii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated Indebtedness
in exchange for, or in an amount not in excess of the Net Cash Proceeds of, a
substantially concurrent issuance and sale for cash (other than to any
Subsidiary of the Company) of any Qualified Capital Stock of the Company,
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (3)(B) of paragraph (a) of this
Section 1009; and
(iv) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing") through the
substantially concurrent issuance of new Subordinated Indebtedness of the
Company, provided that any such new Subordinated Indebtedness (1) shall be in a
principal amount that does not exceed the
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principal amount so refinanced (or, if such Subordinated Indebtedness provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, then such lesser amount as of the date of
determination), plus the lesser of (I) the stated amount of any premium or other
payment required to be paid in connection with such a refinancing pursuant to
the terms of the Indebtedness being refinanced or (II) the amount of premium or
other payment actually paid at such time to refinance the Indebtedness, plus, in
either case, the amount of expenses of the Company incurred in connection with
such refinancing; (2) has an Average Life to Stated Maturity greater than the
remaining Average Life to Stated Maturity of the Subordinated Indebtedness being
refinanced; and (3) is expressly subordinated in right of payment to the
Securities at least to the same extent as the Subordinated Indebtedness to be
refinanced;
(v) the purchase or redemption of shares of Special Preferred
Stock issued subsequent to the Issue Date, provided that immediately following
such purchase or redemption the Consolidated Fixed Charge Coverage Ratio of the
Company is not less than 2.0:1;
(vi) the declaration or payment of dividends or other
distributions, or the making of loans, to Sleepmaster Holdings LLC for (a)
reasonable and customary salary, bonus and other benefits payable to officers,
employees and consultants of Sleepmaster Holdings LLC consistent with past
practice, (b) reasonable fees and expenses paid to members of the Board of
Directors of Sleepmaster Holdings LLC consistent with past practice, (c) general
corporate overhead expenses of Sleepmaster Holdings LLC in the ordinary course
of business consistent with past practice, (d) management, consulting or
advisory fees paid to Sleepmaster Holdings LLC to permit Sleepmaster Holdings
LLC to pay management, consulting or advisory fees, in each case, not to exceed
$500,000 in any fiscal year, and (e) the repurchase, redemption or other
acquisition or retirement for value of any Capital Stock of Sleepmaster Holdings
LLC or the Company held by any member or former member of Sleepmaster Holdings
LLC's or the Company's (or any of the Company's Restricted Subsidiaries')
management pursuant to any management equity subscription agreement,
stockholders agreement or stock option agreement, in each case as in effect as
of the date of the Indenture; provided, however, (A) with respect to clauses (a)
through (c) above in the aggregate, the aggregate amount paid does not exceed
$500,000 in any fiscal year and (B) with respect to clause (e) above, the
aggregate price paid shall not exceed (x) $2 million in any calendar year (with
unused amounts in any one calendar year being carried over to the immediately
succeeding calendar year subject to a maximum (without giving effect to clause
(y)) of $5 million in any calendar year), plus (y) the net cash proceeds
contributed to the Company by Sleepmaster Holdings LLC from any issuance or
reissuance of Capital Stock by Sleepmaster Holdings LLC to members of management
of the Company and its Restricted Subsidiaries (provided that the Net Cash
Proceeds contributed to the Company from the issuance of such shares of Capital
Stock
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are excluded from clause (3)(B) of paragraph (a) of this Section 1009 to the
extent used pursuant to this clause (6)(e) of paragraph (b) of this Section
1009) and the proceeds to the Company of any "key-man" life insurance policies;
provided that the cancellation of Indebtedness owing to the Company from members
of management of the Company or any Restricted Subsidiary in connection with
such repurchase of Capital Stock will not be deemed to be a Restricted Payment;
(vii) distributions to Sleepmaster Holdings LLC of Tax Amounts
with respect to such calendar year, which distributions or payments may be made
from time to time with respect to a calendar year, based on reasonable estimates
of such Tax Amounts, as are necessary in order for Sleepmaster Holdings LLC to
make estimated and final payments of income tax with respect to the Taxable
Income of the Company with respect to such calendar year; provided that in the
event that the amounts which were actually distributed under this clause (vii)
with respect to such calendar year exceed the required Tax Amounts with respect
to such calendar year as determined by the Company's accountants, Sleepmaster
Holdings LLC shall promptly pay to the Company such excess; and provided further
that all such distributions or payments in respect of a calendar year are made
no later than 120 days after the end of such calendar year;
(viii) the declaration and payment of dividends on Redeemable
Capital Stock issued on after the date of the Indenture, the incurrence of which
satisfied the covenant set forth in the first paragraph of Section 1008;
(ix) 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;
(x) loans, advances, dividends or distributions from the
Company to Sleepmaster Holdings LLC in an amount equal to the current cash
interest payments then due on the Sleep Investor Promissory Notes as in effect
on the Issue Date; provided that with respect to any such loans, advances,
dividends or distributions and after giving effect thereto, the Consolidated
Fixed Charge Coverage Ratio of the Company is not less than 2.0:1, and
(xi) additional Restricted Payments, other than those listed
above, not to exceed $5 million in the aggregate while the Securities are
outstanding.
Section 1010. Limitation on Transactions with Affiliates.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into any transaction
or series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with or for the
benefit of any Affiliate of the Company (other than the Company or a Majority
Owned Restricted Subsidiary) unless such transaction or
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series of related transactions is entered into in good faith and in writing and
(1) (a) such transaction or series of related transactions is on terms that are
no less favorable to the Company or such Restricted Subsidiary, as the case may
be, than those that would be available in a comparable transaction in
arm's-length dealings with an unrelated third party, and (b) the Company
delivers an officers' certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (1)(a) of
this Section, (2) with respect to any transaction or series of related
transactions involving aggregate value in excess of $5 million, such transaction
or series of related transactions has been approved by a majority of the
Disinterested Directors of the Board of Directors of the Company, or in the
event there is only one Disinterested Director, by such Disinterested Director,
and (3) with respect to any transaction or series of related transactions
involving aggregate value in excess of $10 million, the Company delivers to the
Trustee a written opinion of an investment banking firm of national standing or
other recognized independent expert with experience appraising the terms and
conditions of the type of transaction or series of related transactions for
which an opinion is required stating that the transaction or series of related
transactions is fair to the Company or such Restricted Subsidiary from a
financial point of view; provided, however, that this provision shall not apply
to (1) employment agreements and employee benefit arrangements with any officer
or director of the Company, including under any stock option or stock incentive
plans, entered into in the ordinary course of business and consistent with the
past practices of the Company or such Restricted Subsidiary, (2) transactions
pursuant to agreements in effect on the date of this Indenture, including
amendments thereto entered into after that date, provided that the terms of any
such amendment are not less favorable to the Company or such Restricted
Subsidiary than the terms of such agreement prior to such amendment or (3) any
Permitted Payment or Restricted Payment which is permitted to be made under
Section 1009.
Section 1011. Limitation on Liens.
The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly, create, incur or affirm any Lien of any
kind securing any Pari Passu Indebtedness or Subordinated Indebtedness
(including any assumption, guarantee or other liability with respect thereto by
any Restricted Subsidiary) upon any property or assets (including any
intercompany notes) of the Company or any Restricted Subsidiary owned on the
date of this Indenture or acquired after the date of this Indenture, or assign
or convey any right to receive any income or profits therefrom, unless the
Securities (or a Guarantee in the case of Liens of a Guarantor) are directly
secured equally and ratably with (or, in the case of Subordinated Indebtedness,
prior or senior thereto, with the same relative priority as the Securities shall
have with respect to such Subordinated Indebtedness) the obligation or liability
secured by such Lien except for Liens
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(A) securing Acquired Indebtedness which was created prior to (and
not created in connection with, or in contemplation of) the
incurrence of such Pari Passu Indebtedness or Subordinated
Indebtedness (including any assumption, guarantee or other
liability with respect thereto by any Restricted Subsidiary)
and which Indebtedness is permitted under the provisions of
Section 1008 herein; provided, however, that in the case of
this clause (A), any such Lien only extends to the assets that
were subject to such Lien securing such Indebtedness prior to
the related acquisition by the Company or its Restricted
Subsidiaries,
(B) securing any Indebtedness incurred in connection with any
refinancing, renewal, substitutions or replacements of any
such Indebtedness described in clause (A), so long as the
aggregate principal amount of Indebtedness represented thereby
(or if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness plus any accreted
value attributable thereto since the original issuance of such
Indebtedness) is not increased by such refinancing by an
amount greater than the lesser of (1) the stated amount of any
premium or other payment required to be paid in connection
with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (2) the amount of premium or
other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of expenses of
the Company incurred in connection with such refinancing,
provided, however, that in the case of this clause (B), any
such Lien only extends to the assets that were subject to such
Lien securing such Indebtedness prior to the related
acquisition by the Company or its Restricted Subsidiaries,
(C) Liens in favor of the Company or any Restricted Subsidiary,
(D) Liens on property existing at the time of acquisition thereof
by the Company or any Restricted Subsidiary of the Company,
provided such Liens were not incurred in contemplation of such
acquisition,
(E) Liens existing on the date of the Indenture, and
(F) Liens securing Indebtedness incurred pursuant to clause (10)
of the second paragraph of Section 1008 herein where the Liens
securing the Indebtedness being refinanced were permitted
under the Indenture.
Notwithstanding the foregoing, any Lien securing the Securities granted
pursuant to this covenant shall be automatically and unconditionally released
and discharged upon
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the release by the holders of the Pari Passu Indebtedness or Subordinated
Indebtedness described above of their Lien on the property or assets of the
Company or any Restricted Subsidiary (including any deemed release upon payment
in full of all obligations under such Indebtedness), at such time as the holders
of all such Pari Passu Indebtedness or Subordinated Indebtedness also release
their Lien on the property or assets of the Company or such Restricted
Subsidiary, or upon any sale, exchange or transfer to any Person not an
Affiliate of the Company of the property or assets secured by such Lien, or of
all of the Capital Stock held by the Company or any Restricted Subsidiary in, or
all or substantially all the assets of, any Restricted Subsidiary creating such
Lien.
Section 1012. Limitation on Sale of Assets.
(a) The Company will not, and will not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) at least 75% of the consideration from such Asset Sale is received in
cash or Temporary Cash Investments and (ii) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Sale at least equal
to the Fair Market Value of the shares or assets subject to such Asset Sale (as
determined by the Board of Directors of the Company and evidenced in a Board
Resolution); provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities,
liabilities that are subordinated to or rank equally with the Securities or any
guarantee thereof and liabilities that are incurred in connection with or in
contemplation of the related Asset Sale) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that fully and
unconditionally releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash or Temporary
Cash Investments (to the extent of the cash received) shall be deemed to be cash
for purposes of this provision; and provided, further, that the 75% limitation
referred to in clause (ii) above will not apply to any Asset Sale in which the
cash or Temporary Cash Investments portion of the consideration received
therefrom, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax proceeds would have been had such Asset Sale
complied with the aforementioned 75% limitation.
(b) If all or a portion of the Net Cash Proceeds of any Asset
Sale are not required to be applied to repay permanently any Senior Indebtedness
or Senior Guarantor Indebtedness then outstanding as required by the terms
thereof, or the Company determines not to apply such Net Cash Proceeds to the
permanent prepayment of such Senior Indebtedness or Senior Guarantor
Indebtedness, or if no such Senior Indebtedness or Senior Guarantor Indebtedness
is then outstanding, then the Company or a Restricted
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Subsidiary may within 365 days of the Asset Sale invest the Net Cash Proceeds in
properties and other assets that (as determined by the Board of Directors of the
Company) replace the properties and assets that were the subject of the Asset
Sale or in properties and assets that will be used in the businesses of the
Company or its Restricted Subsidiaries existing on the date of this Indenture or
in businesses reasonably related thereto. The amount of such Net Cash Proceeds
not used or invested within 365 days of the Asset Sale as set forth in this
paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5
million or more, the Company will apply the Excess Proceeds to the repayment of
the Securities and any other Pari Passu Indebtedness outstanding with similar
provisions requiring the Company to make an offer to purchase such Indebtedness
with the proceeds from any Asset Sale as follows: (A) the Company will make an
offer to purchase (an "Offer") from all holders of the Securities in accordance
with the procedures set forth in this Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Securities that may be purchased out of
an amount (the "Security Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Securities, and the denominator of which is the sum of the
outstanding principal amount (or accreted value in the case of Indebtedness
issued with original issue discount) of the Securities and such Pari Passu
Indebtedness (subject to proration in the event such amount is less than the
aggregate Offered Price (as defined herein) of all Securities tendered) and (B)
to the extent required by such Pari Passu Indebtedness to permanently reduce the
principal amount of such Pari Passu Indebtedness (or accreted value in the case
of Indebtedness issued with original issue discount), the Company will make an
offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a
"Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the
excess of the Excess Proceeds over the Security Amount; provided that in no
event will the Company be required to make a Pari Passu Offer in a Pari Passu
Debt Amount exceeding the principal amount (or accreted value) of such Pari
Passu Indebtedness plus the amount of any premium required to be paid to
repurchase such Pari Passu Indebtedness. The offer price for the Securities will
be payable in cash in an amount equal to 100% of the principal amount of the
Securities plus accrued and unpaid interest, if any, to the date (the "Offer
Date") such Offer is consummated (the "Offered Price"), in accordance with the
procedures set forth in this Indenture. To the extent that the aggregate Offered
Price of the Securities tendered pursuant to the Offer is less than the Security
Amount relating thereto or the aggregate amount of Pari Passu Indebtedness that
is purchased in a Pari Passu Offer is less than the Pari Passu Debt Amount, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Securities and Pari Passu Indebtedness
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Securities to be purchased on a pro rata basis. Upon
the completion of the purchase of all the
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Securities tendered pursuant to an Offer and the completion of a Pari Passu
Offer, the amount of Excess Proceeds, if any, shall be reset at zero.
(d) If the Company becomes obligated to make an Offer pursuant
to clause (c) above, the Securities and the Pari Passu Indebtedness shall be
purchased by the Company, at the option of the holders thereof, in whole or in
part in integral multiples of $1,000, on a date that is not earlier than 30 days
and not later than 60 days from the date the notice of the Offer is given to
holders, or such later date as may be necessary for the Company to comply with
the requirements under the Exchange Act.
(e) The Company will comply with the applicable tender offer
rules, including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer.
(f) Subject to paragraph (e) above, within 30 days after the
date on which the amount of Excess Proceeds equals or exceeds $5 million, the
Company shall send or cause to be sent by first-class mail, postage prepaid, to
the Trustee and to each Holder, at his address appearing in the Security
Register, a notice stating or including:
(1) that the Holder has the right to require the
Company to repurchase, subject to proration, such Holder's
Securities at the Offered Price;
(2) the Offer Date;
(3) the instructions a Holder must follow in order to
have his Securities purchased in accordance with paragraph (c)
of this Section;
(4) (i) the most recently filed Annual Report on Form
10-K (including audited consolidated financial statements) of
the Company, the most recent subsequently filed Quarterly
Report on Form 10-Q, as applicable, and any Current Report on
Form 8-K of the Company filed subsequent to such Quarterly
Report, other than Current Reports describing Asset Sales
otherwise described in the offering materials (or
corresponding successor reports) (or in the event the Company
is not required to prepare any of the foregoing Forms, the
comparable information required pursuant to Section 1019),
(ii) a description of material developments, if any, in the
Company's business subsequent to the date of the latest of
such reports, (iii) if material, appropriate pro forma
financial information, and (iv) such other information, if
any, concerning the business of the Company which the Company
in good faith believes will enable such Holders to make an
informed investment decision regarding the Offer;
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(5) the Offered Price;
(6) the names and addresses of the Paying Agent and
the offices or agencies referred to in Section 1002;
(7) that Securities must be surrendered prior to the
Offer Date to the Paying Agent at the office of the Paying
Agent or to an office or agency referred to in Section 1002 to
collect payment;
(8) that any Securities not tendered will continue to
accrue interest and that unless the Company defaults in the
payment of the Offered Price, any Security accepted for
payment pursuant to the Offer shall cease to accrue interest
on and after the Offer Date;
(9) the procedures for withdrawing a tender; and
(10) that the Offered Price for any Security which
has been properly tendered and not withdrawn and which has
been accepted for payment pursuant to the Offer will be paid
promptly following the Offered Date.
(g) Holders electing to have Securities purchased hereunder
will be required to surrender such Securities at the address specified in the
notice prior to the Offer Date. Holders will be entitled to withdraw their
election to have their Securities purchased pursuant to this Section 1012 if the
Company receives, not later than one Business Day prior to the Offer Date, a
telegram, telex, facsimile transmission or letter setting forth (1) the name of
the Holder, (2) the certificate number of the Security in respect of which such
notice of withdrawal is being submitted, (3) the principal amount of the
Security (which shall be $1,000 or an integral multiple thereof) delivered for
purchase by the Holder as to which his election is to be withdrawn, (4) a
statement that such Holder is withdrawing his election to have such principal
amount of such Security purchased, and (5) the principal amount, if any, of such
Security (which shall be $1,000 or an integral multiple thereof) that remains
subject to the original notice of the Offer and that has been or will be
delivered for purchase by the Company.
(h) The Company shall (i) not later than the Offer Date,
accept for payment Securities or portions thereof tendered pursuant to the
Offer, (ii) not later than 10:00 a.m. (New York time) on the Offer Date, deposit
with the Trustee or with a Paying Agent an amount of money in same day funds (or
New York Clearing House funds if such deposit is made prior to the Offer Date)
sufficient to pay the aggregate Offered Price of all the Securities or portions
thereof which are to be purchased on that date and (iii) not later than 10:00
a.m. (New York time) on the Offer Date, deliver to the Paying Agent an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the
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Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the Offered Price of the
Securities purchased from each such Holder, and the Company shall execute and
the Trustee shall promptly authenticate and mail or deliver to such Holders a
new Security equal in principal amount to any unpurchased portion of the
Security surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Paying Agent at the Company's expense to the Holder thereof.
For purposes of this Section 1012, the Company shall choose a Paying Agent which
shall not be the Company.
Subject to applicable escheat laws, the Trustee and the Paying
Agent shall return to the Company any cash that remains unclaimed, together with
interest, if any, thereon, held by them for the payment of the Offered Price;
provided, however, that (x) to the extent that the aggregate amount of cash
deposited by the Company with the Trustee in respect of an Offer exceeds the
aggregate Offered Price of the Securities or portions thereof to be purchased,
then the Trustee shall hold such excess for the Company and (y) unless otherwise
directed by the Company in writing, promptly after the Business Day following
the Offer Date the Trustee shall return any such excess to the Company together
with interest or dividends, if any, thereon.
(i) Securities to be purchased shall, on the Offer Date,
become due and payable at the Offered Price and from and after such date (unless
the Company shall default in the payment of the Offered Price) such Securities
shall cease to bear interest. Such Offered Price shall be paid to such Holder
promptly following the later of the Offer Date and the time of delivery of such
Security to the relevant Paying Agent at the office of such Paying Agent by the
Holder thereof in the manner required. Upon surrender of any such Security for
purchase in accordance with the foregoing provisions, such Security shall be
paid by the Company at the Offered Price; provided, however, that installments
of interest whose Stated Maturity is on or prior to the Offer Date shall be
payable to the Person in whose name the Securities (or any Predecessor
Securities) is registered as such on the relevant Regular Record Dates according
to the terms and the provisions of Section 309; provided, further, that
Securities to be purchased are subject to proration in the event the Excess
Proceeds are less than the aggregate Offered Price of all Securities tendered
for purchase, with such adjustments as may be appropriate by the Trustee so that
only Securities in denominations of $1,000 or integral multiples thereof, shall
be purchased. If any Security tendered for purchase shall not be so paid upon
surrender thereof by deposit of funds with the Trustee or a Paying Agent in
accordance with paragraph (h) above, the principal thereof (and premium, if any,
thereon) shall, until paid, bear interest from the Offer Date at the rate borne
by such Security. Any Security that is to be purchased only in part shall be
surrendered to a Paying Agent at the office of such Paying Agent (with, if the
Company, the Security Registrar or the Trustee so requires, due endorsement by,
or a written instrument of transfer in form satisfactory to the Company and the
Security Registrar or the Trustee duly executed by, the Holder thereof or such
Holder's attorney
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duly authorized in writing), and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security, without service charge,
one or more new Securities of any authorized denomination as requested by such
Holder in an aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Security so surrendered that is not
purchased. The Company shall publicly announce the results of the Offer on or as
soon as practicable after the Offer Date.
Section 1013. Limitation on Issuances of Guarantees of and Pledges for
Indebtedness.
(a) The Company will not cause or permit any Restricted
Subsidiary, other than a Guarantor, directly or indirectly, to secure the
payment of any Senior Indebtedness of the Company and the Company will not, and
will not permit any Restricted Subsidiary to, pledge any intercompany notes
representing obligations of any Restricted Subsidiary (other than a Guarantor)
to secure the payment of any Senior Indebtedness unless in each case such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a guarantee of payment of the
Securities by such Restricted Subsidiary, which guarantee shall be on the same
terms as the guarantee of the Senior Indebtedness (if a guarantee of Senior
Indebtedness is granted by any such Restricted Subsidiary) except that the
guarantee of the Securities need not be secured and shall be subordinated to the
claims against such Restricted Subsidiary in respect of Senior Indebtedness to
the same extent as the Securities are subordinated to Senior Indebtedness of the
Company under the Indenture.
(b) The Company will not cause or permit any Restricted
Subsidiary (which is not a Guarantor), directly or indirectly, to guarantee,
assume or in any other manner become liable with respect to any Indebtedness of
the Company or any Restricted Subsidiary unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of the Securities on the same terms as the guarantee
of such Indebtedness except that (A) such guarantee need not be secured unless
required pursuant to Section 1011 herein; (B) if such Indebtedness is by its
terms Senior Indebtedness, any such assumption, guarantee or other liability of
such Restricted Subsidiary with respect to such Indebtedness shall be senior to
such Restricted Subsidiary's Guarantee of the Securities to the same extent as
such Senior Indebtedness is senior to the Securities and (C) if such
Indebtedness is by its terms expressly subordinated to the Securities, any such
assumption, guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated to such Restricted
Subsidiary's Guarantee of the Securities at least to the same extent as such
Indebtedness is subordinated to the Securities.
(c) Notwithstanding the foregoing, any Guarantee by a
Restricted Subsidiary of the Securities shall provide by its terms that it (and
all Liens securing the
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same) shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary, which transaction is in compliance
with the terms of this Indenture and such Restricted Subsidiary is released from
all guarantees, if any, by it of other Indebtedness of the Company or any
Restricted Subsidiaries and (ii) with respect to any Guarantees created after
the date of this Indenture, the release by the holders of the Indebtedness of
the Company described in clauses (a) and (b) above of their security interest or
their guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness), at such time as (A)
no other Indebtedness of the Company has been secured or guaranteed by such
Restricted Subsidiary, as the case may be, or (B) the holders of all such other
Indebtedness which is secured or guaranteed by such Restricted Subsidiary also
release their security interest in or guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness).
Section 1014. Limitation on Senior Subordinated Indebtedness.
Each of the Company and Finance Corp. will not, and will not
permit or cause any Guarantor to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise in any manner become directly or indirectly
liable for or with respect to or otherwise permit to exist any Indebtedness that
is subordinate in right of payment to any Indebtedness of the Company, Finance
Corp. or such Guarantor, as the case may be, unless such Indebtedness is also
pari passu with the Securities or the Guarantee of such Guarantor or
subordinated in right of payment to the Securities or such Guarantee at least to
the same extent as the Securities or such Guarantee are subordinated in right of
payment to Senior Indebtedness or Senior Indebtedness of such Guarantor, as the
case may be.
Section 1015. Purchase of Securities upon a Change of Control.
(a) Subject to subsections (f) and (k) below, if a Change of
Control occurs, each Holder of Securities shall have the right to require that
the Issuers purchase all or any part (in integral multiples of $1,000) of such
Holder's Securities pursuant to the offer described below in this Section 1015
(the "Change of Control Offer") and in accordance with the other procedures set
forth in subsections (b), (c), (d) and (e) of this Section 1015. In the Change
of Control Offer, the Issuers shall offer to purchase all of the Securities at a
purchase price (the "Change of Control Purchase Price") in cash in an amount
equal to 101% of the principal amount of such Securities, plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date") (subject to the rights of
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holders of record on relevant record dates to receive interest due on an
interest payment date).
(b) Within 30 days of any Change of Control the Issuers shall
notify the Trustee and give written notice of such Change of Control (the
"Change of Control Purchase Notice") to each Holder of Securities, by
first-class mail, postage prepaid, at its address appearing in the Security
Register. The Change of Control Purchase Notice shall state, among other things:
(1) that a Change of Control has occurred, the date of such
event and that such Holder has the right to require the Issuers to
repurchase such Holder's Securities at the Change of Control Purchase
Price;
(2) the circumstances and relevant facts regarding such Change
of Control (including but not limited to information with respect to
pro forma historical income, cash flow and capitalization after giving
effect to such Change of Control);
(3) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q, as
applicable, and any Current Report on Form 8-K of the Company filed
subsequent to such Quarterly Report (or in the event the Company is not
required to prepare any of the foregoing Forms, the comparable
information required to be prepared by the Company and any Guarantor
pursuant to Section 1019), (ii) a description of material developments,
if any, in the Company's business subsequent to the date of the latest
of such reports and (iii) such other information, if any, concerning
the business of the Company which the Company in good faith believes
will enable such Holders to make an informed investment decision
regarding the Change of Control Offer;
(4) that the Change of Control Offer is being made pursuant to
this Section 1015 and that all Securities properly tendered pursuant to
the Change of Control Offer will be accepted for payment at the Change
of Control Purchase Price;
(5) the Change of Control Purchase Date, which shall be fixed
by the Issuers on a Business Day no earlier than 30 days nor later than
60 days from the date such notice is mailed, or such later date as is
necessary to comply with the requirements under the Exchange Act;
(6) the Change of Control Purchase Price;
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(7) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 1002;
(8) that Securities must be surrendered on or prior to the
Change of Control Purchase Date to the Paying Agent at the office of
the Paying Agent or to an office or agency referred to in Section 1002
to collect payment;
(9) that the Change of Control Purchase Price for any Security
which has been properly tendered and not withdrawn will be paid
promptly following the Change of Control Offer Purchase Date;
(10) the procedures that a Holder must follow to accept a
Change of Control Offer or to withdraw such acceptance;
(11) that any Security not tendered will continue to accrue
interest; and
(12) that, unless the Issuers default in the payment of the
Change of Control Purchase Price, any Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date.
(c) Upon receipt by the Issuers of the proper tender of
Securities, the Holder of the Security in respect of which such proper tender
was made shall (unless the tender of such Security is properly withdrawn)
thereafter be entitled to receive solely the Change of Control Purchase Price
with respect to such Security. Upon surrender of any such Security for purchase
in accordance with the foregoing provisions, such Security shall be paid by the
Issuers at the Change of Control Purchase Price; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Change of
Control Purchase Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such on the relevant Regular
Record Dates according to the terms and the provisions of Section 309. If any
Security tendered for purchase in accordance with the provisions of this Section
1015 shall not be so paid upon surrender thereof, the principal thereof (and
premium, if any, thereon) shall, until paid, bear interest from the Change of
Control Purchase Date at the rate borne by such Security. Holders electing to
have Securities purchased will be required to surrender such Securities to the
Paying Agent at the address specified in the Change of Control Purchase Notice
at least one Business Day prior to the Change of Control Purchase Date. Any
Security that is to be purchased only in part shall be surrendered to a Paying
Agent at the office of such Paying Agent (with, if the Company, Finance Corp.,
the Security Registrar or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company, Finance
Corp. and the Security Registrar or the Trustee, as the case may be, duly
executed by, the Holder thereof or such Holder's attorney duly authorized in
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writing), and the Issuers shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security, without service charge, one or more new
Securities of any authorized denomination as requested by such Holder in an
aggregate principal amount equal to, and in exchange for, the portion of the
principal amount of the Security so surrendered that is not purchased.
(d) The Issuers shall (i) not later than the Change of Control
Purchase Date, accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 10:00 a.m. (New
York time) on the Business Day following the Change of Control Purchase Date,
deposit with the Trustee or with a Paying Agent an amount of money in same day
funds (or New York Clearing House funds if such deposit is made prior to the
Change of Control Purchase Date) sufficient to pay the aggregate Change of
Control Purchase Price of all the Securities or portions thereof which have been
so accepted for payment and (iii) not later than 10:00 a.m. (New York time) on
the Business Day following the Change of Control Purchase Date, deliver to the
Paying Agent an Officers' Certificate stating the Securities or portions thereof
accepted for payment by the Issuers. The Paying Agent shall promptly mail or
deliver to Holders of Securities so accepted payment in an amount equal to the
Change of Control Purchase Price of the Securities purchased from each such
Holder, and the Issuers shall execute and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Securities not so accepted shall be promptly mailed or delivered by the Paying
Agent at the Issuers' expense to the Holder thereof. The Issuers will publicly
announce the results of the Change of Control Offer on the Change of Control
Purchase Date. For purposes of this Section 1015, the Issuer shall choose a
Paying Agent which shall not be the Company or Finance Corp.
(e) A tender made in response to a Change of Control Purchase
Notice may be withdrawn if the Issuers receive, not later than one Business Day
prior to the Change of Control Purchase Date, a telegram, telex, facsimile
transmission or letter, specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect
of which such notice of withdrawal is being submitted;
(3) the principal amount of the Security (which shall
be $1,000 or an integral multiple thereof) delivered for
purchase by the Holder as to which such notice of withdrawal
is being submitted;
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(4) a statement that such Holder is withdrawing his
election to have such principal amount of such Security
purchased; and
(5) the principal amount, if any, of such Security
(which shall be $1,000 or an integral multiple thereof) that
remains subject to the original Change of Control Purchase
Notice and that has been or will be delivered for purchase by
the Issuers.
(f) Notwithstanding the foregoing, the Issuers will not be
required to make a Change of Control Offer with respect to a Change of Control
if, prior to such Change of Control, but after the execution of an agreement
relating to such Change of Control is publicly announced, the Issuers shall have
made an Early Change of Control Offer and purchased all securities validly
tendered and not withdrawn in such Early Change of Control Offer at the Early
Change of Control Purchase Price. The Issuers shall have no right to purchase
Securities tendered in the Early Change of Control Offer unless the Change of
Control with respect to which the Early Change of Control Offer is being made is
consummated.
An "Early Change of Control Offer" shall be an offer (x) made
by the Issuers to purchase all Securities properly tendered and not withdrawn
pursuant to such Early Change of Control Offer at a purchase price (the "Early
Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount of such Securities, plus accrued and unpaid interest, if any,
to the date of purchase (the "Early Change of Control Purchase Date") (subject
to the rights of holders of record on relevant record dates to receive interest
due on an interest payment date), (y) which complies with subsection (g) hereof
and (z) which complies with subsections (c), (d) and (e) hereof as if all
references in such subsections to Change of Control Offer, Change of Control
Purchase Price, Change of Control Purchase Date and Change of Control Notice
referred to an Early Change of Control Offer, Early Change of Control Purchase
Price, Early Change of Control Purchase Date and Early Change of Control Notice,
respectively.
(g) If the Issuers chose to make an Early Change of Control
Offer, they shall notify the Trustee and give written notice of such Early
Change of Control to each Holder of Securities (the "Early Change of Control
Purchase Notice"), by first-class mail, postage prepaid, at its address
appearing in the Security Register. The Early Change of Control Purchase Notice
shall state, among other things:
(1) that an agreement relating to a Change of Control has been
executed and that the Issuers have chosen to satisfy their obligations
pursuant to this Section 1015 by making an Early Change of Control
Offer pursuant to which the Issuers
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are offering to repurchase all or any part (in integral multiples of
$1,000) of such Holder's Securities at the Early Change of Control
Purchase Price;
(2) the circumstances and relevant facts regarding such Change
of Control (including but not limited to information with respect to
pro forma historical income, cash flow and capitalization after giving
effect to such Change of Control);
(3) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q, as
applicable, and any Current Report on Form 8-K of the Company filed
subsequent to such Quarterly Report (or in the event the Company is not
required to prepare any of the foregoing Forms, the comparable
information required to be prepared by the Company and any Guarantor
pursuant to Section 1019), (ii) a description of material developments,
if any, in the Company's business subsequent to the date of the latest
of such reports and (iii) such other information, if any, concerning
the business of the Company which the Company in good faith believes
will enable such Holders to make an informed investment decision
regarding the Early Change of Control Offer;
(4) that an Early Change of Control Offer is being made
pursuant to this Section 1015 and that, if the Change of Control with
respect to which the Early Change of Control Offer is being made
occurs, all Securities properly tendered and not withdrawn pursuant to
the Early Change of Control Offer will be accepted for payment at the
Early Change of Control Purchase Price;
(5) the estimated date of the occurrence of the Change of
Control;
(6) the Early Change of Control Purchase Date, which shall be
no earlier than 30 days nor later than 90 days from the date such
notice is mailed, or as is necessary to comply with the requirements
under the Exchange Act, but which shall in no event be prior to the
estimated date of the occurrence of the Change of Control;
(7) that the Early Change of Control Purchase Date will be
automatically extended without further notice to the date of the
occurrence of the Change of Control with respect to which the Early
Change of Control Offer is being made;
(8) the Early Change of Control Purchase Price;
(9) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 1002;
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(10) that Securities must be surrendered on or prior to the
Early Change of Control Purchase Date to the Paying Agent at the office
of the Paying Agent or to an office or agency referred to in Section
1002 to collect payment;
(11) that the Early Change of Control Purchase Price for any
Security which has been properly tendered and not withdrawn will be
paid promptly following the Early Change of Control Offer Purchase
Date;
(12) the procedures that a Holder must follow to accept an
Early Change of Control Offer or to withdraw such acceptance;
(13) that any Security not tendered will continue to accrue
interest;
(14) that, unless the Issuers default in the payment of the
Early Change of Control Purchase Price, or the Change of Control with
respect to which the Early Change of Control Offer is being made does
not occur, any Securities accepted for payment pursuant to the Early
Change of Control Offer shall cease to accrue interest after the Early
Change of Control Purchase Date; and
(15) that if the Change of Control with respect to which the
Early Change of Control Offer is being made is terminated, all
Securities tendered in the Early Change of Control Offer will be
promptly returned to the Holder who tendered such securities.
(h) Notwithstanding the foregoing, the Early Change of Control
Offer shall terminate on the earlier to occur of (x) the termination of the
agreement relating to the Change of Control specified in the Early Change of
Control Purchase Notice and (y) 90 days from the date the Early Change of
Control Notice is mailed; provided that no provision hereof shall prevent the
Issuers from making a new Early Change of Control Offer pursuant to subsections
(f) and (g) hereof.
(i) Subject to applicable escheat laws, the Trustee and the
Paying Agent shall return to the Issuers any cash that remains unclaimed,
together with interest or dividends, if any, thereon, held by them for the
payment of the Change of Control Purchase Price or the Early Change of Control
Purchase Price; provided, however, that, (x) to the extent that the aggregate
amount of cash deposited by the Issuers pursuant to clause (ii) of paragraph (d)
above exceeds the aggregate Change of Control Purchase Price or the Early Change
of Control Purchase Price, as the case may be, of the Securities or portions
thereof to be purchased, then the Trustee shall hold such excess for the Issuers
and (y) unless otherwise directed by the Issuers in writing, promptly after the
Business Day following the Change of Control Purchase Date or the Early Change
of Control
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Purchase Date, as the case may be, the Trustee shall return any such excess to
the Issuers together with interest, if any, thereon.
(j) The Issuers shall comply, to the extent applicable, with
the applicable tender offer rules, including Rule 14e-1 under the Exchange Act,
and any other applicable securities laws or regulations in connection with a
Change of Control Offer or an Early Change of Control Offer, as the case may be.
(k) Notwithstanding the foregoing, the Issuers will not be
required to make a Change of Control Offer if a third party makes an Early
Change of Control Offer or the Change of Control Offer, in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Indenture applicable to a Change of Control Offer or Early Change of Control
Offer, as the case may be, made by the Issuers and purchases all the Securities
validly tendered and not withdrawn under such Change of Control Offer or Early
Change of Control Offer, as the case may be.
Section 1016. Limitation on Subsidiary Capital Stock.
(a) The Company will not permit any Restricted Subsidiary of
the Company to issue, sell or transfer any Capital Stock, except for (1) if
after giving effect to such issuance, sale or transfer of Capital Stock such
Restricted Subsidiary would be a Majority Owned Restricted Subsidiary, (2) for
Capital Stock issued or sold to, held by or transferred to the Company or a
Wholly Owned Restricted Subsidiary, and (3) for Capital Stock issued by a Person
prior to the time (A) such Person becomes a Restricted Subsidiary, (B) such
Person merges with or into a Restricted Subsidiary or (C) a Restricted
Subsidiary merges with or into such Person; provided that such Capital Stock was
not issued or incurred by such Person in anticipation of the type of transaction
contemplated by subclause (A), (B) or (C). This clause (a) shall not apply upon
the acquisition of all the outstanding Capital Stock of such Restricted
Subsidiary in accordance with the terms of this Indenture.
(b) The Company will not permit any Person (other than the Company or a
Wholly Owned Restricted Subsidiary) to acquire Capital Stock of any Restricted
Subsidiary from the Company or any Restricted Subsidiary except (1) upon the
acquisition of all the outstanding Capital Stock of such Restricted Subsidiary
in accordance with the terms of this Indenture or (2) if after giving effect to
such acquisition such Restricted Subsidiary would be a Majority Owned
Subsidiary.
(c) Notwithstanding the foregoing, this covenant shall not prohibit any
issuance or sale of the Capital Stock of any Restricted Subsidiary if
immediately after giving effect to such issuance or sale, any Investment in such
Person remaining after giving effect to such issuance or sale would have been
permitted to be made under
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Section 1009 herein if made on the date of such issuance or sale. Any such
Investment shall be deemed a Restricted Payment.
Section 1017. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (A) pay dividends or make any other
distribution on its Capital Stock or any other interest or participation in or
measured by its profits, (B) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (C) make any Investment in the Company or any other
Restricted Subsidiary or (D) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary. However, this covenant does not
prohibit any encumbrance or restriction (1) pursuant to an agreement in effect
on the date of the Indenture; (2) with respect to a Restricted Subsidiary that
is not a Restricted Subsidiary of the Company on the date of this Indenture, in
existence at the time such Person becomes a Restricted Subsidiary of the Company
and not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary, provided that such encumbrances and
restrictions are not applicable to the Company or any Restricted Subsidiary or
the properties or assets of the Company or any Restricted Subsidiary other than
such Subsidiary which is becoming a Restricted Subsidiary; (3) under the Credit
Facility as in effect on the date of this 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 more restrictive in the aggregate (as
determined in the good faith judgment of the Company's Board of Directors) with
respect to such dividend and other payment restrictions than those contained in
the Credit Facility as in effect on the date of the Indenture; (4) under this
Indenture and the Securities (including the Additional Securities); (5) under
any applicable law, rule, regulation or order; (6) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (7) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (D) above on the property so acquired; (8) under
contracts for the sale of assets, including without limitation customary
restrictions with respect to a Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary; and (9) under any
agreement that extends, renews, refinances or replaces the agreements containing
the encumbrances or restrictions in the foregoing clauses (1) through (8), or in
this clause (9), provided that the terms and conditions of any such encumbrances
or restrictions are no more restrictive in
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any material respect than those under or pursuant to the agreement evidencing
the Indebtedness so extended, renewed, refinanced or replaced.
Section 1018. Limitations on Unrestricted Subsidiaries.
The Company may designate after the Issue Date any Subsidiary (other
than a Guarantor) as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(a) no Default shall have occurred and be continuing at the time
of or after giving effect to such Designation;
(b) the Company would be permitted to make an Investment (other
than a Permitted Investment) at the time of Designation
(assuming the effectiveness of such Designation) pursuant to
the first paragraph of Section 1009 herein in an amount (the
"Designation Amount") equal to the greater of (1) the net book
value of the Company's interest in such Subsidiary calculated
in accordance with GAAP or (2) the Fair Market Value of the
Company's interest in such Subsidiary as determined in good
faith by the Company's Board of Directors;
(c) such Unrestricted Subsidiary does not own any Capital Stock in
any Restricted Subsidiary of the Company which is not
simultaneously being designated an Unrestricted Subsidiary;
(d) such Unrestricted Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than
Unrestricted Subsidiary Indebtedness, provided that an
Unrestricted Subsidiary may provide a Guarantee for the
Securities; and
(e) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with the
Company or any Restricted Subsidiary unless the terms of any
such agreement, contract, arrangement or understanding are no
less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who
are not Affiliates of the Company or, in the event such
condition is not satisfied, the value of such agreement,
contract, arrangement or understanding to such Unrestricted
Subsidiary shall be deemed a Restricted Payment.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
1009 hereof for all purposes of this Indenture in the Designation Amount.
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The Company shall not and shall not cause or permit any Restricted
Subsidiary to at any time
(a) provide credit support for, guarantee or subject any of its
property or assets (other than the Capital Stock of any
Unrestricted Subsidiary) to the satisfaction of, any
Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such
Indebtedness) (other than Permitted Investments in
Unrestricted Subsidiaries) or
(b) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary. For purposes of the foregoing, the
Designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be deemed to be the Designation of all of the
Subsidiaries of such Subsidiary as Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time
of and after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if
incurred at such time, have been permitted to be incurred for
all purposes of the Indenture; and
(c) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding (other than Indebtedness that would
be Permitted Indebtedness), immediately after giving effect to
such proposed Revocation, and after giving pro forma effect to
the incurrence of any such Indebtedness of such redesignated
Subsidiary as if such Indebtedness was incurred on the date of
the Revocation, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to
Section 1008 herein.
All Designations and Revocations must be evidenced by a resolution of
the Board of Directors of the Company delivered to the Trustee certifying
compliance with the foregoing provisions.
Section 1019. Limitation on Activities of Finance Corp.
Finance Corp. shall have no material assets and shall not
engage in any activities other than in connection with the Indenture and the
Securities.
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Section 1020. Provision of Financial Statements.
After the earlier to occur of the consummation of the Exchange
Offer and the 175th calendar day following the date of original issue of the
Securities, whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company and any Guarantor will, to the extent permitted
under the Exchange Act, file with the Commission the annual reports, quarterly
reports and other documents which the Company and such Guarantor would have been
required to file with the Commission pursuant to Sections 13(a) or 15(d) if the
Company or such Guarantor were so subject, such documents to be filed with the
Commission on or prior to the date (the "Required Filing Date") by which the
Company and such Guarantor would have been required so to file such documents if
the Company and such Guarantor were so subject.
The Company and any Guarantor will also in any event, whether
or not required to file reports with the Commission, (a) within 15 days of each
Required Filing Date (1) transmit by mail to all holders, as their names and
addresses appear in the security register, without cost to such holders and (2)
file with the Trustee copies of the annual reports, quarterly reports and other
documents which the Company and such Guarantor would have been required to file
with the Commission pursuant to Sections 13(a) or 15(d) of the Exchange Act if
the Company and such Guarantor were subject to either of such Sections and (b)
if filing such documents by the Company and such Guarantor with the Commission
is not permitted under the Exchange Act, promptly upon written request and
payment of the reasonable cost of duplication and delivery, supply copies of
such documents to any prospective holder at the Company's cost.
If any Guarantor's financial statements would be required to
be included in the financial statements filed or delivered pursuant to this
Indenture if the Company were subject to Section 13(a) or 15(d) of the Exchange
Act, the Company shall include such Guarantor's financial statements in any
filing or delivery pursuant to this Indenture.
In addition, so long as any of the Securities remain
outstanding, the Company will make available to any prospective purchaser of
Securities or beneficial owner of Securities in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act, until such
time as the Company has either exchanged the Securities for securities identical
in all material respects which have been registered under the Securities Act or
until such time as the holders thereof have disposed of such Securities pursuant
to an effective registration statement under the Securities Act.
Section 1021. Statement by Officers as to Default.
(a) The Issuers and the Guarantors will deliver to the
Trustee, on or before a date not more than 120 days after the end of each fiscal
year of the Company
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ending after the date hereof, and 60 days after the end of each fiscal quarter
ending after the date hereof, a written statement signed by two executive
officers of the Issuers and the Guarantors, one of whom shall be the principal
executive officer, principal financial officer or principal accounting officer
of the Issuers and the Guarantors, as to compliance herewith, including whether
or not, after a review of the activities of the Issuers during such year or such
quarter and of the Company's, Finance Corp.'s and each Guarantor's performance
under this Indenture, to the best knowledge, based on such review, of the
signers thereof, the Issuers and each Guarantor have fulfilled all of their
respective obligations and are in compliance with all conditions and covenants
under this Indenture throughout such year or quarter, as the case may be, and,
if there has been a Default specifying each Default and the nature and status
thereof and any actions being taken by the Issuers and the Guarantors with
respect thereto.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder of
any other evidence of Indebtedness of the Issuers or any Subsidiary gives any
notice or takes any other action with respect to a claimed default, the Issuers
and the Guarantors shall deliver to the Trustee by registered or certified mail
or facsimile transmission followed by an originally executed copy of an
Officers' Certificate specifying such Default, Event of Default, notice or other
action, the status thereof and what actions the Company and the Guarantors are
taking or propose to take with respect thereto, within five Business Days after
the occurrence of such Default or Event of Default.
Section 1022. Waiver of Certain Covenants.
The Issuers and the Guarantors may omit in any particular
instance to comply with any covenant or condition set forth in Sections 1006
through 1011, 1013, 1014, and 1016 through 1021, if, before or after the time
for such compliance, the Holders of not less than a majority in aggregate
principal amount of the Securities at the time Outstanding shall, by Act of such
Holders, waive such compliance in such instance with such covenant or provision,
but no such waiver shall extend to or affect such covenant or condition except
to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Issuers and the duties of the Trustee in
respect of any such covenant or condition shall remain in full force and effect.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Rights of Redemption.
(a) The Securities are subject to redemption at any time on or
after May 15, 2004, at the option of the Issuers, in whole or in part, subject
to the conditions, and at the Redemption Prices, specified in the form of
Security, together with accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on relevant Regular Record Dates
and Special Record Dates to receive interest due on relevant Interest Payment
Dates and Special Payment Dates).
(b) In addition, at any time prior to May 15, 2002, the
Issuers, at their option, may use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Securities issued under this Indenture (including the principal amount of any
Additional Securities) at a redemption price equal to 111% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Redemption Date; provided that at least 65% of the initial aggregate
principal amount of Securities (including the principal amount of any Additional
Securities) remains outstanding immediately after the occurrence of such
redemption. In order to effect the foregoing redemption, the Company must mail a
notice of redemption no later than 20 days after the closing of the related
Public Equity Offering and must consummate such redemption within 45 days of the
closing of the Public Equity Offering.
(c) In addition, the Securities may be redeemed upon a Change
of Control at any time prior to May 15, 2004, at the option of the Issuers, in
whole and not in part, within 60 days of such Change of Control at a redemption
price equal to (i) 100% of the principal amount of the Securities, plus (ii)
accrued interest to the Redemption Date (subject to the rights of Holders of
record on relevant record dates to receive interest due on an interest payment
date) plus (iii) the Applicable Premium, if any. In no event will the redemption
price of the Securities be less than 105.5% (the Redemption Price for the
Securities on May 15, 2004) of the principal amount of the Securities, plus
accrued interest to the applicable Redemption Date.
Section 1102. Applicability of Article.
Redemption of Securities at the election of the Issuers or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article Eleven.
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Section 1103. Election to Redeem; Notice to Trustee.
The election of the Issuers to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Company Order and an Officers'
Certificate. In case of any redemption at the election of the Issuers, the
Issuers shall, not less than 45 nor more than 60 days prior to the Redemption
Date fixed by the Issuers (unless a shorter notice period shall be satisfactory
to the Trustee), notify the Trustee in writing of such Redemption Date and of
the principal amount of Securities to be redeemed.
Section 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities or portions thereof to be redeemed shall be selected not
more than 30 days prior to the Redemption Date. The Trustee shall select the
Securities or portions thereof to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which the
Securities are listed, or if the Securities are not so listed, pro rata, by lot
or by any other method the Trustee shall deem fair and reasonable. The amounts
to be redeemed shall be equal to $1,000 or any integral multiple thereof.
The Trustee shall promptly notify the Issuers and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
Section 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at its address
appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be
redeemed, the identification of the particular Securities to be redeemed;
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(d) in the case of a Security to be redeemed in part, the
principal amount of such Security to be redeemed and that after the Redemption
Date upon surrender of such Security, new Security or Securities in the
aggregate principal amount equal to the unredeemed portion thereof will be
issued;
(e) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security or portion thereof to be
redeemed, and that (unless the Issuers shall default in payment of the
Redemption Price) interest thereon shall cease to accrue on and after said date;
(g) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 1002 where such Securities are to be
surrendered for payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Securities; and
(i) the procedures that a Holder must follow to surrender the
Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the
election of the Issuers shall be given by the Issuers or, at the Issuers'
written request, by the Trustee in the name and at the expense of the Issuers.
If the Issuers elect to give notice of redemption, it shall provide the Trustee
with a certificate stating that such notice has been given in compliance with
the requirements of this Section 1105.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
Section 1106. Deposit of Redemption Price.
On or prior to any Redemption Date, the Issuers shall deposit
with the Trustee or with a Paying Agent (or, if either of the Issuers or any of
their Affiliates is acting as Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money in same day funds sufficient to pay
the Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date or Special Payment Date) accrued interest on, all the Securities or
portions thereof which are to be redeemed on that date. The Paying Agent shall
promptly mail or deliver to Holders of Securities so
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redeemed payment in an amount equal to the Redemption Price of the Securities
purchased from each such Holder. All money, if any, earned on funds held in
trust by the Trustee or any Paying Agent shall be remitted to the Issuers. For
purposes of this Section 1106, the Issuers shall choose a Paying Agent which
shall not be the Issuers.
Section 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified and from and after such date
(unless the Issuers shall default in the payment of the Redemption Price and
accrued interest) such Securities shall cease to bear interest. Upon surrender
of any such Security for redemption in accordance with said notice, such
Security shall be paid by the Issuers at the Redemption Price together with
accrued interest to the Redemption Date; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such on the relevant Regular Record Dates and Special
Record Dates according to the terms and the provisions of Section 309.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Security.
Section 1108. Securities Redeemed or Purchased in Part.
Any Security which is to be redeemed or purchased only in part
shall be surrendered to the Paying Agent at the office or agency maintained for
such purpose pursuant to Section 1002 (with, if the Issuers, the Security
Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company, the Security
Registrar or the Trustee, as the case may be, duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing), and the Issuers
shall execute, and the Trustee shall authenticate and deliver to the Holder of
such Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to, and in exchange for, the unredeemed portion of the principal of
the Security so surrendered that is not redeemed or purchased.
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ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 1201. Satisfaction and Discharge of Indenture.
This Indenture shall be discharged and shall cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities as expressly provided for herein) as to all Outstanding
Securities hereunder, and the Trustee, upon Company Request and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either (1) all the Securities theretofore authenticated
and delivered (other than (i) lost, stolen or destroyed Securities which have
been replaced or paid as provided in Section 308 or (ii) all Securities for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust as provided in Section 1003) have been delivered to the Trustee
for cancellation or (2) all such Securities not theretofore delivered to the
Trustee for cancellation (i) have become due and payable, (ii) will become due
and payable at their Stated Maturity within one year, or (iii) are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company;
(b) the Company, Finance Corp. or any Guarantor has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust an amount in United States dollars sufficient to pay and discharge the
entire indebtedness on the Securities not theretofore delivered to the Trustee
for cancellation, including principal of, premium, if any, and accrued interest
on, such Securities at such Maturity, Stated Maturity or Redemption Date;
(c) the Company, Finance Corp. or any Guarantor has paid or
caused to be paid all other sums payable hereunder by the Company and any
Guarantor; and
(d) the Company and Finance Corp. have delivered to the
Trustee an Officers' Certificate and an Opinion of Independent Counsel, in form
and substance satisfactory to the Trustee, each stating that (i) all conditions
precedent under the Indenture relating to the satisfaction and discharge hereof
have been complied with and (ii) such satisfaction and discharge will not result
in a breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company, Finance Corp.,
any Guarantor or any Subsidiary is a party or by which the Company, Finance
Corp., any Guarantor or any Subsidiary is bound.
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Notwithstanding the satisfaction and discharge hereof, the
obligations of the Issuers to the Trustee under Section 607 and, if United
States dollars shall have been deposited with the Trustee pursuant to subclause
(2) of subsection (a) of this Section 1201, the obligations of the Trustee under
Section 1202 and the last paragraph of Section 1003 shall survive.
Section 1202. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all United States dollars deposited with the Trustee pursuant to Section
1201 shall be held in trust and applied by it, in accordance with the provisions
of the Securities and this Indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal of,
premium, if any, and interest on, the Securities for whose payment such United
States dollars have been deposited with the Trustee.
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ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
Section 1301. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a
Security, by such Holder's acceptance thereof, likewise covenants and agrees,
that, to the extent and in the manner hereinafter set forth in this Article, the
Indebtedness represented by the Securities and the payment of the principal of,
premium, if any, and interest on, the Securities are hereby expressly made
subordinate and subject in right of payment as provided in this Article to the
prior payment in full of the Senior Indebtedness.
This Article Thirteen shall constitute a continuing offer to
all Persons who, in reliance upon such provisions, become holders of, or
continue to hold Senior Indebtedness; and such provisions are made for the
benefit of the holders of Senior Indebtedness; and such holders are made
obligees hereunder and they or each of them may enforce such provisions as
provided herein.
Section 1302. Payment Over of Proceeds Upon Dissolution, etc.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding, relative to the Company or to its assets, or (b) any
liquidation, dissolution or other winding up of the Company, whether voluntary
or involuntary, or (c) any assignment for the benefit of creditors or any other
marshaling of assets or liabilities of the Company, then and in any such event:
(1) the holders of Senior Indebtedness shall be entitled to
receive payment in full of all amounts due on or in respect of Senior
Indebtedness before the Holders of the Securities are entitled to receive any
payment or distribution of any kind or character (excluding securities of the
Company or any other corporation that are equity securities or are subordinated
in right of payment to all Senior Indebtedness, that may be outstanding, to
substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article ("Permitted Junior Securities"))
on account of the principal of, premium, if any, or interest on the Securities
or on account of the purchase, redemption, defeasance or other acquisition of,
or in respect of, the Securities (other than amounts previously set aside with
the Trustee, or payments previously made, in either case, pursuant to the
provisions of Sections 402 and 403 of this Indenture); and
(2) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (excluding
Permitted Junior Securities), by set-off or otherwise, to which the Holders or
the Trustee would be entitled but for the
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provisions of this Article shall be paid by the liquidating trustee or agent or
other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Indebtedness or their representative or representatives or to
the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid, after giving effect
to any concurrent payment or distribution to the holders of such Senior
Indebtedness; and
(3) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the Holder of any Security shall have
received any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (excluding Permitted Junior
Securities), in respect of principal, premium, if any, and interest on the
Securities before all Senior Indebtedness is paid in full, then and in such
event such payment or distribution (excluding Permitted Junior Securities) shall
be paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payments
or distributions of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the
Company with or into, another Person or the liquidation or dissolution of the
Company following the sale, assignment, conveyance, transfer, lease or other
disposal of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or marshaling of assets and liabilities of the Company
for the purposes of this Section if the Person formed by such consolidation or
the surviving entity of such merger or the Person which acquires by sale,
assignment, conveyance, transfer, lease or other disposal of such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposal, comply with the conditions set forth in Article Eight.
Section 1303. Suspension of Payment When Designated Senior Indebtedness
in Default.
(a) Unless Section 1302 shall be applicable, upon the
occurrence of any default in the payment of any Designated Senior Indebtedness
beyond any applicable grace period (a "Payment Default") and after the receipt
by the Trustee from a Senior
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Representative of any Designated Senior Indebtedness of written notice of such
default, no payment (other than amounts previously set aside with the Trustee or
payments previously made, in either case, pursuant to Section 402 or 403 in this
Indenture) or distribution of any assets of the Company of any kind or character
(excluding Permitted Junior Securities) may be made on account of the principal
of, premium, if any, or interest on, the Securities, or on account of the
purchase, redemption, defeasance or other acquisition of or in respect of, the
Securities unless and until such Payment Default shall have been cured or waived
or shall have ceased to exist or such Designated Senior Indebtedness shall have
been discharged or paid in full, after which the Company shall (subject to the
other provisions of this Article Thirteen) resume making any and all required
payments in respect of the Securities, including any missed payments.
(b) Unless Section 1302 shall be applicable, (1) upon the
occurrence and during the continuance of any non-payment default with respect to
any Designated Senior Indebtedness pursuant to which the maturity thereof may
then be accelerated immediately (a "Non-payment Default") and (2) after the
receipt by the Trustee and the Company from a Senior Representative of any
Designated Senior Indebtedness of written notice of such Non-payment Default, no
payment (other than any amounts previously set aside with the Trustee, or
payments previously made, in either case, pursuant to the provisions of Sections
402 or 403 in this Indenture) or distribution of any assets of the Company of
any kind or character (excluding Permitted Junior Securities) may be made by the
Company on account of the principal of, premium, if any, or interest on, the
Securities, or on account of the purchase, redemption, defeasance or other
acquisition of, or in respect of, the Securities for the period specified below
("Payment Blockage Period").
(c) The Payment Blockage Period shall commence upon the
receipt of notice of the Non-payment Default by the Trustee and the Company from
a Senior Representative and shall end on the earliest of (i) the 179th day after
such commencement, (ii) the date on which such Non-payment Default (and all
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) is cured, waived or ceases to exist or on which such
Designated Senior Indebtedness is discharged or paid in full, or (iii) the date
on which such Payment Blockage Period (and all other Non-payment Defaults as to
which notice is given after such Payment Blockage Period is initiated) shall
have been terminated by written notice to the Company or the Trustee from the
Senior Representative initiating such Payment Blockage Period. When the Payment
Blockage Period ends, the Company shall promptly resume making any and all
required payments in respect of the Securities, including any missed payments.
In no event will a Payment Blockage Period extend beyond 179 days from the date
of the receipt by the Company or the Trustee of the notice initiating such
Payment Blockage Period (such 179-day period referred to as the "Initial
Period"). Any number of notices of Non-payment Defaults may be given during the
Initial Period. However, during any period of 365 consecutive days only one
Payment Blockage Period, during which
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payment of principal of, or interest on, the Securities may not be made, may
commence, the duration of such period may not exceed 179 days, and there must be
a 186 consecutive day period in any 365 day period during which no Payment
Blockage Period is in effect. No Non-payment Default with respect to Designated
Senior Indebtedness that existed or was continuing on the date of the
commencement of any Payment Blockage Period will be, or can be, made the basis
for the commencement of a second Payment Blockage Period, whether or not within
a period of 365 consecutive days, unless such default has been cured or waived
for a period of not less than 90 consecutive days subsequent to the commencement
of the Initial Period. The Company shall deliver a notice to the Trustee
promptly after the date on which any Non-payment Default is cured or waived or
ceases to exist or on which the Designated Senior Indebtedness related thereto
is discharged or paid in full, and the Trustee is authorized to act in reliance
on such notice.
(d) In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the Holder of any Security
prohibited by the foregoing provisions of this Section, then and in such event
such payment shall be paid over and delivered forthwith to a Senior
Representative of the holders of the Designated Senior Indebtedness or as a
court of competent jurisdiction shall direct.
Section 1304. Payment Permitted if No Default.
Nothing contained in this Article, elsewhere in this Indenture
or in any of the Securities shall prevent the Company, at any time except during
the pendency of any case, proceeding, dissolution, liquidation or other
winding-up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of the Company referred to in Section 1302 or under the
conditions described in Section 1303, from making payments at any time of
principal of, premium, if any, or interest on the Securities.
Section 1305. Subrogation to Rights of Holders of Senior Indebtedness.
After the payment in full of all Senior Indebtedness, the
Holders of the Securities shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments and distributions of cash, property
and securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on, the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions of this Article to
the holders of Senior Indebtedness by Holders of the Securities or the Trustee,
shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the
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Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
Section 1306. Provisions Solely to Define Relative Rights.
The provisions of this Article are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of, premium, if any, and interest on, the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company or the
Holders of the Securities and creditors of the Company other than the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article of the
holders of Senior Indebtedness (1) in any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of creditors or
other marshaling of assets and liabilities of the Company referred to in Section
1302, to receive, pursuant to and in accordance with such Section, cash,
property and securities otherwise payable or deliverable to the Trustee or such
Holder, or (2) under the conditions specified in Section 1303, to prevent any
payment prohibited by such Section or enforce their rights pursuant to Section
1303(d).
Section 1307. Trustee to Effectuate Subordination.
Each Holder of a Security by such Holder's acceptance thereof
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Trustee such Holder's attorney-in-fact for any and
all such purposes, including, in the event of any dissolution, winding-up,
liquidation or reorganization of the Company whether in bankruptcy, insolvency,
receivership proceedings, or otherwise, the timely filing of a claim for the
unpaid balance of the indebtedness of the Company owing to such Holder in the
form required in such proceedings and the causing of such claim to be approved.
Section 1308. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to
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act, in good faith, by any such holder, or by any non-compliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (1) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (2) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (3) release any Person liable in any manner for the collection or
payment of Senior Indebtedness; and (4) exercise or refrain from exercising any
rights against the Company and any other Person; provided, however, that in no
event shall any such actions limit the right of the Holders of the Securities to
take any action to accelerate the maturity of the Securities pursuant to Article
Five of this Indenture or to pursue any rights or remedies hereunder or under
applicable laws if the taking of such action does not otherwise violate the
terms of this Article.
Section 1309. Notice to Trustee.
(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee in respect of the Securities. Notwithstanding the
provisions of this Article or any other provision of this Indenture, the Trustee
shall not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from the Company or a holder of Senior Indebtedness or from a Senior
Representative or any trustee, fiduciary or agent therefor; and, prior to the
receipt of any such written notice, the Trustee shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section by Noon,
Eastern Time, on the Business Day prior to the date upon which by the terms
hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of, premium, if any, or interest on any
Security), then, anything herein contained to the contrary notwithstanding but
without limiting the rights and remedies of the holders of Senior Indebtedness,
a Senior Representative or any trustee, fiduciary or agent thereof, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be
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received by it after such date; nor shall the Trustee be charged with knowledge
of the curing of any such default or the elimination of the act or condition
preventing any such payment unless and until the Trustee shall have received an
Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to
it of a written notice to the Trustee and the Company by a Person which
represents itself as a Senior Representative or a holder of Senior Indebtedness
(or a trustee, fiduciary or agent therefor) to establish that such notice has
been given by a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor); provided, however, that failure to give
such notice to the Company shall not affect in any way the ability of the
Trustee to rely on such notice. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
Section 1310. Reliance on Judicial Orders or Certificates.
Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee and the Holders of the Securities shall
be entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other person
making such payment or distribution, or a certificate of a Senior
Representative, delivered to the Trustee or to the Holders of Securities for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article,
provided that the foregoing shall apply only if such court has been fully
apprised of the provisions of this Article.
Section 1311. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article with respect to any Senior Indebtedness
which may at any time be
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held by it, to the same extent as any other holder of Senior Indebtedness, and
nothing in this Indenture shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 607.
Section 1312. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting under this
Indenture, the term "Trustee" as used in this Article shall in such case (unless
the context otherwise requires) be construed as extending to and including such
Paying Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee; provided, however, that Section 1311 shall not apply to the Company or
any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
Section 1313. No Suspension of Remedies.
Nothing contained in this Article shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Five of this Indenture or to
pursue any rights or remedies hereunder or under applicable law, subject to the
rights, if any, under this Article of the holders, from time to time, of Senior
Indebtedness to receive the cash, property or securities receivable upon the
exercise of such rights or remedies.
Section 1314. Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Article against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the
Trustee shall not be liable to any holder of Senior Indebtedness if it shall in
good faith mistakenly (absent willful misconduct) pay over or deliver to
Holders, the Company or any other Person moneys or assets to which any holder of
Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
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ARTICLE FOURTEEN
GUARANTEES
Section 1401. Guarantors' Guarantee.
For value received, each of the Guarantors, in accordance with
this Article Fourteen, hereby absolutely, fully, unconditionally and irrevocably
guarantees, jointly and severally with each other and with each other Person
which may become a Guarantor hereunder, to the Trustee and the Holders, as if
the Guarantors were the principal debtor, the punctual payment and performance
when due of all Indenture Obligations (which for purposes of this Guarantee
shall also be deemed to include all commissions, fees, charges, costs and other
expenses (including reasonable legal fees and disbursements of one counsel)
arising out of or incurred by the Trustee or the Holders in connection with the
enforcement of this Guarantee).
Section 1402. Continuing Guarantee; No Right of Set-Off; Independent
Obligation.
(a) This Guarantee shall be a continuing guarantee of the
payment and performance of all Indenture Obligations and shall remain in full
force and effect until the payment in full of all of the Indenture Obligations
and shall apply to and secure any ultimate balance due or remaining unpaid to
the Trustee or the Holders; and this Guarantee shall not be considered as wholly
or partially satisfied by the payment or liquidation at any time or from time to
time of any sum of money for the time being due or remaining unpaid to the
Trustee or the Holders. Each Guarantor, jointly and severally, covenants and
agrees to comply with all obligations, covenants, agreements and provisions
applicable to it in this Indenture including those set forth in Article Eight.
Without limiting the generality of the foregoing, each Guarantor's liability
shall extend to all amounts which constitute part of the Indenture Obligations
and would be owed by the Issuers under this Indenture and the Securities but for
the fact that they are unenforceable, reduced, limited, impaired, suspended or
not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Issuers.
(b) Each Guarantor, jointly and severally, hereby guarantees
that the Indenture Obligations will be paid to the Trustee without set-off or
counterclaim or other reduction whatsoever (whether for taxes, withholding or
otherwise) in lawful currency of the United States of America.
(c) Each Guarantor, jointly and severally, guarantees that the
Indenture Obligations shall be paid strictly in accordance with their terms
regardless of any law,
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regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the holders of the Securities.
(d) Each Guarantor's liability to pay or perform or cause the
performance of the Indenture Obligations under this Guarantee shall arise
forthwith after demand for payment or performance by the Trustee has been given
to the Guarantors in the manner prescribed in Section 106 hereof.
(e) Except as provided herein, the provisions of this Article
Fourteen cover all agreements between the parties hereto relative to this
Guarantee and none of the parties shall be bound by any representation, warranty
or promise made by any Person relative thereto which is not embodied herein; and
it is specifically acknowledged and agreed that this Guarantee has been
delivered by each Guarantor free of any conditions whatsoever and that no
representations, warranties or promises have been made to any Guarantor
affecting its liabilities hereunder, and that the Trustee shall not be bound by
any representations, warranties or promises now or at any time hereafter made by
the Issuers to any Guarantor.
(f) This Guarantee is a guarantee of payment, performance and
compliance and not of collectibility and is in no way conditioned or contingent
upon any attempt to collect from or enforce performance or compliance by the
Issuers or upon any event or condition whatsoever.
(g) The obligations of the Guarantors set forth herein
constitute the full recourse obligations of the Guarantors enforceable against
them to the full extent of all their assets and properties.
Section 1403. Guarantee Absolute.
The obligations of the Guarantors hereunder are independent of
the obligations of the Issuers under the Securities and this Indenture and a
separate action or actions may be brought and prosecuted against any Guarantor
whether or not an action or proceeding is brought against the Issuers and
whether or not the Issuers are joined in any such action or proceeding. The
liability of the Guarantors hereunder is irrevocable, absolute and unconditional
and (to the extent permitted by law) the liability and obligations of the
Guarantors hereunder shall not be released, discharged, mitigated, waived,
impaired or affected in whole or in part by:
(a) any defect or lack of validity or enforceability in
respect of any Indebtedness or other obligation of
the Issuers or any other Person under this Indenture
or the Securities, or any agreement or instrument
relating to any of the foregoing;
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(b) any grants of time, renewals, extensions,
indulgences, releases, discharges or modifications
which the Trustee or the Holders may extend to, or
make with, the Company, Finance Corp., any Guarantor
or any other Person, or any change in the time,
manner or place of payment of, or in any other term
of, all or any of the Indenture Obligations, or any
other amendment or waiver of, or any consent to or
departure from, this Indenture or the Securities,
including any increase or decrease in the Indenture
Obligations;
(c) the taking of security from the Company, Finance
Corp., any Guarantor or any other Person, and the
release, discharge or alteration of, or other dealing
with, such security;
(d) the occurrence of any change in the laws, rules,
regulations or ordinances of any jurisdiction by any
present or future action of any governmental
authority or court amending, varying, reducing or
otherwise affecting, or purporting to amend, vary,
reduce or otherwise affect, any of the Indenture
Obligations and the obligations of any Guarantor
hereunder;
(e) the abstention from taking security from the Issuers,
any Guarantor or any other Person or from perfecting,
continuing to keep perfected or taking advantage of
any security;
(f) any loss, diminution of value or lack of
enforceability of any security received from the
Company, Finance Corp., any Guarantor or any other
Person, and including any other guarantees received
by the Trustee;
(g) any other dealings with the Company, Finance Corp.,
any Guarantor or any other Person, or with any
security;
(h) the Trustee's or the Holders' acceptance of
compositions from the Company, Finance Corp. or any
Guarantor;
(i) the application by the Holders or the Trustee of all
monies at any time and from time to time received
from the Company, Finance Corp., any Guarantor or any
other Person on account of any indebtedness and
liabilities owing by the Company, Finance Corp. or
any Guarantor to the Trustee or the Holders, in such
manner as the
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Trustee or the Holders deems best and the changing of
such application in whole or in part and at any time
or from time to time, or any manner of application of
collateral, or proceeds thereof, to all or any of the
Indenture Obligations, or the manner of sale of any
collateral;
(j) the release or discharge of the Company, Finance
Corp. or any Guarantor of the Securities or of any
Person liable directly as surety or otherwise by
operation of law or otherwise for the Securities,
other than an express release in writing given by the
Trustee, on behalf of the Holders, of the liability
and obligations of any Guarantor hereunder;
(k) any change in the name, business, capital structure
or governing instrument of the Company, Finance Corp.
or any Guarantor or any refinancing or restructuring
of any of the Indenture Obligations;
(l) the sale of the Company's, Finance Corp.'s or any
Guarantor's business or any part thereof;
(m) subject to Section 1414, any merger or consolidation,
arrangement or reorganization of the Company, Finance
Corp., any Guarantor, any Person resulting from the
merger or consolidation of the Company, Finance Corp.
or any Guarantor with any other Person or any other
successor to such Person or merged or consolidated
Person or any other change in the corporate
existence, structure or ownership of the Company,
Finance Corp. or any Guarantor or any change in the
corporate relationship between the Issuers and any
Guarantor, or any termination of such relationship;
(n) the insolvency, bankruptcy, liquidation, winding-up,
dissolution, receivership, arrangement, readjustment,
assignment for the benefit of creditors or
distribution of the assets of the Issuers or their
assets or any resulting discharge of any obligations
of the Issuers (whether voluntary or involuntary) or
of any Guarantor (whether voluntary or involuntary)
or the loss of corporate existence;
(o) subject to Section 1414, any arrangement or plan of
reorganization affecting the Company, Finance Corp.
or any Guarantor;
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(p) any failure, omission or delay on the part of the
Issuers to conform or comply with any term of this
Indenture;
(q) any limitation on the liability or obligations of the
Company, Finance Corp. or any other Person under this
Indenture, or any discharge, termination,
cancellation, distribution, irregularity, invalidity
or unenforceability in whole or in part of this
Indenture;
(r) any other circumstance (including any statute of
limitations) that might otherwise constitute a
defense available to, or discharge of, the Company,
Finance Corp. or any Guarantor; or
(s) any modification, compromise, settlement or release
by the Trustee, or by operation of law or otherwise,
of the Indenture Obligations or the liability of the
Company, Finance Corp. or any other obligor under the
Securities, in whole or in part, and any refusal of
payment by the Trustee, in whole or in part, from any
other obligor or other guarantor in connection with
any of the Indenture Obligations, whether or not with
notice to, or further assent by, or any reservation
of rights against, each of the Guarantors.
Section 1404. Right to Demand Full Performance.
In the event of any demand for payment or performance by the
Trustee from any Guarantor hereunder, the Trustee or the Holders shall have the
right to demand its full claim and to receive all dividends or other payments in
respect thereof until the Indenture Obligations have been paid in full, and the
Guarantors shall continue to be jointly and severally liable hereunder for any
balance which may be owing to the Trustee or the Holders by the Issuers under
this Indenture and the Securities. The retention by the Trustee or the Holders
of any security, prior to the realization by the Trustee or the Holders of its
rights to such security upon foreclosure thereon, shall not, as between the
Trustee and any Guarantor, be considered as a purchase of such security, or as
payment, satisfaction or reduction of the Indenture Obligations due to the
Trustee or the Holders by the Issuers or any part thereof. Each Guarantor,
promptly after demand, will reimburse the Trustee and the Holders for all costs
and expenses of collecting such amount under, or enforcing this Guarantee,
including, without limitation, the reasonable fees and expenses of counsel.
Section 1405. Waivers.
(a) Each Guarantor hereby expressly waives (to the extent
permitted by law) notice of the acceptance of this Guarantee and notice of the
existence, renewal,
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extension or the non-performance, non-payment, or non-observance on the part of
the Issuers of any of the terms, covenants, conditions and provisions of this
Indenture or the Securities or any other notice whatsoever to or upon the
Company, Finance Corp. or such Guarantor with respect to the Indenture
Obligations, whether by statute, rule of law or otherwise. Each Guarantor hereby
acknowledges communication to it of the terms of this Indenture and the
Securities and all of the provisions therein contained and consents to and
approves the same. Each Guarantor hereby expressly waives (to the extent
permitted by law) diligence, presentment, protest and demand for payment with
respect to (i) any notice of sale, transfer or other disposition of any right,
title to or interest in the Securities by the Holders or in this Indenture, (ii)
any release of any Guarantor from its obligations hereunder resulting from any
loss by it of its rights of subrogation hereunder and (iii) any other
circumstances whatsoever that might otherwise constitute a legal or equitable
discharge, release or defense of a guarantor or surety or that might otherwise
limit recourse against such Guarantor.
(b) Without prejudice to any of the rights or recourses which
the Trustee or the Holders may have against the Company, Finance Corp., each
Guarantor hereby expressly waives (to the extent permitted by law) any right to
require the Trustee or the Holders to:
(i) enforce, assert, exercise, initiate or
exhaust any rights, remedies or recourse
against the Company, Finance Corp., any
Guarantor or any other Person under this
Indenture or otherwise;
(ii) value, realize upon, or dispose of any
security of the Company, Finance Corp. or
any other Person held by the Trustee or the
Holders;
(iii) initiate or exhaust any other remedy which
the Trustee or the Holders may have in law
or equity; or
(iv) mitigate the damages resulting from any
default under this Indenture;
before requiring or becoming entitled to demand payment from such Guarantor
under this Guarantee.
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Section 1406. The Guarantors Remain Obligated in Event the Issuers Are
No Longer Obligated to Discharge Indenture Obligations.
It is the express intention of the Trustee and the Guarantors
that if for any reason the Company or Finance Corp. has no legal existence, is
or becomes under no legal obligation to discharge the Indenture Obligations
owing to the Trustee or the Holders by the Issuers or if any of the Indenture
Obligations owing by the Issuers to the Trustee or the Holders becomes
irrecoverable from the Issuers by operation of law or for any reason whatsoever,
this Guarantee and the covenants, agreements and obligations of the Guarantors
contained in this Article Fourteen shall nevertheless be binding upon the
Guarantors, as principal debtor, until such time as all such Indenture
Obligations have been paid in full to the Trustee and all Indenture Obligations
owing to the Trustee or the Holders by the Issuers have been discharged, or such
earlier time as Section 402 shall apply to the Securities and the Guarantors
shall be responsible for the payment thereof to the Trustee or the Holders upon
demand.
Section 1407. Fraudulent Conveyance; Contribution; Subrogation.
(a) Each Guarantor that is a Subsidiary of the Company and, by
its acceptance hereof, each Holder hereby confirm that it is the intention of
all such parties that the Guarantee by such Guarantor pursuant to its Guarantee
not constitute a fraudulent transfer or conveyance for purposes of the
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law. To effectuate the foregoing
intention, the Holders and such Guarantor hereby irrevocably agree that the
obligations of such Guarantor under its Guarantee shall be limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under this Indenture, will result in the obligations of
such Guarantor under its Guarantee not constituting such fraudulent transfer or
conveyance.
(b) Each Guarantor that makes a payment or distribution under
its Guarantee shall be entitled to a contribution from each other Guarantor, if
any, in a pro rata amount based on the net assets of each Guarantor, determined
in accordance with GAAP.
(c) Each Guarantor hereby waives all rights of subrogation or
contribution, whether arising by contract or operation of law (including,
without limitation, any such right arising under federal bankruptcy law) or
otherwise by reason of any payment by it pursuant to the provisions of this
Article Fourteen.
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Section 1408. Guarantee Is in Addition to Other Security.
This Guarantee shall be in addition to and not in substitution
for any other guarantees or other security which the Trustee may now or
hereafter hold in respect of the Indenture Obligations owing to the Trustee or
the Holders by the Issuers and (except as may be required by law) the Trustee
shall be under no obligation to marshal in favor of each of the Guarantors any
other guarantees or other security or any moneys or other assets which the
Trustee may be entitled to receive or upon which the Trustee or the Holders may
have a claim.
Section 1409. Release of Security Interests.
Without limiting the generality of the foregoing and except as
otherwise provided in this Indenture, each Guarantor hereby consents and agrees,
to the fullest extent permitted by applicable law, that the rights of the
Trustee hereunder, and the liability of the Guarantors hereunder, shall not be
affected by any and all releases for any purpose of any collateral, if any, from
the Liens and security interests created by any collateral document and that
this Guarantee shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Indenture Obligations is rescinded
or must otherwise be returned by the Trustee upon the insolvency, bankruptcy or
reorganization of the Issuers or otherwise, all as though such payment had not
been made.
Section 1410. No Bar to Further Actions.
Except as provided by law, no action or proceeding brought or
instituted under Article Fourteen and this Guarantee and no recovery or judgment
in pursuance thereof shall be a bar or defense to any further action or
proceeding which may be brought under Article Fourteen and this Guarantee by
reason of any further default or defaults under Article Fourteen and this
Guarantee or in the payment of any of the Indenture Obligations owing by the
Issuers.
Section 1411. Failure to Exercise Rights Shall Not Operate as a Waiver;
No Suspension of Remedies.
(a) No failure to exercise and no delay in exercising, on the
part of the Trustee or the Holders, any right, power, privilege or remedy under
this Article Fourteen and this Guarantee shall operate as a waiver thereof, nor
shall any single or partial exercise of any rights, power, privilege or remedy
preclude any other or further exercise thereof, or the exercise of any other
rights, powers, privileges or remedies. The rights and remedies herein provided
for are cumulative and not exclusive of any rights or remedies provided in law
or equity.
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(b) Nothing contained in this Article Fourteen shall limit the
right of the Trustee or the Holders to take any action to accelerate the
maturity of the Securities pursuant to Article Five or to pursue any rights or
remedies hereunder or under applicable law.
Section 1412. Trustee's Duties; Notice to Trustee.
(a) Any provision in this Article Fourteen or elsewhere in
this Indenture allowing the Trustee to request any information or to take any
action authorized by, or on behalf of any Guarantor, shall be permissive and
shall not be obligatory on the Trustee except as the Holders may direct in
accordance with the provisions of this Indenture or where the failure of the
Trustee to request any such information or to take any such action arises from
the Trustee's negligence, bad faith or willful misconduct.
(b) The Trustee shall not be required to inquire into the
existence, powers or capacities of the Company, Finance Corp., any Guarantor or
the officers, directors or agents acting or purporting to act on their
respective behalf.
Section 1413. Successors and Assigns.
All terms, agreements and conditions of this Article Fourteen
shall extend to and be binding upon each Guarantor and its successors and
permitted assigns and shall inure to the benefit of and may be enforced by the
Trustee and its successors and assigns; provided, however, that the Guarantors
may not assign any of their rights or obligations hereunder other than in
accordance with Article Eight.
Section 1414. Release of Guarantee.
Concurrently with the payment in full of all of the Indenture
Obligations, the Guarantors shall be released from and relieved of their
obligations under this Article Fourteen. Upon the delivery by the Issuers to the
Trustee of an Officers' Certificate and, if requested by the Trustee, an Opinion
of Counsel to the effect that the transaction giving rise to the release of this
Guarantee was made by the Issuers in accordance with the provisions of this
Indenture and the Securities, the Trustee shall execute any documents reasonably
required in order to evidence the release of the Guarantors from their
obligations under this Guarantee. If any of the Indenture Obligations are
revived and reinstated after the termination of this Guarantee, then all of the
obligations of the Guarantors under this Guarantee shall be revived and
reinstated as if this Guarantee had not been terminated until such time as the
Indenture Obligations are paid in full, and each
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Guarantor shall enter into an amendment to this Guarantee, reasonably
satisfactory to the Trustee, evidencing such revival and reinstatement.
This Guarantee shall terminate with respect to each Guarantor
and shall be automatically and unconditionally released and discharged as
provided in Section 1015(c).
Section 1415. Execution of Guarantee.
(a) To evidence the Guarantee, each Guarantor hereby agrees to
execute the guarantee substantially in the form set forth in Section 204, to be
endorsed on each Security authenticated and delivered by the Trustee and that
this Indenture shall be executed on behalf of each Guarantor by its Chairman of
the Board, its President, its Chief Executive Officer, Chief Operating Officer
or one of its Vice Presidents, attested by its President, its Secretary or one
of its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.
(b) Any person that was not a Guarantor on the date of this
Indenture may become a Guarantor by executing and delivering to the Trustee (i)
a supplemental indenture in form and substance satisfactory to the Trustee,
which subjects such person to the provisions (including the representations and
warranties) of this Indenture as a Guarantor, (ii) in the event that as of the
date of such supplemental indenture any Registrable Securities are outstanding,
an instrument in form and substance satisfactory to the Trustee which subjects
such person to the provisions of the Registration Rights Agreement with respect
to such outstanding Registrable Securities, and (iii) an Opinion of Counsel to
the effect that such supplemental indenture has been duly authorized and
executed by such person and constitutes the legal, valid and binding obligation
of such person (subject to such customary assumptions and exceptions as may be
acceptable to the Trustee in its reasonable discretion).
(c) If an officer whose signature is on this Indenture no
longer holds that office at the time the Trustee authenticates a Security on
which this Guarantee is endorsed, such Guarantee shall be valid nevertheless.
Section 1416. Guarantee Subordinate to Guarantor Senior Indebtedness.
Each Guarantor covenants and agrees, and each Holder of a
Guarantee, by his acceptance thereof, likewise covenants and agrees, that, to
the extent and in the manner hereinafter set forth in this Article, the
Indebtedness represented by the Guarantees is hereby expressly made subordinate
and subject in right of payment as provided in this Article to the prior payment
in full of all Guarantor Senior Indebtedness; provided, however, that the
Indebtedness represented by this Guarantee in all respects
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shall rank equally with, or prior to, all existing and future Indebtedness of
such Guarantor that is expressly subordinated to such Guarantor's Guarantor
Senior Indebtedness.
This Article Fourteen shall constitute a continuing offer to
all Persons who, in reliance upon such provisions, become holders of, or
continue to hold Guarantor Senior Indebtedness; and such provisions are made for
the benefit of the holders of Guarantor Senior Indebtedness; and such holders
are made obligees hereunder and they or each of them may enforce such
provisions.
Section 1417. Payment Over of Proceeds Upon Dissolution of the
Guarantor, etc.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding, relative to any Guarantor or to its assets, or (b) any
liquidation, dissolution or other winding up of any Guarantor, whether voluntary
or involuntary, or (c) any assignment for the benefit of creditors or any other
marshaling of assets or liabilities of any Guarantor, then and in any such
event:
(1) the holders of Guarantor Senior Indebtedness shall be
entitled to receive payment in full of all amounts due on or in respect of all
Guarantor Senior Indebtedness before the Holders of the Securities are entitled
to receive any payment or distribution of any kind or character (excluding
securities of any Guarantor or any other corporation that are equity securities
or are subordinated in right of payment to all Guarantor Senior Indebtedness,
that may be outstanding, to substantially the same extent as, or to a greater
extent than, the Guarantees are so subordinated as provided in this Article
("Permitted Guarantor Junior Securities")) on account of the Guarantee of such
Guarantor (other than amounts previously set aside with the Trustee, or payments
previously made, in either case, pursuant to the provisions of Sections 402 and
403 of this Indenture); and
(2) any payment or distribution of assets of any Guarantor of
any kind or character, whether in cash, property or securities (excluding
Permitted Guarantor Junior Securities), by set-off or otherwise, to which the
Holders or the Trustee would be entitled but for the provisions of this Article
shall be paid by the liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Guarantor Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Guarantor Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Guarantor Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full of all Guarantor Senior
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Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Guarantor Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the Holder of any Security shall have
received any payment or distribution of assets of any Guarantor of any kind or
character, whether in cash, property or securities (excluding Permitted
Guarantor Junior Securities), in respect the Guarantee of such Guarantor before
all Guarantor Senior Indebtedness is paid in full, then and in such event such
payment or distribution (excluding Permitted Guarantor Junior Securities) shall
be paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payments
or distributions of assets of such Guarantor for application to the payment of
all Guarantor Senior Indebtedness remaining unpaid, to the extent necessary to
pay all Guarantor Senior Indebtedness in full after giving effect to any
concurrent payment or distribution to or for the holders of Guarantor Senior
Indebtedness.
The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another Person or the liquidation or dissolution of any
Guarantor following the sale, assignment, conveyance, transfer, lease or other
disposal of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or marshaling of assets and liabilities of such
Guarantor for the purposes of this Section if the Person formed by such
consolidation or the surviving entity of such merger or the Person which
acquires by sale, assignment, conveyance, transfer, lease or other disposal of
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposal, comply with the conditions set forth in
Article Eight.
Section 1418. Default on Guarantor Senior Indebtedness.
(a) Upon the maturity of any Guarantor Senior Indebtedness by
lapse of time, acceleration or otherwise, all principal thereof and interest
thereon and other amounts due in connection therewith shall first be paid in
full or such payment duly provided for before any payment is made by any of the
Guarantors or any Person acting on behalf of any of the Guarantors in respect of
the Guarantee of such Guarantor.
(b) No payment or distribution of any assets of the Guarantor
of any kind or character (excluding payments or distributions in the form of
Permitted Guarantor Junior Securities) shall be made by any Guarantor in respect
of its Guarantee during the period in which Section 1417 shall be applicable,
during any suspension of payments in
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effect under Section 1303(a) of this Indenture or during any Payment Blockage
Period in effect under Sections 1303(b) and (c) of this Indenture.
(c) In the event that, notwithstanding the foregoing, any
Guarantor shall make any payment to the Trustee or the Holder of its Guarantee
prohibited by the foregoing provisions of this Section, then and in such event
such payment shall be paid over and delivered forthwith to the representatives
of the holders of the Guarantor Senior Indebtedness or as a court of competent
jurisdiction shall direct.
Section 1419. Payment Permitted by Each of the Guarantors if No
Default.
Nothing contained in this Article, elsewhere in this Indenture
or in any of the Securities shall prevent any Guarantor, at any time except
during the pendency of any case, proceeding, dissolution, liquidation or other
winding-up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of such Guarantor referred to in Section 1417 or under
the conditions described in Section 1418, from making payments at any time of
principal of, premium, if any, or interest on the Securities.
Section 1420. Subrogation to Rights of Holders of Guarantor Senior
Indebtedness.
After the payment in full of all Guarantor Senior
Indebtedness, the Holders of the Securities shall be subrogated to the rights of
the holders of such Guarantor Senior Indebtedness to receive payments and
distributions of cash, property and securities applicable to the Guarantor
Senior Indebtedness until the principal of, premium, if any, and interest on,
the Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of Guarantor Senior Indebtedness of any
cash, property or securities to which the Holders of the Securities or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Guarantor Senior Indebtedness by Holders of the Securities or the Trustee,
shall, as among any Guarantor, its creditors other than holders of Guarantor
Senior Indebtedness, and the Holders of the Securities, be deemed to be a
payment or distribution by such Guarantor to or on account of the Guarantor
Senior Indebtedness.
Section 1421. Provisions Solely to Define Relative Rights.
The provisions of Sections 1416 through 1429 of this Indenture
are intended solely for the purpose of defining the relative rights of the
Holders of the Securities on the one hand and the holders of Guarantor Senior
Indebtedness on the other hand. Nothing contained in this Article or elsewhere
in this Indenture or in the Securities is intended to or shall (a) impair, as
among any Guarantor, its creditors other than holders of Guarantor Senior
Indebtedness and the Holders of the Securities, the obligation such
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Guarantor, which is absolute and unconditional, to pay to the Holders of the
Securities the principal of, premium, if any, and interest on, the Securities as
and when the same shall become due and payable in accordance with their terms;
or (b) affect the relative rights against each of the Guarantors of the Holders
of the Securities and creditors of each of the Guarantors other than the holders
of Guarantor Senior Indebtedness; or (c) prevent the Trustee or the Holder of
any Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article of the holders of Guarantor Senior Indebtedness (1) in any case,
proceeding, dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets and liabilities of the
Guarantors referred to in Section 1417, to receive, pursuant to and in
accordance with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2) under the conditions specified
in Section 1418, to prevent any payment prohibited by such Section or enforce
their rights pursuant to Section 1418(c).
Section 1422. Trustee to Effectuate Subordination.
Each Holder of a Security by such Holder's acceptance thereof
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Trustee such Holder's attorney-in-fact for any and
all such purposes, including, in the event of any dissolution, winding-up,
liquidation or reorganization of any Guarantor whether in bankruptcy,
insolvency, receivership proceedings, or otherwise, the timely filing of a claim
for the unpaid balance of the indebtedness of any Guarantor owing to such Holder
in the form required in such proceedings and the causing of such claim to be
approved.
Section 1423. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Guarantor
Senior Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of any Guarantor or by any act or failure to act, in good faith, by any
such holder, or by any non-compliance by any Guarantor with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section, the holders of Guarantor Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in this
Article or the obligations hereunder of the Holders of the Securities to the
holders of Guarantor Senior Indebtedness, do any one or more of the
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following: (1) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Guarantor Senior Indebtedness or any
instrument evidencing the same or any agreement under which Guarantor Senior
Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (3) release any Person liable in any manner for the collection or
payment of Guarantor Senior Indebtedness; and (4) exercise or refrain from
exercising any rights against any of the Guarantors and any other Person;
provided, however, that in no event shall any such actions limit the right of
the Holders of the Securities to take any action to accelerate the maturity of
the Securities pursuant to Article Five of this Indenture or to pursue any
rights or remedies hereunder or under applicable laws if the taking of such
action does not otherwise violate the terms of this Article.
Section 1424. Notice to Trustee by Each of the Guarantors.
(a) Each Guarantor shall give prompt written notice to the
Trustee of any fact known to such Guarantor which would prohibit the making of
any payment to or by the Trustee in respect of the Guarantee. Notwithstanding
the provisions of this Article or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from any Guarantor or a holder of Guarantor Senior Indebtedness or any
trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall not have received
the notice provided for in this Section by Noon, Eastern Time, on the Business
Day prior to the date upon which by the terms hereof any money may become
payable for any purpose (including, without limitation, the payment of the
principal of, premium, if any, or interest on any Security), then, anything
herein contained to the contrary notwithstanding but without limiting the rights
and remedies of the holders of Guarantor Senior Indebtedness or any trustee,
fiduciary or agent thereof, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it after such date; nor shall the Trustee be charged with knowledge
of the curing of any such default or the elimination of the act or condition
preventing any such payment unless and until the Trustee shall have received an
Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to
it of a written notice to the Trustee and each Guarantor by a Person which
represents itself as a representative of one or more holders of Guarantor Senior
or a holder of Guarantor Senior Indebtedness (or a trustee, fiduciary or agent
therefor) to establish that such notice has been given by a representative of or
a holder of Guarantor Senior Indebtedness (or a
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trustee, fiduciary or agent therefor); provided, however, that failure to give
such notice to the Company, Finance Corp. or any Guarantor shall not affect in
any way the ability of the Trustee to rely on such notice. In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Guarantor Senior Indebtedness to
participate in any payment or distribution pursuant to this Article, the Trustee
may request such Person to furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Guarantor Senior Indebtedness held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
Section 1425. Reliance on Judicial Orders or Certificates.
Upon any payment or distribution of assets of any Guarantor
referred to in this Article, the Trustee and the Holders of the Securities shall
be entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of Guarantor Senior
Indebtedness and other indebtedness of such Guarantor, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article, provided that the foregoing shall
apply only if such court has been fully apprised of the provisions of this
Article.
Section 1426. Rights of Trustee as a Holder of Guarantor Senior
Indebtedness; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article with respect to any Guarantor Senior
Indebtedness which may at any time be held by it, to the same extent as any
other holder of Guarantor Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder. Nothing in this
Article shall apply to claims of, or payments to, the Trustee under or pursuant
to Section 607.
Section 1427. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Issuers and be then acting under this
Indenture, the term "Trustee" as
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used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; provided, however, that
Section 1426 shall not apply to the Issuers or any Affiliate of the Issuers if
it or such Affiliate acts as Paying Agent.
Section 1428. No Suspension of Remedies.
Nothing contained in this Article shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Five of this Indenture or to
pursue any rights or remedies hereunder or under applicable law, subject to the
rights, if any, under this Article of the holders, from time to time, of
Guarantor Senior Indebtedness to receive the cash, property or securities
receivable upon the exercise of such rights or remedies.
Section 1429. Trustee's Relation to Guarantor Senior Indebtedness.
With respect to the holders of Guarantor Senior Indebtedness,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Article against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness and the Trustee shall not be liable to any holder of Guarantor
Senior Indebtedness if it shall in good faith mistakenly (absent willful
misconduct) pay over or deliver to Holders, the Issuers or any other Person
moneys or assets to which any holder of Guarantor Senior Indebtedness shall be
entitled by virtue of this Article or otherwise.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
SLEEPMASTER L.L.C.
By: _____________________________
Name:
Title:
Attest: __________________________
Name:
Title:
SLEEPMASTER FINANCE CORPORATION
By: _____________________________
Name:
Title:
Attest: __________________________
Name:
Title:
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HERR MANUFACTURING COMPANY
PALM BEACH BEDDING COMPANY
LOWER ROAD ASSOCIATES, LLC
By:________________________________
Name:
Title:
Attest:____________________
Name:
Title:
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UNITED STATES TRUST COMPANY
OF NEW YORK
By: _____________________________
Name:
Title:
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<PAGE> 190
STATE OF ________________________ )
) ss.:
COUNTY OF _____________________ )
On the _____ day of May, 1999, before me personally came
__________________________, to me known, who, being by me duly sworn, did depose
and say that he resides at _________________________________________________;
that he is _________________________________ of Sleepmaster L.L.C., a New Jersey
limited liability company, Sleepmaster Finance Corp., a Delaware corporation,
Herr Manufacturing Company, a Pennsylvania corporation, Palm Beach Bedding
Company, a Florida corporation and Lower Road Associates, LLC, a New Jersey
limited liability company, each of which is a corporation or limited liability
company, as the case may be, described in and which executed the foregoing
instrument; and that he signed his name thereto pursuant to authority of the
Board of Directors of each of such corporations.
(NOTARIAL SEAL)
___________________________________
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STATE OF ________________________ )
) ss.:
COUNTY OF _____________________ )
On the _____ day of ______, 1999, before me personally came
________________________________, to me known, who, being by me duly sworn, did
depose and say that he resides at ___________________________________________;
that he is _______________________________ of United States Trust Company of New
York, a corporation described in and which executed the foregoing instrument;
and that he signed his name thereto pursuant to authority of the Board of
Directors of such corporation.
(NOTARIAL SEAL)
___________________________________
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ANNEX A
INTERCOMPANY NOTE
_________________ , 19______
Evidences of all loans or advances ("Loans") made hereunder
shall be reflected on the grid attached hereto. FOR VALUE RECEIVED, ________, a
________ corporation (the "Maker"), HEREBY PROMISES TO PAY ON DEMAND to the
order of ________ (the "Holder") the principal sum of the aggregate unpaid
principal amount of all Loans (plus accrued interest thereon) at any time and
from time to time made hereunder which has not been previously paid.
All capitalized terms used herein that are defined in, or by
reference in, the Indenture among Sleepmaster L.L.C., a New Jersey limited
liability company (the "Company"), Sleepmaster Finance Corporation, a Delaware
corporation ("Finance Corp." and, together with the Company, the "Issuers"),
Herr Manufacturing Company, a Pennsylvania corporation, Palm Beach Bedding
Company, a Florida corporation and Lower Road Associates, LLC, a New Jersey
limited liability company, and United States Trust Company of New York, as
trustee, dated as of May ___, 1999 (the "Indenture"), have the meanings assigned
to such terms therein, or by reference therein, unless otherwise defined.
ARTICLE I
TERMS OF INTERCOMPANY NOTE
Section 1.01 Note Not Forgivable. Unless the Maker of the Loan
hereunder is the Company, Finance Corp. or any Guarantor, the Holder may not
forgive any amounts owing under this intercompany note.
Section 1.02 Interest: Prepayment. (a) The interest rate
("Interest Rate") on the Loans shall be a rate per annum reflected on the grid
attached hereto.
(b) The interest, if any, payable on each of the Loans shall
accrue from the date such Loan is made and, subject to Section 2.01, shall be
payable upon demand of the Holder.
(c) To the extent permitted by law, if the principal or
accrued interest, if any, of the Loans is not paid on the date demand is made,
interest on the unpaid principal
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<PAGE> 193
and interest will accrue at a rate equal to the Interest Rate, if any, plus 100
basis points per annum from maturity until the principal and interest on such
Loans are fully paid.
(d) Subject to Section 2.01, any amounts hereunder may be
repaid at any time by the Maker.
Section 1.02 Subordination. Subject to Section 2.01, all Loans
hereunder shall be subordinated in right of payment to the payment and
performance of the obligations of the Company, Finance Corp. and any Subsidiary
(which Subsidiary is also an obligor under the Indenture, the Securities, a
Guarantee or other Senior Indebtedness or Pari Passu Indebtedness, as the case
may be, whether as a borrower or guarantor) under the Indenture, the Securities,
the Guarantees or any other Indebtedness ranking senior to or pari passu with
the Securities.
ARTICLE II
EVENTS OF DEFAULT
Section 2.01 Events of Default. If after the date of issuance
of this Loan (i) an Event of Default has occurred under the Indenture, (ii) an
Event of Default (as defined) has occurred under the Credit Facility or (iii) an
"event of default" (as defined) has occurred under any other Indebtedness of the
Company, Finance Corp. or any Subsidiary, then (x) in the event the Maker is (A)
a Subsidiary which is not a Guarantor or (B) a Guarantor in the case where the
Holder is the Company or Finance Corp., all amounts owing under the Loans
hereunder shall be immediately due and payable to the Holder, (y) in the event
the Maker is the Company or Finance Corp., the amounts owing under the Loans
hereunder shall not be due and payable at any time and shall not be paid and (z)
in the event the Maker is a Guarantor and the Holder is not the Company, Finance
Corp. or any Guarantor, the amounts owing under the Loans hereunder shall not be
due and payable at any time and shall not be paid; provided, however, that if
such Event of Default or event of default has been waived, cured or rescinded,
such amounts shall no longer be due and payable in the case of clause (x), and
such amounts may be paid in the case of clauses (y) and (z). If the Holder is a
Subsidiary, then the Holder hereby agrees that if it receives any payments or
distributions on any Loan from the Company, Finance Corp. or a Guarantor which
is not payable pursuant to clause (y) or (z) of the prior sentence after any
Event of Default described in clauses (i) or (ii) or any event of default
described in clause (iii) above has occurred, is continuing and has not been
waived, cured or rescinded, it will pay over and deliver forthwith to the
Company, Finance Corp. or such Guarantor, as the case may be, all such payments
and distributions.
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<PAGE> 194
ARTICLE III
MISCELLANEOUS
Section 3.01 Amendments, Etc. No amendment or waiver of any
provision of this intercompany note, or consent to depart herefrom is permitted
at any time for any reason, except with the consent of the Holders of not less
than a majority in aggregate principal amount of the Outstanding Securities.
Section 3.02 Assignment. No party to this Agreement may
assign, in whole or in part, any of its rights and obligations under this
intercompany note, except to its legal successor in interest.
Section 3.03 Third Party Beneficiaries. The holders of the
Securities or any other Indebtedness ranking pari passu with or senior to, the
Securities or any Guarantees, including without limitation, any Indebtedness
incurred under the Credit Facility, shall be third party beneficiaries to this
intercompany note and upon an Event of Default shall have the right to enforce
this intercompany note against the Company, Finance Corp. or any of the
Company's Subsidiaries.
Section 3.04 Headings. Article and Section headings in this
intercompany note are included for convenience of reference only and shall not
constitute a part of this intercompany note for any other purpose.
Section 3.05 Entire Agreement. This intercompany note sets
forth the entire agreement of the parties with respect to its subject matter and
supersedes all previous understandings, written or oral, in respect thereof.
Section 3.06 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).
Section 3.07 Waivers. The Maker hereby waives presentment,
demand for payment, notice of protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement hereof.
By:________________________________
-3-
<PAGE> 195
BORROWINGS, MATURITIES, AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Maturity of Amount
Borrowing/ Borrowing/ Interest Principal Paid Unpaid Principal Notation
Date Principal Principal Rate or Prepaid Balance Made by
- ---- --------- --------- ---- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
-4-
<PAGE> 196
SCHEDULE I
Individuals/Entities holding the Sleep Investor Promissory Notes
Charles Schweitzer
James Koscica
Timothy Dupont
Michael Reilly
Douglas A. Brown
Douglas A. Brown VIP Plus Profit Sharing Plan
Donald S. Brown
John S. Coates
Harold M. Wit
Allen Investments II, L.L.C.
Karl Dillon
Jessand Corp. Profit Sharing Plan and Trust
Alan Gelband
Panorama Holdings, L.L.C.
Arnold Gussoff
Holding Capital Management Corp.
Steven Leischner
William Colaianni
Jo Levinson 1989 Trust
John M. McMahon
Kaplan, Coate Special Situations L.P.
Robert W. Plaster
Bennett Rosenthal
Dhiren Shah
WKM Partners.
-1-
<PAGE> 197
EXHIBIT A
REGULATION S CERTIFICATE
(For transfers pursuant to Section 307(a)(i) of the Indenture)
United States Trust Company of New York
Corporate Trust Department, 25th Floor
114 West 47th Street
New York, New York 10036
Re: 11% Senior Subordinated Notes due 2009 of Sleepmaster L.L.C.
and Sleepmaster Finance Corporation (the "Securities")
Reference is made to the Indenture, dated as of May 18, 1999 (the
"Indenture"), among Sleepmaster L.L.C., a New Jersey limited liability company
(the "Company"), Sleepmaster Finance Corporation, a Delaware corporation
("Finance Corp." and, together with the Company, the "Issuers"), Herr
Manufacturing Company, a Pennsylvania corporation, Palm Beach Bedding Company, a
Florida corporation and Lower Road Associates, LLC, a New Jersey limited
liability company, and United States Trust Company of New York, as Trustee.
Terms used herein and defined in the Indenture or in Regulation S or Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to US$____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
The Specified Securities are represented by a Global Security and are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner.
-1-
<PAGE> 198
The Owner has requested that the Specified Securities be transferred to
a person (the "Transferee") who will take delivery in the form of a Regulation S
Global Security. In connection with such transfer, the Owner hereby certifies
that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 904 or Rule 144 under the Securities Act and with all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being
effected in accordance with Rule 904:
(A) the Owner is not a distributor of the
Securities, an affiliate of the Issuers or any such
distributor or a person acting on behalf of any of
the foregoing;
(B) the offer of the Specified Securities
was not made to a person in the United States;
(C) either:
(i) at the time the buy order was
originated, the Transferee was outside the
United States or the Owner and any person
acting on its behalf reasonably believed
that the Transferee was outside the United
States, or
(ii) the transaction is being executed
in, on or through the facilities of the
Eurobond market, as regulated by the
Association of International Bond Dealers,
or another designated offshore securities
market and neither the Owner nor any person
acting on its behalf knows that the
transaction has been prearranged with a
buyer in the United States;
(D) no directed selling efforts have been
made in the United States by or on behalf of the
Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities
or has received a selling concession, fee or other
remuneration in respect of the Specified Securities,
and the transfer is to occur during the Restricted
Period, then the requirements of Rule 904(c)(1) have
been satisfied; and
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<PAGE> 199
(F) the transaction is not part of a plan or
scheme to evade the registration requirements of the
Securities Act.
(2) Rule 144 Transfers. If the transfer is being
effected pursuant to Rule 144:
(A) the transfer is occurring after a
holding period of at least one year (computed in
accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last
acquired from the Issuers or from an affiliate of the
Issuers, whichever is later, and is being effected in
accordance with the applicable amount, manner of sale
and notice requirements of Rule 144; or
(B) the transfer is occurring after a
holding period of at least two years has elapsed
since the Specified Securities were last acquired
from the Issuers or from an affiliate of the Issuers,
whichever is later, and the Owner is not, and during
the preceding three months has not been, an affiliate
of the Issuers.
-3-
<PAGE> 200
This certificate and the statements contained herein are made
for your benefit and the benefit of the Issuers and the Initial Purchasers.
Dated:
(Print the name of the
Undersigned, as such term
is defined in the second
paragraph of this
certificate.)
By:_______________________
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the
person signing on behalf of
the Undersigned must be
stated.)
-4-
<PAGE> 201
EXHIBIT B
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 307(a)(ii) of the Indenture)
United States Trust Company of New York
Corporate Trust Department, 25th Floor
114 West 47th Street
New York, New York 10036
Re: 11% Senior Subordinated Notes due 2009 of Sleepmaster L.L.C.
and Sleepmaster Finance Corporation (the "Securities")
Reference is made to the Indenture, dated as of May 18, 1999 (the
"Indenture"), among Sleepmaster L.L.C., a New Jersey limited liability company
(the "Company"), Sleepmaster Finance Corporation, a Delaware corporation
("Finance Corp." and, together with the Company, the "Issuers"), Herr
Manufacturing Company, a Pennsylvania corporation, Palm Beach Bedding Company, a
Florida corporation and Lower Road Associates, LLC, a New Jersey limited
liability company, and United States Trust Company of New York, as Trustee.
Terms used herein and defined in the Indenture or in Rule 144A or Rule 144 under
the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined.
This certificate relates to US$_____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
ISIN No(s). If any. ____________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
The Specified Securities are represented by a Global Security and are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person
- 1 -
<PAGE> 202
(the "Transferee") who will take delivery in the form of a Restricted
Security. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an effective registration
statement under the Securities Act, it is being effected in accordance with Rule
144A or Rule 144 under the Securities Act and all applicable securities laws of
the states of the United States and other jurisdictions. Accordingly, the Owner
hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a
person that the Owner and any person acting on its behalf
reasonably believe is a "qualified institutional buyer" within
the meaning of Rule 144A, acquiring for its own account or for
the account of a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf have
taken reasonable steps to ensure that the Transferee is aware
that the Owner may be relying on Rule 144A in connection with
the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected
pursuant to Rule 144:
(A) the transfer is occurring after a holding period of
at least one year (computed in accordance with paragraph (d)
of Rule 144) has elapsed since the Specified Securities were
last acquired from the Issuers or from an affiliate of the
Issuers, whichever is later, and is being effected in
accordance with the applicable amount, manner of sale and
notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of
at least two years has elapsed since the Specified Securities
were last acquired from the Issuers or from an affiliate of
the Issuers, whichever is later, and the Owner is not, and
during the preceding three months has not been, an affiliate
of the Issuers.
- 2 -
<PAGE> 203
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers and the Initial Purchasers.
Dated:
(Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:_______________________________________
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of the
person signing on behalf of the Undersigned
must be stated.)
- 3 -
<PAGE> 204
EXHIBIT C
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to Section 307(b))
United States Trust Company of New York
Corporate Trust Department, 25th Floor
114 West 47th Street
New York, New York 10036
Re: 11% Senior Subordinated Notes due 2009 of Sleepmaster L.L.C.
and Sleepmaster Finance Corporation (the "Securities")
Reference is made to the Indenture, dated as of May 18, 1999 (the
"Indenture"), among Sleepmaster L.L.C., a New Jersey limited liability company
(the "Company"), Sleepmaster Finance Corporation, a Delaware corporation
("Finance Corp." and, together with the Company, the "Issuers"), Herr
Manufacturing Company, a Pennsylvania corporation, Palm Beach Bedding Company, a
Florida corporation and Lower Road Associates, LLC, a New Jersey limited
liability company, and United States Trust Company of New York, as Trustee.
Terms used herein and defined in the Indenture or in Rule 144 under the U.S.
Securities Act of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to US$_____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities
- 1 -
<PAGE> 205
bearing no Private Placement Legend pursuant to Section 307(b) of the Indenture.
In connection with such exchange, the Owner hereby certifies that the exchange
is occurring after a holding period of at least two years (computed in
accordance with paragraph (d) of Rule 144) has elapsed since the Specified
Securities were last acquired from the Issuers or from an affiliate of the
Issuers, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Issuers. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers and the Initial Purchasers.
Dated:
(Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:_______________________________________
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of the
person signing on behalf of the Undersigned
must be stated.)
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<PAGE> 206
APPENDIX I
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -----------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- -------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
- -------------------------------------------------------------------------------
attorney to transfer such Security on the books of the Issuers with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES FOR SERIES A SECURITIES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Security occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
__________, 2001, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
--
[ ] (b) this Security is being transferred other than in accordance
with (a) above and documents are being furnished which comply with
the conditions of transfer set forth in this Security and the
Indenture.
- 1 -
<PAGE> 207
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 307 of the Indenture
shall have been satisfied.
Date: _______________________
---------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written upon
the face of the within-mentioned instrument in
every
particular, without alteration or any change
whatsoever.
Signature Guarantee: _____________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Issuers as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:__________________ _________________________________________
NOTICE: To be executed by an authorized signatory
- 2 -
<PAGE> 208
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
Please insert social security or other identifying number of assignee
________________________________________________________________________________
________________________________________________________________________________
Print or type name, address and zip code of assignee and irrevocably
appoint_________________________________________________________________________
[Agent], to transfer this Security on the books of the Issuers. The Agent
may substitute another to act for him.
Dated ____________________ Signed____________________________________
(Sign exactly as name appears on the other side of this Security)
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17 Ad-15]
- 1 -
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF KIRKLAND & ELLIS]
To Call Writer Direct:
212 446-4800
June 30, 1999
Sleepmaster L.L.C.
Sleepmaster Finance Corporation
2001 Lower Rd.
Linden, NJ 07036
Re: Series B 11% Senior Subordinated Notes due 2009
Ladies and Gentlemen:
We are acting as special counsel to Sleepmaster L.L.C., a New Jersey
limited liability company ("Sleepmaster") and Sleepmaster Finance Corporation, a
Delaware corporation ("Finance Corporation") (the "Companies"), and the
Subsidiary Guarantors (together with the Companies, the "Registrants") in
connection with the proposed registration by the Companies of up to $115,000,000
in aggregate principal amount of the Companies' Series B 11% Senior Subordinated
Notes due 2009 (the "Exchange Notes"), pursuant to a Registration Statement on
Form S-4 filed with the Securities and Exchange Commission (the "Commission") on
1999 under the Securities Act of 1933, as amended (the "Securities Act") (such
Registration Statement, as amended or supplemented, is hereinafter referred to
as the "Registration Statement"), for the purpose of effecting an exchange offer
(the "Exchange Offer") for the Companies' 11% Senior Subordinated Notes due 2009
(the "Old Notes"). The Exchange Notes are to be issued pursuant to the Indenture
(the "Indenture"), dated as of May 18, 1999, among the Registrants and United
States Trust Company of New York, as Trustee, in exchange for and in replacement
of the Companies' outstanding Old Notes, of which $115,000,000 in aggregate
principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of each of the
Registrants, (ii) minutes and records of the corporate proceedings of each of
the
<PAGE> 2
Sleepmaster L.L.C.
Sleepmaster Finance Corporation
, 1999
Page 2
Registrants with respect to the issuance of the Exchange Notes, (iii) the
Registration Statement and exhibits thereto and (iv) the Exchange and
Registration Rights Agreement, dated as of May 18, 1999, among the Registrants,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and First Union Capital
Markets Corp.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Registrants, and the due authorization, execution
and delivery of all documents by the parties thereto other than the Registrants.
As to any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Registrants and
others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) Sleepmaster is a limited liability company existing and in good
standing under the laws of the state of New Jersey.
(2) Finance Corporation is a corporation existing and in good standing
under the laws of the state of Delaware.
(3) The sale and issuance of the Exchange Notes has been validly
authorized by each of the Companies.
(4) When the Exchange Notes are issued pursuant to the Exchange
Offer, the Exchange Notes will constitute valid and binding obligations of
the Registrants and the Indenture will be enforceable in accordance with its
terms.
<PAGE> 3
Sleepmaster L.L.C.
Sleepmaster Finance Corporation
, 1999
Page 3
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
(iii) except for purposes of the opinion in paragraph 1, any laws except the
laws of the State of New York.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York be changed by legislative action, judicial
decision or otherwise.
<PAGE> 4
Sleepmaster L.L.C.
Sleepmaster Finance Corporation
, 1999
Page 4
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
KIRKLAND & ELLIS
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF KIRKLAND & ELLIS]
June 30, 1999
To Call Writer Direct:
212 446-4800
Sleepmaster L.L.C.
Sleepmaster Finance Corporation
2001 Lower Rd.
Linden, NJ 07036
Re: Offer for all outstanding 11% Senior Subordinated Notes due 2009 in
exchange for 11% Series B Senior Subordinated Notes due 2009 of
Sleepmaster L.L.C. and Sleepmaster Finance Corporation
Ladies and Gentlemen:
We have acted as counsel to Sleepmaster L.L.C. and Sleepmaster Finance
Corporation (the "Companies") in connection with the proposed offer (the
"Exchange Offer") to exchange an aggregate principal amount of up to
$115,000,000 of its 11% Series B Senior Subordinated Notes due 2009 (the "New
Notes") for a like principal amount of its 11% Senior Subordinated Notes due
2009 (the "Old Notes").
You have requested our opinion as to certain United States federal income
tax consequences of the Exchange Offer. In preparing our opinion, we have
reviewed and relied upon the Company's Registration Statement on Form S-4,
filed with the Securities and Exchange Commission on June 30, 1999 (the
"Registration Statement"), and such other documents as we deemed necessary.
On the basis of the foregoing, it is our opinion that the exchange of the
Old Notes for the exchange notes pursuant to the Exchange Offer will not be
treated as an "exchange" for United States federal income tax purposes.
The opinion set forth above is based upon the applicable provisions of the
Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated
or proposed thereunder, current positions of the Internal Revenue Service (the
"IRS") contained in published revenue rulings, revenue procedures, and
announcements, existing judicial decisions and other applicable authorities. No
tax ruling has been sought from the IRS with respect to any of the matters
discussed herein. Unlike a ruling from the IRS, an opinion of counsel is not
binding on the IRS. Hence, no assurance can be given that the opinion stated in
this letter will not be successfully challenged by the IRS or by a court. We
express no opinion concerning any tax consequences of the Exchange Offer except
as expressly set forth above.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Certain Federal Income Tax Consequences." In giving this consent, we do
not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
Kirkland & Ellis
<PAGE> 1
EXHIBIT 9.1
EXECUTION COPY
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
This AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT is dated
as of March __, 1998, by and among Sleepmaster Holdings L.L.C., a New Jersey
limited liability company (the "Company"), Sleep Investor L.L.C., a Delaware
limited liability company (the "Investor"), PMI Mezzanine Fund, L.P., a Delaware
limited partnership ("PMI"), Charles Schweitzer ("Schweitzer"), James P. Koscica
("Koscica"), Michael Reilly ("Reilly"), Timothy DuPont ("DuPont"), Michael Bubis
("Bubis"), Richard Tauber ("Tauber"), Douglas Phillips ("Phillips") and any
employees of the Company or its Subsidiaries acquiring Common Interests (as
defined below) from the Company after the date hereof and executing a joinder
hereto in the form attached hereto as Exhibit A (collectively, with Schweitzer,
Koscica, Reilly, DuPont, Bubis, Tauber and Phillips, the "Executives", and
individually, an "Executive"). The Investor, PMI and each of the Executives, and
their respective Permitted Transferees (as defined in Section 4(c)) are
collectively referred to as the "Securityholders" and individually as a
"Securityholder".
The original Securityholders Agreement (the "Original
Agreement") was entered into among the Company, the Investor and certain of the
Executives as of November 14, 1996.
The Executives hold units of the Company's Class A Common
Interests (the "Class A Common"), and the Investor holds units of the Class A
Common and units of the Company's Class B Common Interests (the "Class B
Common"). The Company has issued warrants to purchase units of Class A Common
pursuant to the Common Interest Purchase Warrants, (originally issued as of
November 14, 1996 and amended and restated as of the date hereof, the "1996
Warrant Agreement"), and the Company is issuing additional warrants to purchase
units of Class A common pursuant to Common Interest Purchase Warrants dated as
of the date hereof, executed by the Company in favor of PMI (the "New Warrant
Agreement," and together with the 1996 Warrant Agreement, the "Warrant
Agreements").
The Company and the Securityholders desire to enter into this
Agreement for the purposes, among others, of (i) modifying the composition of
the Board (as defined below), (ii) assuring continuity in the management and
ownership of the Company and (iii) limiting the manner and terms by which the
Securityholder Interests (as defined below) may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Definitions. As used herein, the following terms shall have
the following meanings:
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common
<PAGE> 2
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
"Approved Sale" means the sale of the Company, in a single
transaction or a series of related transactions, to a third party (which is not
an Affiliate of the Company or of the Approving Securityholders (as defined
below)) (a) pursuant to which such third party proposes to acquire a majority of
the outstanding Common Interests (whether by merger, consolidation,
recapitalization, reorganization, purchase of the outstanding Common Interests
or otherwise) or all or substantially all of the consolidated assets of the
Company or Sleepmaster, (b) which has been approved by the Board and the holders
of a majority of the Investor Interests (the "Approving Securityholders"), and
(c) pursuant to which all holders of Common Interests receive with respect
thereto (whether in such transaction or, with respect to an asset sale, upon a
subsequent liquidation) the same form and amount of consideration per share of
Common Interests or, if any holders are given an option as to the form and
amount of consideration to be received, all holders are given the same option
(provided, that any amounts paid under bona fide employment agreements,
consulting agreements or similar agreements for actual services to be rendered
shall not be counted as consideration for purposes of this clause (c)).
"Board" means the Company's board of advisors.
"Common Interests" means, collectively, the Class A Common,
the Class B Common, and any other class of securities of the Company which is
not limited to a fixed sum or percentage of par value or stated value in respect
of the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the issuer of such securities.
"Family Group" means, with respect to an individual
Securityholder, such Securityholder's spouse and descendants (whether natural or
adopted) and any trust solely for the benefit of such Securityholder and/or such
Securityholder's spouse, their respective ancestors and/or descendants (whether
natural or adopted).
"Investor Interests" means all Securityholder Interests issued
or issuable to the Investor and its Affiliates.
"Investor Securityholders Agreement" means the Sleep Investor
Securityholders Agreement dated as of November 14, 1996 by and among the
Investor, PMI, Citicorp Venture Capital, Ltd. and R. Guy Boyle.
"Operating Agreement" means the Second Amended and Restated
Limited Liability Company Operating Agreement of the Company, dated as of
November 14, 1996, as amended from time to time.
"Other Securityholders" means, with respect to a
Securityholder, all Securityholders other than such Securityholder.
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<PAGE> 3
"Ownership Ratio" means, as to a Securityholder at the time of
determination, the percentage obtained by dividing the number of units of Common
Interests held by such Securityholder on a fully-diluted basis at such time by
the aggregate number of units of Common Interests outstanding on a fully-diluted
basis at such time.
"PBBC" means Palm Beach Bedding Company, a Florida corporation
and wholly-owned indirect Subsidiary of the Company.
"PMI Interests" means all Securityholder Interests issued or
issuable to PMI or its Permitted Transferees.
"PMI Notes" means the 12% Senior Subordinated Notes issued by
Sleepmaster pursuant to the Securities Purchase Agreements.
"PMI Senior Indebtedness" means Indebtedness owed by
Sleepmaster pursuant to the Senior Lender Documents (as the terms "Indebtedness"
and "Senior Lender Documents" are defined in the Securities Purchase Agreement).
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Interests" means the Company's Series A Preferred
Interests, as adjusted for any unit split, unit dividend or other combination,
exchange, conversion, recapitalization, merger, consolidation or reorganization,
or if the Series A Preferred Interests are hereafter changed into or exchanged
for different interests or securities of the Company, such other interests or
securities, and any other Preferred Interests of the Company hereinafter issued.
"Public Sale" means any sale of Securityholder Interests to
the public pursuant to an offering registered under the Securities Act or to the
public effected through a broker, dealer or market maker pursuant to the
provisions of Rule 144 under the Securities Act.
"Qualified Public Offering" means any sale, in an underwritten
public offering registered under the Securities Act, of equity securities of the
Company having an aggregate value of at least $20 million.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Securities Purchase Agreements" means the Securities Purchase
Agreement, dated as of November 14, 1996 and amended and restated as of the date
hereof by and among the Company, Sleepmaster and PMI and the Securities Purchase
Agreement dated as of the date hereof, by and among the Company, Sleepmaster and
PMI, as each may be amended or supplemented from time to time.
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<PAGE> 4
"Securityholder Interests" means (i) any Common Interests
acquired prior to, on or after the date hereof by the Securityholders, including
without limitation any Common Interests issued upon exercise of the Warrants,
(ii) any Preferred Interests acquired on or after the date hereof by the
Securityholders, and (iii) any securities issued or issuable directly or
indirectly with respect to the securities referred to in clause (i) or clause
(ii) above by way of distribution or of a combination, exchange, conversion or
division of such securities or in connection with a recapitalization, merger,
consolidation or other reorganization. As to any particular units constituting
Securityholder Interests, such units will cease to be Securityholder Interests
when they have been sold in a Public Sale, an Approved Sale, or upon the
consummation of a Qualified Public Offering. For purposes of this Agreement, a
Person will be deemed to be a holder of Securityholder Interests whenever such
Person has the right to acquire directly or indirectly such Securityholder
Interests (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of 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 that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a partnership, limited liability company, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, limited liability company, association or
other business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director, manager or a general partner of such partnership,
association or other business entity.
"Transaction Documents" means the following documents, each
relating to the transactions contemplated by this Agreement and except as
otherwise stated, dated as of November 14, 1996: (i) this Agreement (dated as of
the date hereof), (ii) the Amended and Restated Registration Rights Agreement
(dated as of the date hereof), (iii) the Warrant Agreements (dated as of the
date hereof), (iv) the Recapitalization Agreement, (v) the Operating Agreement,
(vi) the Employment Agreements (by and among the Company, Sleepmaster and the
applicable Executive) (and with respect to Michael Bubis, dated as the date
hereof), (vii) the Option Agreements (by and between the Company and the
applicable Executive), (viii) the Junior Subordinated Notes issued by the
Company, (ix) the Junior Subordinated Notes issued by the Investor, (x) the
Subscription Agreement, (xi) the Investor Subscription Agreement, (xii) the
Securities Purchase Agreements (dated as of the date hereof), (xiii) the Amended
and Restated Secured Credit Agreement (dated as of the date hereof), (xiv) the
Investor Securityholders Agreement and (xv) the Limited Liability Company
Operating Agreement of the Investor.
"Unaffiliated Third Party" means any Person who, immediately
prior to the contemplated transaction, (i) is not a Person who owns in excess of
5% of the Common Interests on
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<PAGE> 5
a fully-diluted basis (a "5% Owner"), (ii) is not controlling, controlled by or
under common control with any such 5% Owner and (iii) is not the spouse or
descendent (by birth or adoption) of any such 5% Owner or a trust for the
benefit of such 5% Owner and/or such other Persons.
"Warrants" means the warrants to purchase units of Class A
Common pursuant to the Warrant Agreements.
2. Board of Advisors.
(a) Until the provisions of this Section 2 cease to be
effective, to the extent permitted by law, each Securityholder shall vote all
voting securities of the Company over which such Securityholder has voting
control, and shall take all other necessary or desirable actions within such
Securityholder's control (whether in such Securityholder's capacity as a
Securityholder, advisor, director, member of a board committee or officer of the
Company or otherwise, and including, without limitation, attendance at meetings
in Person or by proxy for purposes of obtaining a quorum and execution of
written consents in lieu of meetings), and the Company shall take all necessary
and desirable actions within its control (including, without limitation, calling
special board and Securityholder meetings), so that:
(i) subject to the following paragraph 2(a)(ii), the
authorized number of advisors on the Board shall be established at
seven and will be designated as follows:
(A) the Investor will designate four advisors (who shall
initially be Robert Bartholomew, David Thomas, John
Weber and Michael T. Bradley, each an "Investor
Advisor");
(B) subject to Section 2(d) of the Investor
Securityholders Agreement, three advisors will be
representatives of management (each an "Executive
Advisor"), to be designated as follows:
(1) Schweitzer shall be an Executive Advisor for
so long as he is the duly elected and acting
President and Chief Executive Officer of the
Company;
(2) Koscica shall be an Executive Advisor for so
long as he is the duly elected and acting
Senior Vice President and Chief Financial
Officer of the Company; and
(3) Bubis shall be an Executive Advisor for so
long as he is the duly elected and acting
President of PBBC.
provided, however, that any Executive Advisor no
longer so elected to and acting in the office stated
above shall be removed as an advisor of the Company,
and shall be replaced with the acting Chief Executive
Officer of
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<PAGE> 6
the Company, the acting Chief Financial Officer of
the Company or the acting President of PBBC,
whichever the case shall be;
(ii) if there is a payment default under the PMI Senior
Indebtedness prior to payment in full of the PMI Notes, then upon the
Company's receipt of notice thereof from PMI, the authorized number of
advisors on the Board shall automatically be increased to six. The
sixth advisor shall be designated by the Investor (and shall be
acceptable to PMI);
(iii) the composition of the board of advisors (or similar
bodies) of each of the Company's Subsidiaries (a "Sub Board") shall be
the same as that of the Board;
(iv) the Board and each Sub Board shall create a Compensation
Committee, which shall consist of two Investor Advisors and one
Executive Advisor;
(v) any committees of the Board or a Sub Board (other than
the Compensation Committee) shall be created only upon the approval of
a majority of the voting power of the Board and the composition of each
such committee (if any) shall consist of not more than three Persons,
at least two of which will be Investor Advisors;
(vi) any advisor shall be removed from the Board, a Sub Board
or any committee thereof (with or without cause) at the written request
of the Securityholder or Securityholders which have the right to
designate such advisor hereunder, but only upon such written request
and under no other circumstances (in each case, determined on the basis
specified in clause (i)(A), (i)(B) or (ii), as the case may be);
(vii) in the event that any representative designated hereunder
for any reason ceases to serve as a member of the Board or a Sub Board
or any committee thereof during such representative's term of office,
the resulting vacancy on the Board or such Sub Board or committee shall
be filled by a representative designated by the Securityholders
referred to in clause (i)(A), (i)(B) or (ii), as the case may be.
(b) The Company shall pay the reasonable out-of-pocket
expenses incurred by each advisor in connection with attending the meetings of
the Board or any Sub Board and any committee thereof. In addition, the Company
shall pay such additional compensation to advisors who are not employees of the
Company or any of its Subsidiaries as the Board so determines.
(c) If any party fails to designate a representative to fill
an advisor position pursuant to the terms of this Section 2, the election of a
Person to such advisor position shall be accomplished in accordance with the
Operating Agreement and applicable law. In the event that, at any time, any
provision of the Operating Agreement is inconsistent with the requirements of
any provision of this Section 2, the Securityholders shall take such action as
may be necessary to amend any such provision in the Operating Agreement to
conform with such requirements.
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<PAGE> 7
3. Conflicting Agreements. Each Securityholder represents that
such Securityholder has not granted and is not a party to any proxy, voting
trust or other agreement which is inconsistent with or conflicts with the
provisions of this Agreement, and no holder of Securityholder Interests shall
grant any proxy or become party to any voting trust or other agreement which is
inconsistent with or conflicts with the provisions of this Agreement.
4. Restrictions on Transfer of Securityholder Interests.
(a) Tag Along Rights. Subject to Sections 4(c) and 4(d), at
least 15 days prior to any sale, transfer, assignment, pledge or other disposal
(a "Transfer") of Investor Interests representing more than 50% of the Company's
outstanding Common Interests to an Unaffiliated Third Party (other than pursuant
to an Approved Sale), the Investor shall deliver a written notice (the "Sale
Notice") to the Company and to each of the Other Securityholders, specifying in
reasonable detail the identity of the prospective transferee(s) and the terms
and conditions of the Transfer. Each Other Securityholder may elect to
participate in the contemplated Transfer by delivering written notice to the
Investor within 10 days after delivery of the Sale Notice. If any Other
Securityholders have elected to participate in such Transfer, each of the
Investor and such Other Securityholders shall be entitled to sell in the
contemplated Transfer, at the same price and on the same terms, a number of
Securityholder Interests of any class equal to the product of (i) the quotient
determined by dividing the percentage of Securityholder Interests owned by such
Securityholder by the aggregate percentage of Securityholder Interests owned by
the Securityholders participating in such Transfer and (ii) the aggregate number
of Securityholder Interests to be sold in the contemplated Transfer. Each
Securityholder transferring Securityholder Interests pursuant to this Section
4(a) shall pay its pro rata share (based on the number of Securityholder
Interests to be sold) of the expenses incurred by the Securityholders in
connection with such transfer and shall be obligated to join on a pro rata basis
(based on the number of Securityholder Interests to be sold) in any
indemnification or other obligations that the Investor agrees to provide in
connection with such transfer (other than any such obligations that relate
specifically to a particular Securityholder such as indemnification with respect
to representations and warranties given by a Securityholder regarding such
Securityholder's title to and ownership of Securityholder Interests; provided,
that no Securityholder shall be obligated in connection with such Transfer to
agree to indemnify or hold harmless the transferees with respect to an amount in
excess of the net cash proceeds paid to such Securityholder in connection with
such Transfer).
(b) First Offer Rights. Subject to Sections 4(c) and 4(d), at
least 60 days prior to any Transfer of Securityholder Interests by any
Securityholder or any of their Permitted Transferees (other than pursuant to an
Approved Sale), such Person making such Transfer (the "Offering Securityholder")
shall deliver a written notice (the "Transfer Notice") to the Company and the
Other Securityholders specifying in reasonable detail the number of units
proposed to be transferred and the proposed purchase price (which shall be
payable solely in cash). The Company may elect to purchase all (but not less
than all) of the Securityholder Interests to be transferred, upon the same terms
and conditions as those set forth in the Transfer Notice, by delivering a
written notice of such election to the Offering Securityholder within 30 days
after the Transfer Notice has been delivered to the Company. If the Company has
not elected to purchase all of the Securityholder Interests to be transferred by
the Offering Securityholder, the Other Securityholders (or their
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<PAGE> 8
designees) may elect to purchase all (but not less than all) of the
Securityholder Interests to be transferred, upon the same terms and conditions
as those set forth in the Transfer Notice, by giving written notice of such
election to the Offering Securityholder within 45 days after the Transfer Notice
has been given to the Other Securityholders (the "Securityholder Option
Period"). If neither the Company nor the Other Securityholders (or their
designees) elect to purchase all of the Securityholder Interests specified in
the Transfer Notice, then the Offering Securityholder may transfer the
Securityholder Interests specified in the Transfer Notice at a price and on
terms no more favorable to the transferee(s) thereof than specified in the
Transfer Notice during the 60-day period immediately following the expiration of
the Securityholder Option Period. Any Securityholder Interests not transferred
within such 60-day period will be subject to the provisions of this Section 4(b)
upon subsequent transfer.
(c) Permitted Transfers. The restrictions contained in
Sections 4(a) and 4(b) shall not apply with respect to any Transfer of
Securityholder Interests by any Securityholder (i) in the case of an individual
Securityholder, pursuant to applicable laws of descent and distribution or to
any member of such Securityholder's Family Group, (ii) in the case of the
Investor, any Transfer (including by way of distribution) to its members, or any
Transfer to its Affiliates, employees directors, advisors, consultants or
employees, directors, advisors or consultants of its Affiliates, (iii) in the
case of the Executives, any Transfer to another Executive, and (iv) in the case
of PMI, any Transfer to an Institutional Lender (as defined in the Securities
Purchase Agreement) that does not compete with Sleepmaster so long as such
Transfer includes both PMI Notes and PMI Interests, either (A) pro rata based
upon the original ratio of the outstanding principal amount of PMI Notes to the
number of PMI Interests as of the date hereof or (B) in a ratio of PMI Notes to
PMI Interests which is greater than that set forth in the preceding clause (A);
provided, that the restrictions contained in this Section 4 shall continue to be
applicable to such Securityholder Interests after any such Transfer; and
provided further, that the transferees of such Securityholder Interests shall
have agreed in writing to be bound by the provisions of this Agreement which
affect the Securityholder Interests so transferred by executing a joinder in the
form substantially attached hereto as Exhibit A. All transferees permitted under
this Section 4(c) are collectively referred to herein as "Permitted Transferees"
and such transferred Securityholder Interests remain subject to the general
restrictions on Transfer set forth in Article 11 of the Operating Agreement.
(d) Termination of Restrictions. The restrictions set forth in
this Section 4 shall continue with respect to each Securityholder Interest until
a Transfer of such Securityholder Interest in a Public Sale.
(e) In addition to the provisions of this Section 4, any
Transfer of Securityholder Interests is subject to the provisions of Article 11
of the Operating Agreement.
5. Sale of the Company.
(a) In the event of an Approved Sale, each Securityholder will
(i) consent to and raise no objections against the Approved Sale or the process
pursuant to which the Approved Sale was arranged, (ii) waive any dissenter's
rights and other similar rights, and (iii) if the Approved Sale is structured as
a sale of securities, each Securityholder will agree to sell its Securityholder
Interests
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<PAGE> 9
on the terms and conditions of the Approved Sale. Each Securityholder will take
all necessary and desirable actions as directed by the Board and the Approving
Securityholders in connection with the consummation of any Approved Sale,
including without limitation executing the applicable purchase agreement and
joining on a pro rata basis (based on the proportion of the total consideration
received by all Securityholders) in any indemnification in connection with the
Approved Sale (other than any such obligations that relate specifically to a
particular Securityholder such as indemnification with respect to
representations and warranties given by a Securityholder regarding such
Securityholder's title to or ownership of Securityholder Interests); provided,
that no Securityholder shall be obligated in connection with the Approved Sale
to agree to indemnify or hold harmless the transferees with respect to an amount
in excess of the net cash proceeds paid to such Securityholder in connection
with the Approved Sale.
(b) If the Company or the holders of the Company's securities
enter into any negotiation or transaction for which Rule 506 (or any similar
rule then in effect) under the Securities Act may be available with respect to
such negotiation or transaction (including a merger, consolidation or other
reorganization), the Executives will, at the request of the Company, appoint a
purchaser representative (as such term is defined in Rule 501) reasonably
acceptable to the Company. If any Executive appoints a purchaser representative
designated by the Company, the Company will pay the fees of such purchaser
representative, but if any Executive declines to appoint the purchaser
representative designated by the Company, such Executive will appoint another
purchaser representative (reasonably acceptable to the Company), and such
Executive will be responsible for the fees of the purchaser representative so
appointed.
(c) All Securityholders will bear their pro rata share (based
upon the number of units sold) of the reasonable costs of any sale of
Securityholder Interests pursuant to an Approved Sale to the extent such costs
are incurred for the benefit of all selling Securityholders and are not
otherwise paid by the Company or the acquiring party. Costs incurred by any
Securityholder on its own behalf will not be considered costs of the transaction
hereunder.
6. Legend. Each certificate or instrument evidencing
Securityholder Interests and each certificate or instrument issued in exchange
for or upon the Transfer of any Securityholder Interests (if such units remain
Securityholder Interests, each as defined herein after such Transfer) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO AN AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
DATED AS OF MARCH __, 1998, BY AND AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S
SECURITYHOLDERS, AS MAY BE AMENDED FROM TIME TO TIME. A COPY
OF SUCH SECURITYHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT
CHARGE BY THE
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<PAGE> 10
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
The Company shall imprint such legend on certificates and instruments evidencing
Securityholder Interests outstanding prior to the date hereof. The legend set
forth above shall be removed from the certificates and instruments evidencing
any units which cease to be Securityholder Interests.
7. Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Securityholder Interests in violation of any provision
of this Agreement shall be null and void, and the Company shall not record such
Transfer on its books or treat any purported transferee of such Securityholder
Interests as the owner of such units for any purpose.
8. Transfer of Securityholder Interests.
(a) Securityholder Interests are transferable only pursuant to
(i) public offerings registered under the Securities Act, (ii) subject to the
provisions of Section 4 above, Rule 144 or Rule 144A (or any similar rule or
rules then in effect) of the Securities and Exchange Commission if such rule is
available, and (iii) subject to Section 4 or 5 and Section 8(b) below, any other
legally available means of Transfer.
(b) In connection with the Transfer of any Securityholder
Interests other than a Transfer described in clause (i) or (ii) of Section 8(a)
above, the holder thereof shall deliver written notice to the Company describing
in reasonable detail the Transfer or proposed Transfer, together with an opinion
of counsel reasonably acceptable to the Company to the effect that such Transfer
of Securityholder Interests may be effected without registration of such
Securityholder Interests under the Securities Act. In addition, if the holder of
the Securityholder Interests delivers to the Company an opinion of counsel that
no subsequent Transfer of such Securityholder Interests shall require
registration under the Securities Act, the Company shall, if such Securityholder
Interests are certificated, promptly upon such contemplated Transfer deliver new
certificates for such Securityholder Interests which do not bear the legend set
forth in Section 6 above. If the Company is not required pursuant to the
immediately preceding sentence to deliver new certificates for such
Securityholder Interests without such legend, the holder thereof shall not
consummate a Transfer of the same until the prospective transferee has confirmed
to the Company in writing its agreement to be bound by the conditions contained
in this Section 8 and Section 6 above.
(c) Upon the request of a holder of Securityholder Interests,
the Company shall promptly supply to such Person or its prospective transferees
all information regarding the Company required to be delivered in connection
with a Transfer pursuant to Rule 144A (or any similar rule or rules then in
effect) of the Securities and Exchange Commission.
(d) Upon the request of any holder of Securityholder
Interests, the Company shall remove the legend set forth in Section 6 above from
the certificates for such holder's Securityholder Interests; provided, that such
Securityholder Interests are eligible for sale pursuant to Rule 144(k) (or any
similar rule or rules then in effect) of the Securities and Exchange Commission.
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<PAGE> 11
9. Limited Preemptive Rights. If the Company issues any units
of Common Interests or any securities containing options or rights to acquire
any units of Common Interests or any securities convertible or exchangeable for
Common Interests (other than pursuant to the conversion or exchange of one class
of Common Interests for another), in each case after the date hereof, to the
Investor, the Company will offer to sell to each Other Securityholder a number
of such securities ("Offered Interests") so that the Ownership Ratio for each
Other Securityholder immediately after the issuance of such securities would be
equal to the Ownership Ratio for such Other Securityholder immediately prior to
such issuance of securities. The Company shall give each Other Securityholder at
least 30 days prior written notice of any proposed issuance, which notice shall
disclose in reasonable detail the proposed terms and conditions of such issuance
(the "Issuance Notice"). Each Other Securityholder will be entitled to purchase
such securities at the same price, on the same terms (including, if more than
one type of security is issued, the same proportionate mix of such securities),
and at the same time as the securities are issued by delivery of irrevocable
written notice to the Company of such election within 15 days after delivery of
the Issuance Notice (the "Election Notice"). If any Other Securityholder has
elected to purchase any Offered Interests, the sale of such units shall be
consummated as soon as practical (but in any event within 10 days) after the
delivery of the Election Notice.
10. No Affiliate Transactions. The Company shall not, without
the prior written consent of the Board, employ or contract with any of its
Affiliates other than as specifically contemplated by the Transaction Documents.
11. Amendment and Restatement of Original Agreement. The
Original Agreement is hereby amended and restated in its entirety.
12. Amendment and Waiver. Except as otherwise provided herein,
(a) no modification, amendment or waiver of any provision of this Agreement
shall be effective against the Company or the Securityholders unless such
modification, amendment or waiver is approved in writing by, respectively, the
Company or the holders of a majority of the Securityholder Interests, (b) no
modification, amendment or waiver which adversely affects the rights of a
Securityholder under this Agreement vis-a-vis Other Securityholders (a
"Prejudiced Securityholder") shall be effective against such Prejudiced
Securityholder unless such modification, amendment or waiver is approved in
writing by such Prejudiced Securityholder and (c) no modification, amendment or
waiver of any of the provisions of Sections 2, 4, 5, 9, 15, or this Section 12
(or the defined terms relating to such Sections) shall be effective against PMI
or its Permitted Transferees unless such modification, amendment or waiver is
approved in writing by the holders of a majority of the PMI Interests. The
failure of any party to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced
- 11 -
<PAGE> 12
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
14. Entire Agreement. Except as otherwise expressly set forth
herein, this document and the other Transaction Documents embody the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
15. Termination. This Agreement will automatically terminate
and be of no further force or effect immediately after the earlier of the
consummation of (i) an Approved Sale or (ii) a Qualified Public Offering.
16. Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and the Securityholders and any
subsequent holders of Securityholder Interests and the respective successors and
assigns of each of them, so long as they hold Securityholder Interests.
17. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
18. Remedies. The parties hereto shall be entitled to enforce
their rights under this Agreement specifically to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company, the Investor and any Other Securityholder may in
his, hers, or its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
19. WAIVER OF JURY TRIAL. THE COMPANY AND EACH SECURITY HOLDER
HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION OR ENFORCEMENT
THEREOF. THE COMPANY AND EACH SECURITYHOLDER AGREE THAT THIS SECTION IS A
SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND WOULD NOT ENTER INTO THIS
AGREEMENT IF THIS SECTION WERE NOT PART OF THIS AGREEMENT.
20. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
will be in writing and will be deemed to have been given when delivered
personally, mailed by certified or registered mail, return receipt requested and
postage prepaid, or sent via a nationally recognized overnight courier, or sent
- 12 -
<PAGE> 13
via facsimile to the recipient accompanied by a certified or registered mailing.
Such notices, demands and other communications will be sent to the address
indicated below:
To the Company:
Sleepmaster Holdings L.L.C.
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036
Attention: Manager
Telecopy No.: (908) 381-3925
With copies, which shall not constitute notice, to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, New York 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To the Investor:
Sleep Investor L.L.C.
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, New York 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
- 13 -
<PAGE> 14
With copies, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
PMI Mezzanine Fund, L.P.
610 Newport Center Drive
Suite 1100
Newport Beach, California 92660
Attention: Mr. Robert Bartholomew
Telecopy No.: (714) 721-5446
Brobeck, Phleger & Harrison L.L.P.
550 South Hope Street
Los Angeles, California 90071
Attention: John Francis Hilson, Esq.
Telecopy No.: (213) 239-1324
To PMI:
PMI Mezzanine Fund, L.P.
610 Newport Center Drive
Suite 1100
Newport Beach, California 92660
Attention: Mr. Robert Bartholomew
Telecopy No.: (714) 721-5446
With a copy, which shall not constitute notice, to:
Brobeck, Phleger & Harrison L.L.P.
550 South Hope Street
Los Angeles, California 90071
Attention: John Francis Hilson, Esq.
Telecopy No.: (213) 239-1324
- 14 -
<PAGE> 15
To any of the Executives:
Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036
Attention: [EXECUTIVE'S NAME]
Telecopy No.: (908) 381-3925
With a copy, which shall not constitute notice, to:
Greenberg Traurig Hoffman Lipoff
Rosen & Quentel
200 Park Avenue
New York, New York 10166
Attention: William A. Newman, Esq.
Telecopy No.: (212) 223-7161
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
21. GOVERNING LAW. THE LIMITED LIABILITY COMPANY LAW OF NEW
JERSEY SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND
ITS MEMBERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
22. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
- 15 -
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Securityholders Agreement as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
By:
-------------------------------------
Name:
Title:
SLEEP INVESTOR L.L.C.
By:
-------------------------------------
Name:
Title:
PMI MEZZANINE FUND, L.P.
By: Pacific Mezzanine Investors, LLC,
its General Partner
By:
---------------------------------
Name:
Title:
CHARLES SCHWEITZER
----------------------------------------
JAMES P. KOSCICA
----------------------------------------
MICHAEL REILLY
----------------------------------------
TIMOTHY DUPONT
----------------------------------------
MICHAEL BUBIS
<PAGE> 17
----------------------------------------
RICHARD TAUBER
----------------------------------------
DOUGLAS PHILLIPS
----------------------------------------
<PAGE> 18
EXHIBIT A
FORM OF JOINDER TO
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
THIS JOINDER to the Amended and Restated Securityholders
Agreement, dated as of March __, 1998 by and among Sleepmaster Holdings L.L.C.,
a New Jersey limited liability company (the "Company"), and certain
securityholders of the Company (the "Agreement"), is made and entered into as of
_________ by and between the Company and _________________ ("Holder").
Capitalized terms used herein but not otherwise defined shall have the meanings
set forth in the Agreement.
WHEREAS, Holder has acquired certain units of Common Interests
and/or Preferred Interests, and the Agreement and the Company require Holder, as
a holder of such interests, to become a party to the Agreement, and Holder
agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Joinder hereby
agree as follows:
1. Agreement to be Bound. Holder hereby agrees that upon
execution of this Joinder, it shall become a party to the Agreement and shall be
fully bound by, and subject to, all of the covenants, terms and conditions of
the Agreement as though an original party thereto and shall be deemed a
Securityholder for all purposes thereof. In addition, Holder hereby agrees that
all Common Interests and Preferred Interests held by Holder shall be deemed
Securityholder Interests for all purposes of the Agreement
2. Successors and Assigns. Except as otherwise provided
herein, this Joinder shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and Holder and any subsequent
holders of Securityholder Interests and the respective successors and assigns of
each of them, so long as they hold any Securityholder Interests.
3. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Notices. For purposes of Section 20 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
[Name]
[Address]
[Facsimile Number]
A - 1
<PAGE> 19
5. GOVERNING LAW. THE LIMITED LIABILITY COMPANY LAW OF NEW
JERSEY SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND
ITS MEMBERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW
YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
6. DESCRIPTIVE HEADINGS. The descriptive headings of this
Joinder are inserted for convenience only and do not constitute a part of this
Joinder.
* * * * *
A - 2
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this
Joinder as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
By:
-------------------------------------
Name:
Title:
[HOLDER]
By:
-------------------------------------
<PAGE> 1
EXHIBIT 9.2
EXECUTION COPY
JOINDER TO
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
THIS JOINDER to the Amended and Restated Securityholders
Agreement, dated as of March 3, 1998 by and among Sleepmaster Holdings L.L.C., a
New Jersey limited liability company (the "Company"), and certain
securityholders of the Company (the "Agreement"), is made and entered into as of
February 26, 1999 by and between the Company and Stuart W. Herr ("Holder").
Capitalized terms used herein but not otherwise defined shall have the meanings
set forth in the Agreement.
WHEREAS, Holder has acquired certain units of Common Interests
and/or Preferred Interests, and the Agreement and the Company require Holder, as
a holder of such interests, to become a party to the Agreement, and Holder
agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Joinder hereby
agree as follows:
1. Agreement to be Bound. Holder hereby agrees that upon
execution of this Joinder, it shall become a party to the Agreement and shall be
fully bound by, and subject to, all of the covenants, terms and conditions of
the Agreement as though an original party thereto and shall be deemed a
Securityholder for all purposes thereof. In addition, Holder hereby agrees that
all Common Interests and Preferred Interests held by Holder shall be deemed
Securityholder Interests for all purposes of the Agreement
2. Successors and Assigns. Except as otherwise provided
herein, this Joinder shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and Holder and any subsequent
holders of Securityholder Interests and the respective successors and assigns of
each of them, so long as they hold any Securityholder Interests.
3. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Notices. For purposes of Section 20 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
Mr. Stuart W. Herr
2300 Rice Road
Lancaster, PA 17601
5. GOVERNING LAW. THE LIMITED LIABILITY COMPANY LAW OF NEW
JERSEY SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND
ITS MEMBERS. ALL OTHER
<PAGE> 2
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT
OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
6. DESCRIPTIVE HEADINGS. The descriptive headings of this
Joinder are inserted for convenience only and do not constitute a part of this
Joinder.
* * * * *
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this
Joinder as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
By:
-------------------------------------
Name:
Title:
STUART W. HERR
----------------------------------------
<PAGE> 1
EXHIBIT 9.3
EXECUTION COPY
JOINDER TO
AMENDED AND RESTATED SECURITYHOLDERS AGREEMENT
THIS JOINDER to the Amended and Restated Securityholders
Agreement, dated as of March 3, 1998 by and among Sleepmaster Holdings L.L.C., a
New Jersey limited liability company (the "Company"), and certain
securityholders of the Company (the "Agreement"), is made and entered into as of
February 26, 1999 by and between the Company and John K. Herr, III ("Holder").
Capitalized terms used herein but not otherwise defined shall have the meanings
set forth in the Agreement.
WHEREAS, Holder has acquired certain units of Common Interests
and/or Preferred Interests, and the Agreement and the Company require Holder, as
a holder of such interests, to become a party to the Agreement, and Holder
agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Joinder hereby
agree as follows:
1. Agreement to be Bound. Holder hereby agrees that upon
execution of this Joinder, it shall become a party to the Agreement and shall be
fully bound by, and subject to, all of the covenants, terms and conditions of
the Agreement as though an original party thereto and shall be deemed a
Securityholder for all purposes thereof. In addition, Holder hereby agrees that
all Common Interests and Preferred Interests held by Holder shall be deemed
Securityholder Interests for all purposes of the Agreement
2. Successors and Assigns. Except as otherwise provided
herein, this Joinder shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and Holder and any subsequent
holders of Securityholder Interests and the respective successors and assigns of
each of them, so long as they hold any Securityholder Interests.
3. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Notices. For purposes of Section 20 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
Mr. John K. Herr, III
1102 Oakmont Drive
Lancaster, PA 17601
5. GOVERNING LAW. THE LIMITED LIABILITY COMPANY LAW OF NEW
JERSEY SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND
ITS MEMBERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS JOINDER SHALL BE
<PAGE> 2
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
6. DESCRIPTIVE HEADINGS. The descriptive headings of this
Joinder are inserted for convenience only and do not constitute a part of this
Joinder.
* * * * *
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this
Joinder as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
By:
-------------------------------------
Name:
Title:
JOHN K. HERR, III
-----------------------------------------
<PAGE> 1
EXHIBIT 10.1
-----------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF MAY 18, 1999
AMONG
SLEEPMASTER L.L.C.
(A NEW JERSEY LIMITED LIABILITY COMPANY),
SLEEPMASTER FINANCE CORPORATION
(A DELAWARE CORPORATION),
HERR MANUFACTURING COMPANY
(A PENNSYLVANIA CORPORATION),
PALM BEACH BEDDING COMPANY
(A FLORIDA CORPORATION),
LOWER ROAD ASSOCIATES, LLC
(A NEW JERSEY LIMITED LIABILITY COMPANY)
AND
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
AND
FIRST UNION CAPITAL MARKETS CORP.
-----------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into this 18th day of May, 1999, among (a) Sleepmaster L.L.C., a New
Jersey limited liability company (the "Company") and Sleepmaster Finance
Corporation, a Delaware corporation ("Finance Corp.") as co-issuers, (b) Herr
Manufacturing Company, a Pennsylvania corporation, Palm Beach Bedding Company, a
Florida corporation and Lower Road Associates, LLC, a New Jersey limited
liability company as guarantors (collectively, the "Guarantors"), and (c)
Merrill Lynch, Pierce, Fenner & Smith Incorporated and First Union Capital
Markets Corp. (the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated May
18, 1999, among the Company, Finance Corp., the Guarantors and the Initial
Purchasers (the "Purchase Agreement"), which provides for (i) the sale by the
Company and Finance Corp. to the Initial Purchasers of an aggregate of $115
million principal amount of 11% Senior Subordinated Notes due 2009, Series A of
the Company and Finance Corp. (the "Securities") and (ii) the issue and sale by
the Guarantors and the purchase by the Initial Purchasers of the guarantees (the
"Guarantees") of the obligations of the Company and Finance Corp. under the
Securities. In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Company, Finance Corp. and the Guarantors have agreed to provide
to the Initial Purchasers and their direct and indirect transferees the
registration rights set forth in this Agreement. The execution of this Agreement
is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 Act" shall mean the Securities Exchange Act of l934, as amended
from time to time.
"Closing Date" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company, Finance Corp. and the Guarantors,
provided, however, that
<PAGE> 3
such depositary must have an address in the Borough of Manhattan, in the
City of New York.
"Exchange Offer" shall mean the exchange offer by the Company,
Finance Corp. and the Guarantors of Exchange Securities (and related
Guarantees) for Registrable Securities pursuant to Section 2.1 hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form or on any successor form used for substantially the same
transactions), and all amendments and supplements to such registration
statement, including the Prospectus contained therein, all exhibits thereto
and all documents incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section
2.1 hereof.
"Exchange Securities" shall mean, collectively, the 11% Senior
Subordinated Notes due 2009, Series B issued by the Company and Finance
Corp. under the Indenture and the related guarantees issued by the
Guarantors under the Indenture, containing terms identical to the
Securities and the Guarantees in all material respects (except for
references to certain interest rate provisions, restrictions on transfers
and restrictive legends), to be offered to Holders of Securities and
Guarantees in exchange for Registrable Securities pursuant to the Exchange
Offer.
"Finance Corp." shall have the meaning set forth in the preamble and
shall also include Finance Corp.'s successors.
"Guarantors" shall have the meaning set forth in the preamble and
shall also include the Guarantors' successors.
"Holder" shall mean each Initial Purchaser, for so long as it owns
any Registrable Securities, and each of its successors, assigns and direct
and indirect transferees who become registered owners of Registrable
Securities under the Indenture and each Participating Broker-Dealer that
holds Exchange Securities for so long as such Participating Broker-Dealer
is required to deliver a prospectus meeting the requirements of the 1933
Act in connection with any resale of such Exchange Securities.
"Indenture" shall mean the Indenture relating to the Securities, the
Exchange Securities and the Guarantees, dated as of May 18, 1999, between
the Company, Finance Corp., the Guarantors and United States Trust Company
of New York, as trustee, as the
- 2 -
<PAGE> 4
same may be amended, supplemented, waived or otherwise modified from
time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of Outstanding (as defined in the Indenture)
Registrable Securities; provided that whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company, Finance Corp., the
Guarantors and other obligors on the Securities or Guarantees or any
Affiliate (as defined in the Indenture) of the Company, Finance Corp. or
any Guarantor shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage amount.
"Participating Broker-Dealer" shall mean Merrill Lynch, Pierce,
Fenner & Smith Incorporated and any other broker-dealer which makes a
market in the Securities and Guarantees and exchanges Registrable
Securities in the Exchange Offer for Exchange Securities.
"Person" shall mean an individual, partnership (general or limited),
corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
"Private Exchange" shall have the meaning set forth in Section
2.1 hereof.
"Private Exchange Securities" shall have the meaning set forth in
Section 2.1 hereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble.
"Registrable Securities" shall mean, collectively, the Securities,
the Guarantees, and, if issued, the Private Exchange Securities; provided,
however, that Securities, Guarantees and, if issued, the Private Exchange
Securities, shall cease to be Registrable Securities when (i) a
Registration Statement with respect to such Securities and Guarantees shall
have been declared effective under the 1933 Act and such Securities and
- 3 -
<PAGE> 5
Guarantees shall have been disposed of pursuant to such Registration
Statement, (ii) such Securities and Guarantees have been sold to the public
pursuant to Rule l44 (or any similar provision then in force, but not Rule
144A) under the 1933 Act, (iii) such Securities and Guarantees shall have
ceased to be outstanding or (iv) the Exchange Offer is consummated (except
in the case of Securities and Guarantees purchased from the Company,
Finance Corp. and the Guarantors and continued to be held by an Initial
Purchasers or Securities which may not be exchanged in the Exchange Offer).
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company, Finance Corp. and the
Guarantors with this Agreement, including without limitation: (i) all SEC,
stock exchange or National Association of Securities Dealers, Inc. (the
"NASD") registration and filing fees, including, if applicable, the fees
and expenses of any "qualified independent underwriter" (and its counsel)
that is required to be retained by any holder of Registrable Securities in
accordance with the rules and regulations of the NASD, (ii) all fees and
expenses incurred in connection with compliance with state securities or
blue sky laws and compliance with the rules of the NASD (including
reasonable fees and disbursements of counsel for any underwriters or
Holders in connection with blue sky qualification of any of the Exchange
Securities or Registrable Securities and any filings with the NASD), (iii)
all expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all fees and
expenses incurred in connection with the listing, if any, of any of the
Registrable Securities on any securities exchange or exchanges, (v) all
rating agency fees, (vi) the fees and disbursements of counsel for the
Company, Finance Corp. and the Guarantors and of the independent public
accountants of the Company, Finance Corp. and the Guarantors, including the
expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, (vii) the fees and expenses of
the Trustee, and any escrow agent or custodian, (viii) the reasonable fees
and disbursements of counsel representing the Holders of Registrable
Securities and (ix) any fees and disbursements of the underwriters
customarily required to be paid by issuers or sellers of securities and the
fees and expenses of any special experts retained by the Company, Finance
Corp. and the Guarantors in connection with any Registration Statement, but
excluding underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities by a
Holder.
"Registration Statement" shall mean any registration statement of the
Company, Finance Corp. and the Guarantors which covers any of the Exchange
Securities or Registrable Securities pursuant to the provisions of this
Agreement, and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
- 4 -
<PAGE> 6
"SEC" shall mean the Securities and Exchange Commission or any
successor agency or government body performing the functions currently
performed by the United States Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company, Finance Corp. and the Guarantors pursuant to the
provisions of Section 2.2 of this Agreement which covers all of the
Registrable Securities or all of the Private Exchange Securities on an
appropriate form under Rule 415 under the 1933 Act, or any successor or
similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Securities, the
Exchange Securities and the Guarantees under the Indenture.
2. Registration Under the 1933 Act.
2.1 Exchange Offer. The Company, Finance Corp. and the Guarantors
shall, for the benefit of the Holders, at the Company's and Finance Corp.'s
cost, (A) prepare and, as soon as practicable but not later than 45 days
following the Closing Date, file with the SEC an Exchange Offer Registration
Statement on an appropriate form under the 1933 Act with respect to a proposed
Exchange Offer and the issuance and delivery to the Holders, in exchange for the
Registrable Securities (other than Private Exchange Securities), of a like
principal amount of Exchange Securities, (B) use its best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the 1933
Act within 135 days of the Closing Date, (C) use its best efforts to keep the
Exchange Offer Registration Statement effective until the closing of the
Exchange Offer and (D) use its best efforts to cause the Exchange Offer to be
consummated not later than 175 days following the Closing Date. The Exchange
Securities will be issued under the Indenture. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company, Finance Corp. and the
Guarantors shall promptly commence the Exchange Offer, it being the objective of
such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company, Finance Corp. or any of the Guarantors within
the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering
Registrable Securities acquired directly from the Company, Finance Corp. or any
of the Guarantors for its own account, (c) acquired or will acquire the Exchange
Securities in the ordinary course of such Holder's business and (d) has no
arrangements or understandings with any Person to participate in the Exchange
Offer for the purpose of distributing the Exchange Securities) to transfer such
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<PAGE> 7
Exchange Securities from and after their receipt without any limitations or
restrictions under the 1933 Act and under state securities or blue sky laws.
In connection with the Exchange Offer, the Company, Finance
Corp. and the Guarantors shall:
(a) mail as promptly as practicable to each Holder a copy of
the Prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related documents;
(b) keep the Exchange Offer open for acceptance for a period of
not less than 20 business days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange
Offer;
(d) permit Holders to withdraw tendered Registrable Securities
at any time prior to 5:00 p.m. (Eastern Time), on the last business day of the
Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for exchange,
and a statement that such Holder is withdrawing such Holder's election to have
such Securities and Guarantees exchanged;
(e) notify each Holder that any Registrable Security not
tendered will remain outstanding and continue to accrue interest, but will not
retain any rights under this Agreement (except in the case of the Initial
Purchasers and Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Securities acquired by them and having the status of an
unsold allotment in the initial distribution, the Company and Finance Corp. upon
the request of any Initial Purchaser shall, simultaneously with the delivery of
the Exchange Securities in the Exchange Offer, issue and deliver to such Initial
Purchaser in exchange (the "Private Exchange") for the Securities held by the
Initial Purchaser, a like principal amount of debt securities of the Company and
Finance Corp. on a senior subordinated basis, guaranteed by the Guarantors, that
are identical (except that such securities shall bear appropriate transfer
restrictions) to the Exchange Securities (the "Private Exchange Securities").
The Exchange Securities and the Private Exchange Securities shall be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and
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<PAGE> 8
which, in either case, has been qualified under the Trust Indenture Act of 1939,
as amended (the "TIA"), or is exempt from such qualification and shall provide
that the Exchange Securities shall not be subject to the transfer restrictions
set forth in the Indenture but that the Private Exchange Securities shall be
subject to such transfer restrictions. The Indenture or such indenture shall
provide that the Exchange Securities, the Private Exchange Securities and the
Securities (and related Guarantees) shall vote and consent together on all
matters as one class and that none of the Exchange Securities, the Private
Exchange Securities or the Securities (and related Guarantees) will have the
right to vote or consent as a separate class on any matter. The Private Exchange
Securities shall be of the same series as and the Company, Finance Corp. and the
Guarantors shall use their commercially reasonable efforts to have the Private
Exchange Securities bear the same CUSIP number as the Exchange Securities.
As soon as practicable after the close of the Exchange Offer and/or
the Private Exchange, as the case may be, the Company, Finance Corp.
and the Guarantors shall:
(i) accept for exchange all Registrable Securities duly
tendered and not validly withdrawn pursuant to the Exchange Offer in
accordance with the terms of the Exchange Offer Registration
Statement and the letter of transmittal which shall be an exhibit
thereto;
(ii) accept for exchange all Securities properly tendered
pursuant to the Private Exchange;
(iii) deliver to the Trustee for cancellation all Registrable
Securities so accepted for exchange; and
(iv) cause the Trustee promptly to authenticate and deliver
Exchange Securities or Private Exchange Securities, as the case may
be, to each Holder of Registrable Securities so accepted for exchange
in a principal amount equal to the principal amount of the
Registrable Securities of such Holder so
accepted for exchange.
Interest on each Exchange Security and Private Exchange Security will
accrue from the last date on which interest was paid on the Registrable
Securities surrendered in exchange therefor or, if no interest has been paid on
the Registrable Securities, from the date of original issuance. The Exchange
Offer and the Private Exchange shall not be subject to any conditions, other
than (i) that the Exchange Offer or the Private Exchange, or the making of any
exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) the due and valid tendering of
Registrable Securities in accordance with the Exchange Offer and the Private
Exchange, (iii) that each Holder of Registrable Securities exchanged in the
Exchange Offer shall have represented that all Exchange Securities to be
received by it shall be acquired in the ordinary course of its business and that
at the time of the consummation of the Exchange Offer it shall have no
arrangement or understanding with any
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<PAGE> 9
person to participate in the distribution (within the meaning of the 1933 Act)
of the Exchange Securities and shall have made such other representations as may
be reasonably necessary under applicable SEC rules, regulations or
interpretations to render the use of Form S-4 or other appropriate form under
the 1933 Act available and (iv) that no action or proceeding shall have been
instituted or threatened in any court or by or before any governmental agency
with respect to the Exchange Offer or the Private Exchange which, in the
Company's, Finance Corp.'s and the Guarantors' judgment, would reasonably be
expected to impair the ability of the Company, Finance Corp. and the Guarantors
to proceed with the Exchange Offer or the Private Exchange. The Company, Finance
Corp. and the Guarantors shall inform the Initial Purchasers of the names and
addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer.
2.2 Shelf Registration. (i) If, because of any changes in law, SEC
rules or regulations or applicable interpretations thereof by the staff of the
SEC, the Company, Finance Corp. or the Guarantors are not permitted to effect
the Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any other
reason the Exchange Offer Registration Statement is not declared effective
within 135 days following the original issue of the Registrable Securities or
the Exchange Offer is not consummated within 175 days after the original issue
of the Registrable Securities, (iii) upon the request of any Initial Purchaser
or (iv) if a Holder is not permitted to participate in the Exchange Offer or
does not receive fully tradeable Exchange Securities pursuant to the Exchange
Offer, then in case of each of clauses (i) through (iv) the Company, Finance
Corp. and the Guarantors shall, at their cost:
(a) As promptly as practicable, file with the SEC, and
thereafter shall use their best efforts to cause to be declared
effective as promptly as practicable but no later than 175 days after
the original issue of the Registrable Securities, a Shelf
Registration Statement relating to the offer and sale of the
Registrable Securities by the Holders from time to time in accordance
with the methods of distribution elected by the Majority Holders
participating in the Shelf Registration and set forth in such Shelf
Registration Statement.
(b) Use their best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of up to
two years from the date the Shelf Registration Statement is declared
effective by the SEC, or for such shorter period that will terminate
when all Registrable Securities covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement
or cease to be outstanding or otherwise to be Registrable Securities
(the "Effectiveness Period"); provided, however, that the
Effectiveness Period in respect of the Shelf Registration Statement
shall be extended to the extent required to permit dealers to comply
with the applicable prospectus delivery requirements under the 1933
Act and as otherwise provided herein.
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<PAGE> 10
(c) Notwithstanding any other provisions hereof, use their best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the 1933
Act and the rules and regulations thereunder, (ii) any Shelf
Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
Prospectus forming part of any Shelf Registration Statement, and any
supplement to such Prospectus (as amended or supplemented from time
to time), does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements, in light of the circumstances under which they were made,
not misleading.
The Company, Finance Corp. and the Guarantors shall not permit any
securities other than Registrable Securities to be included in the Shelf
Registration Statement. The Company, Finance Corp. and the Guarantors further
agree, if necessary, to supplement or amend the Shelf Registration Statement, as
required by Section 3(b) below, and to furnish to the Holders of Registrable
Securities copies of any such supplement or amendment promptly after its being
used or filed with the SEC.
2.3 Expenses. The Company, Finance Corp. and the Guarantors shall pay
all Registration Expenses in connection with the registration pursuant to
Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable Securities pursuant to the Shelf Registration
Statement.
2.4. Effectiveness. (a) The Company, Finance Corp. and the Guarantors
will be deemed not to have used their best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
to become, or to remain, effective during the requisite period if the Company,
Finance Corp. or any Guarantor voluntarily takes any action that would, or omits
to take any action which omission would, result in any such Registration
Statement not being declared or remaining effective or in the Holders of
Registrable Securities covered thereby not being able to exchange or offer and
sell such Registrable Securities during that period as and to the extent
contemplated hereby, unless such action is required by applicable law.
(b) An Exchange Offer Registration Statement pursuant to Section 2.1
hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not
be deemed to have become effective unless it has been declared effective by the
SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to an Exchange Offer Registration
Statement or a Shelf Registration Statement is interfered with by
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<PAGE> 11
any stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have become effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume.
2.5 Interest. The Indenture executed in connection with the Securities
and the Guarantees will provide that in the event that either (a) the Exchange
Offer Registration Statement is not filed with the SEC on or prior to the 45th
calendar day following the date of original issue of the Securities and the
Guarantees, (b) the Exchange Offer Registration Statement has not been declared
effective on or prior to the 135th calendar day following the date of original
issue of the Securities and the Guarantees, (c) the Exchange Offer is not
consummated on or prior to the 175th calendar day following the day of original
issue of the Securities and the Guarantees or (d) a Shelf Registration Statement
is not declared effective on or prior to the later of the 175th calendar day
following the day of original issue of the Securities and 40 days after such
shelf registration statement is requested (each such event referred to in
clauses (a) through (d) above, a "Registration Default"), the interest rate
borne by the Securities shall be increased ("Additional Interest") by
one-quarter of one percent per annum upon the occurrence of each Registration
Default, which rate will increase by one quarter of one percent each 90-day
period that such Additional Interest continues to accrue under any such
circumstance, provided that the maximum aggregate increase in the interest rate
will in no event exceed one percent (1%) per annum. Following the cure of all
Registration Defaults the accrual of Additional Interest will cease and the
interest rate will revert to the original rate.
If the Shelf Registration Statement is unusable by the Holders for
any reason, and the aggregate number of days in any consecutive twelve-month
period for which the Shelf Registration Statement shall not be usable exceeds 30
days in the aggregate, then the interest rate borne by the Securities will be
increased by 0.25% per annum of the principal amount of the Securities for the
first 90-day period (or portion thereof) beginning on the 31st such date that
such Shelf Registration Statement ceases to be usable, which rate shall be
increased by an additional 0.25% per annum of the principal amount of the
Securities at the beginning of each subsequent 90-day period, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per annum. Any amounts payable under this paragraph shall also be
deemed "Additional Interest" for purposes of this Agreement. Upon the Shelf
Registration Statement once again becoming usable, the interest rate borne by
the Securities will be reduced to the original interest rate if the Company and
Finance Corp. are otherwise in compliance with this Agreement at such time.
Additional Interest shall be computed based on the actual number of days elapsed
in each 90-day period in which the Shelf Registration Statement is unusable.
The Company and Finance Corp. shall notify the Trustee within three
business days after each and every date on which an event occurs in respect of
which Additional Interest is required to be paid (an "Event Date"). Additional
Interest shall be paid by depositing with the Trustee, in trust, for the benefit
of the Holders of Registrable Securities, on or before the
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<PAGE> 12
applicable semiannual interest payment date, immediately available funds in sums
sufficient to pay the Additional Interest then due. The Additional Interest due
shall be payable on each interest payment date to the record Holder of
Securities entitled to receive the interest payment to be paid on such date as
set forth in the Indenture. Each obligation to pay Additional Interest shall be
deemed to accrue from and including the day following the applicable Event Date.
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<PAGE> 13
3. Registration Procedures.
In connection with the obligations of the Company, Finance Corp.
and the Guarantors with respect to Registration Statements pursuant to
Sections 2.1 and 2.2 hereof, the Company, Finance Corp. and the Guarantors
shall:
(a) prepare and file with the SEC a Registration Statement, within
the relevant time period specified in Section 2, on the appropriate form under
the 1933 Act, which form (i) shall be selected by the Company, Finance Corp. and
the Guarantors, (ii) shall, in the case of a Shelf Registration, be available
for the sale of the Registrable Securities by the selling Holders thereof, (iii)
shall comply as to form in all material respects with the requirements of the
applicable form and include or incorporate by reference all financial statements
required by the SEC to be filed therewith or incorporated by reference therein,
and (iv) shall comply in all respects with the requirements of Regulation S-T
under the 1933 Act, and use their best efforts to cause such Registration
Statement to become effective and remain effective in accordance with Section 2
hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement effective for the applicable period; and
cause each Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 (or any similar
provision then in force) under the 1933 Act and comply with the provisions of
the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable
to them with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof
(including sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least five business days prior to filing, that a
Shelf Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable Securities
will be made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) hereby consent to the use
of the Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto;
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<PAGE> 14
(d) use their best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Securities shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, and do any and all other acts and
things which may be reasonably necessary or advisable to enable each such Holder
and underwriter to consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such Holder; provided, however, that the
Company, Finance Corp. and the Guarantors shall not be required to (i) qualify
as a foreign corporation or as a dealer in securities in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3(d), or (ii)
take any action which would subject it to general service of process or taxation
in any such jurisdiction where it is not then so subject;
(e) notify promptly each Holder of Registrable Securities under a
Shelf Registration or any Participating Broker-Dealer who has notified the
Company, Finance Corp. and the Guarantors that it is utilizing the Exchange
Offer Registration Statement as provided in paragraph (f) below and, if
requested by such Holder or Participating Broker-Dealer, confirm such advice in
writing promptly (i) when a Registration Statement has become effective and when
any post-effective amendments and supplements thereto become effective, (ii) of
any request by the SEC or any state securities authority for post-effective
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) in the case of a Shelf Registration,
if, between the effective date of a Registration Statement and the closing of
any sale of Registrable Securities covered thereby, the representations and
warranties of the Company, Finance Corp. or any Guarantor contained in any
underwriting agreement, securities sales agreement or other similar agreement,
if any, relating to the offering cease to be true and correct in all material
respects, (v) of the happening of any event or the discovery of any facts during
the period a Shelf Registration Statement is effective which makes any statement
made in such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein not
misleading, (vi) of the receipt by the Company, Finance Corp. or any Guarantor
of any notification with respect to the suspension of the qualification of the
Registrable Securities or the Exchange Securities, as the case may be, for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose and (vii) of any determination by the Company, Finance Corp. or any
Guarantor that a post-effective amendment to such Registration Statement would
be appropriate;
(f) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution" which section shall be acceptable to Merrill Lynch on behalf of
the Participating Broker-Dealers, and which shall contain a summary statement of
the positions taken or policies made by the staff of the
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<PAGE> 15
SEC with respect to the potential "underwriter" status of any broker-dealer that
holds Registrable Securities acquired for its own account as a result of
market-making activities or other trading activities and that will be the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Securities to be received by such broker-dealer in the Exchange Offer, whether
such positions or policies have been publicly disseminated by the staff of the
SEC or such positions or policies, in the judgment of Merrill Lynch on behalf of
the Participating Broker-Dealers and its counsel, represent the prevailing views
of the staff of the SEC, including a statement that any such broker-dealer who
receives Exchange Securities for Registrable Securities pursuant to the Exchange
Offer may be deemed a statutory underwriter and must deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale of such
Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has
delivered to the Company, Finance Corp. and the Guarantors the notice referred
to in Section 3(e), without charge, as many copies of each Prospectus included
in the Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such Participating
Broker-Dealer may reasonably request, (iii) hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement or any
amendment or supplement thereto, by any Person subject to the prospectus
delivery requirements of the SEC, including all Participating Broker-Dealers, in
connection with the sale or transfer of the Exchange Securities covered by the
Prospectus or any amendment or supplement thereto, and (iv) include in the
transmittal letter or similar documentation to be executed by an exchange
offeree in order to participate in the Exchange Offer (x) the following
provision (or any other provision requested by Merrill Lynch on behalf of the
Participating Broker-Dealers with respect to similar matters):
"If the exchange offeree is a broker-dealer holding Registrable
Securities acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any
resale of Exchange Securities received in respect of such Registrable
Securities pursuant to the Exchange Offer;" and
(y) a statement to the effect that by a broker-dealer making the acknowledgment
described in clause (x) and by delivering a Prospectus in connection with the
exchange of Registrable Securities, the broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the 1933 Act;
(g) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel
for the Holders of Registrable Securities copies of any comment letters received
from the SEC or any other request by the SEC or any state securities authority
for amendments or supplements to a Registration Statement and Prospectus or for
additional information;
(h) make every reasonable effort promptly to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement;
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<PAGE> 16
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, and each underwriter, if any, without charge, at least
one conformed copy of each Registration Statement and any post-effective
amendment thereto, including financial statements and schedules (without
documents incorporated therein by reference and all exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if any, may
reasonably request at least three business days prior to the closing of any sale
of Registrable Securities;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Sections 3(e)(v)
and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an
event, use their best efforts to prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable Securities
or Participating Broker-Dealers, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or will remain so
qualified. At such time as such public disclosure is otherwise made or the
Company and Finance Corp. determine that such disclosure is not necessary, in
each case to correct any misstatement of a material fact or to include any
omitted material fact, the Company, Finance Corp. and the Guarantors agree
promptly to notify each Holder of such determination and to furnish each Holder
such number of copies of the Prospectus as amended or supplemented, as such
Holder may reasonably request;
(l) in the case of a Shelf Registration, a reasonable time prior to
the filing of any Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus or any
document which is to be incorporated by reference into a Registration Statement
or a Prospectus after initial filing of a Registration Statement, provide copies
of such document to the Initial Purchasers on behalf of such Holders; and make
representatives of the Company, Finance Corp. and the Guarantors as shall be
reasonably requested by the Holders of Registrable Securities, or the Initial
Purchasers on behalf of such Holders, available for discussion of such document;
(m) obtain a CUSIP number for all Exchange Securities, Private
Exchange Securities or Registrable Securities, as the case may be, not later
than the effective date of a Registration Statement, and provide the Trustee
with printed certificates for the Exchange
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<PAGE> 17
Securities, Private Exchange Securities or the Registrable Securities, as the
case may be, in a form eligible for deposit with the Depositary;
(n) (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939 (the "TIA") in connection with the registration of the Exchange
Securities or Registrable Securities, as the case may be, (ii) cooperate with
the Trustee and the Holders to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the terms of
the TIA and (iii) execute, and use its best efforts to cause the Trustee to
execute, all documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable the Indenture to
be so qualified in a timely manner;
(o) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders
of such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company, Finance Corp.
and the Guarantors and updates thereof (which counsel and opinions
(in form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, if any, and the holders of a majority in
principal amount of the Registrable Securities being sold) addressed
to each selling Holder and the underwriters, if any, covering the
matters customarily covered in opinions requested in sales of
securities or underwritten offerings and such other matters as may be
reasonably requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's, Finance Corp.'s and the Guarantors' independent
certified public accountants (and, if necessary, any other
independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which
financial statements are, or are required to be, included in the
Registration Statement) addressed to the underwriters, if any, and
use reasonable efforts to have such letter addressed to the selling
Holders of Registrable Securities (to the extent consistent with
Statement on Auditing Standards No. 72 of the American Institute of
Certified Public Accounts), such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters to underwriters in connection with similar underwritten
offerings;
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<PAGE> 18
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement shall
be in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the
same to set forth indemnification provisions and procedures
substantially equivalent to the indemnification provisions and
procedures set forth in Section 4 hereof with respect to the
underwriters and all other parties to be indemnified pursuant to said
Section or, at the request of any underwriters, in the form
customarily provided to such underwriters in similar types of
transactions; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings to the Holders of a majority in principal amount of the
Registrable Securities being sold and the managing underwriters, if
any.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder;
(p) in the case of a Shelf Registration or if a Prospectus is
required to be delivered by any Participating Broker-Dealer in the case of an
Exchange Offer, make available for inspection by representatives of the Holders
of the Registrable Securities, any underwriters participating in any disposition
pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and
any counsel or accountant retained by any of the foregoing, all financial and
other records, pertinent corporate documents and properties of the Company,
Finance Corp. and the Guarantors reasonably requested by any such persons, and
cause the respective officers, directors, employees, and any other agents of the
Company, Finance Corp. and the Guarantors to supply all information reasonably
requested by any such representative, underwriter, special counsel or accountant
in connection with a Registration Statement, and make such representatives of
the Company, Finance Corp. and the Guarantors available for discussion of such
documents as shall be reasonably requested by the Initial Purchasers;
(q) (i) in the case of an Exchange Offer Registration Statement, a
reasonable time prior to the filing of any Exchange Offer Registration
Statement, any Prospectus forming a part thereof, any amendment to an Exchange
Offer Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Initial Purchasers and to counsel to the
Holders of Registrable Securities and make such changes in any such document
prior to the filing thereof as the Initial Purchasers or counsel to the Holders
of Registrable Securities may reasonably request and, except as otherwise
required by applicable
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<PAGE> 19
law, not file any such document in a form to which the Initial Purchasers on
behalf of the Holders of Registrable Securities and counsel to the Holders of
Registrable Securities shall not have previously been advised and furnished a
copy of or to which the Initial Purchasers on behalf of the Holders of
Registrable Securities or counsel to the Holders of Registrable Securities shall
reasonably object, and make the representatives of the Company, Finance Corp.
and the Guarantors available for discussion of such documents as shall be
reasonably requested by the Initial Purchasers; and
(ii) in the case of a Shelf Registration, a reasonable time
prior to filing any Shelf Registration Statement, any Prospectus forming a part
thereof, any amendment to such Shelf Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to the Holders of
Registrable Securities, to the Initial Purchasers, to counsel for the Holders
and to the underwriter or underwriters of an underwritten offering of
Registrable Securities, if any, make such changes in any such document prior to
the filing thereof as the Initial Purchasers, the counsel to the Holders or the
underwriter or underwriters reasonably request and not file any such document in
a form to which the Majority Holders, the Initial Purchasers on behalf of the
Holders of Registrable Securities, counsel for the Holders of Registrable
Securities or any underwriter shall not have previously been advised and
furnished a copy of or to which the Majority Holders, the Initial Purchasers of
behalf of the Holders of Registrable Securities, counsel to the Holders of
Registrable Securities or any underwriter shall reasonably object, and make the
representatives of the Company, Finance Corp. and the Guarantors available for
discussion of such document as shall be reasonably requested by the Holders of
Registrable Securities, the Initial Purchasers on behalf of such Holders,
counsel for the Holders of Registrable Securities or any underwriter.
(r) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange on
which similar debt securities issued by the Company, Finance Corp. or any
Guarantor are then listed if requested by the Majority Holders, or if requested
by the underwriter or underwriters of an underwritten offering of Registrable
Securities, if any;
(s) in the case of a Shelf Registration, use its best efforts to
cause the Registrable Securities to be rated by the appropriate rating agencies,
if so requested by the Majority Holders, or if requested by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any;
(t) otherwise comply with all applicable rules and regulations of the
SEC and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering at least 12 months which shall
satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;
(u) cooperate and assist in any filings required to be made with the
NASD and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any
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<PAGE> 20
underwriter and its counsel (including any "qualified independent underwriter"
that is required to be retained in accordance with the rules and regulations of
the NASD); and
(v) upon consummation of an Exchange Offer or a Private Exchange,
obtain a customary opinion of counsel to the Company, Finance Corp. and the
Guarantors addressed to the Trustee for the benefit of all Holders of
Registrable Securities participating in the Exchange Offer or Private Exchange,
and which includes an opinion that (i) the Company, Finance Corp. and the
Guarantors, as the case may be, have duly authorized, executed and delivered the
Exchange Securities and/or Private Exchange Securities, as applicable, and the
related indenture, and (ii) each of the Exchange Securities and related
indenture constitute a legal, valid and binding obligation of the Company,
Finance Corp. and the Guarantors, as the case may be, enforceable against the
Company, Finance Corp. and the Guarantors, as the case may be, in accordance
with its respective terms (with customary exceptions).
If following the date hereof there has been a change in SEC policy
with respect to exchange offers such as the Exchange Offer, such that in the
opinion of counsel to the Company, Finance Corp. or the Holders there is a
substantial question as to whether the Exchange Offer is permitted by applicable
federal law, the Company, Finance Corp. and the Guarantors hereby agree to seek
a no-action letter or other favorable decision from the SEC allowing the
Company, Finance Corp. and the Guarantors to consummate an Exchange Offer for
the Notes. The Company, Finance Corp. and the Guarantors hereby agree to pursue
the issuance of such a decision to the SEC staff level. In connection with the
foregoing, the Company, Finance Corp. and the Guarantors hereby agree to take
all such other actions as are requested by the SEC or otherwise required in
connection with the issuance of such decision, including without limitation (A)
participating in telephonic conferences with the SEC, (B) delivering to the SEC
staff an analysis prepared by counsel to the Company, Finance Corp. and the
Guarantors, setting forth the legal basis, if any, upon which such counsel has
concluded that such an Exchange Offer shall be permitted and (C) diligently
pursuing a resolution (which need not be favorable) by the SEC staff of such
submission.
In the case of a Shelf Registration Statement, the Company, Finance
Corp. and the Guarantors may (as a condition to such Holder's participation in
the Shelf Registration) require each Holder of Registrable Securities to furnish
to the Company, Finance Corp. and the Guarantors such information regarding the
Holder and the proposed distribution by such Holder of such Registrable
Securities as the Company, Finance Corp. and the Guarantors may from time to
time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company, Finance Corp. and the
Guarantors of the happening of any event or the discovery of any facts, each of
the kind described in Section 3(e)(v) hereof, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to a Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by
the Company,
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<PAGE> 21
Finance Corp. and the Guarantors, such Holder will deliver to the Company,
Finance Corp. and the Guarantors (at their expense) all copies in such Holder's
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice.
If any of the Registrable Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
underwriter or underwriters and manager or managers that will manage such
offering will be selected by the Majority Holders of such Registrable Securities
included in such offering and shall be acceptable to the Company, Finance Corp.
and the Guarantors. No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements. Notwithstanding any other
provision of this Agreement, the Company, Finance Corp. and the Guarantors shall
not be required to effect an underwritten offering unless such underwritten
offering covers not less than $10 million in aggregate principal amount of the
Securities.
4. Indemnification; Contribution.
(a) The Company, Finance Corp. and the Guarantors agree, jointly and
severally, to indemnify and hold harmless each Initial Purchaser, each Holder,
each Participating Broker-Dealer, each Person who participates as an underwriter
(any such Person being an "Underwriter") and each Person, if any, who controls
any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment or supplement thereto) pursuant to which
Exchange Securities or Registrable Securities were registered under the
1933 Act, including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue
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<PAGE> 22
statement or omission, or any such alleged untrue statement or omission;
provided that (subject to Section 4(d) below) any such settlement is
effected with the written consent of the Company and Finance Corp.; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by any indemnified
party), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company,
Finance Corp. or the Guarantors by the Holder or Underwriter expressly for use
in a Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(b) Each Holder severally, but not jointly, agrees to indemnify and
hold harmless the Company, Finance Corp. the Guarantors, each Initial Purchaser,
each Underwriter and the other selling Holders, and each of their respective
directors and officers, and each Person, if any, who controls the Company,
Finance Corp. any of the Guarantors, an Initial Purchaser, any Underwriter or
any other selling Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, against any and all loss, liability, claim, damage
and expense described in the indemnity contained in Section 4(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Shelf Registration Statement (or any
amendment thereto) or any Prospectus included therein (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
with respect to such Holder furnished to the Company, Finance Corp. or the
Guarantors by such Holder expressly for use in the Shelf Registration Statement
(or any amendment thereto) or such Prospectus (or any amendment or supplement
thereto); provided, however, that no such Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder from
the sale of Registrable Securities pursuant to such Shelf Registration
Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought hereunder, but
failure so to notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not materially prejudiced
as a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of such
action; provided,
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<PAGE> 23
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding 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 any
indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4 is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, in such proportion as is appropriate to reflect
the relative fault of the Company, Finance Corp. and the Guarantors on the one
hand and the Holders and the Initial Purchasers on the other hand in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative fault of the Company, Finance Corp. and the Guarantors on the
one hand and the Holders and the Initial Purchasers on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, Finance
Corp., the Guarantors, the Holders or the Initial Purchasers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
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<PAGE> 24
The Company, Finance Corp., the Guarantors, the Holders and the Initial
Purchasers agree that it would not be just and equitable if contribution
pursuant to this Section 4 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 4. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 4 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, an Initial Purchaser
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Securities and Guarantees sold by it were offered
exceeds the amount of any damages which the Initial Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as the
Initial Purchaser or Holder, and each director of the Company, Finance Corp. or
any Guarantor, and each Person, if any, who controls the Company, Finance Corp.
or any Guarantor within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as the Company,
Finance Corp. or such Guarantor.
5. Miscellaneous.
5.1 Rule 144 and Rule 144A. For so long as the Company, Finance Corp.
or any Guarantor is subject to the reporting requirements of Section 13 or 15 of
the 1934 Act, the Company, Finance Corp. and each Guarantor covenant that they
will file the reports required to be filed by them under the 1933 Act and
Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by
the SEC thereunder. If the Company, Finance Corp. and the Guarantors cease to be
so required to file such reports, the Company, Finance Corp. and the Guarantors
covenant that they will upon the request of any Holder of Registrable Securities
(a) make publicly available such information as is necessary to permit sales
pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a
prospective purchaser as is necessary to permit sales pursuant to Rule 144A
under the 1933 Act and it will take such further action as any Holder of
Registrable Securities may reasonably request, and (c) take such further action
that is reasonable in the circumstances, in each case, to the extent required
from time to time to
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<PAGE> 25
enable such Holder to sell its Registrable Securities without registration under
the 1933 Act within the limitation of the exemptions provided by (i) Rule 144
under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule
144A under the 1933 Act, as such Rule may be amended from time to time, or (iii)
any similar rules or regulations hereafter adopted by the SEC. Upon the request
of any Holder of Registrable Securities, the Company, Finance Corp. and the
Guarantors will deliver to such Holder a written statement as to whether they
have complied with such requirements.
5.2 No Inconsistent Agreements. The Company, Finance Corp. and each
Guarantor have not entered into and the Company, Finance Corp. and each
Guarantor will not after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not and will not for the term of
this Agreement in any way conflict with the rights granted to the holders of the
Company's, Finance Corp.'s and each Guarantors' other issued and outstanding
securities under any such agreements.
5.3 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company, Finance Corp. and the Guarantors have
obtained the written consent of Holders of at least a majority in aggregate
principal amount of the outstanding Registrable Securities affected by such
amendment, modification, supplement, waiver or departure.
5.4 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given by such Holder to
the Company, Finance Corp. and the Guarantors by means of a notice given in
accordance with the provisions of this Section 5.4, which address initially is
the address set forth in the Purchase Agreement with respect to the Initial
Purchasers; and (b) if to the Company, Finance Corp. or any Guarantor, initially
at the Company's, Finance Corp.'s or such Guarantor's address set forth in the
Purchase Agreement, and thereafter at such other address of which notice is
given in accordance with the provisions of this Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and on the next
business day if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
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<PAGE> 26
5.5 Successor and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such person shall be entitled to
receive the benefits hereof.
5.6 Third Party Beneficiaries. Each Initial Purchaser (even if the
Initial Purchaser is not a Holder of Registrable Securities) shall be a third
party beneficiary to the agreements made hereunder between the Company, Finance
Corp. and the Guarantors, on the one hand, and the Holders, on the other hand,
and shall have the right to enforce such agreements directly to the extent they
deem such enforcement necessary or advisable to protect their rights or the
rights of Holders hereunder. Each Holder of Registrable Securities shall be a
third party beneficiary to the agreements made hereunder between the Company,
Finance Corp. and the Guarantors, on the one hand, and the Initial Purchasers,
on the other hand, and shall have the right to enforce such agreements directly
to the extent it deems such enforcement necessary or advisable to protect its
rights hereunder.
5.7. Specific Enforcement. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company, Finance Corp. and the
Guarantors acknowledge that any failure by the Company, Finance Corp. and the
Guarantors to comply with their obligations under Sections 2.1 through 2.4
hereof may result in material irreparable injury to the Initial Purchasers or
the Holders for which there is no adequate remedy at law, that it would not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Company's, Finance Corp.'s and
the Guarantors' obligations under Sections 2.1 through 2.4 hereof.
5.8. Restriction on Resales. Until such time as the Issuers and the
Guarantors have consummated an Exchange Offer (as defined in the Registration
Rights Agreement), during the period of two years after the original issuance of
the Securities and the Guarantees, the Company, Finance Corp. and the Guarantors
will not, and will cause their "affiliates" (as such term is defined in Rule
144(a)(1) under the 1933 Act) not to, resell any Securities and Guarantees which
are "restricted securities" (as such term is defined under Rule 144(a)(3) under
the 1933 Act) that have been reacquired by any of them and
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<PAGE> 27
shall immediately upon any purchase of any such Securities and Guarantees submit
such Securities and Guarantees to the Trustee for cancellation.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.10 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.12 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
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<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
Very truly yours,
SLEEPMASTER L.L.C.
By: Charles Schweitzer, its Managing Member
By_______________________________________________
Name:
Title:
SLEEPMASTER FINANCE CORPORATION
By_______________________________________________
Name:
Title:
HERR MANUFACTURING COMPANY
By_______________________________________________
Name:
Title:
PALM BEACH BEDDING COMPANY
By_______________________________________________
Name:
Title:
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<PAGE> 29
LOWER ROAD ASSOCIATES LLC
By_______________________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
FIRST UNION CAPITAL MARKETS CORP.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By _________________________________________________
Authorized Signatory
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<PAGE> 1
EXHIBIT 10.2
SLEEPMASTER L.L.C. (a New Jersey limited liability company)
SLEEPMASTER FINANCE CORPORATION (a Delaware corporation)
HERR MANUFACTURING COMPANY (a Pennsylvania corporation)
PALM BEACH BEDDING COMPANY (a Florida corporation)
LOWER ROAD ASSOCIATES, LLC (a New Jersey limited liability
company)
$115,000,000
11% Senior Subordinated Notes due 2009
PURCHASE AGREEMENT
Dated: May 12, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PURCHASE AGREEMENT ........................................................................................................ 1
SECTION 1. Representations and Warranties ........................................................................ 3
(a) Representations and Warranties by the Issuers and the Guarantors .................................... 3
(i) Similar Offerings .......................................................................... 3
(ii) Offering Memorandum ....................................................................... 4
(iii) Independent Accountants .................................................................. 4
(iv) Financial Statements ...................................................................... 4
(v) No Material Adverse Change in Business ..................................................... 5
(vi) Good Standing of the Company .............................................................. 6
(vii) Good Standing of Finance Corp. .......................................................... 6
(viii) Good Standing of Subsidiaries ........................................................... 6
(ix) Good Standing of Holdings ................................................................ 7
(x) Capitalization ............................................................................. 7
(xi) Authorization of Agreements ............................................................... 8
(xii) Authorization of the Indenture ........................................................... 9
(xiii) Authorization of the Securities and the Guarantees ...................................... 9
(xiv) Authorization of the Credit Agreement .................................................... 9
(xv) Authorization of the Acquisition Agreement ............................................... 10
(xvi) Description of the Securities, the Guarantees and the Indenture .......................... 10
(xvii) Absence of Defaults and Conflicts ....................................................... 10
(xviii) Absence of Labor Disputes .............................................................. 11
(xix) Absence of Proceedings ................................................................... 12
(xx) Possession of Intellectual Property ....................................................... 12
(xxi) Absence of Further Requirements .......................................................... 13
(xxii) Possession of Licenses and Permits ...................................................... 13
(xxiii) Title to Property ...................................................................... 14
(xxiv) Tax Returns ............................................................................. 14
(xxv) Insurance ................................................................................ 15
(xxvi) Solvency ................................................................................ 15
(xxvii) Stabilization or Manipulation .......................................................... 14
(xxviii) Related Party Transactions ............................................................ 15
(xxix) Suppliers ............................................................................... 16
(xxx) Environmental Laws ....................................................................... 16
(xxxi) Registration Rights .................................................................... 16
</TABLE>
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<TABLE>
<S> <C>
(xxxii) Accounting Controls .................................................................... 17
(xxxiii) Investment Company Act ............................................................... 17
(xxxiv) Rule 144A Eligibility .................................................................. 17
(xxxv) No General Solicitation ................................................................ 17
(xxxvi) No Registration Required .............................................................. 17
(xxxvii) No Directed Selling Efforts .......................................................... 17
(xxxviii) PORTAL .............................................................................. 18
(xxxix) Year 2000 Disclosures ................................................................. 18
(b) Officer's Certificates .............................................................................. 18
SECTION 2. Sale and Delivery to Initial Purchasers; Closing ............................................................... 18
(a) Securities and Guarantees .................................................................................... 18
(b) Payment ...................................................................................................... 19
(c) Qualified Institutional Buyer ................................................................................ 19
(d) Denominations; Registration .................................................................................. 20
SECTION 3. Covenants of the Issuers and the Guarantors .................................................................... 20
(a) Offering Memorandum .......................................................................................... 20
(b) Notice and Effect of Material Events ......................................................................... 20
(c) Amendment to Offering Memorandum and Supplements ............................................................. 20
(d) Qualification of Securities and Guarantees for Offer and Sale ............................................... 21
(e) Integration .................................................................................................. 21
(f) Rating of Securities ......................................................................................... 21
(g) Rule 144A Information ........................................................................................ 21
(h) Restriction on Resales ....................................................................................... 21
(i) Use of Proceeds .............................................................................................. 22
(j) Restriction on Sale of Securities ............................................................................ 22
(k) DTC Clearance ................................................................................................ 22
(l) Legends ...................................................................................................... 22
(m) Interim Financial Statements ................................................................................. 22
(n) Periodic Reports ............................................................................................. 22
SECTION 4. Payment of Expenses ............................................................................................ 23
(a) Expenses 23
(b) Termination of Agreement ..................................................................................... 23
SECTION 5. Conditions of Initial Purchasers' Obligations .................................................................. 23
(a) Opinions of Counsel for the Issuers and the Guarantors ....................................................... 24
(b) Opinion of Counsel for the Initial Purchasers ................................................................ 24
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
(c) Officers' Certificate ........................................................................................ 24
(d) Accountant's Comfort Letter and Consent ...................................................................... 25
(e) Bring-down Comfort Letter .................................................................................... 25
(f) Maintenance of Rating ........................................................................................ 25
(g) PORTAL ....................................................................................................... 25
(h) Chief Financial Officer's Certificate ........................................................................ 25
(i) Registration Rights Agreement, Indenture and Pledge and Escrow Agreement ..................................... 25
(j) Credit Agreement ............................................................................................. 26
(k) Preferred Membership Interests ............................................................................... 26
(l) Additional Documents ......................................................................................... 26
(m) Termination of Agreement ..................................................................................... 26
SECTION 6. Indemnification ....................................................................................... 27
(a) Indemnification of Initial Purchasers ............................................................... 27
(b) Indemnification of Issuers, Guarantors, and Directors ............................................... 28
(c) Actions against Parties; Notification ............................................................... 28
(d) Settlement without Consent if Failure to Reimburse .................................................. 29
SECTION 7. Contribution .......................................................................................... 29
SECTION 8. Representations, Warranties and Agreements to Survive Delivery ........................................ 30
SECTION 9. Termination of Agreement .............................................................................. 31
(a) Termination; General ................................................................................ 31
(b) Liabilities ......................................................................................... 31
SECTION 10. Default by One or More of the Initial Purchasers ..................................................... 31
SECTION 11. Notices .............................................................................................. 32
SECTION 12. Parties .............................................................................................. 32
SECTION 13. Governing Law and Time ............................................................................... 33
SECTION 14. Effect of Headings ............................................................................................ 33
</TABLE>
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<PAGE> 5
-iv-
<PAGE> 6
Schedule A--Initial Purchasers
Schedule B--Guarantors
Schedule C--Securities
Exhibit A--Form of Opinions
Exhibit B--Form of Comfort Letter
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<PAGE> 7
$115,000,000
SLEEPMASTER L.L.C. (a New Jersey limited liability company)
SLEEPMASTER FINANCE CORPORATION (a Delaware corporation)
HERR MANUFACTURING COMPANY (a Pennsylvania corporation)
PALM BEACH BEDDING COMPANY (a Florida corporation)
LOWER ROAD ASSOCIATES, LLC (a New Jersey limited liability
company)
PURCHASE AGREEMENT
May 12, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
First Union Capital Markets Corp.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Sleepmaster L.L.C., a New Jersey limited liability company (the
"Company"), Sleepmaster Finance Corporation, a Delaware corporation ("Finance
Corp." and, together with the Company, the "Issuers"), and each of the
Guarantors listed on Schedule B hereto (the "Guarantors") confirm their
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Initial Purchasers
named in Schedule A hereto (collectively, the "Initial Purchasers," which term
shall also include any initial purchaser substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch is acting as representative (in such
capacity, the "Representative"), with respect to (i) the issue and sale by the
Issuers, jointly and severally, and the purchase by the Initial Purchasers,
acting severally and not jointly, of
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<PAGE> 8
the respective principal amounts set forth in said Schedule A of $115,000,000
aggregate principal amount of the Issuers' Senior Subordinated Notes due 2009
(the "Securities") and (ii) the issue and sale by the Guarantors and the
purchase by the Initial Purchasers, acting severally and not jointly, of the
senior subordinated guarantees (the "Guarantees") of the Issuers' obligations
under the Securities. The Securities and the Guarantees are to be issued
pursuant to an indenture dated as of May 18, 1999 (the "Indenture") among the
Issuers, the Guarantors and United States Trust Company of New York, as trustee
(the "Trustee"). Securities and Guarantees issued in book-entry form will be
issued to Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant
to a letter agreement, to be dated as of or prior to the Closing Time (as
defined in Section 2(b)) (the "DTC Agreement"), among the Issuers, the Trustee
and DTC.
The Issuers and the Guarantors understand that the Initial Purchasers
propose to make an offering of the Securities and the Guarantees on the terms
and in the manner set forth herein and agree that the Initial Purchasers may
resell, subject to the conditions set forth herein, all or a portion of the
Securities and the Guarantees to purchasers ("Subsequent Purchasers") at any
time after the date of this Agreement. The Securities and the Guarantees are to
be offered and sold through the Initial Purchasers without being registered
under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities, the Guarantees
and the Indenture, investors that acquire Securities and Guarantees may only
resell or otherwise transfer such Securities and Guarantees if such Securities
and Guarantees are hereafter registered under the 1933 Act or if an exemption
from the registration requirements of the 1933 Act is available (including the
exemption afforded by Rule 144A ("Rule 144A") or Regulation S ("Regulation S")
of the rules and regulations promulgated under the 1933 Act by the Securities
and Exchange Commission (the "Commission")).
The Issuers and the Guarantors have prepared and delivered to each
Initial Purchaser copies of a preliminary offering memorandum dated April 30,
1999 (the "Preliminary Offering Memorandum") and have prepared and will deliver
to each Initial Purchaser, on the date hereof or the next succeeding day, copies
of a final offering memorandum dated May 12, 1999 (the "Final Offering
Memorandum"), each to be used by such Initial Purchaser in connection with its
solicitation of purchases of, or offering of, the Securities and the Guarantees.
"Offering Memorandum" means, with respect to any date or time referred to in
this Agreement, the most recent offering memorandum (whether the Preliminary
Offering Memorandum or the Final Offering Memorandum, or any amendment or
supplement to either such document), including exhibits thereto, which has been
prepared and delivered by the Issuers and the Guarantors to the Initial
Purchasers in connection with their solicitation of purchases of, or offering
of, the Securities and the Guarantees.
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<PAGE> 9
Simultaneously with the consummation of the offer and sale of the
Securities and the Guarantees, (1) the Issuers and the Guarantors will enter
into a credit agreement (the "Credit Agreement") with First Union National Bank,
as agent, and (2) the Company will consummate the acquisition of substantially
all of the assets of Star Bedding Products (1986) Limited (the "Star
Acquisition") pursuant to an asset purchase agreement, dated as of April 8, 1999
(the "Acquisition Agreement"), with Star Bedding Products Limited.
If the Star Acquisition is not consummated simultaneously with the
offer and sale of the Securities and the Guarantees (the "Offering"), then
pending consummation of the Star Acquisition, $15.4 million of the net proceeds
(the "Escrow Funds") from the sale of the Securities will be held by the Trustee
in an escrow and pledge account (the "Escrow and Pledge Account") pursuant to a
Pledge and Escrow Agreement among the Company, Finance Corp. and the Trustee
(the "Pledge and Escrow Agreement"). The Escrow Funds will be required to be
invested in Cash Equivalents (as defined in the Pledge and Escrow Agreement).
The Company and Finance Corp. will be permitted to obtain release of the Escrow
Funds in accordance with the Pledge and Escrow Agreement upon consummation of
the Star Acquisition. Upon the earlier to occur of (i) termination of the
Acquisition Agreement and (ii) 60 days after the Issue Date (as defined in the
Offering Memorandum), if the Escrow Funds have not been released by that time,
$15 million aggregate principal amount of the outstanding Securities will be
subject to a Special Mandatory Redemption (as defined in the Offering
Memorandum) upon seven days' prior written notice to the Holders with the Escrow
Funds at a redemption price equal to 101% of the principal amount plus accrued
and unpaid interest, if any, to the date of redemption.
The holders of the Securities and the Guarantees will be entitled to
the benefits of the registration rights agreement to be dated as of the Closing
Time (the "Registration Rights Agreement"), among the Issuers, the Guarantors
and the Initial Purchasers, pursuant to which the Issuers and the Guarantors
will agree to file a registration statement with the Commission registering the
Exchange Securities (as defined in the Registration Rights Agreement) under the
1933 Act.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Issuers and the Guarantors.
Each of the Issuers and each of the Guarantors, jointly and severally, represent
and warrant to each Initial Purchaser as of the date hereof and as of the
Closing Time referred to in Section 2(b) hereof, and agree with each Initial
Purchaser as follows:
(i) Similar Offerings. The Issuers and the Guarantors have
not, directly or indirectly, solicited any offer to buy or offered to
sell, and will not, directly or indirectly, solicit any offer to buy or
offer to sell, in the United States or to any United States citizen or
resident, any security which is or would be integrated with
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<PAGE> 10
the sale of the Securities and the Guarantees in a manner that would
require the Securities or the Guarantees to be registered under the
1933 Act.
(ii) Offering Memorandum. The Offering Memorandum does not,
and at the Closing Time will not, include 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, that this
representation, warranty and agreement shall not apply to statements in
or omissions from the Offering Memorandum made in reliance upon and in
conformity with information furnished to the Issuers and the Guarantors
in writing by any Initial Purchaser through Merrill Lynch expressly for
use in the Offering Memorandum.
(iii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Offering Memorandum are independent certified public accountants with
respect to the Issuers, the Guarantors and their respective
subsidiaries within the meaning of Regulation S-X under the 1933 Act.
(iv) Financial Statements. The financial statements of the
Company, together with the related schedules and notes, included in the
Offering Memorandum present fairly the financial position of the
Company and its consolidated subsidiaries at the dates indicated and
the statements of income, changes in members' equity and cash flows of
the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity
with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved. The
financial statements of Palm Beach Bedding Company ("Palm Beach"),
together with the related schedules and notes, included in the Offering
Memorandum present fairly the financial position of Palm Beach and its
consolidated subsidiaries at the dates indicated and the statements of
income, changes in shareholders' equity and cash flows of Palm Beach
and its consolidated subsidiaries for the periods specified; said
financial statements have been prepared in conformity with United
States GAAP applied on a consistent basis throughout the periods
involved. The financial statements of Herr Manufacturing Company
("Herr"), together with the related schedules and notes, included in
the Offering Memorandum present fairly the financial position of Herr
and its consolidated subsidiaries at the dates indicated and the
statements of income, changes in shareholders' equity and cash flows of
Herr and its consolidated subsidiaries for the periods specified; said
financial statements have been prepared in conformity with United
States GAAP applied on a consistent basis throughout the periods
involved. The financial statements of Star, together with the related
schedules and notes, included in the
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<PAGE> 11
Offering Memorandum present fairly the financial position of Star and
its consolidated subsidiaries at the dates indicated and the statements
of income, changes in shareholders' equity and cash flows of Star and
its consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with United States GAAP
applied on a consistent basis throughout the periods involved. The
selected financial data and the summary financial information included
in the Offering Memorandum present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the Offering Memorandum. The pro forma
financial statements of the Company and its subsidiaries and the
related notes thereto, and the other pro forma financial information
included in the Offering Memorandum, present fairly the information
shown therein, have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements
included in a registration statement under the 1933 Act and have been
properly compiled on the bases described therein, and the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein. The financial statements included in
the Offering Memorandum are the only financial statements which would
be required by Regulation S-X to be included in the Offering Memorandum
if the Offering Memorandum was a registration statement on Form S-1.
The selected financial information included in the Offering Memorandum
for the years ending and as of December 31, 1995 and December 31, 1994
have been derived from the Company's 1995 and 1994 financial statements
and were prepared in accordance with United States GAAP and the
requirements of Regulation S-X under the Securities Act.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein or contemplated thereby,
(A) there has been no material adverse change in the condition
(financial or otherwise), earnings, business affairs or business
prospects of Sleepmaster Holdings L.L.C., a New Jersey limited
liability company ("Holdings"), the Issuers and their respective
Subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business (a "Material Adverse Effect"), (B)
there have been no transactions entered into by either of the Issuers,
any of their respective Subsidiaries or Holdings, other than those in
the ordinary course of business, which are material with respect to the
Issuers and their Subsidiaries considered as one enterprise, and (C)
there has been no dividend or distribution of any kind declared, paid
or made by either Issuer or Holdings on any class of its capital stock
or other equity interest.
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<PAGE> 12
(vi) Good Standing of the Company. The Company has been duly
formed and is validly existing as a limited liability company in good
standing under the laws of the State of New Jersey and has power and
authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and to enter into and
perform its obligations under this Agreement, the Registration Rights
Agreement, the Indenture, the Securities, the Exchange Securities, the
Credit Agreement, the Acquisition Agreement, the Pledge and Escrow
Agreement (if the Star Acquisition is not consummated simultaneously
with the Offering) and the DTC Agreement and to enter into and
consummate all the transactions in connection therewith as contemplated
in the Offering Memorandum; and the Company is duly qualified as a
foreign limited liability company to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to
be in good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Finance Corp. Finance Corp. has been
duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum and to
enter into and perform its obligations under this Agreement, the
Registration Rights Agreement, the Indenture, the Securities, the
Exchange Securities, the Credit Agreement, the Pledge and Escrow
Agreement (if the Star Acquisition is not consummated simultaneously
with the Offering) and the DTC Agreement and to enter into and
consummate all the transactions in connection therewith as contemplated
in the Offering Memorandum.
(viii) Good Standing of Subsidiaries. Each subsidiary of the
Company or of Finance Corp. (each a "Subsidiary" and collectively the
"Subsidiaries") has been duly organized or formed and is validly
existing as a corporation or limited liability company in good standing
under the laws of the jurisdiction of its incorporation or existence,
has power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum and is
duly qualified as a foreign corporation or limited liability company to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the Offering
Memorandum, all of the issued and outstanding capital stock or
membership interests (or other equity interests) of each Subsidiary has
been duly authorized and validly issued, is fully paid and
non-assessable and is
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<PAGE> 13
owned by the Company or Finance Corp., directly or through the
Subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock or membership interests (or other equity
interests) of the Subsidiaries was issued in violation of any
preemptive or similar rights arising by operation of law, or under the
charter, by-laws or other charter documents of any Subsidiary or under
any agreement to which any of the Issuers or any Subsidiary is a party.
All of the Subsidiaries of the Company are listed on Schedule B
attached hereto.
(ix) Good Standing of Holdings. Membership interests in the
Company are 99.9% owned by Holdings and 0.1% owned by Sleep Investor
LLC, a Delaware limited liability company ("Investor"). Holdings has
been duly formed and is validly existing as a limited liability company
in good standing under the laws of the State of New Jersey and has
power and authority to own, lease and operate its properties and to
conduct its business as described in the Offering Memorandum; and
Holdings is duly qualified as a foreign limited liability company to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
result in a material adverse effect with respect to Holdings.
(x) Capitalization. The authorized, issued and outstanding
membership interests of the Company were at the date indicated in the
Offering Memorandum as set forth in the financial statements, including
the schedules and notes, included in the Offering Memorandum. The
issued and outstanding membership interests of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding membership interests of the
Company were issued in violation of the preemptive or other similar
rights of any equity holder of the Company arising by operation of law,
under the charter, by-laws, certificate of formation, limited liability
company agreement or other organizational documents of the Company,
under any agreement to which the Company or any of the Subsidiaries is
a party or otherwise. The issued and outstanding capital stock of
Finance Corp. has been duly authorized and validly issued and are fully
paid and non-assessable; all of the capital stock of Finance Corp. is
owned by the Company; and none of the outstanding shares of capital
stock of Finance Corp. were issued in violation of the preemptive or
other similar rights of any securityholder of Finance Corp. arising by
operation of law, under the charter, by-laws or other organizational
documents of Finance Corp., under any agreement to which Finance Corp.
or any of the Subsidiaries is a party or otherwise. The authorized,
issued and outstanding membership interests of
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<PAGE> 14
Holdings were at the date indicated in the Offering Memorandum as set
forth in the Offering Memorandum. The issued and outstanding membership
interests of Holdings have been duly authorized and validly issued and
are fully paid and non-assessable; and none of the outstanding
membership interests of Holdings were issued in violation of the
preemptive or other similar rights of any equity holder of Holdings
arising by operation of law, under the charter, by-laws, certificate of
formation, limited liability company agreement or other organizational
documents of Holdings, under any agreement to which Holdings or any of
its subsidiaries is a party or otherwise. The authorized, issued and
outstanding membership interests of Investor were at the date indicated
in the Offering Memorandum as set forth in the Offering Memorandum.
(xi) Authorization of Agreements. This Agreement and the
Registration Rights Agreement have each been duly authorized by each of
the Issuers and each of the Guarantors. The DTC Agreement has been duly
authorized by each of the Issuers. This Agreement has been, and as of
the Closing Time the Registration Rights Agreement will have been, duly
executed and delivered by each of the Issuers and each of the
Guarantors. Upon the execution and delivery thereof by the Issuers and
each of the Guarantors, the Registration Rights Agreement will
constitute the valid and binding obligation of each of the Issuers and
each of the Guarantors, enforceable against each of the Issuers and
each of the Guarantors in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting
enforcement of creditors' rights generally or by general principles of
equity. As of the Closing Time, the DTC Agreement will have been duly
executed and delivered by each of the Issuers and will constitute the
valid and binding obligation of each of the Issuers, enforceable
against the Issuers in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization or
other similar laws relating to or affecting enforcement of creditors'
rights generally or by general principles of equity.
If the Star Acquisition is not consummated simultaneously with
the Offering, (x) as of the Closing Time, the Pledge and Escrow
Agreement will have been duly authorized, executed and delivered by the
Company and Finance Corp. and will constitute the valid and binding
obligation of each of the Company and Finance Corp., enforceable
against the Company and Finance Corp., as the case may be, in
accordance with its terms, and (y) at the time of the deposit of the
Escrow Funds into the Escrow and Pledge Account (as defined in the
Pledge and Escrow Agreement), the pledge of the Collateral (as defined
in the Pledge and Escrow Agreement) securing the payment of the Secured
Obligations (as defined in the Pledge and Escrow Agreement) for the
benefit of the Trustee and the
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<PAGE> 15
Holders of the Securities will constitute a first priority perfected
security interest in such Collateral, enforceable in accordance with
the Uniform Commercial Code as in effect on the date hereof in the
State of New York (the "UCC") against the Company, Finance Corp.,
Holdings and all creditors of the Company, Finance Corp. or Holdings
and any persons purporting to purchase any of the Collateral from the
Company, Finance Corp. or Holdings.
(xii) Authorization of the Indenture. The Indenture has been
duly authorized by each of the Issuers and each of the Guarantors and,
at the Closing Time, will have been duly executed and delivered by each
of the Issuers and each of the Guarantors and will constitute a valid
and binding agreement of each of the Issuers and each of the
Guarantors, enforceable against each of the Issuers and each of the
Guarantors in accordance with its terms.
(xiii) Authorization of the Securities and the Guarantees. The
Securities have been duly authorized by each of the Issuers and, at the
Closing Time, will have been duly executed and delivered by each of the
Issuers and, when authenticated in the manner provided for in the
Indenture, will constitute valid and binding obligations of each of the
Issuers, enforceable against each of the Issuers in accordance with
their terms, and will be in the form contemplated by, and entitled to
the benefits of, the Indenture. The Guarantees have been duly
authorized by the Guarantors and, at the Closing Time, will have been
duly executed and delivered by the Guarantors and, when authenticated
in the manner provided for in the Indenture, will constitute valid and
binding obligations of the Guarantors, enforceable against the
Guarantors in accordance with their terms, and will be in the form
contemplated by, and entitled to the benefits of, the Indenture. The
Exchange Securities have been duly authorized by each of the Issuers
and each of the Guarantors and, when executed and authenticated and
issued and delivered by each of the Issuers and each of the Guarantors
in exchange for the Securities and the Guarantees pursuant to the
Exchange Offer (as defined in the Registration Rights Agreement), will
constitute valid and binding obligations of each of the Issuers and
each of the Guarantors, enforceable against each of the Issuers and
each of the Guarantors in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting
enforcement of creditors' rights generally or by general principles of
equity.
(xiv) Authorization of the Credit Agreement. The Credit
Agreement has been duly authorized by each of the Issuers and the
Guarantors and, at the Closing Time, will have been duly executed and
delivered by each of the Issuers and each of the Guarantors and will
constitute a valid and binding obligation of each of the Issuers and
each of the Guarantors, enforceable against each of the Issuers and
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<PAGE> 16
each of the Guarantors in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting
enforcement of creditors' rights generally or by general principles of
equity.
(xv) Authorization of the Acquisition Agreement. The
Acquisition Agreement has been duly authorized, executed and delivered
by each of the parties thereto and constitutes a valid and binding
obligation of the parties thereto, enforceable against the parties
thereto in accordance with its terms. The representations and
warranties included in the Acquisition Agreement are true and correct
as of the date hereof and will be true and correct as of the Closing
Time. The Company and the Guarantors have no reason to believe that any
of the covenants included in the Acquisition Agreement have been
breached or that the conditions to closing included in the Acquisition
Agreement have not been or will not be satisfied prior to the Closing
Time.
(xvi) Description of the Securities, the Guarantees and the
Indenture. The Securities, the Guarantees, the Indenture, the
Registration Rights Agreement, the Pledge and Escrow Agreement (if the
Star Acquisition is not consummated simultaneously with the Offering)
and the Credit Agreement will conform in all material respects to the
respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms previously
delivered to the Initial Purchasers. The Exchange Securities will
conform in all material respects to the statements relating thereto
contained in the Offering Memorandum and the Registration Statement at
the time it becomes effective. There are no contracts or documents
which are required to be described in a registration statement on Form
S-1 under the 1933 Act which have not been described in the Offering
Memorandum.
(xvii) Absence of Defaults and Conflicts. Neither of the
Issuers nor any of the Subsidiaries is in violation of its charter,
by-laws, certificate of formation, limited liability company agreement
or other organizational documents or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, license,
loan or credit agreement, note, lease or other agreement or instrument
to which Holdings, either of the Issuers or any of the Subsidiaries is
a party or by which any of them may be bound, or to which any of the
property or assets of Holdings, the Issuers or any of the Subsidiaries
is subject (collectively, "Agreements and Instruments") or has violated
or is in violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Issuers
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<PAGE> 17
or any of the Subsidiaries or any of their assets or properties, except
in each case for such defaults or violations that would not result in a
Material Adverse Effect.
The execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Indenture, the DTC Agreement, the
Credit Agreement, the Acquisition Agreement, the Pledge and Escrow
Agreement (if the Star Acquisition is not consummated simultaneously
with the Offering), the Securities, the Guarantees, the Exchange
Securities and any other agreement or instrument entered into or issued
or to be entered into or issued by either of the Issuers or any of the
Guarantors in connection with the transactions contemplated hereby or
thereby or in the Offering Memorandum or in connection with the
consummation of the transactions contemplated herein and in the
Offering Memorandum (including the issuance and sale of the Securities
and the Guarantees and the use of the proceeds from the sale of the
Securities and the Guarantees as described in the Offering Memorandum
under the caption "Use of Proceeds") and compliance by the Issuers and
the Guarantors with their respective obligations hereunder have been
duly authorized by all necessary corporate or member action and do not
and will not, whether with or without the giving of notice or passage
of time or both, conflict with or constitute a breach of, or default or
a Repayment Event (as defined below) under, or (other than as
contemplated by the Credit Agreement and, if the Star Acquisition is
not consummated simultaneously with the Offering, the Pledge and Escrow
Agreement) result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of either of the Issuers or any
of the Subsidiaries pursuant to, the Agreements and Instruments, nor
will such action result in any violation of the provisions of the
charter, by-laws, certificate of formation or limited liability company
agreement or other organizational documents of either Issuer or any of
the Subsidiaries or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
either Issuer or any of the Subsidiaries or any of their assets or
properties. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or
a portion of such indebtedness by either Issuer or any of the
Subsidiaries.
(xviii) Absence of Labor Disputes. No labor dispute with the
employees of either Issuer or any of the Subsidiaries exists or, to the
knowledge of the Issuers and the Guarantors, is imminent, and the
Issuers and the Guarantors are not aware of any existing or imminent
labor disturbance by the employees of any of their or any of the
Subsidiaries' principal suppliers, manufacturers, customers or
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<PAGE> 18
contractors, which, in either case, would reasonably be expected to
result in a Material Adverse Effect.
(xix) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation, in each case before or by any
court or governmental agency or body, domestic or foreign, now pending,
or, to the knowledge of the Issuers or any Guarantor, threatened,
against or affecting Holdings, the Issuers or any of the Subsidiaries
which, singly or in the aggregate, might reasonably be expected to
result in a Material Adverse Effect, or which, singly or in the
aggregate, might reasonably be expected to materially and adversely
affect the properties or assets of the Issuers or any of the
Subsidiaries or the consummation of this Agreement or the performance
by either Issuer or any of the Guarantors of their respective
obligations hereunder or under the Securities, the Guarantees, the
Exchange Securities, the Registration Rights Agreement, the Indenture,
the Credit Agreement, the Pledge and Escrow Agreement (if the Star
Acquisition is not consummated simultaneously with the Offering) or the
Acquisition Agreement. The aggregate of all pending legal or
governmental proceedings to which Holdings, either Issuer or any of the
Subsidiaries is a party or of which any of their respective property or
assets is the subject which are not described in the Offering
Memorandum, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
(xx) Possession of Intellectual Property. The Issuers and the
Subsidiaries own, possess or license, or can acquire on reasonable
terms, adequate 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, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither Issuer nor
any of the Subsidiaries has received any notice or is otherwise aware
of any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property (including Intellectual Property
which is licensed) or of any facts or circumstances which would render
any Intellectual Property invalid or inadequate to protect the interest
of the Issuers or any of the Subsidiaries therein, and which
infringement or conflict or invalidity or inadequacy, singly or in the
aggregate, would reasonably be expected to result in a Material Adverse
Effect. All of the agreements pursuant to which the Company, Finance
Corp. or any of its Subsidiaries license Intellectual Property from
third parties (the "License Agreements") have been duly authorized,
executed and delivered by the Company, Finance Corp. or such Subsidiary
and (assuming due authorization, execution and delivery by the other
parties thereto) constitute valid and binding agreements of the
Company, Finance Corp. or such Subsidiary, enforceable against the
Company, Finance Corp. or such Subsidiary in
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accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law). Neither
the Company, Finance Corp. nor any of the Subsidiaries is in violation
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any such License
Agreement, nor has the Company, Finance Corp. or any of the
Subsidiaries received notice from any third party that the Company,
Finance Corp. or any of the Subsidiaries is in violation or in default
in the performance or observance of any obligation, agreement, covenant
or condition contained in any such License Agreement, except for any
violation or default which, singly or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect.
(xxi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by either Issuer or
any of the Guarantors of their respective obligations hereunder, in
connection with the offering, issuance or sale of the Securities and
the Guarantees hereunder or the consummation of the transactions
contemplated by or for the due execution, delivery or performance of
this Agreement, the Registration Rights Agreement, the Indenture, the
DTC Agreement, the Credit Agreement, the Acquisition Agreement, the
Pledge and Escrow Agreement (if the Star Acquisition is not consummated
simultaneously with the Offering), the Securities, the Guarantees, the
Exchange Securities or any other agreement or instrument entered into
or issued or to be entered into or issued by either Issuer or any of
the Subsidiaries in connection with the consummation of the
transactions contemplated herein and in the Offering Memorandum
(including the issuance and sale of the Securities and the Guarantees
and the use of the proceeds from the sale of the Securities and the
Guarantees as described in the Offering Memorandum under the caption
"Use of Proceeds"), except such as have been already obtained or as may
be required under state securities laws.
(xxii) Possession of Licenses and Permits. The Issuers and the
Subsidiaries possess all governmental permits, licenses, approvals,
consents, certificates and other authorizations (collectively,
"Governmental Licenses") issued by the appropriate federal, state,
local or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them respectively; the Issuers and the
Subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses and with the rules and regulations of the
regulatory authorities and governing bodies having jurisdiction with
respect thereto, except where the failure so to comply would not,
singly or in the
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aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and none of the Issuers or any of the
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses, nor are
there, to the knowledge of either Issuer or any Guarantor, pending or
threatened actions, suits, claims or proceedings against either Issuer
or any Subsidiary before any court, governmental agency or body or
otherwise that would reasonably be expected to limit, revoke, cancel,
suspend or cause not to be renewed any Governmental License, in each
case, which, singly or in the aggregate, would result in a Material
Adverse Effect.
(xxiii) Title to Property. The Issuers and the Subsidiaries
have good and marketable title to all real property owned by the
Issuers and the Subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Offering Memorandum or (b)
do not, singly or in the aggregate, 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 Issuers or any of the Subsidiaries; and all of
the leases and subleases material to the business of the Issuers and
the Subsidiaries, considered as one enterprise, and under which the
Issuers or any of the Subsidiaries holds properties described in the
Offering Memorandum, are in full force and effect, and neither of the
Issuers nor any of the Subsidiaries has any notice of any material
claim of any sort that has been asserted by anyone adverse to the
rights of either Issuer or any of the Subsidiaries under any of the
leases or subleases mentioned above, or affecting or questioning the
rights of either Issuer or any Subsidiary to the continued possession
of the leased or subleased premises under any such lease or sublease.
(xxiv) Tax Returns. All United States federal income tax
returns of the Issuers and the Subsidiaries required by law to be filed
have been filed and all taxes shown by such returns or otherwise
assessed, which are due and payable, have been paid, except assessments
against which appeals have been or will be promptly taken and as to
which adequate reserves have been provided. The Issuers and the
Subsidiaries have filed all other tax returns that are required to have
been filed by them pursuant to applicable foreign, federal, state,
local or other law except insofar as the failure to file such returns
would not result in a Material Adverse Effect, and have paid all taxes
due pursuant to such returns or pursuant to any assessment received by
the Issuers and the Subsidiaries, except for such taxes, if any, as are
being contested in good faith and by appropriate proceedings and as to
which adequate reserves have been provided. The charges, accruals and
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reserves on the books of the Issuers in respect of all federal, state,
local and foreign tax liabilities of the Issuers and each Subsidiary
for any years not finally determined are adequate to meet any
assessments or re-assessments for additional income tax for any years
not finally determined, except to the extent of any inadequacy that
would not result in a Material Adverse Effect.
(xxv) Insurance. The Issuers and the Subsidiaries carry or are
entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts, containing such deductibles and
covering such risks as is generally maintained by companies of
established repute engaged in the same or similar business, and all
such insurance is in full force and effect.
(xxvi) Solvency. The Company and each of the Guarantors is,
and immediately after the Closing will be, Solvent. As used herein, the
term "Solvent" means, with respect to the Company and each Guarantor,
as the case may be, on a particular date, that on such date (A) the
fair market value of the assets of the Company or such Guarantor is
greater than the total amount of liabilities (including contingent
liabilities) of the Company or such Guarantor, (B) the present fair
salable value of the assets of the Company or such Guarantor is greater
than the amount that will be required to pay the probable liabilities
of the Company or such Guarantor on its debts as they become absolute
and mature, (C) the Company or such Guarantor is able to realize upon
its assets and pay its debts and other liabilities, including
contingent obligations, as they mature, and (D) the Company or such
Guarantor does not have unreasonably small capital.
(xxvii) Stabilization or Manipulation. Neither of the Issuers
nor any Guarantor nor any of their respective officers, directors or
controlling persons has taken, directly or indirectly, any action
designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of either Issuer or any
Guarantor in order to facilitate the sale or resale of the Securities
or the Guarantees. The Issuers and the Guarantors have not distributed
and, prior to the later to occur of (i) the Closing Time and (ii)
completion of the distribution of the Securities and the Guarantees,
will not distribute any offering material in connection with the
offering and sale of the Securities and the Guarantees other than the
Offering Memorandum or other materials, if any, permitted by the 1933
Act and approved by the Representative.
(xxviii) Related Party Transactions. No relationship, direct
or indirect, exists between or among any of Holdings, the Issuers, the
Guarantors or any affiliate of Holdings, the Issuers or any Guarantor,
on the one hand, and any director, officer, stockholder, customer or
supplier of any of them, on the other
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<PAGE> 22
hand, which is required by the 1933 Act or by the rules and regulations
enacted thereunder to be described in a registration statement on Form
S-1 which is not so described or is not described as required in the
Offering Memorandum.
(xxix) Suppliers. No supplier of merchandise to either Issuer
or any of the Subsidiaries has ceased shipments of merchandise to
either Issuer or any of the Subsidiaries, other than in the normal and
ordinary course of business consistent with past practices, which
cessation would not result in a Material Adverse Effect.
(xxx) Environmental Laws. Except such matters as would not,
singly or in the aggregate, result in a Material Adverse Effect, (A)
neither of the Issuers nor any of the Subsidiaries is in violation of
any federal, state, local or foreign statute, law, rule, regulation,
ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products or
nuclear or radioactive material (collectively, "Hazardous Materials")
or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials
(collectively, "Environmental Laws"), (B) the Issuers and the
Subsidiaries have all permits, licenses, authorizations and approvals
currently required for their respective businesses under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against either of the Issuers or any
of the Subsidiaries and (D) there are no events, facts or circumstances
that might reasonably be expected to form the basis of any liability or
obligation of the Issuers or any of the Subsidiaries, including,
without limitation, any order, decree, plan or agreement requiring
clean-up or remediation, or any action, suit or proceeding by any
private party or governmental body or agency, against or affecting
either Issuer or any of the Subsidiaries relating to any Hazardous
Materials or Environmental Laws.
(xxxi) Registration Rights. There are no holders of securities
(debt or equity) of Holdings, either Issuer or any Guarantor, or
holders of rights (including, without limitation, preemptive rights),
warrants or options to obtain securities of Holdings, either Issuer or
any Guarantor, who in connection with the issuance, sale and delivery
of the Securities, the Guarantees and the Exchange Securities, if any,
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and the execution, delivery and performance of this Agreement and the
Registration Rights Agreement, have the right to request either Issuer
or any Guarantor to register securities held by them under the 1933
Act.
(xxxii) Accounting Controls. The Company and its consolidated
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xxxiii) Investment Company Act. The Company, Finance Corp.
and each of the Guarantors is not, and upon the issuance and sale of
the Securities and the Guarantees as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum 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 "1940 Act").
(xxxiv) Rule 144A Eligibility. The Securities and the
Guarantees are eligible for resale pursuant to Rule 144A and will not
be, at the Closing Time, of the same class as securities listed on a
national securities exchange registered under Section 6 of the 1934
Act, or quoted in a U.S. automated interdealer quotation system.
(xxxv) No General Solicitation. None of the Company, Finance
Corp. or the Guarantors, or any person acting on any of their behalf
(other than the Initial Purchasers, as to whom the Issuers and the
Guarantors make no representation), has engaged or will engage, in
connection with the offering of the Securities and the Guarantees, in
any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the 1933 Act.
(xxxvi) No Registration Required. Assuming the accuracy of the
Initial Purchasers' representations, warranties and agreements set
forth in Section 2(c) hereof, it is not necessary in connection with
the offer, sale and delivery of the Securities and the Guarantees to
the Initial Purchasers and to each Subsequent Purchaser in the manner
contemplated by this Agreement and the Offering Memorandum to register
the Securities and the Guarantees under the 1933 Act or
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to qualify the Indenture under the Trust Indenture Act of 1939, as
amended (the "1939 Act").
(xxxvii) No Directed Selling Efforts. With respect to those
Securities and Guarantees sold in reliance on Regulation S, (A) none of
the Issuers, the Guarantors, any of their respective affiliates (as
used in Regulation S) or any person acting on their behalf (other than
the Initial Purchasers, as to whom the Issuers and the Guarantors make
no representation) has engaged or will engage in any directed selling
efforts within the meaning of Regulation S and (B) each of the Issuers,
the Guarantors, any of their respective affiliates (as used in
Regulation S) and any person acting on their behalf (other than the
Initial Purchasers, as to whom the Issuers and the Guarantors make no
representation) has complied and will comply with the offering
restrictions requirement of Regulation S.
(xxxviii) PORTAL. There are no securities of either Issuer or
any of the Guarantors which are of the same class as the Securities or
the Guarantees that are listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a United
States automated inter dealer quotation system. The Issuers and the
Guarantors have been advised by the National Association of Securities
Dealers, Inc. PORTAL Market that the Securities and the Guarantees will
be designated PORTAL eligible securities in accordance with the rules
and regulations of the National Association of Securities Dealers, Inc.
(xxxix) Year 2000 Disclosures. All disclosure regarding year
2000 compliance that is required to be described in a registration
statement on Form S-1 under the 1933 Act and the 1933 Act Regulations
(including disclosures required by SEC Release No. 33-7558 (July 29,
1998) and SEC Release No. 33-7609 (November 9, 1998)) has been included
in the Offering Memorandum. Neither the Issuers or the Guarantors nor
any of the Subsidiaries will incur material operating expenses or costs
to ensure that its information systems will be year 2000 compliant,
other than as disclosed in the Offering Memorandum.
(b) Officer's Certificates. Any certificate signed by any officer of
either Issuer, any of the Guarantors or any of the Subsidiaries delivered to the
Initial Purchasers or to counsel for the Initial Purchasers shall be deemed a
representation and warranty by either Issuer, any of the Guarantors or any of
the Subsidiaries to each Initial Purchaser as to the matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Securities and Guarantees. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the
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<PAGE> 25
Issuers and the Guarantors agree to sell to each Initial Purchaser, severally
and not jointly, and each Initial Purchaser, severally and not jointly, agrees
to purchase from the Issuers and the Guarantors, at the price set forth in
Schedule C, the aggregate principal amount of Securities (including the
Guarantees) set forth in Schedule A opposite the name of such Initial Purchaser,
plus any additional principal amount of Securities (including the Guarantees)
which such Initial Purchaser may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities and the Guarantees shall be made at the office
of Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022, or at such
other place as shall be agreed upon by the Representative, the Issuers and the
Guarantors at 9:00 A.M. (New York Time) on the fourth business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the Representative, the Issuers and the Guarantors (such time and
date of payment and delivery being herein called the "Closing Time").
Payment shall be made to the Issuers and the Guarantors by wire
transfer of immediately available funds to a bank account designated by the
Issuers and the Guarantors, against delivery to the respective accounts of the
Initial Purchasers of certificates for the Securities and the Guarantees to be
purchased by them. It is understood that each Initial Purchaser has authorized
the Representative, for its account, to accept delivery of, receipt for, and
make payment of the purchase price for, the Securities and the Guarantees which
it has agreed to purchase. Merrill Lynch, individually and not as representative
of the Initial Purchasers, may (but shall not be obligated to) make payment of
the purchase price for the Securities and the Guarantees to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder. The certificates representing the Securities and the Guarantees shall
be registered in the name of Cede & Co. pursuant to the DTC Agreement, or
physical certificates representing the Securities and the Guarantees shall be
registered in the names and denominations requested by the Initial Purchasers,
and in either case shall be made available for examination and packaging by the
Initial Purchasers in The City of New York not later than 9:00 A.M. on the last
business day prior to the Closing Time.
(c) Qualified Institutional Buyer. Each Initial Purchaser severally and
not jointly represents and warrants to, and agrees with, the Issuers and each of
the Guarantors that it (i) is a "qualified institutional buyer" within the
meaning of Rule 144A under the 1933 Act (a "Qualified Institutional Buyer") and
an "accredited investor" within the meaning of Rule 501(a) under the 1933 Act
(an "Accredited Investor"), (ii) has not and will not solicit offers for, or
offer or sell, Securities (or Guarantees) by means of any
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<PAGE> 26
general solicitation or general advertising within the meaning of Rule 502(c)
under Regulation D under the 1933 Act and (iii) will offer and sell the
Securities and Guarantees only to (a) persons who it reasonably believes are
Qualified Institutional Buyers or (b) non-U.S. persons pursuant to offers and
sales that occur outside the United States within the meaning of Regulation S.
(d) Denominations; Registration. Certificates for the Securities
(including the Guarantees) shall be in such denominations ($1,000 or integral
multiples thereof) and registered in such names as the Representative may
request in writing at least one full business day before the Closing Time.
SECTION 3. Covenants of the Issuers and the Guarantors. The Issuers and
the Guarantors, jointly and severally, covenant with each Initial Purchaser as
follows:
(a) Offering Memorandum. The Issuers and the Guarantors, as promptly as
possible, will furnish to each Initial Purchaser, without charge, such number of
copies of the Preliminary Offering Memorandum, the Final Offering Memorandum and
any amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Issuers and the
Guarantors will promptly notify each Initial Purchaser, and confirm such notice
in writing, of (x) any filing made by any Issuer or any Guarantor of information
relating to the offering of the Securities and the Guarantees with any
securities exchange or any other regulatory body in the United States or any
other jurisdiction, and (y) prior to the completion of the placement of the
Securities and the Guarantees by the Initial Purchasers, any material changes in
or affecting the earnings, business affairs or business prospects of the Issuers
and the Subsidiaries, considered as one enterprise, which (i) make any statement
in the Offering Memorandum or any document incorporated by reference in the
Offering Memorandum false or misleading or (ii) are not disclosed in the
Offering Memorandum. In such event or if during such time any event shall occur
or condition shall exist as a result of which it is necessary, in the opinion of
the Issuers and the Guarantors, their counsel, the Initial Purchasers or counsel
for the Initial Purchasers, to amend or supplement the Final Offering Memorandum
in order that the Final Offering Memorandum not include any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances then
existing, the Issuers and the Guarantors will forthwith amend or supplement the
Final Offering Memorandum by preparing and furnishing to each Initial Purchaser
an amendment or amendments of, or a supplement or supplements to, the Final
Offering Memorandum (in form and substance satisfactory in the reasonable
opinion of counsel for the Initial Purchasers) so that, as so amended or
supplemented, the Final Offering Memorandum will not include an untrue statement
of a material fact or omit to
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<PAGE> 27
state a material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered to a Subsequent
Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Issuers and
the Guarantors will advise each Initial Purchaser promptly of any proposal to
amend or supplement the Offering Memorandum and will not effect such amendment
or supplement without the consent of the Initial Purchasers. Neither the consent
of the Initial Purchasers to, nor the Initial Purchaser's delivery of, any such
amendment or supplement, shall constitute a waiver of any of the conditions set
forth in Section 5 hereof.
(d) Qualification of Securities and Guarantees for Offer and Sale. The
Issuers and the Guarantors will use their best efforts to register or qualify
the Securities and the Guarantees for offering and sale under the applicable
securities laws of such jurisdictions as the Representative may reasonably
designate and will maintain such qualifications in effect as long as required
for the sale of the Securities and the Guarantees; provided, however, that the
Issuers and the Guarantors shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject.
(e) Integration. The Issuers and the Guarantors agree that they will
not and will cause their affiliates not to make any offer or sale of securities
of either Issuer or any Guarantor of any class if, as a result of the doctrine
of "integration" referred to in Rule 502 under the 1933 Act, such offer or sale
could be deemed to render invalid (for the purpose of (i) the sale of the
Securities and the Guarantees by the Issuers and the Guarantors to the Initial
Purchasers, (ii) the resale of the Securities and the Guarantees by the Initial
Purchasers to Subsequent Purchasers or (iii) the resale of the Securities and
the Guarantees by such Subsequent Purchasers to others) the exemption from the
registration requirements of the 1933 Act provided by Section 4(2) thereof or by
Rule 144A or by Regulation S thereunder or otherwise.
(f) Rating of Securities. The Issuers and the Guarantors shall take all
reasonable action necessary to enable Standard & Poor's Corporation ("S&P"), and
Moody's Investors Service, Inc. ("Moody's"), to provide their respective credit
ratings of the Securities and the Guarantees.
(g) Rule 144A Information. The Issuers and the Guarantors agree that,
in order to render the Securities and the Guarantees eligible for resale
pursuant to Rule 144A under the 1933 Act, while any of the Securities and the
Guarantees remain outstanding, they will make available, upon request, to any
holder of Securities and Guarantees or
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<PAGE> 28
prospective purchasers of Securities and Guarantees the information specified in
Rule 144A(d)(4), unless the Issuers and the Guarantors furnish information to
the Commission pursuant to Section 13 or 15(d) of the 1934 Act (such
information, whether made available to holders or prospective purchasers or
furnished to the Commission, is hereinafter referred to as "Additional
Information").
(h) Restriction on Resales. Until such time as the Issuers and the
Guarantors have consummated an Exchange Offer (as defined in the Registration
Rights Agreement), during the period of two years after the original issuance of
the Securities and the Guarantees, the Issuers and the Guarantors will not, and
will cause their "affiliates" (as such term is defined in Rule 144(a)(1) under
the 1933 Act) not to, resell any Securities and Guarantees which are "restricted
securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act)
that have been reacquired by any of them and shall immediately upon any purchase
of any such Securities and Guarantees submit such Securities and Guarantees to
the Trustee for cancellation.
(i) Use of Proceeds. The Issuers and the Guarantors will use the net
proceeds received by them from the sale of the Securities and the Guarantees in
the manner specified in the Offering Memorandum under "Use of Proceeds." If the
Star Acquisition is not consummated simultaneously with the Offering, then
pending consummation of the Star Acquisition, the Escrow Funds (which consist of
$15.4 million of the net proceeds from the sale of the Securities) will be held
by the Trustee in the Escrow and Pledge Account pursuant to the Pledge and
Escrow Agreement. The Company and Finance Corp. will release the Escrow Funds in
accordance with the Pledge and Escrow Agreement only upon consummation of the
Star Acquisition.
(j) Restriction on Sale of Securities. During a period of 180 days from
the date of the Offering Memorandum, the Issuers and the Guarantors will not,
without the prior written consent of Merrill Lynch, directly or indirectly,
issue, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of, or file a registration statement with respect to, any debt
securities or securities convertible into or exchangeable or exercisable for
debt securities of Holdings, either Issuer or any Guarantor or guarantees of any
such securities (other than the Securities, the Guarantees and the Exchange
Securities).
(k) DTC Clearance. The Issuers and the Guarantors will use all
reasonable efforts in cooperation with the Initial Purchasers to permit the
Securities and the Guarantees to be eligible for clearance and settlement
through DTC.
(l) Legends. Each certificate for a Security (including the Guarantee)
will bear the legend contained in "Notice to Investors" in the Offering
Memorandum for the time period and upon the other terms stated in the Offering
Memorandum.
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(m) Interim Financial Statements. Prior to the Closing Time, the
Issuers shall furnish to the Initial Purchasers copies of any unaudited interim
financial statements of the Issuers, promptly after they have been completed,
for any periods subsequent to the periods covered by the financial statements
appearing in the Offering Memorandum.
(n) Periodic Reports. For a period of five years after the Closing
Time, the Issuers and the Guarantors will furnish to the Initial Purchasers
copies of all annual reports, quarterly reports and current reports filed with
the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may
be designated by the Commission, and such other documents, reports and
information as shall be furnished by the Issuers and the Guarantors generally to
the holders of the Securities and the Guarantees or to security holders of its
publicly issued securities generally.
SECTION 4. Payment of Expenses.
(a) Expenses. The Issuers and the Guarantors, jointly and severally,
will pay all expenses incident to the performance of their respective
obligations under this Agreement, including (i) the preparation, printing and
any filing of the Offering Memorandum and the Registration Statement (including
financial statements and any schedules or exhibits) and of each amendment or
supplement thereto, including the preliminary prospectuses and the prospectus to
be contained in the Registration Statement, (ii) the preparation, printing and
delivery to the Initial Purchasers of this Agreement, the Registration Rights
Agreement, the Indenture and such other documents as may be required in
connection with the offering, purchase, sale and delivery of the Securities and
the Guarantees, (iii) the preparation, issuance and delivery of the certificates
for the Securities and the Guarantees to the Initial Purchasers, including any
charges of DTC in connection therewith, (iv) the fees and disbursements of the
Issuers' and the Guarantors' counsel, accountants and other advisors, (v) the
qualification of the Securities and the Guarantees under securities laws in
accordance with the provisions of Section 3(d) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Initial Purchasers in
connection therewith and in connection with the preparation of the Blue Sky
Survey or any supplement thereto (which fees and disbursements shall not exceed
$15,000), (vi) the fees and expenses of the Trustee, including the fees and
disbursements of counsel for the Trustee in connection with the Indenture, the
Securities and the Guarantees and (vii) any fees payable in connection with the
rating of the Securities and the Guarantees and the listing of the Securities
and the Guarantees with the Private Offerings, Resales and Trading Through
Automated Linkages ("PORTAL") market.
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(b) Termination of Agreement. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 5 or Section 9(a)(i)
or 9(a)(ii) hereof, the Issuers and the Guarantors, jointly and severally, shall
reimburse the Initial Purchasers for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Initial
Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Issuers and the Guarantors
contained in Section 1 hereof or in certificates of any officer of the Issuers
or any of the Subsidiaries, to the performance by the Issuers and the Guarantors
of their covenants and other obligations hereunder, and to the following further
conditions:
(a) Opinion of Counsel for the Issuers and the Guarantors. At the
Closing Time, the Initial Purchasers shall have received the favorable opinion,
dated as of the Closing Time, of (1) Kirkland & Ellis, counsel for the Issuers
and the Guarantors, (2) Shanley & Fisher, New Jersey counsel for the Issuers and
the Guarantors, (3) Barley, Snyder, Senft & Cohen, LLC, Pennsylvania counsel for
the Issuers and the Guarantors, (4) Greenberg Traurig, P.A., Florida counsel for
the Issuers and the Guarantors and (5) Stewart McKelvey Stirling Scales,
Canadian counsel for the Issuers and the Guarantors, in each case in form and
substance satisfactory to counsel for the Initial Purchasers, together with
signed or reproduced copies of such letters for each of the other Initial
Purchasers to the effect set forth in Exhibit A hereto and to such further
effect as counsel to the Initial Purchasers may reasonably request.
(b) Opinion of Counsel for the Initial Purchasers. At the Closing Time,
the Initial Purchasers shall have received the favorable opinion, dated as of
the Closing Time, of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Initial Purchasers, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers, with respect to certain matters set forth
in paragraphs (1), (3), (4), (5), (6), (7), (8), (12) (solely as to the
information in the Offering Memorandum under "Description of the Notes") and the
second paragraph following paragraph (18) of Exhibit A-1 hereto. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the federal law of
the United States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the Representative, including counsel of
the Issuers. Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Issuers, the Guarantors and the Subsidiaries and
certificates of public officials.
(c) Officers' Certificate. At the Closing Time, (i) the Offering
Memorandum, as it may then be amended or supplemented, shall not contain an
untrue statement of a
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material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) there shall not
have been, since the respective dates as of which information is given in the
Offering Memorandum, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the Issuers and
of the Subsidiaries, considered as one enterprise, whether or not arising in the
ordinary course of business; (iii) the Issuers and the Guarantors shall have
complied with all agreements and satisfied all conditions on their part to be
performed or satisfied at or prior to the Closing Time; and (iv) the
representations and warranties of the Issuers and the Guarantors in Section 1
shall be accurate and true and correct as though expressly made at and as of the
Closing Time. At the Closing Time, the Initial Purchasers shall have received a
certificate of the Chief Executive Officer of the Issuers and the Chief
Financial Officer of the Issuers, and equivalent officials of each Guarantor,
dated as of the Closing Time, to such effect.
(d) Accountant's Comfort Letter.. At the time of the execution of this
Agreement, the Initial Purchasers shall have received from
PricewaterhouseCoopers LLP a letter dated such date, in form and substance
satisfactory to the Representative or to counsel for the Initial Purchasers,
together with signed or reproduced copies of such letter for each of the other
Initial Purchasers, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to Initial Purchasers with respect to
the financial statements and certain financial information contained in the
Offering Memorandum and in the form of Exhibit B attached hereto. At the time of
the execution of this Agreement, the Company shall have received from
PricewaterhouseCoopers LLP a report on their review of the pro forma financial
information included in the Offering Memorandum substantially in the form of
Exhibit B of the Statement on Standards for Attestation Engagements No. 1,
Reporting on Pro Forma Financial Information (AT Section 300.04), in form and
substance satisfactory to the Initial Purchasers.
(e) Bring-down Comfort Letter. At the Closing Time, the Initial
Purchasers shall have received from PricewaterhouseCoopers LLP a letter, dated
as of the Closing Time, to the effect that they reaffirm the statements made in
the letter furnished pursuant to subsection (d) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(f) Maintenance of Rating. At the Closing Time, the Securities and the
Guarantees shall be rated at least B3 by Moody's and B- by S&P, and the Issuers
and the Guarantors shall have delivered to the Representative a letter dated the
Closing Time, from each such rating agency, or other evidence satisfactory to
the Representative, confirming that the Securities and the Guarantees have such
ratings; and since the date of this Agreement, there shall not have occurred a
downgrading in the rating assigned to the Securities and the Guarantees or any
Issuer's or Guarantor's other debt securities by any nationally recognized
securities rating agency, and no such securities rating agency shall
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have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of the Securities and the Guarantees or any of
either Issuer's and any Guarantor's other debt securities.
(g) PORTAL. At the Closing Time, the Securities and the Guarantees
shall have been designated for trading on PORTAL.
(h) Chief Financial Officer's Certificate. At the Closing Time, the
Initial Purchasers shall have received a certificate of the principal financial
officer of the Issuers and the Guarantors as to certain agreed upon accounting
matters.
(i) Registration Rights Agreement, Indenture and Pledge and Escrow
Agreement. Each of the Issuers and each of the Guarantors shall have duly
authorized, executed and delivered the Registration Rights Agreement, the
Indenture and, if the Star Acquisition is not consummated simultaneously with
the Offering, as of the Closing Time, the Pledge and Escrow Agreement will have
been duly authorized, executed and delivered to the Initial Purchasers in a form
and substance satisfactory to the Representative and counsel to the Initial
Purchasers. If the Star Acquisition is not consummated simultaneously with the
Offering, (x) the Company and Finance Corp. shall have deposited $15.4 million
of the net proceeds of the sale of the Securities in the Escrow and Pledge
Account, (b) the Company and Finance Corp. shall have taken all steps necessary
to establish escrow and pledge arrangements in form and substance satisfactory
to the Representative and (c) the Company and Finance Corp. shall have provided
to the Trustee written instructions to invest the Escrow Funds in Cash
Equivalents (as defined in the Pledge and Escrow Agreement).
(j) Credit Agreement. At the Closing Time and upon consummation of
transactions contemplated hereby, the Issuers and the Guarantors shall have
received the Credit Agreement, in substantially the form previously delivered to
the Initial Purchasers and as described in the Offering Memorandum, executed by
all of the parties thereto, and the Credit Agreement shall be in full force and
effect, enforceable against the Issuers and each of the Guarantors in accordance
with its terms. At the Closing Time, the Issuers and the Guarantors shall have
terminated or amended the Letter of Credit and Reimbursement Agreement, dated as
of April 1, 1996, by and between Palm Beach Bedding Company and First Union
National Bank of Florida, as amended on March 3, 1998, to permit Palm Beach
Bedding Company to guarantee the Securities.
(k) Preferred Membership Interests. At the Closing Time, the Issuers
and the Guarantors shall have received all required consents and approvals to
change the respective Scheduled Redemption Dates of the preferred membership
interests of each of the Company, Investors and Holdings to November 14, 2009.
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(l) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may require (including any consents under any agreements to which either Issuer
or any Guarantor is a party) for the purpose of enabling them to pass upon the
issuance and sale of the Securities and the Guarantees as herein contemplated,
or in order to evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions, herein contained; and
all proceedings taken by the Issuers and the Guarantors in connection with the
issuance and sale of the Securities and the Guarantees as herein contemplated
shall be satisfactory in form and substance to the Initial Purchasers and
counsel for the Initial Purchasers.
(m) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representative by notice to the Issuers at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 6 and 7 shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Initial Purchasers. Each of the Issuers and each
of the Guarantors, jointly and severally, agree to indemnify and hold harmless
each Initial Purchaser and each person, if any, who controls any Initial
Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Preliminary Offering Memorandum or the Final Offering Memorandum (or
any amendment or supplement thereto (including any document
incorporated by reference into the Preliminary Offering Memorandum or
Final Offering Memorandum)), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the Issuers; and
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(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Issuers or the
Guarantors by any Initial Purchaser through Merrill Lynch expressly for use in
the Offering Memorandum (or any amendment thereto).
(b) Indemnification of Issuers, Guarantors, and Directors. Each Initial
Purchaser severally agrees to indemnify and hold harmless the Issuers, the
Guarantors and their directors (or, in the case of a limited liability company,
advisors), each officer of the Issuers and Guarantors who would have been
required to sign a registration statement on Form S-1 if the Offering Memorandum
was a registration statement on Form S-1, and each person, if any, who controls
the Issuers or the Guarantors within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Offering Memorandum in
reliance upon and in conformity with written information furnished to the
Issuers or the Guarantors by such Initial Purchaser through Merrill Lynch
expressly for use in the Offering Memorandum.
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Issuers. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties
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be liable for fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding 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 any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Issuers and the
Guarantors on the one hand and the Initial Purchasers on the other hand from the
offering of the Securities and the Guarantees pursuant to this Agreement or (ii)
if the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuers and
the Guarantors on the one hand and of the Initial Purchasers on the other hand
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
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The relative benefits received by the Issuers and the Guarantors on the
one hand and the Initial Purchasers on the other hand in connection with the
offering of the Securities and the Guarantees pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities and the Guarantees pursuant to this
Agreement (before deducting expenses) received by the Issuers and the Guarantors
and the total underwriting discount received by the Initial Purchasers, bear to
the aggregate initial offering price of the Securities and the Guarantees.
The relative fault of the Issuers and the Guarantors on the one hand
and the Initial Purchasers on the other hand shall be determined by reference
to, among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Issuers or the Guarantors, or by the Initial
Purchasers, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Issuers, the Guarantors and the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Initial 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
Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities (including the Guarantees) underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which such Initial Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director or
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advisor of either Issuer and each Guarantor, each officer of the Issuers and
Guarantors who would have been required to sign a registration statement on Form
S-1 if the Offering Memorandum was a registration statement on Form S-1, and
each person, if any, who controls either Issuer and each Guarantor within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Issuers and each Guarantor. The Initial
Purchasers' respective obligations to contribute pursuant to this Section 7 are
several in proportion to the principal amount of Securities (including the
Guarantees) set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of either Issuer or any of the
Subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any Initial
Purchaser or controlling person, or by or on behalf of either Issuer or any
Guarantor, and shall survive delivery of the Securities (including the
Guarantees) to the Initial Purchasers.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representative may terminate this
Agreement, by notice to the Issuers and the Guarantors, at any time at or prior
to the Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Offering Memorandum, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the Issuers and
the Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there shall have occurred a downgrading
in the rating assigned to the Securities or the Guarantees or either Issuer's or
any Guarantor's other debt securities by any nationally recognized securities
rating agency, or if such securities rating agency shall have publicly announced
that it has under surveillance or review, with possible negative implications,
its rating of the Securities, the Guarantees or any Issuer's or Guarantor's
other debt securities or guarantees of debt securities, or (iii) if there has
occurred any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Representative, impracticable to market the Securities or
the Guarantees or to enforce contracts for the sale of the Securities or the
Guarantees, or (iv) if trading in any securities of either Issuer or any
Guarantor has been suspended or limited by the Commission or the NASDAQ National
Market System, or if trading
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generally on the American Stock Exchange or the New York Stock Exchange or in
the NASDAQ National Market System has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (v) if a banking moratorium has been declared by
either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6 and 7 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Initial Purchasers. If one or
more of the Initial Purchasers shall fail at Closing Time to purchase the
Securities which it or they are obligated to purchase under this Agreement (the
"Defaulted Securities"), the Representative shall have the right, but not the
obligation, within 24 hours thereafter, to make arrangements for one or more of
the non-defaulting Initial Purchasers, or any other initial purchasers, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then
(a) if the number of Defaulted Securities does not exceed 10%
of the aggregate principal amount of the Securities to be purchased
hereunder, each of the non-defaulting Initial Purchasers shall be
obligated, severally and not jointly, to purchase the full amount
thereof in the proportions that their respective obligations hereunder
bear to the obligations of all non-defaulting Initial Purchasers, or
(b) if the number of Defaulted Securities exceeds 10% of the
aggregate principal amount of the Securities to be purchased hereunder,
this Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representative, the Issuers or the Guarantors
shall have the right to postpone the Closing Time for a period not exceeding
seven days in order to effect any required changes in the Offering Memorandum or
in any other documents or arrangements. As used herein, the term "Initial
Purchaser" includes any person substituted for an Initial Purchaser under this
Section 10.
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SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of High Yield Capital
Markets, with a copy to Fried, Frank, Harris, Shriver & Jacobson, 1 New York
Plaza, New York, New York 10004, attention of Valerie Ford Jacob, Esq.; notices
to the Issuers or the Guarantors shall be directed to them at c/o Sleepmaster
L.L.C., 2001 Lower Road, Linden, New Jersey 07036-6520, attention of Charles
Schweitzer and James P. Koscica, with a copy to Kirkland & Ellis, Citicorp
Center, 153 East 53rd Street, New York, New York 10022-4675, attention of Lance
Balk, Esq.
SECTION 12. Parties. This Agreement shall inure to the benefit of and
be binding upon the Initial Purchasers, the Issuers and the Guarantors and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Initial Purchasers, the Issuers and the Guarantors and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Initial
Purchasers, the Issuers and the Guarantors and their respective successors, and
said controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities and Guarantees from any Initial Purchaser shall be
deemed to be a successor by reason merely of such purchase.
SECTION 13. Governing Law and Time. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY HEREIN REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Issuers and the Guarantors a
counterpart hereof, whereupon this instrument, along with all counterparts, will
become a binding agreement among the Initial Purchasers, the Issuers and the
Guarantors in accordance with its terms.
Very Truly Yours,
SLEEPMASTER L.L.C.
By
----------------------------------
Name:
Title:
SLEEPMASTER FINANCE CORPORATION
By
----------------------------------
Name:
Title:
HERR MANUFACTURING COMPANY
By
----------------------------------
Name:
Title:
PALM BEACH BEDDING COMPANY
By
----------------------------------
Name:
Title:
LOWER ROAD ASSOCIATES, LLC
By
----------------------------------
Name:
Title:
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<PAGE> 41
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
FIRST UNION CAPITAL MARKETS CORP.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
---------------------------------------
Authorized Signatory
For itself and the other Initial Purchasers named in Schedule A hereto.
-35-
<PAGE> 42
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
Name of Initial Purchaser of Securities
- ------------------------- -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated .......... $
First Union Capital Markets Corp............................. $
Total: $115,000,000
============
</TABLE>
- 1 -
<PAGE> 43
SCHEDULE B
Guarantors
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>
Palm Beach Bedding Company Florida
Herr Manufacturing Company Pennsylvania
Lower Road Associates, LLC New Jersey
</TABLE>
- 1 -
<PAGE> 44
SCHEDULE C
SLEEPMASTER, L.L.C.
SLEEPMASTER CORPORATION
$115,000,000 Senior Subordinated Notes due 2009
1. The initial offering price of the Securities (including the
Guarantees) shall be 100% of the principal amount thereof, plus accrued
interest, if any, from the date of issuance.
2. The purchase price to be paid by the Initial Purchasers for the
Securities and the Guarantees shall be 97% of the principal amount thereof.
3. The interest rate on the Securities shall be 11% per annum.
4. The interest payment dates of the Securities shall be May 15 and
November 15 of each year, commencing November 15, 1999.
5. The Securities and the Guarantees will be subject to redemption at
any time on or after May 15, 2004, at the option of the Issuers and the
Guarantors, at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning May 15 of
the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2004 105.500%
2005 103.667%
2006 101.833%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due on
an interest payment date).
6. In addition, at any time prior to May 15, 2002, the Issuers and the
Guarantors, at their option, may use the net proceeds of one or more Public
Equity Offerings (as defined in the Offering Memorandum) to redeem up to an
aggregate of 35% of the aggregate principal amount of the Securities and the
Guarantees issued under the
- 1 -
<PAGE> 45
Indenture at a redemption price equal to 111% of the aggregate principal amount
of the Securities and the Guarantees redeemed, plus accrued and unpaid interest
thereon, if any, to the redemption date. At least 65% of the aggregate principal
amount of the Securities and the Guarantees must remain outstanding immediately
after the occurrence of such redemption.
7. The Securities may be redeemed at any time prior to May 15, 2004, at
the option of the Issuers, in whole and not in part, within 60 days after a
Change in Control, on not less than 30 nor more than 60 days' prior notice to
each holder of Securities to be redeemed, in amounts of $1,000 or an integral
multiple of $1,000, at a redemption price equal to the sum of (1) 100% of the
principal amount thereof plus (2) accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders of record on relevant record
dates to receive interest due on an interest payment date) plus (3) the
Applicable Premium, if any. In no event will the redemption price of the
Securities be less than 105.5% (the redemption price for the Securities on May
15, 2004) of the principal amount of the Securities, plus accrued interest to
the applicable redemption date.
- 2 -
<PAGE> 46
Exhibit A
FORM OF OPINION OF KIRKLAND & ELLIS TO
BE DELIVERED PURSUANT TO SECTION 5(a)
May 18, 1999
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
First Union Capital Markets Corp.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center
North Tower
250 Vesey
Street New York, New York 10281
Ladies and Gentlemen:
We are issuing this letter in our capacity as special counsel for
Sleepmaster L.L.C. (the "Company"), Sleepmaster Finance Corporation ("Finance
Corp." and, together with the Company, the "Issuers"), Herr Manufacturing
Company ("Herr"), Palm Beach Bedding Company ("Palm Beach") and Lower Road
Associates, LLC ("Lower Road" and, together with Herr and Palm Beach, the
"Guarantors") in response to the requirement in Section 5(b) of the Purchase
Agreement dated May 12, 1999 (the "Purchase Agreement") among the Issuers, the
Guarantors and the initial purchasers named in Schedule A thereto (the "Initial
Purchasers"). Every term which is defined or given a special meaning in the
Purchase Agreement and which is not given a different meaning in this letter has
the same meaning whenever it is used in this letter as the meaning it is given
in the Purchase Agreement.
In connection with the preparation of this letter, we have among other
things read:
(a) the preliminary offering memorandum of the Issuers, dated
April 30, 1999 and the final offering memorandum of the
Issuers, dated May 12, 1999 (the "Offering Memorandum");
- 1 -
<PAGE> 47
(b) an executed copy of the Purchase Agreement;
(c) an executed copy of the Registration Rights Agreement, dated
as of the date hereof, among the Issuers, the Guarantors and
the Initial Purchasers;
(d) an executed copy of the Indenture, dated as of the date
hereof, among the Issuers, the Guarantors and United States
Trust Company of New York, as trustee (the "Trustee");
(e) a global note of the Issuers in the amount of $115,000,000,
dated the date hereof (the "Securities");
(f) guarantees by the Guarantors, dated the date hereof, of the
Issuers' obligations under the Securities (the "Guarantees");
(g) the Letter of Representations among the Issuers, the Trustee
and The Depository Trust Company;
(h) the credit agreement, dated the date hereof, among the
Issuers, the Guarantors and _____________, as agent;
(i) resolutions dated May __, 1999 of each of the Company, Finance
Corp., Palm Beach, Herr and Lower Road; and
(j) Copies of all certificates and other documents delivered today
at the closing of the purchase and sale of the Securities and
the Guarantees under the Purchase Agreement.
Subject to the assumptions, qualifications and limitations which are
identified in this letter, we advise you that:
1. Finance Corp. is a corporation existing and in good standing under the
General Corporation Law of the State of Delaware. Finance Corp. is
qualified to do business and is in good standing in each jurisdiction
listed on Schedule A hereto.
2. Finance Corp. has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under
the Purchase Agreement, the Registration Rights Agreement, the
Indenture, the Securities, the Guarantees, the Exchange Securities [if
the Star Acquisition is not consummated simultaneously
- 2 -
<PAGE> 48
with the Offering, include the following - , the Pledge and Escrow
Agreement,] and the DTC Agreement.
3. All of the shares of issued and outstanding capital stock of Finance
Corp. have been duly authorized and validly issued. None of the
outstanding shares of capital stock of Finance Corp. was issued in
violation of preemptive rights under the terms of the statute under
which Finance Corp. is incorporated, under Finance Corp.'s Certificate
of Incorporation or by-laws or under any contractual provision of which
we have knowledge. To our knowledge, Finance Corp. is owned by
Sleepmaster Holdings L.L.C., directly or indirectly, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity, other than pursuant to the Credit Agreement.
3. Finance Corp. has duly authorized, executed and delivered the Purchase
Agreement.
4. Finance Corp. has duly authorized, executed and delivered the
Registration Rights Agreement. The Registration Rights Agreement
constitutes the valid and binding obligation of the Company, Finance
Corp. and each of the Guarantors, enforceable against the Company,
Finance Corp. and each of the Guarantors in accordance with its terms.
5. Finance Corp. has authorized, executed and delivered the Indenture.
Assuming the due authorization, execution and delivery thereof by the
Trustee, the Indenture constitutes a valid and binding agreement of the
Company, Finance Corp. and each of the Guarantors, enforceable against
the Company, Finance Corp. and each of the Guarantors in accordance
with its terms.
6. Finance Corp. has authorized, executed and delivered the DTC Agreement.
The DTC Agreement constitutes the valid and binding obligation of the
Company and Finance Corp., enforceable against the Company and Finance
Corp. in accordance with its terms.
7. The Securities are in the form contemplated by the Indenture and have
been duly authorized, executed and delivered by Finance Corp. When
authenticated by the Trustee in the manner provided in the Indenture
(assuming the due authorization, execution and delivery of the
Indenture by the Trustee), the Securities will constitute valid and
binding obligations of the Company and Finance Corp., enforceable
against the Company and Finance Corp. in accordance with their terms.
- 3 -
<PAGE> 49
8. The Guarantees are in the form contemplated by the Indenture. When the
Securities are authenticated by the Trustee in the manner provided in
the Indenture (assuming the due authorization, execution and delivery
of the Indenture by the Trustee), the Guarantees will constitute valid
and binding obligations of each of the Guarantors, enforceable against
each of the Guarantors in accordance with their terms.
9. The Exchange Securities have been duly authorized by Finance Corp. When
the Exchange Securities are executed and authenticated and issued and
delivered by the Company, Finance Corp. and each of the Guarantors in
exchange for the Securities and the Guarantees pursuant to the Exchange
Offer, the Exchange Securities will constitute valid and binding
obligations of the Company, Finance Corp. and each of the Guarantors,
enforceable against the Company, Finance Corp. and each of the
Guarantors in accordance with their terms.
9. The Securities, the Guarantees and the Indenture conform in all
material respects to the descriptions thereof contained in the Offering
Memorandum.
10. There is no legal or governmental proceeding that is pending or, to our
knowledge, threatened against the Company or any of its subsidiaries
that would be required by Item 103 of Regulation S-K to be described in
the Offering Memorandum if the Offering Memorandum was a registration
statement on Form S-1 but that is not so described or that might
reasonably be expected to materially adversely effect the consummation
of the transactions contemplated in the Purchase Agreement and the
Offering Memorandum. We have no knowledge about any contract to which
the Company or any of its subsidiaries is a party or to which any of
its property is subject that would be required to be described in the
Offering Memorandum if the Offering Memorandum was a registration
statement on Form S-1 but that is not so described.
11. The information in the Offering Memorandum under "Exchange Offer;
Registration Rights," "Description of the Notes," and "Certain U.S.
Federal Income Tax Considerations," to the extent that it constitutes
matters of law, summaries of legal matters, or legal conclusions, has
been reviewed by us and is correct in all material respects.
12. No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than as may be required
under the securities or blue sky laws of the various states, as to
which we need express no opinion) is necessary or required in
connection with the due authorization, execution and delivery of the
Purchase Agreement or the due execution, delivery or performance of the
- 4 -
<PAGE> 50
Indenture by the Company, Finance Corp. or any of the Guarantors or for
the offering, issuance, sale or delivery of the Securities and the
Guarantees to the Initial Purchasers or the resale by the Initial
Purchasers in accordance with the Purchase Agreement or for the
performance by the Company, Finance Corp. or any of the Guarantors of
their respective obligations thereunder, in connection with the
offering, issuance or sale of the Securities and the Guarantees
hereunder or the consummation of the transactions contemplated by the
Purchase Agreement, the Registration Rights Agreement, the Indenture,
the DTC Agreement, the Credit Agreement, [if the Star Acquisition is
not consummated simultaneously with the Offering, include the following
- the Pledge and Escrow Agreement,] the Securities, the Guarantees and
the Exchange Securities (including the issuance and sale of the
Securities and the Guarantees and the use of the proceeds from the sale
of the Securities and the Guarantees as described in the Offering
Memorandum under the caption "Use of Proceeds").
13. The Company's, Finance Corp.'s and each Guarantor's execution and
delivery of the Purchase Agreement, the Registration Rights Agreement,
the Indenture, the DTC Agreement, the Credit Agreement, [if the Star
Acquisition is not consummated simultaneously with the Offering,
include the following - the Pledge and Escrow Agreement,] the
Securities, the Guarantees and the Exchange Securities, the
consummation of the transactions contemplated in the Purchase Agreement
and in the Offering Memorandum (including the issuance and sale of the
Securities and the Guarantees and the use of the proceeds from the sale
of the Securities and the Guarantees as described in the Offering
Memorandum under "Use of Proceeds"), and compliance by the Company,
Finance Corp. and the Guarantees with their respective obligations
under the foregoing instruments do not (i) violate Finance Corp.'s
certificate of incorporation or bylaws or (ii) constitute a violation
by the Company, Finance Corp. or any Guarantor of any applicable
provision of any law, statute or regulation, judgment, order or decree
(except that we express no opinion in this paragraph as to compliance
with any disclosure requirement or any prohibition against fraud or
misrepresentation or as to whether performance of the indemnification
or contribution provisions in the Purchase Agreement or the
Registration Rights Agreement would be permitted) or (iii) whether with
or without the giving of notice or lapse of time or both, breach, or
result in a default or Repayment Event under, or result in the creation
or imposition of any lien or encumbrance upon any property or assets of
the Company, Finance Corp. or any Guarantor pursuant to, any existing
obligation under any of the agreements listed on Schedule B hereto
(provided that we express no opinion as to compliance with any
financial test or cross-default provision (insofar as it relates to a
default under an agreement not listed on Schedule B) in any such
agreement). As used herein, a "Repayment Event" means any event or
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<PAGE> 51
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or
a portion of such indebtedness by the Company, any of the Guarantors or
any of their subsidiaries.
14. To our knowledge, there are no persons with registration rights or
other similar rights to have any securities registered pursuant to the
Exchange Offer Registration Statement to be filed pursuant to the
Registration Rights Agreement.
15. It is not necessary in connection with the offer, sale and delivery of
the Securities and Guarantees to the Initial Purchasers and to each
Subsequent Purchaser in the manner contemplated by the Purchase
Agreement and the Offering Memorandum to register the Securities and
Guarantees under the 1933 Act or to qualify the Indenture under the
Trust Indenture Act.
16. Each of the Company, Finance Corp. and the Guarantors is not, and after
the application of the proceeds from the sale of the Securities and the
Guarantees as described in the Offering Memorandum under "Use of
Proceeds," will not be, an investment company as such term is defined
in the Investment Company Act of 1940, as amended.
17. [if the Star Acquisition is not consummated simultaneously with the
Offering, include the following-Finance Corp. has authorized, executed
and delivered the Pledge and Escrow Agreement. The Pledge and Escrow
Agreement constitutes the valid and binding obligation of the Company
and Finance Corp., enforceable against the Company and Finance Corp. in
accordance with its terms.]
18. [if the Star Acquisition is not consummated simultaneously with the
Offering, include the following - At the time of the deposit of the
Escrow Funds (as defined) into the Escrow and Pledge Account (as
defined in the Pledge and Escrow Agreement), the pledge of the
Collateral (as defined in the Pledge and Escrow Agreement) securing the
payment of the Secured Obligations (as defined in the Pledge and Escrow
Agreement) for the benefit of the Trustee and the Holders of the
Securities will constitute a first priority perfected security interest
in such Collateral, enforceable in accordance with the UCC against the
Company, Finance Corp., Holdings and all creditors of the Company,
Finance Corp. and Holdings and any persons purporting to purchase any
of the Collateral from the Company, Finance Corp. and Holdings.]
* * *
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<PAGE> 52
The purpose of our professional engagement was not to establish factual
matters, and preparation of the Offering Memorandum involved many determinations
of a wholly or partially nonlegal character. We make no representation that we
have independently verified the accuracy, completeness or fairness of the
Offering Memorandum or that the actions taken in connection with the preparation
of the Offering Memorandum (including the actions described in the next
paragraph) were sufficient to cause the Offering Memorandum to be accurate,
complete or fair. We are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the Offering Memorandum except to
the extent otherwise explicitly indicated in numbered paragraphs 10 and 12
above.
We can, however, confirm that we have participated in conferences with
representatives of the Issuers and the Guarantors, representatives of the
Initial Purchasers, counsel for the Initial Purchasers and representatives of
the independent accountants for the Issuers during which disclosures in the
Offering Memorandum and related matters were discussed. In addition, we have
reviewed certain corporate records furnished to us by the Issuers and the
Guarantors.
Based upon our participation in the conferences and our document review
identified in the preceding paragraph, our understanding of applicable law and
the experience we have gained in our practice thereunder and relying as to
matters of fact on statements of officers and other representatives of the
Company, we can, however, advise you that nothing has come to our attention that
has caused us to conclude that (i) the Offering Memorandum as of its date
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) the Offering Memorandum on the date of this letter
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
* * *
Except for the activities described in the immediately preceding
section of this letter, we have not undertaken any investigation to determine
the facts upon which the advice in this letter is based.
We have assumed for purposes of this letter: each document we have
reviewed for purposes of this letter is accurate and complete, each such
document that is an original is authentic, each such document that is a copy
conforms to an authentic original, and all signatures on each such document are
genuine; that the Purchase Agreement and every other agreement we have examined
for purposes of this letter constitutes a valid and
- 7 -
<PAGE> 53
binding obligation of each party to that document and that each such party has
satisfied all legal requirements that are applicable to such party to the extent
necessary to entitle such party to enforce such agreement (except that we make
no such assumptions with respect to the Issuers and the Guarantors); and that
you have acted in good faith and without notice of any fact which has caused you
to reach any conclusion contrary to any of the advice provided in this letter.
In preparing this letter we have relied without independent
verification upon: (i) information contained in certificates obtained from
governmental authorities; (ii) factual information represented to be true in the
Purchase Agreement and other documents specifically identified at the beginning
of this letter as having been read by us; (iii) factual information provided to
us by the Issuers or their representatives; and (iv) factual information we have
obtained from such other sources as we have deemed reasonable. We have assumed
that there has been no relevant change or development between the dates as of
which the information cited in the preceding sentence was given and the date of
this letter and that the information upon which we have relied is accurate and
does not omit disclosures necessary to prevent such information from being
misleading. For purposes of numbered paragraph 1, we have relied exclusively
upon certificates issued by governmental authorities in the relevant
jurisdictions and such opinion is not intended to provide any conclusion or
assurance beyond that conveyed by those certificates.
We confirm that we do not have knowledge that has caused us to conclude
that our reliance and assumptions cited in the two immediately preceding
paragraphs are unwarranted. Whenever this letter provides advice about (or based
upon) our knowledge of any particular information or about any information which
has or has not come to our attention such advice is based entirely on the actual
awareness at the time this letter is delivered on the date it bears by the
lawyers with Kirkland & Ellis at that time who represented the Issuers and
Guarantors in connection with the offering effected pursuant to the Offering
Memorandum and by lawyers with Kirkland & Ellis who have principal
responsibility for representing the Issuers and Guarantors on other significant
matters.
Each opinion (an "enforceability opinion") in this letter that any
particular contract is a valid and binding obligation or is enforceable in
accordance with its terms is subject to: (i) the effect of bankruptcy,
insolvency, fraudulent conveyance and other similar laws and judicially
developed doctrines in this area such as substantive consolidation and equitable
subordination; (ii) the effect of general principles of equity; and (iii) other
commonly recognized statutory and judicial constraints on enforceability
including statutes of limitations. "General principles of equity" include but
are not limited to: principles limiting the availability of specific performance
and injunctive relief; principles which limit the availability of a remedy under
certain circumstances where another remedy has been elected; principles
requiring reasonableness, good faith and fair
- 8 -
<PAGE> 54
dealing in the performance and enforcement of an agreement by the party seeking
enforcement; principles which may permit a party to cure a material failure to
perform its obligations; and principles affording equitable defenses such as
waiver, laches and estoppel.
Our advice on every legal issue addressed in this letter is based
exclusively on the internal law of New York, the General Corporation Law of the
State of Delaware, and/or the federal law of the United States, and represents
our opinion as to how that issue would be resolved were it to be considered by
the highest court in the jurisdiction which enacted such law. None of the
opinions or other advice contained in this letter considers or covers: (i) any
state securities (or "blue sky") laws or regulations or (ii) any financial
statements or supporting schedules (or any notes to any such statements or
schedules) or other financial information set forth or incorporated by reference
in (or omitted from) the Offering Memorandum. This letter does not cover any
other laws, statutes, governmental rules or regulations or decisions which in
our experience are not usually considered for or covered by opinions like those
contained in this letter or are not generally applicable to transactions of the
kind covered by the Purchase Agreement.
This letter speaks as of the time of its delivery on the date it bears.
We do not assume any obligation to provide you with any subsequent opinion or
advice by reason of any fact about which we did not have knowledge at that time,
by reason of any change subsequent to that time in any law, other governmental
requirement or interpretation thereof covered by any of our opinions or advice,
or for any other reason.
This letter may be relied upon by the Initial Purchasers pursuant to
the Purchase Agreement. Without our written consent: (i) no person other than
the Initial Purchasers may rely on this letter for any purpose; (ii) this letter
may not be cited or quoted in any financial statement, prospectus, private
placement memorandum or other similar document; (iii) this letter may not be
cited or quoted in any other document or communication which might encourage
reliance upon this letter by any person or for any purpose excluded by the
restrictions in this paragraph; and (iv) copies of this letter may not be
furnished to anyone for purposes of encouraging such reliance.
- 9 -
<PAGE> 55
Schedule A
Good Standings of Finance Corp.
Delaware
- 10 -
<PAGE> 56
Schedule B
Contracts
1. Amended and Restated Limited Liability Company Operating Agreement of
Sleepmaster L.L.C., dated November 14, 1996.
2. Second Amended and Restated Limited Liability Company Operating
Agreement of Sleepmaster Holdings L.L.C., dated November 14, 1996
(including the joinder agreement of Stuart Herr and John Herr, dated
February 26, 1999).
3. Limited Liability Company Operating Agreement of Sleep Investor L.L.C.,
dated November 14, 1996 (including the joinder agreement of certain
persons, dated December 23, 1996).
4. License Agreement and Memorandum of Agreement, each dated January 12,
1995, between Sleepmaster L.L.C. and Serta, Inc., covering certain
territories in New Jersey, New York and Connecticut, as amended.
5. License Agreement and Memorandum of Agreement, each dated January 12,
1995, between Sleepmaster L.L.C. and Serta, Inc., covering certain
territories in Pennsylvania, New Jersey, Maryland and Delaware, as
amended.
6. License Agreement, dated November 4, 1989, and Memorandum of Agreement,
dated December 1, 1969, between Palm Beach Bedding Company and Serta,
Inc., covering certain territories in Florida, as amended.
7. License Agreement, dated November 4, 1989, and Memorandum of Agreement,
dated December 1, 1969, between Herr Manufacturing Company and Serta,
Inc., covering certain territories in Pennsylvania and New York, as
amended.
8. Standard Canadian License Agreement - Form B, dated as of and effective
June 1, 1994, between Serta, Inc. and Star Bedding Products (1986)
Ltd., covering certain territories in Ontario, Canada.
9. Masterpiece Sleep Products, Inc. Manufacturing and Servicing Agreement,
dated October 1, 1998, by and between Masterpiece Sleep Products, Inc.
and Sleepmaster LLC and affiliates.
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<PAGE> 57
10. Serta, Inc. By-laws and Serta, Inc. Rules and Regulations, each
effective January 1, 1996.
11. U.S. v. Serta Associates, Inc., U.S. District for the Northern District
of Illinois, No. 50 C 843.
12. Employment Agreements and Option Agreements, each dated as of January
12, 1995, between Sleepmaster Holdings L.L.C., Sleepmaster L.L.C.,
Sleep Investor L.L.C. and each of Charles Schweitzer, James Koscica,
Timothy DuPont and Michael Reilly.
13. Employment Agreements, dated March 3, 1998, between Palm Beach Bedding
Company (joined by Sleepmaster Holdings L.L.C. and Sleepmaster L.L.C.)
and each of Michael W. Bubis, Howard Bubis and Samuel J. Bubis.
14. Employment and Stock Purchase Agreements, dated as of February 26,
1999, by and among Herr Manufacturing Company, Sleepmaster Holdings
L.L.C., Sleepmaster L.L.C., Charles Schweitzer, Sleep Investor L.L.C.
and each of Stuart W. Herr and John K. Herr, III
15. Transportation and Delivery Services Agreement, dated July 1, 1996,
between Sleepmaster L.L.C. and J. Wise and Son.
16. Agreement between United Steelworkers of America (ABG Division),
AFL-CIO, CLC and Local Union #396 and Sleepmaster L.L.C., dated July
___, 1997.
17. 1997 - 1999 Collective Agreement between Star Bedding Products (1986)
Limited and United Steelworkers of America Local 400.
18. Second Amended and Restated Secured Credit Agreement, dated as of
February 26, 1999, among Sleepmaster L.L.C., Palm Beach Bedding
Company, Lower Road Associates, LLC and Herr Manufacturing Company, as
Borrowers, Sleepmaster L.L.C., as Borrowing Agent, the Lenders Party
Thereto, First Source Financial LLP, as Agent and LaSalle National
Bank, as Issuing Lender and all Collateral Documents (as defined in the
Credit Agreement).
19. Amended and Restated Securities Purchase Agreement, dated as of March
3, 1998, among Sleepmaster Holdings L.L.C., Sleepmaster L.L.C. and PMI
Mezzanine Fund, L.P., relating to the 12.0% Amended and Restated Series
A Senior Subordinated Notes due 2007, as amended by Amendment Nos. 1, 2
and 3 (including the 12% Series A Senior Subordinated Note due 2007 and
all other
- 12 -
<PAGE> 58
agreements, subordination agreements and guaranties executed in
connection therewith).
20. Securities Purchase Agreement, dated as of March 3, 1998, among
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C. and PMI Mezzanine Fund,
L.P., relating to the 12.0% Amended and Restated Series B Senior
Subordinated Notes due 2007, as amended by Amendment Nos. 1, 2 and 3
(including the 12% Series B Senior Subordinated Note due 2007 and all
other agreements, subordination agreements and guaranties executed in
connection therewith).
21. Sleepmaster Holdings L.L.C. Amended and Restated Common Interest
Purchase Warrants, dated as of March 3, 1998 and Sleepmaster Holdings
L.L.C. Common Interest Purchase Warrants, dated as of March 3, 1998,
each as amended on February 26, 1999.
22. IRB-Related Obligations: (a) the Loan Agreement, dated as of April 1,
1996, between Palm Beach Bedding Company and Palm Beach County,
Florida, relating to $7,650,000 Palm Beach County, Florida Variable
Rate Demand Industrial Development Revenue Bonds (Palm Beach Bedding
Company Project, Series 1996) (the "IRBs") originally outstanding in
the original principal amount of $7,650,000; (b) the Trust Indenture,
dated as of April 1, 1996, by and among Palm Beach County, the Trustee
and the Credit Facility Trustee, (c) the Irrevocable Letter of Credit,
issued by First Union National Bank of Florida, (d) the Letter of
Credit and Reimbursement Agreement, dated as of April 1, 1996, between
Palm Beach Bedding Company and First Union National Bank of Florida
("First Union"), (e) the Amendment to Reimbursement Agreement, dated
March 3, 1998, between Palm Beach Bedding Company and First Union
National Bank, (f) the Mortgage and Security Agreement, dated April 1,
1996, between Palm Beach Bedding Company and First Union, (g) the
Remarketing Agreement, dated April 1, 1996, between Palm Beach Bedding
Company and First Union and (h) the Pledge Agreement, dated April 1,
1996, between Palm Beach Bedding Company and First Union.
23. Junior Subordinated Notes, dated November 14, 1996, of Sleep Investor
L.L.C. issued to each of Charles Schweitzer, James Koscica, Timothy
Dupont, Michael Reilly, Douglas A. Brown, Douglas A. Brown VIP Plus
Profit Sharing Plan, Donald S. Brown, John S. Coates, Harold M. Wit,
Allen Investments II, L.L.C., Karl Dillon, Jessand Corp. Profit Sharing
Plan and Trust, Alan Gelband, Panorama Holdings, L.L.C., Arnold
Gussoff, Holding Capital Management Corp., Steven Leischner, William
Colaianni, Jo Levinson 1989 Trust, John M. McMahon,
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<PAGE> 59
Kaplan, Coate Special Situations L.P., Robert W. Plaster, Bennett
Rosenthal, Dhiren Shah and WKM Partners.
24. Amended and Restated Securityholders Agreement, dated as of March 3,
1998, by and among Sleepmaster Holdings L.L.C., Sleep Investor L.L.C.,
PMI Mezzanine Fund, L.P., Charles Schweitzer, James P. Koscica, Michael
Reilly, Timothy DuPont, Michael Bubis, Richard Tauber, Douglas Phillips
(including the joinder agreements of each of Stuart W. Herr and John K.
Herr, III, dated March 3, 1998).
25. Amended and Restated Registration Rights Agreement, dated as of March
3, 1998, by and among Sleepmaster Holdings L.L.C., Sleep Investor
L.L.C., PMI Mezzanine Fund, L.P., Charles Schweitzer, James P. Koscica,
Michael Reilly, Timothy DuPont, Michael Bubis, Richard Tauber, Douglas
Phillips (including the joinder agreements of each of Stuart W. Herr
and John K. Herr, III, dated March 3, 1998).
26. Sleep Investor Securityholders Agreement, dated November 14, 1996
(including the joinder agreement of certain persons, dated December 23,
1996).
27. Recapitalization, Redemption and Purchase Agreement among Sleepmaster
Holdings L.L.C., Sleepmaster L.L.C., Brown/Schweitzer Holdings, Inc.
The Members of Sleepmaster Holdings, L.L.C., and Sleep Investor L.L.C.,
dated October 31, 1996.
28. Agreement and Plan of Merger, effective as of March 3, 1998, by and
among Sleepmaster L.L.C., Sleepmaster Acquisition Corp. and Palm Beach
Bedding Company (including the related Indemnity Escrow Agreement and
Adjustment Escrow Agreement).
29. Stock Purchase Agreement, dated as of February 26, 1999, by and among
Sleepmaster L.L.C., Herr Manufacturing Company, and the stockholders
listed on the Seller signature page attached thereto (including the
related Indemnity Escrow Agreement and Adjustment Escrow Agreement).
30. Asset Purchase Agreement by and among Star Bedding Products Limited and
Sleepmaster L.L.C., as Purchaser and Star Bedding Products (1986)
Limited and Cecil Brauer, as Seller.
31. Agreement of Lease between Hartz Mountain Industries, Inc. and
Sleepmaster, as amended by the First, Second and Third Lease
Modification Agreements, and the
- 14 -
<PAGE> 60
related Subordination, Non-Disturbance and Attornment Agreements
(including the letter of credit issued to Hartz Mountain Industries,
Inc.).
- 15 -
<PAGE> 61
Exhibit A-2
[Opinion of New Jersey Counsel]
(i) Sleepmaster L.L.C. (the "Company") has been duly formed and is
validly existing as a limited liability company in good standing under the laws
of the State of New Jersey.
(ii) Lower Road Associates, LLC ("Lower Road") has been duly formed and
is validly existing as a limited liability company in good standing under the
laws of the State of New Jersey.
(iii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Purchase
Agreement, the Registration Rights Agreement, the Indenture, the Credit
Agreement, the Acquisition Agreement, [if the Star Acquisition is not
consummated simultaneously with the Offering, include the following the Pledge
and Escrow Agreement,] the Securities, the Exchange Securities and the DTC
Agreement.
(iv) Lower Road has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Purchase
Agreement, the Registration Rights Agreement, the Indenture, the Credit
Agreement, the Guarantees and the Exchange Securities.
(v) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a material adverse effect on the
Company's financial condition and results of operations.
(vi) Lower Road is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a material adverse effect on Lower
Road's financial condition and results of operations.
- 16 -
<PAGE> 62
(vii) The authorized, issued and outstanding membership or other equity
interests of the Company is as set forth in the Capitalization chart included in
the Offering Memorandum. The shares of issued and outstanding capital stock or
other equity interests of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; and none of the outstanding shares
of capital stock or other equity interests of the Company was issued in
violation of the preemptive or other similar rights of any securityholder of the
Company. To the best of our knowledge, the Company is 99% owned by Sleepmaster
Holdings L.L.C. and 1% owned by Sleep Investor LLC, in each case directly or
indirectly, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity, other than pursuant to the Company's Credit
Agreement.
(viii) The shares of issued and outstanding capital stock or other
equity interests of Lower Road have been duly authorized and validly issued and
are fully paid and non-assessable; and none of the outstanding shares of capital
stock or other equity interests of Lower Road was issued in violation of the
preemptive or other similar rights of any securityholder of Lower Road. To the
best of our knowledge, Lower Road is owned by Sleepmaster L.L.C., directly or
indirectly, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity, other than pursuant to the Credit Agreement.
(ix) Each of the Company and Lower Road have authorized, executed and
delivered each of the Purchase Agreement, the Registration Rights Agreement, the
Indenture and the Credit Agreement. The Company has authorized, executed and
delivered the Securities [if the Star Acquisition is not consummated
simultaneously with the Offering, include the following - , the Pledge and
Escrow Agreement] and the DTC Agreement. Lower Road has authorized, executed and
delivered its Guarantee. The Company and Lower Road have authorized the Exchange
Securities.
(x) There is not pending or, to the best of our knowledge, threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
Lower Road is a party, or to which the property of the Company or Lower Road is
subject, before or brought by any New Jersey court or governmental agency or
body, which might reasonably be expected to materially and adversely affect the
properties or assets of the Company or Lower Road or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company or Lower Road of their respective obligations under the Purchase
Agreement, the Indenture, the Registration Rights Agreement, [if the Star
Acquisition is not consummated simultaneously with the Offering, include the
following - the Pledge and Escrow Agreement,] the Securities, the Guarantees or
the Exchange Securities.
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<PAGE> 63
(xi) To the best of our knowledge, neither the Company nor Lower Road
is in violation of its certificate of formation, limited liability company
agreement or other organizational documents.
(xii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any New Jersey court or
governmental authority or agency (other than as may be required under the
securities or blue sky laws, as to which we need express no opinion) is
necessary or required in connection with the due authorization, execution and
delivery of the Purchase Agreement or the due execution, delivery or performance
of the Indenture by the Company or Lower Road or for the offering, issuance,
sale or delivery of the Securities and the Guarantees to the Initial Purchasers
or the resale by the Initial Purchasers in accordance with the Purchase
Agreement or for the performance by the Company and Lower Road of their
respective obligations thereunder, in connection with the offering, issuance or
sale of the Securities and the Guarantees or the consummation of the
transactions contemplated by the Purchase Agreement, the Registration Rights
Agreement, the Indenture, the DTC Agreement, the Credit Agreement, [if the Star
Acquisition is not consummated simultaneously with the Offering, include the
following - the Pledge and Escrow Agreement,] the Securities, the Guarantees and
the Exchange Securities (including the issuance and sale of the Securities and
the Guarantees and the use of the proceeds from the sale of the Securities and
the Guarantees as described in the Offering Memorandum under the caption "Use of
Proceeds").
(xiii) The Company's and Lower Road's execution and delivery of the
Purchase Agreement, the Registration Rights Agreement, the Indenture, the DTC
Agreement, the Credit Agreement, [if the Star Acquisition is not consummated
simultaneously with the Offering, include the following - the Pledge and Escrow
Agreement,] the Securities, the Guarantees and the Exchange Securities, the
consummation of the transactions contemplated in the Purchase Agreement and in
the Offering Memorandum (including the issuance and sale of the Securities and
the Guarantees and the use of the proceeds from the sale of the Securities and
the Guarantees as described in the Offering Memorandum under "Use of Proceeds"),
and compliance by the Company and Lower Road with their respective obligations
under the foregoing instruments do not (i) violate the Company's and Lower
Road's certificate of formation, limited liability company agreement or other
organizational documents or (ii) constitute a violation by the Company or Lower
Road of any applicable provision of any New Jersey law, statute or regulation,
judgment, order or decree.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and the Guarantors and
public officials. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise,
- 18 -
<PAGE> 64
written policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).
- 19 -
<PAGE> 65
Exhibit A-3
[Opinion of Barley, Snyder, Senft & Cohen, LLC]
1. The Company is a corporation duly organized, validly existing and
subsisting under the laws of the Commonwealth of Pennsylvania.
2. Herr has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum
and to enter into and perform its obligations under the Purchase Agreement, the
Registration Rights Agreement, the Indenture, the Credit Agreement, the
Guarantees and the Exchange Securities.
3. Herr is not qualified as a foreign corporation to transact business
in any state.
4. The shares of issued and outstanding capital stock or other equity
interests of Herr have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock or
other equity interests of Herr was issued in violation of the preemptive or
other similar rights of any security holder of Herr. To the best of our
knowledge, Herr is owned by Sleepmaster L.L.C., directly or indirectly, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity, other than pursuant to the Credit Agreement.
5. Herr has authorized, executed and delivered each of the Purchase
Agreement, the Registration Rights Agreement, the Indenture, its Guarantee and
the Credit Agreement. Herr has authorized the Exchange Securities.
6. To the best of our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which Herr is a party, or
to which the property of Herr is subject, before or brought by any Pennsylvania
court or governmental agency or body, which might reasonably be expected to
materially and adversely affect the properties or assets of Herr or the
consummation of the transactions contemplated in the Purchase Agreement or the
performance by Herr of its obligations under the Purchase Agreement, the
Indenture, the Registration Rights Agreement, the Guarantees or the Exchange
Securities.
7. To the best of our knowledge, Herr is not in violation of its
charter and bylaws.
- 20 -
<PAGE> 66
8. No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any Pennsylvania court or governmental
authority or agency (other than as may be required under the securities or blue
sky laws, as to which we need express no opinion) is necessary or required in
connection with the due authorization, execution and delivery of the Purchase
Agreement or the due execution, delivery or performance of the Indenture by Herr
or for the offering, issuance, sale or delivery of the Guaranty to the Initial
Purchasers or the resale by the Initial Purchasers in accordance with the
Purchase Agreement or for the performance by Herr of its obligations thereunder,
in connection with the offering, issuance or sale of the Guaranty or the
consummation of the transactions contemplated by the Purchase Agreement, the
Registration Rights Agreement, the Indenture, the Credit Agreement, the
Guarantee and the Exchange Securities (including the issuance and sale of the
Securities and the Guaranty and the use of the proceeds from the sale of the
Securities and the Guaranty as described in the Offering Memorandum under the
caption "Use of Proceeds"). We express no opinion as to securities or so-called
"blue sky" laws, rules or regulations.
9. Herr's execution and delivery of the Purchase Agreement, the
Registration Rights Agreement, the Indenture, the Credit Agreement, the Guaranty
and the Exchange Securities, the consummation of the transactions contemplated
in the Purchase Agreement and in the Offering Memorandum (including the issuance
and sale of the Securities and the Guaranty and the use of the proceeds from the
sale of the Securities and the Guarantees as described in the Offering
Memorandum under "Use of Proceeds"), and compliance by Herr with its obligations
under the foregoing instruments do not (i) violate Herr's charter and bylaws; or
(ii) constitute a violation by Herr of any applicable provision of any
Pennsylvania law, statute or regulation, judgment, order or decree.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and the Guarantors and
public officials. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991).
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<PAGE> 67
Exhibit A-4
[FORM OF OPINION OF GREENBERG TRAURIG, P.A.]
[date]
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
First Union Capital Markets Corp.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Ladies and Gentlemen:
We are issuing this letter in our capacity as special counsel for Palm
Beach Bedding Company ("Palm Beach") in response to the requirement in Section
5(a)(4) of the Purchase Agreement dated May ___, 1999 (the "Purchase Agreement")
among the Issuers and the Guarantors, as defined in the Purchase Agreement and
the initial purchasers named in Schedule A thereof (the "Initial Purchasers").
Every term which is defined or given a special meaning in the Purchase Agreement
and which is not given a different meaning in this letter has the same meaning
whenever it is used in this letter as the meaning it is given in the Purchase
Agreement.
A. Basis of Opinion.
As a basis for the conclusions expressed in this opinion letter, we
have examined, considered and relied on the following documents:
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<PAGE> 68
(a) the preliminary offering memorandum of the Issuers,
dated April __, 1999 and the final offering
memorandum of the Issuers, dated May __, 1999 (the
"Offering Memorandum");
(b) an executed copy of the Purchase Agreement;
(c) an executed copy of the Registration Rights
Agreement, dated as of the date hereof, among the
Issuers, the Guarantors and the Initial Purchasers;
(d) an executed copy of the Indenture, dated as of the
date hereof, among the Issuers, the Guarantors and
___________, as trustee (the "Trustee");
(e) a global note of the Issuers in the amount of
$115,000,000, dated the date hereof (the
"Securities");
(f) guarantees by the Guarantors, dated the date hereof,
of the Issuers' obligations under the Securities (the
"Guarantees");
(g) the Letter of Representations among the Issuers, the
Trustee and The Depository Trust Company;
(h) the credit agreement, dated the date hereof, among
the Issuers, the Guarantors and _______________, as
agent;
(i) resolutions dated ___________of Palm Beach;
(j) copies of all certificates and other documents
delivered today at the closing of the purchase and
sale of the Securities and the Guarantees under the
Purchase Agreement;
(k) Palm Beach's Certificate of Incorporation, Bylaws,
and corporate minute book;
(l) a certificate or other evidence of good standing of
Palm Beach issued as of a recent date by the
Secretary of State of the State of Florida;
(m) a certificate or other evidence of qualification
issued as of a recent date by the relevant
governmental authority of each state in which Palm
Beach is qualified to do business;
(n) a certificate, dated as of the date hereof,
containing certain representations to our firm
executed by certain officers of Palm Beach; and
(o) such other matters of law and fact as we have
considered necessary or appropriate for the
expression of the opinions contained herein.
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<PAGE> 69
For purposes of this opinion letter, the documents and information
referred to in this Section A are herein collectively referred to as the
"Documents."
B. Assumptions.
In rendering the opinions set forth in Section C below, we have assumed
without investigation the genuineness of all signatures, other than the
signatures of Palm Beach's executive officers with respect to the Documents
described in subsections (b), (c), (d), (f), (h), (m) and (n) of Section A, and
the authenticity of all documents submitted to us as originals, the conformity
to authentic original documents of all documents submitted to us as copies, and
the veracity of the documents.
With respect to our opinions expressed below relating to existence and
good standing, we have relied, without independent investigation, upon the
certificates or other evidence of good standing as referenced in Section A
above.
As to questions of fact material to the opinions hereinafter expressed,
we have relied upon the certificates described in subsections (j), (l), (m) and
(n) of Section A and other factual representations represented to be true in the
Documents.
C. Opinions.
Based upon our examination and consideration of the Documents, and in
reliance thereon, and subject to the comments, assumptions, exceptions,
qualifications and limitations set forth in Sections B and D hereof, we are of
the opinion that:
(a) Palm Beach is a corporation existing and in good
standing under the laws of the State of Florida.
(b) Palm Beach has corporate power and authority to own,
lease and operate its properties and to conduct its
business as described in the Offering Memorandum and
to enter into and perform its obligations under the
Purchase Agreement, the Registration Rights
Agreement, the Indenture, the Credit Agreement, the
Guarantees and the Exchange Securities.
(c) Palm Beach is duly qualified as a foreign corporation
to transact business and is in good standing in each
jurisdiction in which such qualification is required
whether by reason of the ownership or leasing of
property or the conduct of business, except where the
failure so to qualify or to be in good standing would
not result in a material adverse effect on Palm
Beach's financial condition and results of
operations.
- 24 -
<PAGE> 70
(d) The shares of issued and outstanding capital stock or
other equity interests of Palm Beach have been duly
authorized and validly issued and are fully paid and
non-assessable. None of the outstanding shares of
capital stock or other equity interests of Palm Beach
was issued in violation of the preemptive or other
similar rights of any security holder of Palm Beach
under Palm Beach's Certificate of Incorporation,
Bylaws or any contractual provision of which we have
knowledge. To the best of our knowledge, Palm Beach
is owned by Sleepmaster L.L.C., directly or
indirectly, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity,
other than pursuant to the Credit Agreement.
(e) Palm Beach has authorized, executed and delivered
each of the Purchase Agreement, the Registration
Rights Agreement, the Indenture, its Guarantee and
the Credit Agreement, Palm Beach has authorized the
Exchange Securities.
(f) There is no legal or governmental proceeding pending
or, to our knowledge, threatened against Palm Beach
by any Florida court or governmental agency, which
might reasonably be expected to materially and
adversely affect the consummation of the transactions
contemplated in the Purchase Agreement.
(g) To the best of our knowledge, Palm Beach is not in
violation of its charter and bylaws.
(h) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree
of, any Florida court or governmental authority or
agency (other than as may be required under the
securities or blue sky laws, as to which we need
express no opinion) is necessary or required in
connection with the due authorization, execution and
delivery of the Purchase Agreement or the due
execution, delivery or performance of the Indenture
by Palm Beach or for the offering, issuance, sale or
delivery of the Securities and the Guarantees to the
Initial Purchasers or the resale by the Initial
Purchasers in accordance with the Purchase Agreement
or for the performance by Palm Beach of its
obligations thereunder, in connection with the
offering, issuance or sale of the Securities and the
Guarantees or the consummation of the transactions
contemplated by the Purchase Agreement, the
Registration Rights Agreement, the Indenture, the
Credit Agreement, the Securities, the Guarantees and
the Exchange Securities (including the issuance and
sale of the Securities and the Guarantees and the use
of the proceeds from the sale of the Securities and
the Guarantees as described in the Offering
Memorandum under the caption "Use of Proceeds."
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<PAGE> 71
(i) Palm Beach's execution and delivery of the Purchase
Agreement, the Registration Rights Agreement, the
Indenture, the Credit Agreement, the Guarantees and
the Exchange Securities, the consummation of the
transactions contemplated in the Purchase Agreement
and in the Offering Memorandum (including the
issuance and sale of the Securities and the
Guarantees and the use of the proceeds from the sale
of the Securities and the Guarantees as described in
the Offering Memorandum under "Use of Proceeds"), and
compliance by Palm Beach with its obligations under
the foregoing instruments do not (i) violate Palm
Beach's certificate of incorporation or bylaws or
(ii) constitute a violation by Palm Beach of any
applicable provision of any Florida law, statute or
regulation, judgment order or decree.
D. Comments, Assumptions, Limitations, Qualifications and
Exceptions
The opinions expressed above are based upon and subject to, the further
comments, assumptions, limitations, qualifications and exceptions set forth
below.
(a) Whenever this letter provides advice about (or based
upon) our knowledge of any particular information or
about any information which has or has not come to
our attention such advice is based entirely on the
actual awareness at the time this letter is delivered
on the date it bears by the lawyers with Greenberg
Traurig at that time who represented Palm Beach in
connection with the offering effected pursuant to the
Offering Memorandum and by lawyers with Greenberg
Traurig who have principal responsibility for
representing the Beach on other significant matters.
(b) The opinions expressed herein are specifically
limited to the laws of the State of Florida and the
Federal law of the United States of America.
(c) This opinion letter is limited to the matters stated
herein and no opinions may be implied or inferred
beyond the matters expressly stated herein.
(d) The opinions expressed herein are as of the date
hereof, and we assume no obligation to update or
supplement such opinions to reflect any facts or
circumstances that may hereafter come to our
attention or any changes in law that may hereafter
occur.
(e) This letter may be relied upon by the Initial
Purchasers pursuant to the Purchase Agreement.
Without our written consent: (i) no person other than
the Initial Purchasers may rely on this letter for
any purpose; (ii) this letter may not be cited or
quoted in any financial statement, prospectus,
private placement memorandum or other similar
document; (iii) this letter may not be cited or
quoted in any other document or communication
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<PAGE> 72
which might encourage reliance upon this letter by
any person or for any purpose excluded by the
restrictions in this paragraph; and (iv) copies of
this letter may not be furnished to anyone for
purposes of encouraging such reliance.
Respectfully submitted
GREENBERG TRAURIG, P.A.
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<PAGE> 73
Exhibit A-5
[OPINION OF STEWART MCKELVEY STIRLING SCALES]
(i) Star Bedding Products Limited ("Star") has been duly organized and
is validly existing as a corporation in good standing under the laws of the
Province of New Brunswick.
(ii) Star has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Acquisition
Agreement.
(iii) Star is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a material adverse effect on Star's
financial condition and results of operations.
(iv) The shares of issued and outstanding capital stock or other equity
interests of Star have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock or
other equity interests of Star was issued in violation of the preemptive or
other similar rights of any securityholder of Star.
(v) There is not pending or, to the best of our knowledge, threatened
any action, suit, proceeding, inquiry or investigation, to which Star is a
party, or to which the property of Star is subject, before or brought by any
Ontario court or governmental agency or body, which might reasonably be expected
to materially and adversely affect the properties or assets of Star or the
consummation of the transactions contemplated in the Purchase Agreement.
(vi) To the best of our knowledge, Star is not in violation of its
charter and bylaws.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and the Guarantors and
public officials. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991).
- 28 -
<PAGE> 1
EXHIBIT 10.3
EXECUTION COPY
================================================================================
--------------------------------------------------------------
SLEEPMASTER HOLDINGS L.L.C.
SECOND AMENDED AND RESTATED LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
--------------------------------------------------------------
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR
INVESTMENT ONLY BY "ACCREDITED INVESTORS" AS THAT TERM IS DEFINED IN RULE 501 OF
REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR UNDER STATE
SECURITIES LAWS. WITHOUT SUCH REGISTRATION, SUCH INTERESTS MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF, EXCEPT UPON DELIVERY TO THE COMPANY OF AN
OPINION OF COUNSEL THAT (AMONG OTHER MATTERS) SUCH SALE, TRANSFER OR OTHER
DISPOSITION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT.
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ALSO SUBJECT
TO ADDITIONAL RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THE FOLLOWING
AGREEMENT.
================================================================================
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
GENERAL..............................................................................1
1.1 Definitions...................................................................1
1.2 Construction..................................................................7
ARTICLE 2
ORGANIZATION.........................................................................7
2.1 Formation; Firm Name; Continuation............................................7
2.2 Name..........................................................................8
2.3 Offices; Agent................................................................8
2.4 Existence.....................................................................8
2.5 Purposes......................................................................8
2.6 Powers of the Company.........................................................8
2.7 Foreign Qualification........................................................10
2.8 No State-Law Partnership.....................................................10
2.9 Treatment of Amendment for Tax Purposes......................................10
ARTICLE 3
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS.............................10
3.1 Members......................................................................10
3.2 No Liability of Members......................................................11
3.3 Capital Contributions........................................................11
3.4 Issuance of Additional Interests; Additional Members.........................12
ARTICLE 5
DISTRIBUTIONS.......................................................................13
5.1 Generally....................................................................13
5.2 Distributions................................................................13
ARTICLE 6
MANAGEMENT OF THE COMPANY...........................................................13
6.1 Managing Member; Delegation of Authority and Duties..........................13
6.2 Status of Managing Member; Eligibility to Serve..............................14
6.3 Resignation or Removal of Managing Member....................................14
6.4 Board of Advisors............................................................15
6.5 Officers.....................................................................16
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 7
MEMBERS; VOTING RIGHTS..............................................................17
7.1 Meetings.....................................................................17
7.2 Voting Matters...............................................................17
7.3 Conversion of Class B Common Units...........................................18
7.4 Withdrawal; Resignation......................................................19
ARTICLE 8
EXCULPATION AND INDEMNIFICATION.....................................................19
8.1 Performance of Duties; No Liability of Member and Officers...................19
8.2 Competing Activities.........................................................20
8.3 Right to Indemnification.....................................................20
8.4 Advance Payment..............................................................21
8.5 Indemnification of Employees and Agents......................................21
8.6 Reimbursement of Fees and Expenses...........................................21
8.7 Nonexclusivity of Rights.....................................................21
8.8 Insurance....................................................................21
8.9 Savings Clause...............................................................21
ARTICLE 9
TAX RETURNS.........................................................................22
ARTICLE 10
BOOKS, REPORTS AND COMPANY COVENANTS................................................22
10.1 Maintenance of Books.........................................................22
10.2 Financial Statements and Other Information...................................22
10.3 Inspection of Property.......................................................23
10.4 Regulatory Compliance Cooperation............................................23
10.5 Notice of Developments.......................................................25
10.6 SBA Matters..................................................................25
10.7 Company Funds................................................................25
ARTICLE 11
TRANSFER OF INTERESTS...............................................................26
11.1 Restrictions.................................................................26
11.2 General Restrictions on Transfer.............................................26
11.3 Procedure for Transfers......................................................26
11.4 Prospective Transferees......................................................27
11.5 Legend.......................................................................27
11.6 Transfer Fees and Expenses...................................................28
11.7 Limitations..................................................................28
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 12
DISSOLUTION AND LIQUIDATION.........................................................28
12.1 Events Causing Dissolution...................................................28
12.2 Liquidation and Termination..................................................29
12.3 Cancellation of Certificate..................................................29
ARTICLE 13
GENERAL/MISCELLANEOUS PROVISIONS....................................................29
13.1 Notices......................................................................29
13.2 Governing Law................................................................30
13.3 Certificates of Units........................................................30
13.4 Entire Agreement.............................................................31
13.5 Effect of Waiver or Consent..................................................31
13.6 Amendment or Modification....................................................31
13.7 Binding Effect...............................................................31
13.8 Power of Attorney............................................................31
13.9 Indemnification and Reimbursement for Payments on Behalf of a Member.........32
13.10 Consent to Jurisdiction......................................................32
13.11 WAIVER OF JURY TRIAL.........................................................33
13.12 Counterparts.................................................................33
13.13 Severability.................................................................33
13.14 Headings.....................................................................33
13.15 Parties in Interest..........................................................33
13.16 Further Assurances...........................................................33
13.17 Specific Performance; Remedies...............................................33
</TABLE>
(iii)
<PAGE> 5
SLEEPMASTER HOLDINGS L.L.C.
SECOND AMENDED AND RESTATED LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING
AGREEMENT of Sleepmaster Holdings L.L.C. is made as of November 14, 1996, by and
among the Company and each of the persons designated as a Member on Schedule A
attached hereto, as such may be amended from time to time in accordance with the
terms hereof.
WHEREAS, each of the parties hereto desires to amend and restate the
Amended and Restated Limited Liability Company Agreement in its entirety as
provided in this Agreement to (i) cause the Company to be treated as an
association taxable as a corporation for federal and state income tax purposes
and (ii) provide for the continuation of the Company upon the terms set forth in
this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made and other good and valuable consideration, the Members hereby amend
and restate the Original Agreement in its entirety and agree as follows:
ARTICLE 1
GENERAL
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
"Act" means the New Jersey Limited Liability Company Act, New
Jersey Revised Statutes, Chapter 2B of Title 42.
"Additional Interests" has the meaning set forth in Section
3.4(a).
"Advisors" has the meaning set forth in Section 6.4.
"Affiliate" means, when used with reference to a specified
Person, any Person that directly or indirectly controls or is controlled by or
is under common control with the specified Person, and with respect to any
individual, such individual's spouse or any person within the first degree of
kinship of such individual.
"Agreement" means this Second Amended and Restated Limited
Liability Company Operating Agreement, as it may be further amended from time to
time.
"Bankruptcy" or "Bankrupt" means, with respect to any Member,
such Member's making an assignment for the benefit of creditors, becoming a
party to any liquidation or dissolution action or proceeding with respect to
such Member or any bankruptcy, reorganization, insolvency or other proceeding
for the relief of financially distressed debtors with respect to such Member, or
a
<PAGE> 6
receiver, liquidator, custodian or trustee being appointed for such Member or a
substantial part of such Member's assets and, if any of the same occur
involuntarily, the same not being dismissed, stayed or discharged within 90
days; or the entry of an order for relief against such Member under Title 11 of
the United States Code. A Member shall be deemed Bankrupt if the Bankruptcy of
such Member shall have occurred.
"Board" has the meaning set forth in Section 6.4.
"Capital Contribution" means the aggregate contributions made (or
deemed made) by a Member to the Company pursuant to Article 3 (including both
Common Capital and Preferred Capital) as of the date in question, as shown
opposite such Member's name on Schedule A, as the same may be amended from time
to time.
"Cause" means (i) a breach of the Managing Member's covenants
under this Agreement or any other agreements with the Company or its
Subsidiaries and such breach shall not have been cured within 30 days after
written notice to the Managing Member, (ii) the commission by the Managing
Member of a felony, a crime involving moral turpitude or other act causing
material harm to the standing and reputation of the Company or any of its
Subsidiaries, or (iii) the Managing Member's repeated wilful failure to comply
with the reasonable and lawful written directives of the Board.
"Certificate" means the Certificate of Formation of the Company,
filed in accordance with the Act.
"Class A Common Unit" means a Common Unit having the rights and
obligations specified with respect to Class A Common Units in this Agreement.
"Class A Holder" means each record holder of any portion of a
Class A Common Unit.
"Class A Member" means each Class A Holder which is a Member.
"Class B Common Unit" means a Common Unit having the rights and
obligations specified with respect to Class B Common Units in this Agreement.
"Class B Holder" means each record holder of any portion of a
Class B Common Unit.
"Class B Member" means each Class B Holder which is a Member.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Common Capital" means, as of any date with respect to a Member,
the portion of such Member's Capital Contribution designated as Common Capital
opposite such Member's name on Schedule A.
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<PAGE> 7
"Common Units" means the Units representing a fractional part of
the Membership Interests of the Members and having the rights and obligations
specified with respect to Common Units in this Agreement.
"Company" means Sleepmaster Holdings L.L.C.
"Consent" means the consent, approval, ratification or
affirmative vote of the Members holding more than 50% in aggregate of the Common
Units.
"Credit Agreement" means the Secured Credit Agreement, dated as
of November 14, 1996, between Sleepmaster and First Source Financial LLP, as
amended, modified, supplemented or restated, and including any agreement
pursuant to which indebtedness thereunder is refinanced, as in effect from time
to time.
"Economic Interest" means a Member's or Economic Owner's share of
the Company's net profits, net losses and distributions pursuant to this
Agreement and the Act, but shall not include any right to participate in the
management or affairs of the Company, including the right to vote on, consent to
or otherwise participate in any decision of the Members, or any right to receive
information concerning the business and affairs of the Company, in each case to
the extent provided for herein or otherwise required by the Act.
"Economic Owner" means any owner of an Economic Interest who is
not a Member. No owner of an Economic Interest which is not a Member shall be
deemed a "member" (as that term is used in the Act) of the Company.
"Employment Agreements" means those certain Employment Agreements
among Sleepmaster, the Company and each of the Executives, dated as of November
14, 1996.
"Entity" means a Person other than a natural person and includes,
without limitation, corporations (both non-profit and other corporations),
partnerships (both limited and general), trusts, joint ventures, limited
liability companies, and unincorporated associations.
"Executives" means Charles Schweitzer, James Koscica, Michael
Reilly and Timothy DuPont, and each shall be referred to individually as an
"Executive".
"Family Group" means, with respect to a natural person, such
individual's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such individual and/or such individual's spouse, their
respective ancestors and/or descendants (whether natural or adopted).
"Fiscal Year" means the twelve month accounting period ending on
the last day of December in each year.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
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<PAGE> 8
"Incapacity" means (a) with respect to a natural person, the
Bankruptcy, death, incompetency or insanity of such individual and (b) with
respect to any other Person, the Bankruptcy, liquidation, dissolution or
termination of such Person.
"Investor" means Sleep Investor L.L.C., a Delaware limited
liability company.
"Managing Member" has the meaning set forth in Section 6.1.
"Members" means each Person identified on Schedule A hereto as of
the date hereof who has executed this Agreement or a counterpart hereof and each
Person who is hereafter admitted as a Member in accordance with the terms of
this Agreement and the Act. The Members shall constitute the "members" (as that
term is defined in the Act) of the Company. Notwithstanding any provision of
this Agreement to the contrary, the Members shall constitute a single class or
group of members of the Company for all purposes of the Act and this Agreement.
"Membership Interest" means the limited liability company
interest of a Member in the Company at any particular time, including such
Member's Economic Interest and the right to any and all benefits to which a
Member may be entitled as provided in this Agreement, together with the
obligations of such Member to comply with all terms and provisions of this
Agreement.
"Option Agreements" means the Option Agreements expected to be
entered into between the Company and each of the Executives on or about November
14, 1996.
"Person" means any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
Person as the context may require.
"Preferred Capital" means, as of any date with respect to a
Member, the portion of such Member's Capital Contribution designated as
Preferred Capital opposite such Member's name on Schedule A.
"Preferred Holder" means each record holder of a Preferred Unit.
"Preferred Member" means each Preferred Holder which is a Member.
"Preferred Unit" means a Unit representing a fractional part of
the Membership Interests of all Members and having the preference rights and
other rights and obligations specified with respect to Preferred Units in this
Agreement.
"Public Sale" means any sale of equity securities to the public
pursuant to an effective registration statement under the Securities Act or to
the public through a broker, dealer or market maker pursuant to the provisions
of Rule 144 adopted under the Securities Act (or any similar rule then in
force).
"Recapitalization Agreement" means that certain Recapitalization,
Redemption and Purchase Agreement dated as of October 31, 1996 by and among the
Company, the Investor and certain other parties thereto.
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<PAGE> 9
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of November 14, 1996, by and among the Company, the Investor
and certain other parties thereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"Restricted Securities" means (a) the Membership Interest or any
other interest in the Company held by Member or any of its Affiliates and (b)
any securities issued with respect to, or in exchange for, the securities
referred to in clause (a) above in connection with a conversion, combination of
shares, recapitalization, merger, consolidation or other reorganization,
including in connection with the consummation of any reorganization plan. As to
any particular Restricted Securities, such securities shall cease to be
Restricted Securities when they have (x) been distributed to the public pursuant
to a offering registered under the Securities Act or (y) sold to the public
through a broker, dealer or market maker in compliance with Rule 144 (or any
similar provision then in force) promulgated by the Securities and Exchange
Commission under the Securities Act.
"SBA" means the United States Small Business Administration, and
any successor agency performing the functions thereof.
"SBIC" means a Small Business Investment Company licensed by an
SBA under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of 1959, as
amended.
"SBIC Regulations" means the SBIC Act and the regulations issued
by the SBA thereunder, codified as Title 13 of the Code of Federal Regulations
("13 CFR"), parts 107 and 121.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders Agreement,
dated as of November 14, 1996, by and among the Company, the Investor and
certain other parties thereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"Sleepmaster" means Sleepmaster L.L.C., a New Jersey limited
liability company and a Subsidiary of the Company.
"Subordinated Notes" means the 12% Senior Subordinated Notes due
2006 issued by Sleepmaster to PMI Mezzanine Fund, L.P.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of units of 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 that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a partnership, limited liability
company, association or other business entity if such Person or Persons
-5-
<PAGE> 10
shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, manager or a general partner of such partnership, limited
liability company, association or other business entity.
"Terminated Member" has the meaning set forth in Section 7.4.
"Transfer" means any direct or indirect sale, transfer,
conveyance, assignment, pledge, hypothecation, gift, delivery or other
disposition.
"Treasury Regulations" shall mean that except where the context
indicates otherwise, the permanent, temporary, proposed, or proposed and
temporary regulations of Department of the Treasury under the Code as such
regulations may be lawfully changed from time to time.
"Unit" means a Membership Interest of a Member in the Company
representing a fractional part of the Membership Interests of all Members and
shall include Common Units and Preferred Units; provided, that any class of
Units issued shall have designations, preferences or special rights set forth in
this Agreement and the Membership Interest represented by such class of Units
shall be determined in accordance with such designations, preferences or special
rights.
"Unit Equivalents" means (without duplication with any Units or
other Unit Equivalents) rights, warrants, options, convertible securities,
exchangeable securities, indebtedness or other rights, in each case exercisable
for or convertible or exchangeable into, directly or indirectly, Units or
securities exercisable for or convertible or exchangeable into Units, whether at
the time of issuance or upon the passage of time or the occurrence of some
future event.
"Unpaid Preferred Return" means, with respect to a Member, an
amount, determined as of the date of any distribution pursuant to Section 5.2,
equal to the excess of (i) the amount necessary to give the Member a 12%
compounded annual return with respect to his or its Unreturned Preferred Capital
over (ii) amounts previously distributed to such Member pursuant to Section
5.2(a)(i).
"Unreturned Preferred Capital" means, with respect to each
Member, such Member's Preferred Capital reduced by all prior distributions made
to such Member by the Company pursuant to Section 5.2(a)(ii).
"Warrant" means (i) the warrant expected to be issued by the
Company on or about November 14, 1996 to the Warrantholder entitling the
Warrantholder to purchase certain Common Units for the price and on the other
terms and conditions set forth therein and (ii) any Warrant issued in full or
partial substitution therefor in accordance with the terms thereof.
"Warrantholder" means PMI Mezzanine Fund, L.P. or its designee,
and any other Person who subsequently acquires a Warrant pursuant to the terms
of the Warrant and the applicable terms of this Agreement.
1.2 Construction. Whenever the context requires, the gender of all words
used in this Agreement includes the masculine, feminine and neuter and the
singular number includes the plural number and vice versa. All references to
Articles and Sections refer to articles and sections of this
-6-
<PAGE> 11
Agreement, and all references to Schedules are to Schedules attached hereto,
each of which is made a part hereof for all purposes.
ARTICLE 2
ORGANIZATION
2.1 Formation; Firm Name; Continuation.
(a) The Certificate was prepared, executed and filed in
accordance with the Act on December 19, 1994. The Members hereby continue the
existence of the Company under this Agreement and the Act. The rights, powers,
duties, obligations and liabilities of the Members shall be determined pursuant
to the Act and this Agreement. To the extent that the rights, powers, duties,
obligations and liabilities of any Member are different by reason of any
provision of this Agreement than they would be in the absence of such provision,
this Agreement shall, to the extent permitted by the Act, control.
(b) The name and mailing address of each Member of the Company
shall be listed on Schedule A attached hereto. The Managing Member shall be
required to update Schedule A from time to time as necessary to accurately
reflect the information therein. Any reference in this Agreement to Schedule A
shall be deemed to be a reference to Schedule A as amended and in effect from
time to time.
(c) The Managing Member, as an authorized Person within the
meaning of the Act, shall, at any time the Managing Member becomes aware that
any statement in the Certificate was false when made, or that any matter
described has changed making the Certificate false in any material respect,
promptly execute, deliver and file any and all amendments thereto and
restatements thereof in accordance with the Act.
(d) Under the direction of the Board, the Managing Member shall
from time to time take all such actions as may be deemed by him or it to be
necessary or appropriate to effectuate and permit the continuation of the
Company as a limited liability company under the Act and qualify the Company to
act in any other state where the Managing Member deems qualification necessary
or desirable; provided, that the Managing Member will cause the Company not to
conduct business or engage in any action in any jurisdiction where the liability
of the Members is not limited to the same extent as under the Act. The Members
shall execute such certificates, documents and instruments and take such other
action as may be necessary to enable the Managing Member to fulfill his or its
responsibility under this Section 2.1(d).
2.2 Name. The name of the limited liability company continued by this
Agreement is Sleepmaster Holdings L.L.C. The business of the Company may be
conducted upon compliance with all applicable laws under any other name
designated by the Managing Member.
2.3 Offices; Agent. The registered office and the mailing address of the
Company in New Jersey shall be located at 2001 Lower Road, Linden, New Jersey,
07036. Upon giving notice to all Members, the registered office and the mailing
address of the Company may each be changed by the
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<PAGE> 12
Managing Member, in which event the Managing Member shall further comply with
Section 42:2B-6b of the Act.
2.4 Existence. The Company shall continue in perpetuity unless
terminated in accordance with the provisions of this Agreement or otherwise
dissolved pursuant to the laws of the State of New Jersey.
2.5 Purposes. The nature of the business or purposes to be conducted or
promoted by the Company is to engage in any lawful act or activity for which
limited liability companies may be organized under the Act. The Company may
engage in any and all activities necessary, desirable or incidental to the
accomplishment of the foregoing. Notwithstanding anything herein to the
contrary, nothing set forth herein shall be construed as authorizing the Company
to possess any purpose or power, or to do any act or thing, forbidden by law to
a limited liability company organized under the laws of the State of New Jersey.
2.6 Powers of the Company.
(a) Power and Authority. Subject to the provisions of
this Agreement, the Company shall have the power and authority to take any and
all actions necessary, appropriate, proper, advisable, convenient or incidental
to or for the furtherance of the purposes set forth in Section 2.5, including
the power:
(i) to conduct its business, carry on its operations and
have and exercise the powers granted to a limited liability
company by the Act in any state, territory, district or
possession of the United States, or in any foreign country that
may be necessary, convenient or incidental to the accomplishment
of the purpose of the Company;
(ii) to acquire by purchase, lease, contribution of
property or otherwise, own, hold, operate, maintain, finance,
refinance, improve, lease, sell, convey, mortgage, transfer,
demolish or dispose of any real or personal property that may be
necessary, convenient or incidental to the accomplishment of the
purpose of the Company;
(iii) to enter into, perform and carry out contracts of
any kind, including contracts with any Member or any Affiliate
thereof, or any agent of the Company necessary to, in connection
with, convenient to or incidental to the accomplishment of the
purpose of the Company;
(iv) to purchase, take, receive, subscribe for or
otherwise acquire, own, hold, vote, use, employ, sell, mortgage,
lend, pledge, or otherwise dispose of, and otherwise use and deal
in and with, shares or other interests in or obligations of
domestic or foreign corporations, associations, general or
limited partnerships (including the power to be admitted as a
partner thereof and to exercise the rights and perform the duties
created thereby), trusts, limited liability companies (including
the power to be admitted as a member or appointed as a manager
thereof and to exercise the rights and perform the duties created
thereby) or individuals or direct or indirect
-8-
<PAGE> 13
obligations of the United States or of any government, state,
territory, governmental district or municipality or of any
instrumentality of any of them;
(v) to lend money for any proper purpose, to invest and
reinvest its funds and to take and hold real and personal
property for the payment of funds so loaned or invested;
(vi) to sue and be sued, complain and defend, and
participate in administrative or other proceedings, in its name;
(vii) to appoint employees and agents of the Company and
define their duties and fix their compensation;
(viii) to indemnify any Person in accordance with the Act
and to obtain any and all types of insurance;
(ix) to cease its activities and cancel its Certificate;
(x) to negotiate, enter into, renegotiate, extend,
renew, terminate, modify, amend, waive, execute, acknowledge or
take any other action with respect to any lease, contract or
security agreement in respect of any assets of the Company;
(xi) to borrow money and issue evidences of indebtedness
and guaranty indebtedness (whether of the Company or any of its
Subsidiaries), and to secure the same by a mortgage, pledge or
other lien on the assets of the Company;
(xii) to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of
or against the Company or to hold such proceeds against the
payment of contingent liabilities; and
(xiii) to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to
the accomplishment of the purpose of the Company.
(b) Managing Member. Subject to the provisions of this
Agreement and the direction of the Board, (i) the Company, and the Managing
Member on behalf of the Company, may enter into and perform any and all
documents, agreements and instruments contemplated hereby, all without any
further act, vote or approval of any Member and (ii) the Managing Member may
authorize any Person (including any Member or officer) to enter into and perform
any document on behalf of the Company.
2.7 Foreign Qualification. The Managing Member shall cause the Company
to comply with all requirements necessary to qualify the Company as a foreign
limited liability company in any jurisdiction in which the Company owns property
or transacts business to the extent, in the reasonable judgment of the Managing
Member, such qualification or registration is necessary or advisable for the
protection of the limited liability of the Members or to permit the Company
lawfully to own property or transact business. The Managing Member may and, at
the request of
-9-
<PAGE> 14
the Managing Member or any officer, each Member shall, execute, acknowledge,
swear to and deliver any or all certificates and other instruments conforming
with this Agreement that are necessary or appropriate to qualify, continue or
terminate the Company as a foreign limited liability company in all such
jurisdictions in which the Company may conduct business.
2.8 No State-Law Partnership. The Members intend that the Company shall
not be a partnership (including, without limitation, a limited partnership) or
joint venture, and that no Member, Economic Owner, representative or officer
shall be a partner or joint venturer of any other Member, Economic Owner,
representative or officer, for any purposes.
2.9 Treatment of Amendment for Tax Purposes. The Members intend, solely
for federal and state income tax purposes, that each Member be treated, as of
the signing of this Agreement, as having exchanged its interest in the Company
(treated as a partnership) for a new interest in the Company (treated as a
corporation), followed by a termination of the Company as a partnership. Each
Member and the Company shall file all tax returns in a manner consistent with
such treatment.
ARTICLE 3
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS
3.1 Members.
(a) List of Members; Admission. Subject to the following
sentence, the names, residence, business or mailing addresses, Capital
Contributions and the Units (both Preferred and Common) of the Members are set
forth on Schedule A, as such Schedule shall be amended from time to time in
accordance with the terms of this Agreement. Any reference in this Agreement to
Schedule A shall be deemed to be a reference to Schedule A as amended and in
effect from time to time. Upon (i) his or its execution of this Agreement or
counterpart thereof and (ii) receipt (or deemed receipt) of such Person's
Capital Contribution as set forth on Schedule A, each Person listed on Schedule
A is hereby admitted to the Company as a Member of the Company, with the
Membership Interests set forth on Schedule A, as of the date hereof .
(b) Loans by Members. No Member, as such, shall be required to
lend any funds to the Company or to make any additional contribution of capital
to the Company, except as otherwise required by applicable law or by this
Agreement. Any Member may, with the approval of the Board, make loans to the
Company, and any loan by a Member to the Company shall not be considered to be a
Capital Contribution.
(c) Representations and Warranties of Members. Each Member hereby
represents and warrants to and acknowledges with the Company that: (i) such
Member has such knowledge and experience in financial and business matters and
is capable of evaluating the merits and risks of an investment in the Company
and making an informed investment decision with respect thereto; (ii) such
Member is able to bear the economic and financial risk of an investment in the
Company for an indefinite period of time; (iii) such Member is acquiring or has
acquired interests in the Company for investment only and not with a view to, or
for resale in connection with, any
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<PAGE> 15
distribution to the public or public offering thereof; (iv) the interests in the
Company have not been registered under the securities laws of any jurisdiction
and cannot be disposed of unless they are subsequently registered and/or
qualified under applicable securities laws and the provisions of this Agreement
have been complied with; (v) the execution, delivery and performance of this
Agreement have been duly authorized by such Member and do not require such
Member to obtain any consent or approval that has not been obtained and do not
contravene or result in a default under any provision of any law or regulation
applicable to such Member or other governing documents or any agreement or
instrument to which such Member is a party or by which such Member is bound and
(vi) this Agreement is valid, binding and enforceable against such Member in
accordance with its terms.
3.2 No Liability of Members.
(a) No Liability. Except as otherwise required by applicable law
and as expressly set forth in this Agreement, no Member shall have any personal
liability whatever in such Member's capacity as a Member, whether to the
Company, to any of the other Members, to the creditors of the Company or to any
other third party, for the debts, liabilities, commitments or any other
obligations of the Company or for any losses of the Company. Each Member shall
be liable only to make such Member's Capital Contribution to the Company and the
other payments provided expressly herein.
(b) Distribution. In accordance with the Act a member of a
limited liability company may, under certain circumstances, be required to
return amounts previously distributed to such member. It is the intent of the
Members that no distribution to any Member pursuant to Article 5 hereof shall be
deemed a return of money or other property paid or distributed in violation of
the Act. The payment of any such money or distribution of any such property to a
Member shall be deemed to be a compromise within the meaning of the Act, and the
Member receiving any such money or property shall not be required to return to
any Person any such money or property. However, if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, any
Member is obligated to make any such payment, such obligation shall be the
obligation of such Member and not of any other Member.
3.3 Capital Contributions. Each Member shall be deemed to have made a
Capital Contribution to the Company in the amount shown opposite such Member's
name on Schedule A hereto. Upon execution of this Agreement each Member shall
have the Preferred Capital and the Common Capital and shall be deemed to own the
number of Preferred Units and Common Units set forth opposite such Member's name
on Schedule A. The Company shall issue certificates to the Members representing
the Common Units and the Preferred Units held by each Member.
3.4 Issuance of Additional Interests; Additional Members.
(a) Additional Interests. Subject to Section 11.7 and the
Securityholders Agreement, the Board shall have the right to cause the Company
to issue or sell to any Person (including Members and Affiliates of Members) any
of the following (which for purposes of this Agreement shall be "Additional
Interests"): (i) additional Membership Interests or other interests in the
Company (including new classes or series thereof having different rights); (ii)
obligations, evidences of indebtedness or other securities or interests
convertible into or exchangeable for Membership Interests or other interests in
the Company; and (iii) warrants, options or other rights
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<PAGE> 16
to purchase or otherwise acquire Membership Interests or other interests in the
Company. Subject to Section 3.4(b) below, the Board shall determine the terms
and conditions governing the issuance of such Additional Interests, including
the number and designation of such Additional Interests, the preference (with
respect to distributions, in liquidation or otherwise) over any other Membership
Interests and any required contributions in connection therewith.
(b) Admission as a Member. Notwithstanding Section 3.4(a), in
order for a Person to be admitted as a Member of the Company, either with
respect to an Additional Interest or as a transferee of a Membership Interest
(subject in any event to the Securityholders Agreement): (i) such Person shall
have delivered to the Company a written undertaking to be bound by the terms and
conditions of this Agreement and shall have delivered such documents and
instruments as the Board determines to be necessary or appropriate in connection
with the issuance of such Additional Interest to such Person or to effect such
Person's admission as a Member (including, without limitation, any documents
required by Article 11) and (ii) the Managing Member or the Secretary of the
Company shall amend Schedule A without the further vote, act or consent of any
other Person to reflect such new Person as a Member; provided, that unless and
until each of the conditions (i) and (ii) above are met, any transferee of any
Membership and any Person who received any Additional Interest shall be an
Economic Owner with respect to such Membership Interest and such Membership
Interest shall constitute an Economic Interest. Upon satisfaction of clauses (i)
and (ii) above such Person shall be deemed to have been admitted as a Member and
shall be listed as such on the books and records of the Company and thereupon
shall be issued his or its Membership Interest, including any Economic Interest
that corresponds to and is part of such Membership Interest. If an Additional
Interest is issued to an existing Member, the Managing Member or the Secretary
of the Company shall amend Schedule A without the further vote, act or consent
or any other Person to reflect the issuance of such Additional Interest and,
upon the amendment of such Schedule A, such Member shall be issued his or its
Additional Interest, including any Economic Interest that corresponds to and is
part of such Additional Interest.
(c) Rights of a Member. Any substitute Member admitted to the
Company pursuant to the requirements of this Section 3.4 shall succeed to all
rights and be subject to all the obligations of the transferring or assigning
Member with respect to the Membership Interest to which such Member was
substituted.
ARTICLE 4
INTENTIONALLY OMITTED
ARTICLE 5
DISTRIBUTIONS
5.1 Generally. Subject to the provisions of Section 42:2B-42 of the Act,
the Board shall have sole discretion regarding the amounts and timing of
distributions to Members, in each case subject to the retention and
establishment of reserves of, or payment to third parties of, such funds as it
deems necessary with respect to the reasonable business needs of the Company
which shall
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include the payment or the making of provision for the payment when due of the
Company's obligations, including the payment of any management or administrative
fees and expenses or any other obligations.
5.2 Distributions. (a) Distributions to be made on any date shall be
made in the following order and priority:
(i) First, to the Members in proportion to and to the
extent of their Unpaid Preferred Return;
(ii) Second, to the Members in proportion to and to the
extent of their Unreturned Preferred Capital; and
(iii) Third, to the Members in proportion to their Common
Units.
(b) Notwithstanding Sections 5.1 (but subject to the Act) or
5.2(a), the Company shall make a distribution to each Preferred Member on
November 14, 2008 (the "Scheduled Redemption Date") in an amount equal to the
full amount of such Preferred Member's Unpaid Preferred Return and Unreturned
Preferred Capital as of the Scheduled Redemption Date; provided, that if the
maturity date of the Subordinated Notes has been extended pursuant to an
amendment of the Subordinated Notes, the Scheduled Redemption Date shall be
extended to the earlier of (i) the twelve month anniversary of the extended
maturity date under the Subordinated Notes and (ii) November 14, 2011; provided
further, that the Scheduled Redemption shall only be extended one (1) time
pursuant to the terms of this Section 5.2(b).
ARTICLE 6
MANAGEMENT OF THE COMPANY
6.1 Managing Member; Delegation of Authority and Duties.
(a) Except as otherwise required by the Act, the business and
affairs of the Company shall be managed by a Member (the "Managing Member") who
shall at all times be subject to the direction of the Board. Charles Schweitzer
is hereby appointed as the initial Managing Member of the Company and, in such
capacity, shall manage the Company in accordance with this Agreement. The
actions of the Managing Member taken in such capacity and in accordance with
this Agreement shall bind the Company.
(b) Under the direction of the Board the Managing Member shall
have full, exclusive and complete discretion to manage and control the business
and affairs of the Company, to make all decisions affecting the business,
operations and affairs of the Company and to take all such actions as he or it
deems necessary or appropriate to accomplish the purpose of the Company as set
forth herein. Subject to the provisions of this Agreement, the Managing Member
shall have general and active management of the business and operations of the
Company. In addition, the Managing Member shall have such other powers and
duties as may be prescribed by the Board or this Agreement. The Managing Member
shall have the power and authority to delegate to the
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Executives or other officers, agents or employees of the Company the Managing
Member's rights and powers to manage and control the business and affairs of the
Company, as the Managing Member may deem appropriate from time to time. Subject
to the limitations set forth herein, the Managing Member or the Board may
authorize any Person to enter into and perform under any document on behalf of
the Company.
(c) The Board shall have the sole authority to remove the
Managing Member with or without Cause and to replace the removed Managing
Member, and any such removal shall be effective upon the Board's action. If such
Managing Member resigns and the business of the Company is continued as provided
in Section 12.1(c) hereof, the Board shall have the sole authority to replace
the Managing Member. The Board shall have the sole authority to terminate the
employment of the Executives in accordance with the terms and conditions of the
Employment Agreements, and any such termination shall be effective upon the
Board's action.
(d) The Managing Member may resign at any time by giving written
notice to that effect to the Board. Unless otherwise directed by the Board, any
such resignation shall take effect at the time of the receipt of that notice or
any later effective time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. The effect of such resignation shall be as set
forth in Sections 6.3 and 7.4 below.
6.2 Status of Managing Member; Eligibility to Serve.
(a) Generally. The Managing Member shall be the sole "manager"
(as that term is used in the Act) of the Company, and neither the Advisors nor
the officers of the Company, in such capacity, shall be such "managers." No
Person who is not also a Member may be appointed or serve as the Managing
Member. The Managing Member may be an officer of the Company.
(b) Remuneration. The Managing Member, in his, her or its
capacity as such, shall not be entitled to remuneration for acting in the
Company business. This Section 6.2 shall in no way limit the employment of the
Executives contemplated by the Employment Agreements or the ownership of
Membership Interests by the Executives or any other Managing Member.
6.3 Resignation or Removal of Managing Member. In the event that the
Managing Member resigns or is removed by the Board, upon the resignation or
removal becoming effective, the Membership Interest owned by such Managing
Member shall be terminated except for the portion thereof that constitutes an
Economic Interest (which such Person shall continue to hold), and the former
Managing Member shall cease to be a Member and shall instead be an Economic
Owner with respect to such Economic Interest and thereafter the former Managing
Member shall be deemed a Terminated Member.
6.4 Board of Advisors.
(a) Establishment. There is hereby established a committee (the
"Board") comprised of natural persons (the "Advisors") having the authority and
duties set forth in this Agreement. Any decision to be made by the Board shall
require the approval of a majority of the Advisors.
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(b) Number of Advisors; Term of Office. The business and affairs
of the Company shall be managed by or under the direction of the Board. The
authorized number of Advisors shall initially be five (5); provided, that the
number of Advisors can be increased by a vote of 80% of the Advisors; provided,
further that if there is a payment default under the PMI Senior Indebtedness (as
defined in the Securityholders Agreement dated as of the date hereof) prior to
payment in full of the Subordinated Notes, the authorized number of Advisors
shall automatically be increased by one (1). The Advisors shall, except as
hereinafter otherwise provided for filling vacancies, be elected at the annual
meeting of Members and shall hold office until their respective successors are
elected and qualified or until their earlier resignation or removal.
(i) The Members may, at any special meeting the notice of which
shall state that it is called for that purpose, remove, with or without
cause, any Advisor and fill the vacancy; provided that whenever any
Advisor shall have been elected by a particular Member or Members
pursuant to the Securityholders Agreement, such Advisor may be removed
and the vacancy filled only by the Members entitled to designate such
Advisor as set forth in the Securityholders Agreement. Vacancies caused
by any such removal and not filled by the Members at the meeting at
which such removal shall have been made, or any vacancy caused by the
death or resignation of any Advisor or for any other reason, and any
newly created advisorship resulting from any increase in the authorized
number of Advisors (and not filled by the Members entitled to designate
such Advisor as set forth in the Securityholders Agreement), may be
filled by the affirmative vote of a majority of the Advisors then in
office, although less than a quorum, and any Advisor so elected to fill
any such vacancy or newly created advisorship shall hold office until
his successor is elected and qualified or until his earlier resignation
or removal; provided, that such Advisor can be removed and replaced by
the Members which have the right to designate such Advisor pursuant to
the Securityholders Agreement.
(ii) When one or more Advisors shall resign effective at a future
date, such vacancy may be filled only by the Members entitled to
designate such Advisor as set forth in the Securityholders Agreement.
Vacancies caused by any such resignation and not filled by the Members
entitled to designate such Advisor, may be filled by the affirmative
vote of a majority of the Advisors then in office, including those who
are so resigning, shall have power to fill such vacancy or vacancies,
the vote thereon to take effect when such resignation or resignations
shall become effective, and each Advisor so chosen shall hold office as
herein provided in connection with the filling of other vacancies;
provided, that such Advisor can be removed and replaced by the Members
which have the right to designate such Advisor pursuant to the
Securityholders Agreement.
(c) Meetings of the Board. The Board shall meet at such time and
at such place as the Board may designate; provided, that the Board shall meet
not less than four (4) times in any twelve (12) month period. Special meetings
of the Board shall be held on the call of any Advisor or the Managing Member
upon at least four (4) days' (if the meeting is to be held in person) or two (2)
days' (if the meeting is to be held by telephone communications) oral or written
notice to the Advisors, or upon such shorter notice as may be approved by the
Advisors. Any Advisor may waive such notice as to himself or herself. A record
shall be maintained of meetings of the Board.
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<PAGE> 20
(i) Conduct of Meetings. Any meeting of the Advisors may be held
in person or telephonically.
(ii) Quorum. A majority of the Advisors who are then in office
shall constitute a quorum of the Board for purposes of conducting
business.
(iii) Unanimous Written Consent. Unless otherwise prohibited by
law, any action to be taken at any meeting of the Board, or by any
committee thereof, may be taken without a meeting if all the members of
the Board or committee, as the case may be, consent thereto in writing
and the writing(s) are filed with the minutes of the proceedings of the
board or committee.
6.5 Officers.
(a) Appointment of Officers. There shall be four senior officers
of the Company as follows (i) Chief Executive Officer and President, (ii)
Executive Vice President and Chief Financial Officer, (iii) Vice President of
Sales and (iv) Vice President of Production. Except as otherwise provided in
this Agreement, the Managing Member may appoint other officers at any time.
(b) Removal, Resignation and Filling of Vacancy of Officers. The
Board may remove any officer of the Company with or without cause at any time.
Any officer may resign at any time by giving written notice to the Managing
Member and the Board. Unless otherwise directed by the Board, any such
resignation shall take effect at the date of the receipt of that notice or any
later time specified in that notice; and, unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary to make it
effective. In the event that an officer resigns or is removed by the Board, upon
the resignation or removal becoming effective, the Membership Interest owned by
such officer shall be terminated except for the portion thereof that constitutes
an Economic Interest (which such Person shall continue to hold subject to the
provisions of the Employment Agreement), and the former officer shall cease to
be a Member and shall instead be an Economic Owner with respect to such Economic
Interest and thereafter the former officer shall be deemed a Terminated Member.
(c) Salaries of Officers. Subject to the provisions of any
Employment Agreements and any other contract to which any officer and the
Company are party, the salaries of all officers of the Company shall be fixed by
a resolution of the Board.
(d) Duties of Officers Generally. The officers, in the
performance of their duties as such, shall owe to the Members duties of loyalty
and due care of the type owed by the officers of a corporation to the
stockholders of such corporation under the laws of the State of New Jersey.
(e) Chief Financial Officer. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Company, including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital and Units. The Chief Financial Officer shall have the
custody of the funds and securities of the Company, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company, and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be
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designated by the Managing Member. The Chief Financial Officer shall have such
other powers and perform such other duties as may from time to time be
prescribed by the chief executive officer or the Managing Member.
ARTICLE 7
MEMBERS; VOTING RIGHTS
7.1 Meetings. Meetings of Members may be held from time to time
as called by the Managing Member or by a Member holding not less than 20% of the
outstanding Units of any class or series of Units, upon (10) ten days' written
notice (such notice may be waived by a Member in writing or by so indicating at
such meeting) if action of the Members is required to be taken pursuant to the
terms of this Agreement. The Managing Member may, or may appoint another Member
to, (and at least one Member shall), preside at meetings of Members. A record
shall be maintained of meetings of the Members.
(a) Any meeting of the Members may be held in person or
telephonically. Except as otherwise provided herein or by applicable law, a
majority of the Class A Common Units, represented in person or by proxy, shall
constitute a quorum of Members for purposes of conducting business.
(b) Unless otherwise prohibited by law, any action to be taken at
a meeting of the Members may be taken without a meeting if a consent of the
Members in writing, setting forth the action so taken, shall be signed by such
of the Members as shall be required to authorize, approve, ratify or otherwise
consent to such action under the Act and this Agreement; provided, however that
any such action approved by less than unanimous written consent of the Members
shall not be effective until ten (10) days after notice of such action shall
have been provided to Members entitled to vote who have not consented in
writing.
7.2 Voting Matters. Except as specifically provided herein or
otherwise required by applicable law (i) the Class A Members shall be entitled
to one vote per Class A Common Unit held by such Class A Member. Except as
specifically provided herein or otherwise required by applicable law, the Class
B Members and the Preferred Members shall have no right to vote on any matters
to be voted on by the Members of the Company; provided, that the Class B Members
shall have the right to vote each as a separate class on any merger or
consolidation of the Company with or into another entity or entities, or any
recapitalization or reorganization, in which the Class B Common Units (x) would
receive or be exchanged for consideration different on a per Common Unit basis
from consideration received with respect to or in exchange for the Class A
Common or (y) would otherwise be treated differently from the Class A Common
Units in connection with such transaction, except that the Class B Common Units
without such a separate class vote, may receive or be exchanged for nonvoting
securities (except as otherwise required by law) which are otherwise identical
on a per unit basis in amount and form to the voting securities received with
respect to or exchanged for the Class A Common Units so long as (A) such
nonvoting securities are convertible into such voting securities on the same
terms as the Class B Common Units are convertible into Class A Common Units, and
(B) all other consideration is equal on a per Common Unit basis.
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7.3 Conversion of Class B Common Units.
(a) Each Class B Member shall be entitled at any time to convert
any or all of the outstanding Class B Common Units held by such Class B Member
into the same number of Class A Common Units. A Class B Holder or Class B
Holders holding a majority of the Class B Common Units can cause a conversion of
100% of the Class B Common Units into the same number of Class A Common Units.
(b) Each conversion of Class B Common Units into Class A Common
Units shall be effected by written notice by such Class B Member to the Company
at its principal office stating that such Class B Member desires to convert its
Class B Common Units into Class A Common Units. Each conversion of Class B
Common Units shall be deemed to have been effected as of the close of business
on the date on which such notice has been received, and at such time such Class
B Common Units shall be deemed to have been cancelled and converted into Class A
Common Units, and at such time the Class A Common Units issuable upon such
conversion shall be deemed to be issued. At such time, the Company shall
promptly provide written notice to all Members of such conversion.
(c) The conversion of Class B Common Units into Class A Common
Units will be made without charge to the Class B Members electing conversion of
any issuance tax in respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of Class A Common
Units.
(d) All Class A Common Units issuable upon any conversion of
Class B Common Units shall, when issued, be duly and validly issued, and free
from all taxes, liens and charges. The Company shall take all such actions as
may be necessary to assure that all such Class A Common Units may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which Class A Common Units
may be listed (except for official notice of issuance which shall be immediately
transmitted by the Company upon issuance).
(e) The Company shall not close its books against the transfer of
Class B Common Units or Class A Common Units in any manner which would interfere
with the timely conversion of Class B Common Units. The Company shall assist and
cooperate with any Class B Holders required to make any governmental filings or
obtain any governmental approval prior to or in connection with any conversion
of Class B Common Units hereunder (including, without limitation, making any
filings required to be made by the Company).
7.4 Withdrawal; Resignation.
(a) Generally. Any Member may resign as a "member" (as that term
is used in the Act) of the Company by written notice to that effect to the
Company, and any such resignation shall be effective at the time such notice is
given or at such later effective time as may be specified in such notice. Unless
otherwise specified in such notice, the acceptance of the resignation shall not
be necessary to make it effective. A Member shall automatically cease to be a
Member as a result of his or its Incapacity. Upon any such resignation or
Incapacity of a Member, such Member becomes a "Terminated Member." Any Member
who is an employee or an officer of the Company
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or any of its Subsidiaries (including any Executive) and whose employment with
the Company or any of its Subsidiaries is terminated for any reason shall be
deemed a Terminated Member.
(b) Share of a Terminated Member. In the event that a Member
becomes a Terminated Member, the Membership Interest owned by the Terminated
Member shall be terminated except for the portion thereof which constitutes an
Economic Interest (which such Person shall continue to hold), and such
Terminated Member (or his estate) shall retain such Terminated Member's Units
and Capital Account as adjusted pursuant to the terms hereof, shall be deemed an
Economic Owner only with respect to such Units and Capital Account hereunder and
shall receive allocations and Distributions pursuant to Articles 5 and 12 as if
still a Member.
(c) Effect of Termination. Except as provided in Section 12.1(a),
the withdrawal or Incapacity or other termination of a Member shall not affect
the existence of the Company, and the remaining Members shall continue the
business of the Company under the terms of this Agreement. Thereafter, the
Terminated Member shall no longer be a Member for purposes of this Agreement and
shall have no rights, except as otherwise provided herein and shall not be
entitled to participate in any Company decision or determination (including,
without limitation, voting or consent rights with respect to amendments to this
Agreement or otherwise, except as provided herein), and the successors and
assigns of a Terminated Member will acquire only such Terminated Member's
Economic Interest as an Economic Owner.
ARTICLE 8
EXCULPATION AND INDEMNIFICATION
8.1 Performance of Duties; No Liability of Member and Officers.
No Member (including the Managing Member) shall have any duty to the Company or
any Member of the Company except as expressly set forth herein or in other
written agreements. No Member (including the Managing Member), Advisor or
officer of the Company shall be liable to the Company or to any Member for any
loss or damage sustained by the Company or to any Member, unless the loss or
damage shall have been the result of gross negligence, fraud or intentional
misconduct by the Member (including the Managing Member), Advisor or officer in
question. In performing such Person's duties, each such Person shall be entitled
to rely in good faith on the provisions of this Agreement and on information,
opinions, reports or statements (including financial statements and information,
opinions, reports or statements as to the value or amount of the assets,
liabilities, profits or losses of the Company or any facts pertinent to the
existence and amount of assets from which distributions to Members might
properly be paid) of the following other Persons or groups: one or more officers
or employees of the Company; any attorney, independent accountant, appraiser or
other expert or professional employed or engaged by or on behalf of the Company,
the Managing Member, the Board or any committee of the Board; or any other
Person who has been selected with reasonable care by or on behalf of the
Company, the Managing Member, the Board or any committee of the Board in each
case as to matters which such relying Person reasonably believes to be within
such other Person's competence. The preceding sentence shall in no way limit any
Person's right to rely on information to the extent provided in Section 42:2B-31
of the Act. No Member (including the Managing Member), Advisor or officer of the
Company shall be personally liable under any judgment of a court, or in any
other manner, for any debt, obligation or liability of the Company,
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whether that liability or obligation arises in contract, tort or otherwise,
solely by reason of being a Member, Advisor or officer of the Company or any
combination of the foregoing.
8.2 Competing Activities. Except as set forth herein and in the
Employment Agreements or as may otherwise be agreed in writing and subject to
the By-Laws of Serta, Inc.: (a) the Members, Advisors and the officers,
directors, security holders, partners, members, managers, agents, employees and
Affiliates of each of them, may engage or invest in, own and/or manage,
independently or with others, any business activity of any type or description,
including without limitation those that might be in direct or indirect
competition with the Company; (b) neither the Company nor any Member shall have
any right in or to any of such other ventures or activities or to the income or
proceeds derived therefrom; (c) neither the Members nor the Advisors, officers,
directors, securityholders, partners, members, managers, agents, employees or
Affiliates of any of them shall be obligated to present any investment
opportunity or prospective economic advantage to the Company, even if the
opportunity is of the character that, if presented to the Company, could be
taken advantage of by the Company; and (d) the Members, Advisors and the
officers, directors, securityholders, partners, members, managers, agents,
employees and Affiliates of each of them shall have the right to hold any
investment opportunity or prospective economic advantage for their own account
or to recommend such opportunity to Persons other than the Company.
8.3 Right to Indemnification. Subject to the limitations and
conditions as provided in this Article 8, each Person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or arbitrative (hereinafter a "Proceeding"), or any appeal in such a Proceeding
or any inquiry or investigation that could lead to such a Proceeding, by reason
of the fact that such Person, or a Person of which such Person is the legal
representative, is or was a Member, Advisor or officer shall be indemnified by
the Company to the fullest extent permitted by applicable law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment) against judgments, penalties (including excise and similar taxes
and punitive damages), fines, settlements and reasonable expenses (including,
without limitation, reasonable attorneys' fees and expenses) actually incurred
by such Person in connection with such Proceeding, appeal, inquiry or
investigation, and indemnification under this Article 8 shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder; provided, that such Person shall be entitled to
indemnification hereunder only if such Person acted in good faith and in a
manner such Person reasonably believed to be in or not opposed to the best
interest of the Company. The rights granted pursuant to this Article 8 shall be
deemed contract rights, and no amendment, modification or repeal of this Article
8 shall have the effect of limiting or denying any such rights with respect to
actions taken or Proceedings, appeals, inquiries or investigations arising prior
to any amendment, modification or repeal.
8.4 Advance Payment. The right to indemnification conferred in
this Article 8 shall include the right to be paid or reimbursed by the Company
the reasonable expenses incurred by a Person of the type entitled to be
indemnified under Section 8.3 who was, is or is threatened to be, made a named
defendant or respondent in a Proceeding in advance of the final disposition of
the Proceeding and without any determination as to the Person's ultimate
entitlement to indemnification; provided, however, that the payment of such
expenses incurred by any such Person in advance of
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the final disposition of a Proceeding shall be made only upon delivery to the
Company of a written affirmation by such Person of his or her good faith belief
that he has met the standard of conduct necessary for indemnification under
Article 8 and a written undertaking (acceptable to the Board), by or on behalf
of such Person, to repay all amounts so advanced if it shall ultimately be
determined that such indemnified Person is not entitled to be indemnified under
this Article 8 or otherwise.
8.5 Indemnification of Employees and Agents. The Company, at the
direction of the Board, may indemnify and advance expenses to an employee or
agent of the Company to the same extent and subject to the same conditions under
which it may indemnify and advance expenses under Sections 8.3 and 8.4.
8.6 Reimbursement of Fees and Expenses. The Company shall bear
all of the out-of-pocket expenses, including attorneys' and accountants' fees
and expenses, incurred in connection with the organization of the Company and
the operation and maintenance of the Company and its assets and business. The
Company shall reimburse the Members for all fees and expenses borne by them on
behalf of the Company in connection with the Company and its business
8.7 Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article 8 shall not be
exclusive of any other right that a Member, Advisor, officer or other Person
indemnified pursuant to this Article 8 may have or hereafter acquire under any
law (common or statutory) or provision of this Agreement.
8.8 Insurance. The Company may, but is not obligated to, purchase
and maintain insurance, at its expense, to protect itself and any Member,
Advisor, officer, employee or agent of the Company who is or was serving at the
request of the Company as a manager, director, officer, partner, venturer,
proprietor, trustee, employee, agent, Advisor, or similar functionary of a
foreign or domestic limited liability company, corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise
against any expense, liability or loss, whether or not the Company would have
the power to indemnify such Person against such expense, liability or loss under
this Article 8.
8.9 Savings Clause. If this Article 8 or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless each Person indemnified
pursuant to this Article 8 as to costs, charges and expenses (including
reasonable attorneys' fees and expenses), judgments, fines and amounts paid in
settlement with respect to any such Proceeding, appeal, inquiry or investigation
to the full extent permitted by any applicable portion of this Article 8 that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
ARTICLE 9
TAX RETURNS
The Company shall cause to be prepared and filed all necessary
federal and state income tax returns for the Company, consistent with the
treatment of the Company as a corporation for tax purposes, and shall make any
elections the Managing Member may deem appropriate and
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in the best interests of the Members. Each Member shall furnish to the Company
all pertinent information in its possession relating to Company operations that
is necessary to enable the Company's income tax returns to be prepared and
filed.
ARTICLE 10
BOOKS, REPORTS AND COMPANY COVENANTS
10.1 Maintenance of Books. The Company shall keep books and
records of accounts in accordance with GAAP and shall keep minutes of the
proceedings of its Members and each committee. The Fiscal Year shall be the
accounting year of the Company for financial reporting purposes.
10.2 Financial Statements and Other Information. The Company
shall, upon the request of any Member who holds more than 5% of the outstanding
Common Units, deliver to such Member:
(a) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each Fiscal Year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the Fiscal Year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the annual budget and to the corresponding period in the
preceding Fiscal Year, and all such statements shall be prepared in accordance
with GAAP, consistently applied, subject to the absence of footnote disclosures
and to normal year-end adjustments, and shall be accompanied by an officer's
certificate;
(b) within 45 days after the end of each quarterly accounting
period in each Fiscal Year, unaudited consolidating and consolidated statements
of income and cash flows of the Company and its Subsidiaries for such quarterly
period, and unaudited consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such quarterly period, setting
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding Fiscal Year, and all such statements shall be prepared
in accordance with GAAP, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments, and shall be
accompanied by an officer's certificate;
(c) within 90 days after the end of each Fiscal Year, audited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such Fiscal Year, and audited consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such Fiscal Year, setting forth in each case comparisons to the annual budget
and to the preceding Fiscal Year, all prepared in accordance with GAAP,
consistently applied, and accompanied by (i) with respect to the consolidated
portions of such statements, an opinion of an independent accounting firm of
recognized national standing, (ii) a certificate from such accounting firm,
addressed to the Board, stating that in the course of its examination nothing
came to its attention that caused it to believe that there was any default by
the Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or
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conditions of any material agreement to which the Company or any Subsidiary is a
party or, if such accountants have reason to believe any default by the Company
or any Subsidiary exists, a certificate specifying the nature and period of
existence thereof, and (iii) a copy of such firm's annual management letter to
the Board;
(d) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(e) at least 30 days prior to the end of each Fiscal Year, an
annual budget prepared on a monthly basis for the Company and its Subsidiaries
for the following Fiscal Year (displaying anticipated statements of income and
cash flows and balance sheets), and following preparation thereof quarterly
revisions of such budget and any other significant budgets prepared by the
Company or its Subsidiaries, and within 30 days after any monthly period in
which there is a material adverse deviation from the annual budget, an officer's
certificate explaining the deviation and what actions the Company has taken and
proposes to take with respect thereto; and
(f) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this Article 10 may reasonably request.
10.3 Inspection of Property. The Company shall permit any Member,
upon written demand under oath stating the purpose therefor, during normal
business hours and such other times as any such holder may reasonably request,
to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries.
10.4 Regulatory Compliance Cooperation.
(a) Regulatory Violation. In the event that the Investor or any
of its Affiliates determines that it has a Regulatory Problem (as defined
below), the Company agrees to take all such actions as are reasonably requested
by the Investor in order (i) to effectuate and facilitate any Transfer by the
Investor of any securities of the Company then held by the Investor to any
Person designated by the Investor (ii) to permit the Investor (or any of its
Affiliates) to exchange all or a portion of any voting security then held by it
on a share-for-share basis for shares of a nonvoting security of the Company,
which nonvoting security shall be identical in all respects to the voting
security exchanged for it, except that it shall be nonvoting and shall be
convertible into a voting security on such terms as are requested by the
Investor in light of regulatory considerations then prevailing, and (iii) to
continue and preserve the respective allocation of the voting interests with
respect to the Company provided for in the Securityholders Agreement and with
respect to the Investor's ownership of the Common and Preferred Units. Such
actions may include, but shall not necessarily be limited to entering into such
additional agreements, adopting such amendments to this Agreement and taking
such additional actions as are reasonably requested by the Investor in order to
effectuate the intent of the foregoing. For purposes of this Agreement, a
"Regulatory Problem"
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means any set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or the Investor believes that there is a
substantial risk of such assertion) that the Investor is not entitled to hold,
or exercise any significant right with respect to, the Common and Preferred
Units.
(b) Use of Proceeds. The Company hereby agrees that: (i) the
Company will provide the Investor with a written summary certified by the
Company's President or Chief Financial Officer describing in reasonable detail
the Company's use of the proceeds received pursuant to the transactions
contemplated by the Recapitalization Agreement (including the intended use of
any such unused proceeds as of the date of such summary) (A) within 75 days of
the date hereof, and (B) at the end of each month thereafter until all of the
proceeds received hereunder have been used by the Company and its Subsidiaries,
and (ii) the Company will repurchase at the request of the Investor the
Membership Interest held by the Investor for an amount equal to the purchase
price thereof (plus any accrued interest or dividends thereon), payable in
immediately available funds, in the event that the Investor determines in its
reasonable good faith judgment that a Regulatory Violation (as defined below)
occurred. In the event of such repurchase, the Company shall pay for such
Membership Interest by a cashier's check, certified check or wire transfer
within 30 days after the Company's receipt of the repurchase request, and upon
such payment, the Investor shall deliver the certificates evidencing the
securities being repurchased.
For purposes of this Agreement, "Regulatory Violation" means (a)
a diversion of the proceeds from the transactions contemplated by the
Recapitalization Agreement described on the use of proceeds statement delivered
by the Company on the date hereof, if such diversion was effected without
obtaining the prior written consent of the Investor (which consent may be
withheld in the Investor's sole discretion) or (b) a change in the principal
business activity of the Company and its Subsidiaries to an ineligible business
activity (within the meaning of the SBIC Regulations), if such change occurs
within one year after the date hereof.
(c) Number of Class A Members. As long as the Investor holds any
Membership Interest, the Company shall notify the Investor (a) at least 15 days
prior to taking any action after which the number of Class A Members would be
increased from fewer than 50 to 50 or more, and (b) of any other action or
occurrence after which the number of Class A Members was increased (or would
increase) from fewer than 50 to 50 or more, as soon as practicable after the
Company becomes aware that such other action or occurrence has occurred or is
proposed to occur.
(d) Economic Impact Information. Promptly after the end of each
Fiscal Year (but in any event prior to February 28 of each year) the Company
shall deliver to the Investor a written assessment of the economic impact of the
Investor's investment in the Company, specifying the full-time equivalent jobs
created or retained in connection with the investment, the impact of the
investment on the businesses of the Company in terms of expanded revenue and
taxes, and other economic benefits resulting from the investment, including but
not limited to, technology development or commercialization, minority business
development, urban or rural business development, expansion of exports.
10.5 Notice of Developments. The Company will give prompt written
notice to the Investor of any material adverse development causing a breach of
any of the above
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representations and warranties. No disclosure by the Company pursuant to this
Section 10.5, however, shall prevent or cure any misrepresentation, breach of
warranty, or breach of contract.
10.6 SBA Matters.
(a) Use of Proceeds. The Company, together with its "affiliates"
(as that term is defined in 13 CFR, Section 121.401), is a "small business
concern" within the meaning of the SBIC regulations, including 13 CFR
Section 121.802. The information regarding the Company and its affiliates set
forth in the SBA Form 480, Form 652 and Section A of Form 1031 is accurate and
complete. Copies of such forms shall have been completed by the Company and
delivered to the Investor at the Closing. Neither the Company nor any Subsidiary
presently engages in, or shall hereafter engage in, any activities, nor shall
the Company or any Subsidiary use directly or indirectly the proceeds from the
transactions contemplated by the Recapitalization Agreement for any purpose, for
which an SBIC is prohibited from providing funds by SBIC regulations, including
13 CFR Section 107.804 and Section 107.901.
(b) SBA Forms. The Company shall have delivered to the Investor
prior to the date hereof:
(i) duly completed and executed SBA Forms 480, 652 and
Part A of 1031;
(ii) a business plan showing the Company's financial
projections (including balance sheets and income and cash flow statements) for
the period ending December 31, 2001;
(iii) a written statement from the Company regarding its
intended use of the proceeds of the transactions contemplated by the
Recapitalization Agreement; and
(iv) a list, after giving effect to the transactions
contemplated by this Agreement, of (a) the name of each of the Company's
Advisors, (b) the name and title of each of the Company's officers, and (c) the
name of each of the Company's Members (including the Original Members) setting
forth the number and class of Membership Interests held both prior to and
following the consummation of the Recapitalization Agreement.
10.7 Company Funds. The Company may not commingle the Company's
funds with the funds of any Member or the funds of any Affiliate of any Member.
ARTICLE 11
TRANSFER OF INTERESTS
11.1 Restrictions. Each Member acknowledges that he shall not Transfer
any interest in the Company except in accordance with the provisions of this
Article 11, the Securityholders Agreement and the Employment Agreements. Any
attempted Transfer in violation of the preceding sentence shall be deemed null
and void for all purposes, and the Company will not record any such
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transfer on its books or treat any purported transferee as the owner of such
interests for any purpose. As used in this Article 11, references to a Transfer
of an "interest" shall mean any Transfer of any Membership Interest or other
Economic Interest or any interest in any portion of a Membership Interest or
Economic Interest.
11.2 General Restrictions on Transfer.
(a) Notwithstanding anything to the contrary in this Agreement,
no transferee of any interest received pursuant to a Transfer (but excluding
transferees that were Members immediately prior to such a Transfer, who shall
automatically become Members with respect to any additional interests they so
acquire) shall become a Member in respect of the interest so transferred unless
a Person is admitted as a Member as set forth in Section 3.4(b).
(b) No Transfer of a Membership Interest in the Company shall be
effective unless and until (i) written notice (including the name and address of
the purchaser or donee and the date of such Transfer) has been provided to the
Company and the non-transferring Member(s) and (ii) the transferee executes a
form of this Agreement or an amendment hereto in form and substance reasonably
satisfactory to the Board. No transferee of a Member's Membership Interest (or
any interest therein) may further Transfer such interest without complying with
the provisions of this Article 11.
(c) Following a Transfer of an interest that is permitted under
this Article 11, the transferee of such interest shall be treated as having made
all of the Capital Contributions in respect of, and received all of the
distributions received in respect of, such interest, shall succeed to the
Capital Account associated with such interest and shall receive allocations and
distributions under Articles 5 and 12 in respect of such interest as if such
transferee were a Member.
(d) Any Member who Transfers all of his interest in the Company
shall (i) cease to be a Member upon such Transfer, (ii) shall no longer possess
or have the power to exercise any rights or powers of a Member of the Company
and (iii) shall be deemed a Terminated Member.
11.3 Procedure for Transfers. Subject in all events to the general
restrictions on transfers contained in Sections 11.1 and 11.2 and in the
Securityholders Agreement, a Person may Transfer all or any part of its Economic
Interest in the Company in accordance with this Section 11.3.
(a) No Transfer may be completed until the prospective transferee
executes and delivers to the Company and the other Members an agreement to be
bound by this Agreement in form and substance reasonably acceptable to the
Board. In addition, the Board may require the transferor and the transferee to
execute, acknowledge and deliver to the Company, for the benefit of the
remaining Members, such instruments of transfer, assignment and assumption and
such other certificates, representations and documents, and to perform all such
other acts which the Board may deem necessary or desirable to:
(i) ensure that such transferee will become an Economic
Owner;
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(ii) preserve the Company after the completion of such
sale, transfer, assignment, or substitution under the laws of each jurisdiction
in which the Company is qualified, organized or does business;
(iii) maintain the status of the Company as a corporation
for federal income tax purposes; and
(iv) assure compliance with any applicable state and
federal laws including securities laws and regulations.
Each Member agrees that, if it is a transferor, upon request of the Board it
shall indemnify the Company and the remaining Members against any and all loss,
damage, or expense (including, without limitation, tax liabilities or loss of
tax benefits) arising directly or indirectly as a result of any Transfer or
purported Transfer in violation of this Section 11.
(b) In connection with the Transfer of any Restricted Securities,
the holder thereof will deliver written notice to the Company describing in
reasonable detail the Transfer or proposed Transfer. In addition, if the holder
of such Restricted Securities delivers to the Company an opinion of such counsel
that no subsequent Transfer of such Restricted Securities will require
registration under the Securities Act, the Company will promptly upon such
contemplated Transfer deliver new certificates or instruments, as the case may
be, for such Restricted Securities which do not bear the restrictive legend
relating to the Securities Act as set forth below. If the Company is not
required to deliver new certificates or instruments, as the case may be, for
such Restricted Securities not bearing such legend, the holder thereof will not
Transfer the same until the prospective transferee has confirmed to the Company
in writing its agreement to be bound by the conditions contained in this Section
11.3.
11.4 Prospective Transferees. Subject to the terms of this Agreement and
the Securityholders Agreement, the Company, the Managing Member and each
Executive agree to cooperate, as may reasonably be requested, in order to
provide any information and access to any information to any prospective
transferee in connection with a proposed Transfer.
11.5 Legend. The certificates representing the Units will bear the
following legend:
"THE UNITS REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
AS OF NOVEMBER 14, 1996, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE TRANSFER OF THE UNITS REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN A LIMITED
LIABILITY COMPANY OPERATING AGREEMENT, GOVERNING THE ISSUER (THE
"COMPANY") AND BY AND AMONG CERTAIN INVESTORS. A COPY OF SUCH
CONDITIONS SHALL BE FURNISHED BY THE
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COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE."
11.6 Transfer Fees and Expenses. The transferor and transferee of any
Membership Interest or Economic Interest shall be jointly and severally
obligated to reimburse the Company for all reasonable expenses (including
attorneys' fees and expenses) of any Transfer or proposed Transfer, whether or
not consummated.
11.7 Limitations. Notwithstanding anything to the contrary in this
Agreement, no Unit or Economic Interest may be transferred if such transfer
would result in the Company having more than 100 "beneficial owners" as defined
and determined by the Investment Company Act of 1940, as amended from time to
time.
ARTICLE 12
DISSOLUTION AND LIQUIDATION
12.1 Events Causing Dissolution.
(a) The Company shall continue in full force and effect, except
that the Company shall be dissolved prior thereto upon the happening of any of
the following events or by operation of law:
(i) the Company shall be dissolved upon the written
consent of all Members or the entry of a decree of judicial dissolution under
Section 42:2B-49 of the Act; and
(ii) any event which shall make it unlawful for the
existence of the Company to be continued.
(b) In the event of a Bankruptcy of a Member that does not cause
the Company to dissolve as provided in subsection (a), such Member shall cease
to be a Member for all purposes hereunder unless upon the Consent of the
Members, such Bankrupt Member is permitted to remain a Member hereunder.
(c) The death, retirement, resignation, expulsion, incapacity,
Bankruptcy or dissolution of a Member, or the occurrence of any other event that
terminates the continued membership of a Member in the Company, shall not cause
a dissolution of the Company, and the Company shall continue in existence
subject to the terms and conditions of this Agreement.
12.2 Liquidation and Termination. On dissolution of the Company, the
Managing Member or such other or additional Member or Members as designated by
the Board shall act as liquidator(s). The liquidator(s) shall proceed diligently
to wind up the affairs of the Company and make final distributions as provided
herein and in the Act. The costs of liquidation shall be borne as a Company
expense. Until final distribution, the liquidator(s) shall continue to operate
the Company properties with all of the power and authority of Managing Member
and Members, subject to the power of the
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Board to remove and replace such liquidator(s). The steps to be accomplished
by the liquidator(s) are as follows:
(a) As promptly as possible after dissolution and again after
final liquidation, the liquidator(s) shall cause a proper accounting to be made
by a recognized firm of certified public accountants of the Company's assets,
liabilities and operations through the last day of the calendar month in which
the dissolution occurs or the final liquidation is completed, as applicable.
(b) The liquidator(s) shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and obligations of the Company
(including, without limitation, all expenses incurred in liquidation) or
otherwise make adequate provision for payment and discharge thereof (including,
without limitation, the establishment of a cash fund for contingent liabilities
in such amount and for such term as the liquidator may reasonably determine).
(c) All remaining assets of the Company shall be distributed to
the Members in accordance with Section 5.2(a) hereof by the end of the taxable
year of the Company during which the liquidation of the Company occurs (or, if
later, 90 days after the date of the liquidation).
The liquidator(s) shall cause only cash and securities to be distributed in any
liquidation. The distribution of cash and/or property to a Member in accordance
with the provisions of this Section 12.2 constitutes a complete return to the
Member of its Capital Contributions and a complete distribution to the Member of
its interest in the Company and all the Company's property and constitutes a
compromise to which all Members have consented within the meaning of the Act. To
the extent that a Member returns funds to the Company, it has no claim against
any other Member for those funds.
12.3 Cancellation of Certificate. On completion of the
distribution of Company assets as provided herein, the Company is terminated,
and shall file a certificate of cancellation of the Company pursuant to Section
42:2B-14(b) of the Act and take such other actions as may be necessary to
terminate the Company.
ARTICLE 13
GENERAL/MISCELLANEOUS PROVISIONS
13.1 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be given either by
depositing that writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering that writing to the recipient in person, by courier, or by facsimile
transmission; and a notice, request, or consent given under this Agreement is
effective on receipt by the Person who receives it. All notices, requests and
consents to be sent to a Member must be sent to or made at the address (or
facsimile number) given for that Member on Schedule A, or such other address (or
facsimile number) as that Member may specify by notice to the other Members. Any
notice, request or consent to the Company or the Managing Member must be given
to the Managing Member or, if appointed, the Secretary of the Company at the
Company's chief executive offices. Whenever any
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notice is required to be given by law or this Agreement, a written waiver
thereof, signed by the Person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
13.2 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW
YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING INTERPRETATION OF THE LAWS
GOVERNING LIMITED LIABILITY COMPANIES SHALL BE GOVERNED BY THE ACT.
13.3 Certificates of Units.
(a) Every holder of Units in the Company shall be entitled to
have a certificate, signed by, or in the name of the Company, by the president
and a vice-president of the Company, certifying the number of Units owned by
such holder in the Company. In case any officer(s) who have signed any such
certificate(s) shall cease to be such officer(s) of the Company whether because
of death, resignation or otherwise before such certificate(s) have been
delivered by the Company, such certificate(s) may nevertheless be issued and
delivered as though the Person or Persons who signed such certificate(s) had not
ceased to be such officer(s) of the Company. All certificates for Units shall be
consecutively numbered or otherwise identified. The name of the Person to whom
the Units represented thereby are issued, with the number of Units and date of
issue, shall be entered on the books of the Company. Units of the Company shall
only be transferred on the books of the Company by the holder of record thereof
or by such holder's attorney duly authorized in writing, upon surrender to the
Company of the certificate(s) for such Units endorsed by the appropriate
Person(s), with such evidence of the authenticity of such endorsement, transfer,
authorization, and other matters as the Company may reasonably require, and
accompanied by all necessary transfer stamps. In that event, it shall be the
duty of the Company to issue a new certificate to the Person entitled thereto,
cancel the old certificate(s), and record the transaction on its books. The
Board may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both
in connection with the transfer of any class or series of securities of the
Company.
(b) The Board may direct a new certificate(s) to be issued in
place of any certificate(s) previously issued by the Company alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the Person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate(s), the Board may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate(s), or his or her legal representative,
to give the Company a bond sufficient to indemnify the Company against any claim
that may be made against the Company on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.
13.4 Entire Agreement. This Agreement, together with the Securityholders
Agreement, the Recapitalization Agreement, the Registration Rights Agreement,
the Employment Agreements and the Warrant, each dated as of the date hereof,
constitutes the entire agreement of the Members
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and their Affiliates relating to the Company and supersedes all prior contracts
or agreements with respect to the Company, whether oral or written.
13.5 Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by that
Person of its obligations hereunder or with respect to the Company is not a
consent or waiver to or of any other breach or default in the performance by
that Person of the same or any other obligations of that Person hereunder or
with respect to the Company. Failure on the part of a Person to complain of any
act of any Person or to declare any Person in default hereunder or with respect
to the Company, irrespective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that default
until the applicable statute-of-limitations period has run.
13.6 Amendment or Modification. This Agreement and any provision hereof
may be amended or modified from time to time only by a written instrument
adopted by the Board; provided, however, that: (a) except as otherwise expressly
provided herein, an amendment or modification (other than amendments or
modifications adding new classes of interests or issuing Additional Interests)
reducing disproportionately a Member's Units or other interest in profits or
losses or in distributions or increasing a Member's Capital Contribution, or
otherwise disproportionately affecting the rights of such Member, shall be
effective only with that Member's consent, (b) an amendment or modification
reducing the required interest for any consent or vote in this Agreement shall
be effective only with the consent or vote of Members or the Board having the
interest theretofore required, and (c) no subdivision, reclassification or
amendment of any class or series of Units, including, without limitation, the
definitions thereof, shall be effective without the prior approval of a majority
of the Class A Members, the Class B Members and the Preferred Members, in each
case voting as a separate class.
13.7 Binding Effect. Subject to the restrictions on Transfers set forth
in this Agreement, this Agreement is binding on and shall inure to the benefit
of the Members and their respective heirs, legal representatives, successors and
permitted assigns.
13.8 Power of Attorney. Each Member hereby irrevocably constitutes and
appoints the Managing Member his or its true and lawful attorney-in-fact and
agent with full power and authority to act in his name, place and stead to
execute, acknowledge, swear to, deliver, file, record and publish any document
required to be filed on behalf of the Company:
(a) to qualify or continue the Company as a limited liability
company;
(b) to accomplish the purposes and carry out the powers of the
Company as set forth in this Agreement;
(c) to effect the dissolution and termination of the Company; or
(d) to effect transfers, admissions, withdrawals and substitution
of Members as specifically provided under the terms of this Agreement, including
any amendment to Schedule A necessary to reflect the same.
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No person shall take any action as an attorney-in-fact of any Member which would
in any way increase the liability of such Member beyond the liability expressly
set forth in this Agreement. This power of attorney is coupled with an interest
and shall be irrevocable.
13.9 Indemnification and Reimbursement for Payments on Behalf of a
Member. If the Company is obligated to pay any amount to a governmental agency
(or otherwise makes a payment) because of a Member's status or otherwise
specifically attributable to a Member (including, without limitation, federal,
state or local withholding taxes imposed with respect to any issuance of Units
or other interests to a Member or any payments to a Member, federal withholding
taxes with respect to foreign Persons, state personal property taxes, state
unincorporated business taxes, etc.), then such Member (the "Indemnifying
Member") shall indemnify the Company in full for the entire amount paid
(including, without limitation, any interest, penalties and expenses associated
with such payments). The amount to be indemnified shall be charged against the
Capital Account of the Indemnifying Member, and, at the option of the Board,
either:
(i) promptly upon notification of an obligation to indemnify the
Company, the Indemnifying Member shall make a cash payment to the
Company equal to the full amount to be indemnified (and the amount paid
shall be added to the Indemnifying Member's Capital Account but shall
not be treated as a Capital Contribution), or
(ii) the Company shall reduce distributions that would otherwise
be made to the Indemnifying Member, until the Company has recovered the
amount to be indemnified (provided that the amount of such reduction
shall be deemed to have been distributed for all purposes of this
Agreement, but such deemed distribution shall not further reduce the
Indemnifying Member's Capital Account).
An Indemnifying Member's obligation to make contributions to the Company under
this Section 13.9 shall survive the termination, dissolution, liquidation and
winding up of the Company and, for purposes of this Section 13.9, the Company
shall be treated as continuing in existence. The Company may pursue and enforce
all rights and remedies it may have against each Indemnifying Member under this
Section 13.9, including instituting a lawsuit to collect such contribution with
interest calculated at prime rate plus five percentage points per annum (but not
in excess of the highest rate per annum permitted by law).
13.10 Consent to Jurisdiction. Each Member irrevocably submits to the
jurisdiction of any state or federal court sitting in New York, New York for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby. Each Member further agrees that service
of any process, summons, notice or document by U.S. certified or registered mail
to such Member's respective address set forth on Schedule A shall be effective
service of process in any action, suit or proceeding in New York with respect to
any matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. Each Member irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby in any
state or federal court sitting in New York, New York, and hereby irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in such court has been brought in an
inconvenient forum.
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13.11 WAIVER OF JURY TRIAL. EACH MEMBER HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY WITH RESPECT TO ANY LITIGATION WHICH ARISES OUT OF, OR WHICH IS
RELATED TO, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
13.12 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original for all purposes, but all of
which taken together shall constitute only one agreement. The production of any
executed counterpart of this Agreement shall be sufficient for all purposes
without producing or accounting for any other counterpart thereof.
13.13 Severability. Each provision of this Agreement shall be considered
severable and if for any reason any provision or provisions herein (a) are
determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid or (b) would cause any Member to be bound by the
obligations of the Company under the laws of any state or locale as the same may
now or hereafter exist, such provision or provisions shall be deemed void and of
no effect.
13.14 Headings. All section headings or captions contained in this
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement.
13.15 Parties in Interest. Nothing herein shall be construed to be to
the benefit of or enforceable by any third party including, but not limited to,
any creditor of the Company.
13.16 Further Assurances. The Members will execute and deliver such
further instruments and do such further acts and things as may be required to
carry out the intent and purposes of this Agreement.
13.17 Specific Performance; Remedies. The Company and the Members shall
be entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement
(including costs of enforcement) and to exercise any and all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company or any Member may in its or his sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance or injunctive relief (without posting a bond or other security) in
order to enforce or prevent any violation or threatened violation of the
provisions of this Agreement. No remedy conferred upon or reserved to the
Company or any Member by this Agreement is intended to be exclusive of any other
remedy. Each and every such remedy shall be cumulative and shall be in addition
to any other remedy given to the Company or any Member hereunder or now or
hereafter existing at law or in equity or by statute.
* * * * *
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<PAGE> 38
IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year first above written.
SLEEPMASTER HOLDINGS L.L.C.
By:________________________________
Name:
Managing Member
___________________________________
CHARLES SCHWEITZER
___________________________________
JAMES KOSCICA
___________________________________
TIMOTHY DUPONT
___________________________________
MICHAEL REILLY
SLEEP INVESTOR L.L.C.
By:________________________________
Name:
Title:
-34-
<PAGE> 39
SLEEPMASTER HOLDINGS L.L.C. SCHEDULE A
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
No. of No. of Class A No. of Class B
Member and Address Capital Contribution Preferred Capital Common Capital Preferred Units Common Units Common Units
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles Schweitzer $806,285.60 $720,000.00 $86,285.60 514.28 760 __
32 Amagansett Drive
Morganville, NJ 07751
- -------------------------------------------------------------------------------------------------------------------------------
James Koscica $403,142.80 $360,000.00 $43,142.80 257.14 380 __
14 Allaire Avenue
Middletown, NJ 07748
- -------------------------------------------------------------------------------------------------------------------------------
Timothy DuPont $403,142.80 $360,000.00 $43,142.80 257.14 380 __
589 Seminary Way
Rahway, NJ 07065
- -------------------------------------------------------------------------------------------------------------------------------
Michael Reilly $403,142.80 $360,000.00 $43,142.80 257.14 380 __
2 Arlington Place
Fair Lawn, NJ 07410
- -------------------------------------------------------------------------------------------------------------------------------
Sleep Investor L.L.C $12,984,154.53 $12,200,000.00 $784,154.53 8,714.26 6,099 __
c/o Citicorp Venture
Capital, Ltd.
14th Floor
399 Park Avenue
New York, NY 10043
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL $14,999,868.53 $14,000,000.00 $999,868.53 9,999.96 7,999 __
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-35-
<PAGE> 1
EXHIBIT 10.4
MEMORANDUM OF AGREEMENT
SERTA, INC.
THIS MEMORANDUM OF AGREEMENT dated this 12th day of January 1995, by and
between SERTA, INC., a Delaware corporation, party of the first part,
hereinafter sometimes referred to as "Serta," and Sleepmaster L.L.C.
party of the second part, hereinafter sometimes referred to as "Member,"
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Standard
License Agreement under the terms of which the Member has been given the right
to manufacture and sell certain articles in accordance with Serta's by-laws,
rules, regulations, resolutions and specifications; and
WHEREAS, under the terms of said Standard License Agreement the Member
is also given the right to use certain trade-marks, trade names and labels in
connection with the manufacture and sale of said articles; and
WHEREAS, Serta engages in national advertising of its specification
products; and
WHEREAS, the Member is desirous of gaining the consent of Serta to the
use of the word "Serta" in the corporate name or in the firm name and style
under which the Member is engaged in the manufacture and sale of such articles
in accordance with the terms of said Standard License Agreement; and
WHEREAS, it is to the mutual advantage of the parties hereto to permit
the Member to use the word "Serta" in such corporate or firm name under the
restrictions and upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and in further
consideration of the execution and delivery of said Standard License Agreement
and of the terms, covenants and conditions hereof to be kept and performed by
the parties hereto, it is covenanted and agreed as follows:
(a) The Member shall not appropriate for use or use any corporate
name or firm name and style embodying, the word "Serta" in its business
done under said Standard License Agreement unless and until the Member
has obtained the written consent of Serta to such appropriation or use
by the Member of such corporate name or firm name and style.
<PAGE> 2
(b) Such corporate name or firm name and style shall be
sufficiently distinctive so as to prevent the public from confusing such
corporate name or firm name and style with the corporate name of Serta
or with the corporate name or firm name and style of any other
stockholder and licensee of Serta.
(c) The Member shall, in using such corporate name or firm name
and style upon its stationery, billheads and in its advertising, state
in substance upon such stationery and billheads and in such advertising
that the Member is a member or licensee of Serta, Inc., a Delaware
corporation or is engaged in the manufacture and sale of articles in
accordance with specifications formulated by Serta.
(d) The Member hereby consents to the appropriation and use by
any other stockholder and licensee of Serta of a corporate name or firm
name and style embodying the word "Serta" which is approved by Serta
pursuant to an agreement between Serta and such other stockholder and
licensee containing the same provisions as contained in this agreement.
The Member shall, from time to time, upon request, execute and deliver
such documents as may be necessary or proper in Serta's opinion to
permit and consent to such appropriation and use by other stockholders
and licensees of Serta.
(e) The Member shall not manufacture and sell any article under
any corporate name or firm name and style which includes the word
"Serta" unless said article is manufactured and sold in full compliance
with Serta's by-laws, rules, regulations, resolutions and
specifications.
(f) The Member shall not manufacture and sell any article under
any trade name, trade-mark, or label unless such trade name, trade-mark,
or label is adopted and specified by Serta for use generally by all of
its licensees and stockholders.
(g) In the event the Member ceases to be a stockholder of Serta,
or in the event the said Standard License Agreement is terminated by
reason of some default of the Member in the terms, covenants and
conditions of said Standard License Agreement, or in the event of any
default by the Member of any of the terms, covenants and conditions of
this agreement and such default continues for a period of thirty (30)
days after a written demand by Serta upon the Member to remedy such
default, then in either such event this agreement shall terminate and
the Member shall immediately, upon such termination of said Standard
License Agreement, or upon ceasing to be a stockholder of Serta, or upon
the expiration of said thirty (30) day period for remedying any default
under the terms of this agreement, as the case may be, cease and abandon
the use of such corporate name or firm name and style.
(h) In the event of a termination of this agreement in the manner
specified in paragraph (g) hereof, the Member shall, within thirty (30)
days of the date of termination of this agreement, cause such corporate
name to be changed by deleting the word "Serta" therefrom. In the event
such firm name and style can be registered under the provisions of any
state law for the exclusive use by the registrant, then, in the event of
the termination
-2-
<PAGE> 3
of this agreement as provided in paragraph (g), the Member shall, within
thirty (30) days of such termination, take such legal steps as may be
necessary to change the registration of such firm name and style by
deleting the word "Serta" therefrom.
(i) In the event of the termination of this agreement by reason
of a default of the Member as herein specified and the Member fails or
refuses to cease and desist from the use of such corporate name or firm
name and style embodying the word "Serta" therein, or fails and refuses
to change such corporate name or such firm name and style by deleting
the word "Serta" therefrom, then in either such event Serta shall have
the right, without notice to the Member, to obtain an injunction
enjoining the Member from the use of any corporate name or firm name and
style which embodies the word "Serta" therein.
(j) In the event Serta desires to become qualified as a foreign
corporation in the state or states in which the Member is doing business
under such corporate name or such firm name and style, the Member shall,
upon request of Serta, execute a written consent to the qualification of
Serta in such state or states.
(k) In the event the Member does not cease from using such
corporate name or firm name and style as provided in paragraphs (g) and
(h) hereof, it is understood and agreed that Serta will suffer material
damages, the exact amount of which would be difficult, if not
impossible, of ascertainment. Therefore, the Member shall pay to Serta,
upon demand, the sum of Twenty-Five Dollars ($25.00) per day as
liquidated damages for each and every day in which the Member fails to
cease and desist from the use of such corporate name or firm name and
style as required by the terms of this agreement. In addition to the
foregoing penalty, the Member shall pay to Serta its reasonable costs,
expenses and attorneys' fees incurred in and about the collection of
such penalty or in and about the obtaining of an injunction against the
Member, or in and about any litigation to which Serta is made a party by
reason of the fault of the Member.
(l) In the event the Member is declared a bankrupt, or in the
event any corporation organized by the Member under a corporate name
embodying the word "Serta" is declared bankrupt, then in either such
event this agreement shall be terminated as of the date upon which the
Member or such corporation is declared a bankrupt. The occurrence of
such event shall constitute a default.
-3-
<PAGE> 4
IN WITNESS WHEREOF, Serta has caused these presents to be signed in its
corporate name by its duly authorized officers, and the Member has caused these
presents to be signed in its corporate name or in its firm name and style by its
duly authorized officers or partners, as the case may be, all on the day and
year first above written.
SERTA, INC.
By /s/
------------------------------
President.
ATTEST:
/s/ John Solair
- ------------------------------------
Secretary.
SEAL
SLEEPMASTER L.L.C.
By: /s/ Charles Schweitzer
------------------------------
President.
ATTEST:
- ------------------------------------
Secretary.
SEAL
-4-
<PAGE> 1
EXHIBIT 10.5
STANDARD LICENSE AGREEMENT
SERTA, INC.
THIS AGREEMENT, dated this 12th day of January, 1995 by and between SERTA,
INC., a Delaware corporation (hereinafter referred to as "Serta"), and
Sleepmaster L.L.C.
(check as appropriate)
( ) corporation ( ) partnership
( ) sole proprietorship ( ) limited partnership
( X ) Limited Liability Company
a New Jersey L.L.C. (hereinafter referred to as "Licensee").
W I T N E S S E T H:
WHEREAS, Serta is a service corporation serving related companies which are
in the business of manufacturing and selling mattresses, other bedding products
and other products of any kind or nature; and
WHEREAS, Serta has heretofore adopted, or otherwise acquired, and now owns,
uses, advertises and authorizes the use and advertising of certain trade names,
trade-marks and labels identifying the aforementioned products and by reason
thereof has created valuable good will in connection with the manufacture and
sale thereof under said trade names, trade-marks and labels, and
WHEREAS, Serta licenses persons, firms and corporations to manufacture the
aforementioned products under standard specifications covering the method or
process of the manufacture thereof, the quality of worksmanship employed in such
manufacture and the quantity and quality of the materials entering in such
manufacture, and to attach or otherwise affix thereto and to the containers in
which the same are packaged, the trade names, trade-marks and labels of Serta
(such products so manufactured and identified are hereinafter referred to as
"Serta products"); and
WHEREAS, Licensee desires to obtain from Serta a license to manufacture and
sell Serta products as a related company of Serta, and
WHEREAS, Licensee has agreed to comply with the provisions of this agreement
and with Serta's by-laws, specifications, rules, resolutions and regulations
covering the manufacture and sale of Serta products and the use of said trade
names, trade-marks and labels now and hereafter in force and effect;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of other good and
valuable considerations, and in further consideration of the covenants
hereinafter contained to be kept and performed by the parties hereto, it is
agreed as follows:
1. (a) Serta hereby gives to Licensee, under the terms and conditions
hereinafter set forth, the right to manufacture and sell Serta products in
accordance with and subject to Serta's by-laws, rules, regulations, resolutions
and specifications from time to time adopted or established by Serta. If at any
time or times hereafter Serta shall adopt or otherwise acquire any additional
trade name, trade-mark or label identifying any of the aforementioned products,
such trade name, trade-mark or label shall be deemed and treated to be included
within the scope of this agreement.
(b) This agreement shall become effective on January 12, 1995 and shall
remain in full force and effect until terminated by the mutual written agreement
of Serta and Licensee or under and shall remain in any of the provisions
hereinafter set forth.
2. Licensee shall have the right to manufacture Serta products pursuant to
this agreement only in the following territory: The territory outlined in red on
the attached map.
(hereinafter referred to as the "manufacturing territory"). Serta shall not,
during the term of this agreement, suffer or permit any other person, firm or
corporation to manufacture Serta products in said manufacturing territory;
provided, however, that Serta may authorize other persons, firms or corporations
to manufacture Serta products other than mattresses and box springs for the sole
purpose of supply and shipment thereof to Serta licensees with exclusive
manufacturing territories in the United States (hereinafter sometimes referred
to as "U.S. primary licensees").
3. Licensee's manufacturing territory shall be deemed to be its Area of
Primary Responsibility for the promotion and sale of Serta products. Licensee
shall at all times exert its best efforts to obtain maximum sales of Serta
products in said manufacturing territory. If Licensee shall not meet such
minimum quote of sales of Serta products in its manufacturing territory as may
from time to time be provided by Serta's by-laws under a plan uniformly
applicable to all U.S. primary licensees, such a failure may be deemed and
treated by Serta to be an event of default by Licensee hereunder.
4. Nothing herein contained shall be deemed or treated to limit or restrict
Licensee in any substantial way from selling Serta products to any person, firm
or corporation or from selling and delivering Serta products anywhere in the
United States of America; provided, however, that if, pursuant to any
modification of the Final Judgment entered in the cause of action entitled
"UNITED STATES OF AMERICA vs SERTA ASSOCIATES, INC., No. 60 C 8043, IN THE
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION"
or to any legislation by the Congress of the United States, it shall become
lawful and proper at any time hereafter for Serta to give and grant to its U.S.
primary licensees exclusive sales territories, then in any such event, upon the
written approval of not less than two-thirds (2/3) of its U.S. primary
licensees, Serta may, by written notice to such licensees, constitute their
respective exclusive manufacturing territories as exclusive selling territories.
In such event, the
-2-
<PAGE> 3
Licensee shall abide by and comply with the by-laws of Serta from time to time
adopted by its stockholders to implement, protect and control the exclusivity of
such selling territories.
5. In order to control the nature and quality of Serta products, and to
provide for the proper and effective establishment of policy for and
administration of the business of Serta, a complete set of by-laws, rules,
regulations, resolutions and specifications pertaining to the manufacture and
sale of Serta products is presently in full force and effect and is on file at
the principal office of Serta, Inc. Licensee shall comply with the by-laws,
rules, regulations, resolutions and specifications now and hereafter adopted or
established by Serta or its stockholders.
6. Licensee shall at all times own and hold such number of shares in Serta
as may be required by Serta's by-laws under a plan uniformly applicable to all
U.S. primary licensees. Licensee shall pay any and all fees and assessments
levied against stockholders under any plan approved by Serta's stockholders in
accordance with the by-laws from time to time in force and effect.
7. Serta shall defend any and all litigation to which Licensee may be made a
party arising out of its proper use of the trade names, trade-marks and labels
from time to time adopted by Serta or arising out of the alleged infringement by
Licensee of any patent specified by Serta in connection with the method of
manufacturing Serta products or the proper use of any articles or materials
specified by Serta in the manufacture of such products, provided Licensee gives
Serta timely written notice of any such litigation so as to enable Serta to
appear in such litigation and prepare for the defense thereof. Serta hereby
agrees to save the Licensee harmless from any and all loss, costs or damages
sustained by it arising out of any such litigation, provided that Licensee gives
Serta the notice herein provided and is not in default in the performance of any
of the terms, covenants and conditions hereof.
8. Licensee shall not permit or suffer any of its officers, employees or
agents to injure the good will and business of Serta and Serta trade names and
trade-marks by discrediting the Serta products, the selling policies, the
financial responsibility or the business reputation of any other Serta Licensee.
9. Licensee shall not violate the provisions of said Final Judgment
described in paragraph 4 above, or any modification thereof.
10. (a)Neither this license nor any of the rights or privileges granted to
the Licensee hereunder shall be assignable by Licensee or by operation of law or
otherwise to any other person, firm or corporation. Licensee shall not
sub-license or sub-contract any of said rights or privileges, including, but not
in limitation, the right to manufacture Serta products, to any other person,
firm or corporation whomsoever. Notwithstanding any other provision of this
agreement, any such assignment or sub-license shall forthwith terminate, without
notice, the license hereby granted to Licensee and the rights and interests of
Licensee as a stockholder of Serta and any such sub-contract shall constitute a
default referred to in paragraph 11 below.
-3-
<PAGE> 4
(b) For the purpose of this paragraph 10(b), and paragraphs 10(c) and
10(d) below, the following definitions shall apply:
"Affiliate" of an individual, corporation or partnership shall mean any
person which directly or indirectly controls, is controlled by, or is under
common control with such individual, corporation or partnership and any
person who is an employee of such individual, corporation or partnership, a
partner in such partnership or an officer or director of such corporation.
For the purposes of this definition, "person" means any individual,
corporation, partnership or joint venture, trust, unincorporated association
or any other entity, body, organization or group.
"Control partner" shall mean (individually and collectively and singly
or in the aggregate with affiliates) the partner or partners of a
partnership having the power, directly or indirectly, to direct or cause the
direction of the management and policies of the partnership and having the
authority to bind the partnership.
"Control stockholder" shall mean (individually and collectively and
singly or in the aggregate with affiliates) the owner or owners of the
majority shares in a corporation or those shareholders exercising effective
voting control of a corporation pursuant to any written agreement.
"General partner" shall mean the holder of a general partnership
interest in a partnership.
"General partnership interest" shall mean the interest of a general
partner in a partnership.
"Limited partner" shall mean the holder of a limited partnership
interest in a limited partnership.
"Limited partnership interest" shall mean the interest of a limited
partner in a limited partnership.
"Limited partnership interest coupled with an interest" shall mean a
limited partnership interest held by a limited partner of Licensee, if
Licensee is a limited partnership, which limited partner either directly or
through an affiliate shall (i) hold or shall have any direct or indirect
right to acquire an interest as, or any material participation in the right
of control in, the control partner of Licensee, whether or not such right
shall be exercisable only in the event of a contingency, as, for example,
foreclosure of a security interest granted in connection with any loan,
advance or financial contribution or guaranty made by or on behalf of such
limited partner or (ii) shall have any power to initiate the removal of or
to remove a control partner of Licensee or to otherwise designate any
successor control partner of Licensee.
"Majority shares" shall mean such number of the voting shares in a
corporation as shall amount to more than one-half thereof.
-4-
<PAGE> 5
"Voting shares" shall mean the issued and outstanding voting shares in a
corporation and the voting rights or beneficial interest in its voting
shares.
Each of the following events shall be deemed and treated to be an assignment
of this license prohibited by the provisions of paragraph 10(a) next preceding:
(i) The filing by Licensee, or by the control stockholder of Licensee, or by
the control partner of Licensee of a voluntary petition or similar pleading
under any section or sections of any Bankruptcy Act or in any Court to
declare Licensee, or such control stockholder or control partner, insolvent;
(ii) An assignment for the benefit of creditors by Licensee or by such
control stockholder or control partner;
(iii) The filing, against Licensee or such control stockholder or control
partner of an involuntary petition or similar pleading under any section or
sections of any Bankruptcy Act or any involuntary petition or similar
pleading in any court to declare Licensee or such control stockholder or
control partner insolvent, or the appointment of a receiver for Licensee or
its assets or for such control stockholder or its assets or such control
partner or its assets provided, however, that if such petition or pleading
shall be dismissed or withdrawn, or such appointment shall be vacated within
thirty (30) days after the filing or occurrence thereof, the provisions of
this paragraph 10(b) (iii) shall not apply.
(iv) The happening of any event described in subparagraphs (i) through (iii)
above in respect to one or more persons comprising the control stockholder
or control partner which results in a material change in the control
stockholder or control partner shall be deemed to have occurred in respect
of such control stockholder or control partner for purposes of this License
Agreement.
(c) Subject to the provisions of paragraphs 10(d) and 10(e) below, each of
the following events shall likewise be deemed and treated to be an assignment of
this license prohibited by the provisions of paragraph 10(a) above:
(i) The transfer whether voluntary or involuntary, by sale, by operation of
law, or otherwise, of the majority shares in Licensee or of the general
partnership interest of the control partner of Licensee or the limited
partnership interest coupled with an interest of any limited partner of
Licensee.
(ii) The transfer of control from, or any material participation in the
right of control in (i.e., the power, directly or indirectly, to direct or
cause the direction of the management and policies of the control partner or
limited partner and bind the control partner or limited partner) the control
partner or any limited partner with a limited partnership interest coupled
with an interest.
-5-
<PAGE> 6
(iii) The exchange of the majority shares in Licensee for less than the
majority shares in another corporation pursuant to a merger with,
consolidation into or other form of reorganization involving another
corporation.
(iv) The transfer of the majority shares in Licensee by the control
stockholder to another person or persons by successive transfer of such
number of voting, shares in Licensee as will total the majority shares in
Licensee, or as the result of the issuance or successive issuances of
additional voting shares in Licensee, or as the result of the sale or
successive sales of treasury shares by Licensee for cash or other
consideration or in satisfaction of any debt or debts of Licensee, or as
consideration for the acquisition of shares or other interests in another
corporation, firm or proprietorship, or as the result of the merger of
another corporation into the Licensee, or as the result of any combination
of the foregoing events. Two or more transfers or issuances of voting shares
in Licensee shall be deemed and treated to be successive transfers or
successive issuances regardless of the period in which the same shall be
effected.
(v) If the majority shares in Licensee are owned directly or indirectly, by
another corporation and any event hereinabove set forth in paragraph 10(c)
shall occur in respect of such corporation, the occurrence of such event
shall be deemed and treated to be an assignment of this license prohibited
by the provisions of paragraph 10(a) above, with the same force and effect
as if such event had occurred with respect to Licensee.
(d) Transfers to the following described classes of persons shall not be
deemed or treated to be transfers for purposes of paragraph 10(c) above
provided, however, that the shares or interests of such transferees shall
continue to be included among the shares or interests in Licensee for the
purpose of this paragraph 10:
(i) The spouse, father, mother, brothers, sisters, children or grandchildren
of the transferrer, including, but not in limitation, such persons as are so
related through adoption.
(ii) A donee by bona fide gift or a legatee or heir through inheritance,
intrust or otherwise, of a transferrer.
(iii) An individual or individuals who shall acquire their voting shares or
general partnership interest or limited partnership interest in Licensee
pursuant to a contract or contracts in force and effect on the date of
execution of this license; provided that concurrently with the execution of
this license, Licensee furnishes to Serta true and correct copies of such
contract or contracts along with a written statement setting forth the date
of the execution of any such contract or contracts, the persons signatory
thereto and their addresses and the number of voting shares or the number
and percentage interest of the general or limited partnership interests in
Licensee subject thereto; provided, further such contract or contracts, if
given effect, would not violate any of the terms and provisions of this
license, Serta's by-laws, or any rules and regulations of Serta.
-6-
<PAGE> 7
(iv) A transferee of the control stockholder of Licensee or a transferee of
the control stockholder of any corporation ("parent corporation"), which
corporation at the time of such transfer directly or through or together
with one or more subsidiaries owns the majority shares in Licensee, or
controls the control partner of Licensee or controls a limited partner of
Licensee with a limited partnership interest coupled with an interest
provided (a) that one or more classes of the voting shares of Licensee or
such parent corporation or any of such subsidiaries is registered under
Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934 or any
successor statue then in effect, (b) that after giving effect to such
transfer, at least one of the classes of voting shares of Licensee or such
parent corporation or any of such subsidiaries so registered remains, and is
required to remain, so registered, and (c) concurrently with the execution
of this license that Serta shall have been provided with written notice of
such transfer and satisfactory evidence of such required continued
registration.
(v) The admission of a substitute limited partner or a new limited partner
to a partnership other than with respect to a limited partnership interest
coupled with an interest.
(e)
(i) Upon the written request of Licensee to Serta and the submission to
Serta by Licensee of such facts and information as Serta shall request,
Serta may, by the affirmative vote of a majority of its Board of Directors,
consent to any assignment referred to in paragraph 10(c) above. Such consent
shall not be unreasonably withheld.
(ii) If, following a request by Licensee that Serta consent to such an
assignment, a majority of Serta's Board of Directors shall not consent
thereto, or shall not take action thereon within thirty (30) days after
Serta receives from Licensee such facts and information as it shall have
requested concerning such assignment, Licensee may, by written notice to
Serta, request that such consent be considered and acted upon by the
stockholders of Serta at the next annual stockholders' meeting or, if so
requested by Licensee, at a special meeting of the stockholders called by
Serta for such purpose within ten (10) days after it receives such request.
At such meeting the stockholders may consent to such assignment by
affirmatively voting therefor in accordance with Serta's by-laws. Such vote
shall be final and binding on Serta and Licensee.
11. If Licensee shall default in the prompt and full compliance with or
performance of any of the provisions hereof, Serta may terminate the license
hereby granted to Licensee and the rights and interests of Licensee as a
stockholder in Serta upon not less than thirty (30) days prior written notice to
Licensee specifying such default or defaults and the effective date of such
termination. Licensee shall have the right to cure any such default or defaults
prior to the date of termination of this license as specified in such notice.
Nothing contained in this paragraph 11 shall limit or affect the consequences of
a prohibited assignment or sub-licensing by Licensee under paragraph 10(a),
10(b) or 10(c) above.
12. Failure of Serta to notify Licensee of any default hereunder or to take
action with respect thereof shall not constitute a waiver of such default or the
provisions hereof defaulted. Waiver by
-7-
<PAGE> 8
Serta of any remedy, including, but not in limitation, the right to terminate
this license, arising out of any default by Licensee, shall not constitute a
waiver of Serta's right to terminate this license, as provided in paragraph 11
above or to resort to any other remedies on account of any subsequent or
different default.
13. The good will created in connection with the manufacture and sale by
Licensee of Serta products shall at all times be the property of Serta. In the
event this license shall be terminated pursuant to the provisions hereof, all
rights of Licensee to use said trade-marks or to enjoy the benefits of said good
will shall terminate and revert to Serta. From and after the date of such
termination. Licensee shall not manufacture or sell any Serta products and shall
not use or affix any of the trade names, trade-marks or labels theretofore used
by it in connection therewith under the terms of this license upon any articles
thereafter manufactured or sold by Licensee, and shall not hold itself out to
the public as a licensee of Serta, or as having any rights in the Serta name or
good will. Serta shall have the right to enforce by injunction the full and
faithful performance by Licensee of this covenant, and Licensee hereby consents
to the granting of a temporary injunction and a permanent injunction, without
bond, against Licensee.
14. Any territory in the United States which, during the term of this
agreement, shall not be licensed as an exclusive manufacturing territory to any
person, firm or corporation shall, until so licensed, be referred to as "open
territory." If such territory shall remain open territory for more than six
months, and if an exclusive license to manufacture Serta products therein shall
thereafter be granted by Serta, then, in such event, Licensee agrees that in
order to encourage the Licensee under such new license to expend the sums
necessary to establish a factory and full facilities for the manufacture and
sale of Serta products and to create good will for itself and Serta in its
manufacturing territory, Serta may require all, but not less than all, other
U.S. primary Licensees, including, but not in limitation, the Licensee
hereunder, not to sell and deliver Serta products for a period not exceeding
five (5) years to dealers and other persons, firms and corporations in such
manufacturing territory.
15. Except where it is hereinabove specifically stated that any action by
Serta shall be upon the authority or direction of its stockholders, all fights,
powers, authorities and discretions reserved by or granted to Serta hereunder
shall be vested in and exercised by Serta's Board of Directors in accordance
with its by-laws.
16. All notices to be given hereunder shall be sent by United States
certified mail, postage prepaid, and shall be addressed to Serta at the
principal office of Serta, Inc., and to the Licensee at. All notices mailed as
hereinabove provided shall be deemed and treated to have been received five (5)
days after the date of mailing. Serta and Licensee shall have the right, by
notice given as herein provided, to change the mailing address to which notices
to it shall be sent by the other party hereto.
17. This agreement supersedes all previous license or franchise agreements
between the parties hereto. The terms and provisions of this agreement are
severable, and if any part hereof shall be held invalid or unenforceable for any
reason, the remaining provisions hereof shall not
-8-
<PAGE> 9
be invalidated but shall remain in full force and effect. This agreement shall
be construed under and in accordance with the laws of the State of Illinois.
18. If there shall be any conflict between any of the terms and provisions
of this agreement and the by-laws of Serta from time to time in force and
effect, then in any such event the terms and provisions of this agreement shall
be controlling.
19. This Agreement may be amended at any time or times, but only upon the
occurrence of all of the following:
(a) Adoption by two-thirds (2/3rds) of the whole Board of Serta;
(b) Approval by the holders of two-thirds (2/3rds) of the issued and
outstanding Class A stock; and
(c) Ratification by two-thirds (2/3rds) of all separate Class A
Stockholders of Serta, voting on a per capita basis without reference to their
respective shareholdings, provided, however, that for purposes of such
ratification only, any group of Stockholders affiliated with each other shall be
deemed and treated as only one Stockholder.
IN WITNESS WHEREOF, Serta and Licensee have caused these presents to be
signed in their respective corporate names by their duly authorized officers,
all on the day and year first above written.
ATTEST: SERTA, INC.
/s/ John Solair By /s/
- -------------------------------- ---------------------------
Secretary President
SEAL
ATTEST: SLEEPMASTER L.L.C.
/s/ By: /s/ Charles Schweitzer
- -------------------------------- ---------------------------
Secretary President
SEAL
-9-
<PAGE> 10
[MAP]
-10-
<PAGE> 11
MEMORANDUM OF AGREEMENT
SERTA, INC.
THIS MEMORANDUM OF AGREEMENT dated this 18th day of May, 1999, by and
between SERTA, INC., a Delaware corporation, party of the first part,
hereinafter sometimes referred to as "Serta," and
Star Bedding Products Limited, A New Brunswick Corporation
party of the second part, hereinafter sometimes referred to as "Member,"
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Standard
License Agreement under the terms of which the Member has been given the right
to manufacture and sell certain articles in accordance with Serta's by-laws,
rules, regulations, resolutions and specifications; and
WHEREAS, under the terms of said Standard License Agreement the Member
is also given the right to use certain trade-marks, trade names and labels in
connection with the manufacture and sale of said articles; and
WHEREAS, Serta engages in national advertising of its specification
products; and
WHEREAS, the Member is desirous of gaining the consent of Serta to the
use of the word "Serta" in the corporate name or in the firm name and style
under which the Member is engaged in the manufacture and sale of such articles
in accordance with the terms of said Standard License Agreement; and
WHEREAS, it is to the mutual advantage of the parties hereto to permit
the Member to use the word "Serta" in such corporate or firm name under the
restrictions and upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and in further
consideration of the execution and delivery of said Standard License Agreement
and of the terms, covenants and conditions hereof to be kept and performed by
the parties hereto, it is covenanted and agreed as follows:
(a) The Member shall not appropriate for use or use any corporate
name or firm name and style embodying, the word "Serta" in its business
done under said Standard License Agreement unless and until the Member
has obtained the written consent of Serta to such appropriation or use
by the Member of such corporate name or firm name and style.
<PAGE> 12
(b) Such corporate name or firm name and style shall be
sufficiently distinctive so as to prevent the public from confusing such
corporate name or firm name and style with the corporate name of Serta
or with the corporate name or firm name and style of any other
stockholder and licensee of Serta.
(c) The Member shall, in using such corporate name or firm name
and style upon its stationery, billheads and in its advertising, state
in substance upon such stationery and billheads and in such advertising
that the Member is a member or licensee of Serta, Inc., a Delaware
corporation or is engaged in the manufacture and sale of articles in
accordance with specifications formulated
(d) The Member hereby consents to the appropriation and use by
any other stockholder and licensee of Serta of a corporate name or firm
name and style embodying the word "Serta" which is approved by Serta
pursuant to an agreement between Serta and such other stockholder and
licensee containing the same provisions as contained in this agreement.
The Member shall, from time to time, upon request, execute and deliver
such documents as may be necessary or proper in Serta's opinion to
permit and consent to such appropriation and use by other stock-holders
and licensees of Serta.
(e) The Member shall not manufacture and sell any article under
any corporate name or firm name and style which includes the word
"Serta" unless said article is manufactured and sold in full compliance
with Serta's by-laws, rules, regulations, resolutions and
specifications.
(f) The Member shall not manufacture and sell any article under
any trade name, trademark, or label unless such trade name, trade-mark,
or label is adopted and specified by Serta for use generally by all of
its licensees and stockholders.
(g) In the event the Member ceases to be a stockholder of Serta,
or in the event the said Standard License Agreement is terminated by
reason of some default of the Member in the terms, covenants and
conditions of said Standard License Agreement, or in the event of any
default by the Member of any of the terms, covenants and conditions of
this agreement and such default continues for a period of thirty (30)
days after a written demand by Serta upon the Member to remedy such
default, then in either such event this agreement shall terminate and
the Member shall immediately, upon such termination of said Standard
License Agreement, or upon ceasing to be a stockholder of Serta, or upon
the expiration of said thirty (30) day period for remedying any default
under the terms of this agreement, as the case may be, cease and abandon
the use of such corporate name or firm name and style.
(h) In the event of a termination of this agreement in the manner
specified in paragraph (g) hereof, the Member shall, within thirty (30)
days of the date of termination of this agreement, cause such corporate
name to be changed by deleting the word "Serta" therefrom. In the event
such firm name and style can be registered under the provisions of any
state law for the exclusive use by the registrant, then, in the event of
the termination
-2-
<PAGE> 13
of this agreement as provided in paragraph (g), the Member shall, within
thirty (30) days of such termination, take such legal steps as may be
necessary to change the registration of such firm name and style by
deleting the word "Serta" therefrom.
(i) In the event of the termination of this agreement by reason
of a default of the Member as herein specified and the Member fails or
refuses to cease and desist from the use of such corporate name or firm
name and style embodying the word "Serta" therein, or fails and refuses
to change such corporate name or such firm name and style by deleting
the word "Serta" therefrom, then in either such event Serta shall have
the right, without notice to the Member, to obtain an injunction
enjoining the Member from the use of any corporate name or firm name and
style which embodies the word "Serta" therein.
(j) In the event Serta desires to become qualified as a foreign
corporation in the state or states in which the Member is doing business
under such corporate name or such firm name and style, the Member shall,
upon request of Serta, execute a Written consent to the qualification of
Serta in such state or states.
(k) In the event the Member does not cease from using such
corporate name or firm name and style as provided in paragraphs (g) and
(h) hereof, it is understood and agreed that Serta will suffer material
damages, the exact amount of which would be difficult, if not
impossible, of ascertainment. Therefore, the Member shall pay to Serta,
upon demand, the sum of Twenty-Five Dollars ($25.00) per day as
liquidated damages for each and every day in which the Member fails to
cease and desist from the use of such corporate name or firm name and
style as required by the terms of this agreement. In addition to the
foregoing penalty, the Member shall pay to Serta its reasonable costs,
expenses and attorneys' fees incurred in and about the collection of
such penalty or in and about the obtaining of an injunction against the
Member, or in and about any litigation to which Serta is made a party by
reason of the fault of the Member.
(l) In the event the Member is declared a bankrupt, or in the
event any corporation organized by the Member under a corporate name
embodying the word "Serta" is declared bankrupt, then in either such
event this agreement shall be terminated as of the date upon which the
Member or such corporation is declared a bankrupt. The occurrence of
such event shall constitute a default.
-3-
<PAGE> 14
IN WITNESS WHEREOF, Serta has caused these presents to be signed in its
corporate name by its duly authorized officers, and the Member has caused these
presents to be signed in its corporate name or in its firm name and style by its
duly authorized officers or partners, as the case may be, all on the day and
year first above written.
SERTA, INC.
By /s/
-------------------------------
President.
ATTEST:
/s/
- ---------------------------------
Secretary.
SEAL
Star Bedding Products Limited
By /s/ James Koscica
-------------------------------
Executive Vice President.
ATTEST:
/s/ James Koscica
- ---------------------------------
Secretary.
SEAL
-4-
<PAGE> 15
AGREEMENT
This agreement ("Agreement") is an amendment and supplement to each of
the two Standard License Agreements dated January 12, 1995 (collectively and
individually, the "License Agreement") between Sleepmaster L.L.C., a New Jersey
limited liability company ("Licensee"), and Serta, Inc., a Delaware corporation
("Serta"), and is entered into by Licensee and Serta to implement the provisions
of a resolution adopted by the Stockholders of Serta which sets forth as a
condition to approval of the License Agreement by the Stockholders and directors
of Serta that Licensee agree to amend and supplement the provisions of Paragraph
10 of the License Agreement in certain respects.
Pursuant to the foregoing and the authorization of the Stockholders and
Directors of Serta to enter into this Agreement without generally amending the
By-Laws of Serta or the Standard Form License Agreement in use and effect with
all other Serta Class A Licensees, the parties agree that the License Agreement
is hereby amended and supplemented as follows:
1. Paragraph 10(b) of the License Agreement is hereby amended as
follows:
(a) The definition of "Affiliate" in Paragraph 10 (b) of the
License Agreement is hereby amended to read as follows:
"Affiliate" of an individual, corporation, partnership or limited
liability company shall mean any person which directly or indirectly
controls, is controlled by, or is under common control with, such
individual, corporation, partnership or limited liability company and
any person who is an employee of such individual, corporation,
partnership or limited liability company, a partner in such partnership
or an officer or director of such corporation or a member, manager or
officer of such limited liability company. For the purposes of this
definition, "person" means any individual, corporation, partnership,
limited liability company or joint venture, trust, unincorporated
association or any other entity, body, organization or group.
(b) The following definitions are added to the definitions set
forth in Paragraph 10(b) of the License Agreement:
"Manager" shall mean a manager of a limited liability
company.
"Member" shall mean the holder of a membership interest
in a limited liability company.
"Control member" shall mean (individually and
collectively and singly or in the aggregate with affiliates) the member
or members of a limited liability company having the power, directly or
indirectly, through control over managers or otherwise, to direct or
cause the direction of the management and policies of the limited
liability company and having the authority to bind the limited liability
company.
<PAGE> 16
"Control manager" shall mean (individually and
collectively and singly or in the aggregate with affiliates) the manager
or managers of a limited liability company having the power, directly or
indirectly, to direct or cause the direction of the management and
policies of the limited liability company and having the authority to
bind the limited liability company.
(c) Whenever the words "control partner" appear in subparagraphs
(i) through (iv) of Paragraph 10(b), the words "control member or control
manager" are inserted immediately thereafter
.
2. Paragraph 10(c) of the License Agreement is amended as follows:
(a) The words "or of the interest of the control member or the
control manager of Licensee" are added before the period at the end of
subparagraph (i) of Paragraph 10(c).
(b) Whenever the words "control partner" appear in subparagraph
(ii) of Paragraph 10(c), the words "of the control member or the control
manager" are inserted immediately thereafter.
(c) The following is added as new subparagraph (vi):
"(vi) A majority of the managers of Licensee or a
majority of the managers of Sleepmaster Holdings L.L.C., a New Jersey
limited liability company, shall be comprised of persons not employed by
and actively involved in the management of the day-to-day operations of
Licensee."
3. Paragraph 10(d) of the License Agreement is amended by inserting the
words "or interest as member or manager" after the word "interest" in the second
line of subparagraph (iii) thereof.
Dated: January 12, 1995
SLEEPMASTER L.L.C.
By: /s/ Charles Schweitzer
------------------------------
SERTA, INC.
By:
------------------------------
Acknowledged and Agreed To:
SLEEPMASTER HOLDINGS L.L.C.
By: /s/ Charles Schweitzer
----------------------------------
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<PAGE> 1
EXHIBIT 10.6
STANDARD LICENSE AGREEMENT
SERTA, INC.
THIS AGREEMENT, dated this 4th day of November 1989 by and between SERTA,
INC., a Delaware corporation (hereinafter referred to as "Serta"), and
Palm Beach Bedding Co.
(check as appropriate)
/X/ corporation / / partnership
/ / sole proprietorship / / limited partnership
a Florida corporation, (hereinafter referred to as "Licensee").
W I T N E S S E T H
WHEREAS, Serta is a service corporation serving related companies which
are in the business of manufacturing and selling mattresses, other bedding
products and other products of any kind or nature; and
WHEREAS, Serta has heretofore adopted. or otherwise acquired, and now
owns, uses, advertises and authorizes the use and advertising of certain
tradenames, trade-marks and labels identifying the aforementioned products and
by reason thereof has created valuable good will in connection with the
manufacture and sale thereof under said trade names, trade-marks and labels; and
WHEREAS, Serta licenses persons, firms and corporations to manufacture the
aforementioned products under standard specifications covering the method or
process of the manufacture thereof, the quality of worksmanship employed in such
manufacture and the quantity and quality of the materials entering in such
manufacture, and to attach or otherwise affix thereto and to the containers in
which the same are packaged, the trade names, trade-marks and labels of Serta
(such products so manufactured and identified are hereinafter referred to as
"Serta products"); and
WHEREAS, Licensee desires to obtain from Serta a license to manufacture
and sell Serta products as a related company of Serta; and
WHEREAS, Licensee has agreed to comply with the provisions of this
agreement and with Serta's by-laws, specifications, rules, resolutions and
regulations covering the manufacture and sale of Serta products and the use of
said trade names, trade-marks and labels now and hereafter in force and effect;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of other good and
valuable considerations, and in further consideration of the covenants
hereinafter contained to be kept and performed by the parties hereto, it is
agreed as follows:
1. (a) Serta hereby gives to Licensee, under the terms and conditions
hereinafter set forth, the right to manufacture and sell Serta products in
accordance with and subject to Serta's by-laws, rules, regulations, resolutions
and specifications from time to time adopted or established by Serta. If at any
time or times hereafter Serta shall adopt or otherwise acquire any additional
trade name, trade-mark or label identifying any of the aforementioned products,
such trade name, trade-mark or label shall be deemed and treated to be included
within the scope of this agreement.
(b) This agreement shall become effective on November 4, 1989 and
shall remain in force and effect until terminated by the mutual written
agreement of Serta and Licensee or under any of the provisions hereinafter set
forth.
2. Licensee shall have the right to manufacture Serta products pursuant
to this agreement only in the following territory:
The territory outlined in red on the attached map.
(hereinafter referred to as the "manufacturing territory"). Serta shall not,
during the term of this agreement, suffer or permit any other person, firm or
corporation to manufacture Serta products in said manufacturing territory;
provided, however, that Serta may authorize other persons, firms or corporations
to manufacture Serta products other than mattresses and box springs for the sole
purpose of supply and shipment thereof to Serta licensees with exclusive
manufacturing territories in the United States (hereinafter sometimes referred
to as "U.S. primary licensees").
3. Licensee's manufacturing territory shall be deemed and treated to be
its Area of Primary Responsibility for the promotion and sale of Serta products.
Licensee shall at all times exert its best efforts to obtain maximum sales of
Serta products in said manufacturing territory. If Licensee shall not meet such
minimum quota of sales of Serta products in its manufacturing territory as may
from time to time be provided in Serta's by-laws under a plan uniformly
applicable to all U.S. primary licensees, such a failure may be deemed and
treated by Serta to be an event of default by Licensee hereunder.
<PAGE> 3
4. Nothing herein contained shall be deemed or treated to limit or
restrict Licensee in any substantial way from selling Serta products to any
person, firm or corporation or from selling and delivering Serta products
anywhere in the United States of America; provided, however, that if, pursuant
to any modification of the Final Judgment entered in the cause of action
entitled "LIMITED STATES OF AMERICA vs SERTA ASSOCIATES, INC., No. 60 C 8043, IN
THE UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF ILLINOIS, EASTERN
DIVISION" or to any legislation by the Congress of the United States, it shall
become lawful and proper at any time hereafter for Serta to give and grant to
its U.S. primary licensees exclusive sales territories, then in any such event,
upon the written approval of not less than two-thirds (2/3) of its U.S. primary
licensees, Serta may, by written notice to such licensees constitute their
respective exclusive manufacturing territories as exclusive selling territories.
In such event, the Licensee shall abide by and comply with the by-laws of Serta
from time to time adopted by its stockholders to implement, protect and control
the exclusivity of such selling territories.
5. In order to control the nature and quality of Serta products, and to
provide for the proper and effective establishment of policy for and
administration of the business of Serta, a complete set of by-laws, rules,
regulations, resolutions and specifications pertaining to the manufacture and
sale of Serta products is presently in full force and effect and is on file at
the principal office of Serta, Inc. Licensee shall comply with the by-laws,
rules, regulations, resolutions and specifications now and hereafter adopted or
established by Serta or its stockholders.
6. Licensee shall at all times own and hold such number of shares in
Serta as may be required by Serta's by-laws under a plan uniformly applicable to
all U.S. primary licensees. Licensee shall pay any and all fees and assessments
levied against stockholders under any plan approved by Serta's stockholders in
accordance with the by-laws from time to time in force and effect.
7. Serta shall defend any and all litigation to which Licensee may be
made a party arising out of its proper use of the trade names, trade-marks and
labels from time to time adopted by Serta or arising out of the alleged
infringement by Licensee of any patent specified by Serta in connection with the
method of manufacturing Serta products or the proper use of any articles or
materials specified by Serta in the manufacture of such products, provided
Licensee gives Serta timely written notice of any such litigation so as to
enable Serta to appear in such litigation and prepare for the defense thereof,
Serta hereby agrees to save the Licensee harmless from any and all loss, costs
or damages sustained by it arising out of any such litigation, provided that
Licensee gives Serta the notice herein provided and is not in default in the
performance of any of the terms, covenants and conditions hereof.
8. Licensee shall not permit or suffer any of its officers, employees
or agents to injure the good will and business of Serta and Serta trade names
and trade-marks by discrediting the Serta products, the selling policies, the
financial responsibility or the business reputation of any other Serta Licensee.
9. Licensee shall not violate the provisions of said Final Judgment
described in paragraph 4 above, or any modification thereof.
<PAGE> 4
10. (a) Neither this license nor any of the rights or privileges granted
to the Licensee hereunder shall be assignable by Licensee or by operation of law
or otherwise to any other person, firm or corporation. Licensee shall not
sub-license or sub-contract any of said rights or privileges, including, but not
in limitation, the right to manufacture Serta products, to any other person,
firm or corporation whomsoever. Notwithstanding any other provision of this
agreement, any such assignment or sub-license shall forthwith terminate, without
notice, the license hereby granted to Licensee and the rights and interests of
Licensee as a stockholder of Serta and any such sub-contract shall constitute a
default referred to in paragraph 11 below,
(b) For the purpose of this paragraph 10(b), and paragraphs 10(c)
and 10(d) below, the following definitions shall apply:
"Affiliate" of an individual, corporation or partnership shall mean
any person which directly or indirectly controls, is controlled by, or is
under common control with such individual, corporation or partnership and
any person who is an employee of such individual, corporation or
partnership, a partner in such partnership or an officer or director of
such corporation. For the purposes of this definition, "person" means any
individual, corporation, partnership or joint venture, trust,
unincorporated association or any other entity, body, organization or
group.
"Control partner" shall mean (individually and collectively and
singly or in the aggregate with affiliates) the partner or partners of a
partnership having the power, directly or indirectly, to direct or cause
the direction of the management and policies of the partnership and having
the authority to bind the partnership.
"Control stockholder" shall mean (individually and collectively and
singly or in the aggregated with affiliates) the owner or owners of the
majority shams in a corporation or those shareholders exercising effective
voting control of a corporation pursuant to any written agreement.
"General partner" shall mean the holder of a general partnership
interest in a partnership.
"General partnership interest" shall mean the interest of a general
partner in a partnership.
"Limited partner" shall mean the holder of a limited partnership
interest in a limited partnership.
"Limited partnership interest" shall mean the interest of a limited
partner in a limited partnership, partnership interest coupled with an
interest" shall mean a limited partnership interest held by a limited
partner of Licensee, if Licensee is a limited partnership, which limited
partner either directly or through an affiliate shall (i) hold or shall
have any direct or indirect right to acquire an interest as, or any
material participation in the right of control in, the control partner of
Licensee, whether or not such right shall be exercisable only in the
<PAGE> 5
event of a contingency, as, for example, foreclosure of a security
interest granted in connection with any loan, advance or financial
contribution or guaranty made by or an behalf of such limited partner or
(ii) shall have any power to initiate the removal of or to remove a
control partner of Licensee or to otherwise designate any successor
control partner of Licensee.
"Majority shares" shall mean such number of the voting shares in a
corporation as shall amount to more than one-half thereof.
"Voting shares" shall mean the issued and outstanding voting shares
in a corporation and the voting rights or beneficial interest in its
voting shares.
Each of the following events shall be deemed and treated to be an
assignment of this license prohibited by the provisions of paragraph 10(a) next
preceding:
(i) The filing by Licensee, or by the control stockholder of
Licensee, or by the control partner of Licensee of a voluntary
petition or similar pleading under any section or sections of any
Bankruptcy Act or in any Court to declare Licensee, or such control
stockholder or control partner, insolvent;
(ii) An assignment for the benefit of creditors by Licensee or
by such control stockholder or control partner;
(iii) The filing against Licensee or such control stockholder
or control partner of an involuntary petition or similar pleading
under any section or sections of any Bankruptcy Act or any
involuntary petition or similar pleading in any court to declare
Licensee or such control stockholder or control partner insolvent,
or the appointment of a receiver for Licensee or its assets or for
such control stockholder or its assets or such control partner or
its assets provided, however. that if such petition or pleading
shall be dismissed or withdrawn, or such appointment shall be
vacated within thirty (30) days after the filing or occurrence
thereof, the provisions of this paragraph 10(b) (iii) shall not
apply; and
(iv) The happening of any event described in subparagraphs (i)
through (iii) above in respect to one or more persons comprising the
control stockholder or control partner which results in a material
change in the control stockholder or control partner shall be deemed
to have occurred in respect of such control stockholder or control
partner for purposes of this License Agreement.
(c) Subject to the provisions of paragraphs 10(d) and 10(e) below,
each of the following events shall likewise he deemed and treated to be an
assignment of this license prohibited by the provisions of paragraph 10(a)
above:
(i) The transfer whether voluntary or involuntary, by sale, by
operation of law, or otherwise, of the majority shares in Licensee
or of the general partnership
<PAGE> 6
interest of the control partner of Licensee or the limited
partnership interest coupled with an interest of any limited partner
of Licensee,
(ii) The transfer of control from, or any material
participation 'in the fight of control in (i.e., the power, directly
or indirectly, to direct or cause the direction of the management
and policies of the control partner or limited partner and bind the
control partner or limited partner) the control partner or any
limited partner with a limited partnership interest coupled with an
interest.
(iii) The exchange of the majority shares in Licensee for less
than the majority sham in another corporation pursuant to a merger
with, consolidation into or other form of reorganization involving
another corporation.
(iv) The transfer of the majority shares in Licensee by the
control stockholder to another person or persons by successive
transfer of such number of voting shams in Licensee as will total
the majority shams in Licensee, or as the result of the issuance or
successive issuances of additional voting shares in Licensee, or as
the result of the sale or successive sales of treasury shares by
Licensee for cash or other consideration or in satisfaction of any
debt or debts of Licensee, or as consideration for the acquisition
of shares or other interests in another corporation, firm or
proprietorship, or as the result of the merger of another
corporation into the Licensee, or as the result of any combination
of the foregoing events. Two or more transfers or issuances of
voting shares in Licensee shall be deemed and treated to be
successive transfers or successive issuances regardless of the
period in which the same shall be effected.
(v) If the majority shares in Licensee are owned directly or
indirectly, by another corporation and any event hereinabove set
forth in paragraph 10(c) shall occur in respect of such corporation,
the occurrence of such event shalle6eemed and treated to bean
assignment of lease prohibited the provisions of paragraph 10(a)
above, with the same force and effect as if such event had occurred
with respect to Licensee.
(d) Transfers to the following described classes of persons shall
not be deemed or treated to be transfers for purposes of paragraph 10(c) above
provided, however, that the shares, or interests of such transferees shall
continue to be included among the shares or interests in Licensee for the
purpose of this paragraph 10:
(i) The spouse, father, mother, brothers, sisters, children or
grandchildren of the transferor, including, but not in limitation,
such persons as are so related through adoption.
(ii) A donee by bona fide gift or a legatee or heir through
inheritance, in trust or otherwise, of a transferor.
<PAGE> 7
(iii) An individual or individuals who shall acquire their
voting shares or general partnership interest or limited partnership
interest in Licensee pursuant to a contract or contracts in force
and effect on the date of execution of this license; provided that
concurrently with the execution of this license, Licensee furnishes
to Serta true and correct copies of such contract or contracts along
with a written statement setting forth the date of the execution of
any such contract or contracts, the persons signatory thereto and
their addresses and the number of voting shares or the number and
percentage interest of die general or limited partnership interests
in Licensee subject thereto; provided, further such contract or
contracts, if given effect, would not violate any of the terms and
provisions of this license, Serta's by-laws, or any rules and
regulations of Serta.
(iv) A transferee of the control stockholder of Licensee or a
transferee of the control stockholder of any corporation ("parent
corporation"), which corporation at the time of such transfer
directly or through or together with one or more subsidiaries owns
the majority shares in Licensee, or controls the control partner of
Licensee or controls a limited partner of Licensee with a limited
partnership interest coupled with an interest provided (a) that one
or more classes of the voting shares of Licensee Or such parent
corporation or any of such subsidiaries is registered under Section
12(b) or Section 12(g) of the Securities Exchange Act of 1934 or any
successor statute then in effect, (b) that after giving effect to
such transfer, at least one of the classes of voting shares of
Licensee or such parent corporation or any of such subsidiaries so
registered remains, and is required to remain, so registered, and
(c) concurrently with the execution of this license that Serta shall
have been provided with written notice of such transfer and
satisfactory evidence of such required continued registration.
(v) The admission of a substitute limited partner or a new
limited partner to a partnership other than with respect to a
limited partnership interest coupled with an interest.
(e)
(i) Upon the written request of Licensee to Serta and the
submission to Serta by Licensee of such facts and information as
Serta shall request, Serta may, by the affirmative vote of a
majority of its Board of Directors, consent to any assignment
referred to in paragraph 10(c) above. Such consent shall not be
unreasonably withheld.
(ii) If, following a request by Licensee that Serta consent to
such an assignment, a majority of Serta's Board of Directors shall
not consent thereto, or shall not take action thereon within thirty
(30) days after Serta. receives from Licensee such facts and
information as it shall have requested concerning such assignment,
Licensee may, by written notice to Serta, request that such consent
be considered and acted upon by the stockholders of Serta at the '
next annual stockholders' meeting or,
<PAGE> 8
if so requested by Licensee, at a special meeting of the
stockholders called by Serta for such purpose within ten (10) days
after it receives such request. At such meeting the stockholders may
consent to such assignment by affirmatively voting therefor in
accordance with Serta's by-laws. Such vote shall be final and
binding on Serta and Licensee.
11. If Licensee shall default in the prompt and full compliance with or
performance of any of the provisions hereof, Serta may terminate the license
hereby granted to Licensee and the rights and interests of Licensee as a
stockholder in Serta upon not less than thirty (30) days prior written notice to
Licensee specifying such default or defaults and the effective date of such
termination. Licensee shall have the right to cure any such default or defaults
prior to the date of termination of this license as specified in such notice.
Nothing contained in this paragraph 11 shall limit or affect the consequences of
a prohibited assignment or sublicensing by Licensee under paragraph 10(a), 10(b)
or 10(c) above.
12. Failure of Serta to notify Licensee of any default hereunder or to
take action with respect thereof shall not constitute a waiver of such default
or the provisions hereof defaulted. Waiver by Serta of all remedy, including but
not in limitation, the right to terminate this license, arising out of any
default by Licensee shall not constitute a waiver of Serta's right to terminate
this license as provided in paragraph 11 above or to resort to other remedies on
account of any subsequent or different default.
13. The good will created in connection with the manufacture and sale by
Licensee of Serta products, shall at all times be the property of Serta. In the
event this license shall be terminated pursuant to the provisions hereof, all
rights of Licensee to use said trade-marks and to enjoy the benefits of said
good will shall terminate and revert to Serta. From and after the date of such
termination, Licensee shall not manufacture or sell any Serta products and shall
not use or affix any of the trade names, trademarks or labels theretofore used
by it in connection therewith under the terms of this license upon any articles
thereafter manufactured or sold by Licensee, and shall not hold itself out to
the public as a licensee of Serta, or as having any rights in the Serta name or
good will. Serta shall have the right to enforce by injunction the full and
faithful performance by Licensee of this covenant, and Licensee hereby consents
to the granting of a temporary injunction and a permanent injunction, without
bond, against Licensee.
14. Any territory in the United States which, during the term of this
agreement, shall not be licensed as an exclusive manufacturing territory to any
person, firm or corporation shall, until so licensed, be referred to as "open
territory." If such territory shall remain open territory for more than six
months, and if an exclusive license to manufacture Serta products therein shall
thereafter be granted by Serta, then, in such event, Licensee agrees that in
order to encourage the Licensee under such new license to expend the sums
necessary to establish a factory and full facilities for the manufacture and
sale of Serta products and to create good will for itself and Serta in its
manufacturing territory, Serta may require all, but not less than all, other
U.S. primary Licensees, including, but not in limitation, the Licensee
hereunder, not to sell and deliver Serta products for a period not exceeding
five (5) years to dealers and other persons, firms and corporations in such
manufacturing territory,
<PAGE> 9
15. Except where it is hereinabove specifically stated that any action
by Serta shall be upon the authority or direction of its stockholders, all
rights, powers, authorities and discretions reserved by or granted to Serta
hereunder shall be vested in and exercised by Serta's Board of Directors in
accordance with its by-laws.
16. All notices to be given hereunder shall be sent by United States
certified mail, postage repaid, and shall be addressed to Serta at the principal
office of Serta, Inc., and to the Licensee at 1016-18 Clare Avenue, West Palm
Beach, Florida 33401. All notices mailed as hereinabove provided shall be
deemed and treated to have been received five (5) days after the date of
mailing. Serta and Licensee shall have the right, by notice given as herein
provided, to change the mailing address to which notices to it shall be sent by
the other party hereto.
17. This agreement supersedes all previous license or franchise
agreements between the pax-ties hereto. The terms and provisions of this
agreement aye severable, and if any part hereof shall be held invalid or
unenforceable for any reason, the remaining provisions hereof shall not be
invalidated but shall remain in full force and effect. This agreement shall be
construed under and in accordance with the laws of the State of Illinois.
18. If there shall be any conflict between any of the terms and
provisions of this agreement and the by-laws of Serta from time to time in force
and effect, then in any such event the terms and provisions of this agreement
5ball be controlling.
19. This Agreement may be amended at anytime or times, but only upon the
occurrence of all of the following:
(a) Adoption by two-thirds (2/3rds) of the whole Board of Serta;
(b) Approval by the holders of two-thirds (2/3rds) of the issued and
outstanding Class A stock; and
(c) Ratification by two-thirds (2/3rds) of all separate Class A
Stockholders of Serta, voting on a per capita basis without reference to their
respective shareholdings, provided, however, that for purposes of such
ratification only, any group of Stockholders affiliated with each other shall be
deemed and treated as only one Stockholder.
IN WITNESS WHEREOF, Serta and Licensee have caused these presents to be,
signed in their respective corporate names by their duly authorized officers,
all on the day and year first above written.
ATTEST: SERTA, INC.
/s/ By
- ---------------------------- ------------------------------
Secretary President
[SEAL] PALM BEACH BEDDING CO.
ATTEST:
/s/ By /s/ Samuel J. Bubis
- ---------------------------- ------------------------------
Secretary President
[SEAL]
<PAGE> 10
[MAP]
<PAGE> 11
MEMORANDUM OF AGREEMENT
SERTA ASSOCIATES, INC.
THIS MEMORANDUM OF AGREEMENT dated this 1st day of December, 1969, by
and between SERTA ASSOCIATES, INC., a Delaware corporation, party of the first
part, hereinafter sometimes referred to as "Serta" and
Palm Beach Bedding Co.
1016 Clare Avenue
West Palm Beach, Florida 33401
party of the second part, hereinafter sometimes referred to as "Member,"
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Standard
License Agreement under the terms of which the Member has been given the right
to manufacture and sell certain articles in accordance with Serta's by-laws,
rules, regulations, resolutions and specifications; and
WHEREAS, under the terms of said Standard License Agreement the Member
is also given the right to use certain trade-marks, trade names and labels in
connection with the manufacture and sale of said articles; and
WHEREAS, Serta engages in national advertising of its specification
products; and
WHEREAS, the Member is desirous of gaining the consent of Serta to the
use of the word "Serta" in the corporate name or in the firm name and style
under which the Member is engaged in the manufacture and sale of such articles
in accordance with the terms of said Standard License Agreement; and
WHEREAS, is to the mutual advantage of the parties hereto to permit the
Member to use the word "Serta" in such corporate or firm name under the
restrictions and upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and in further
consideration of the execution and delivery of said Standard License Agreement
and of the terms, covenants and conditions hereof to be kept and performed by
the parties hereto, it is covenanted and agreed as follows:
(a) The Member shall not appropriate for use or use any corporate
name or firm name and style embodying the word "Serta" in its
business done under said Standard License Agreement unless and
until the Member has obtained the written consent of Serta in
such appropriation or use by the Member of such corporate name
or
<PAGE> 12
firm name and style.
(b) Such corporate name or firm name and style shall be
sufficiently distinctive so as to prevent the public from
confusing such corporate name or firm name and style with the
corporate name of Serta or with the corporate name or firm
name and style of any other stockholder and licensee of Serta.
(c) The Member shall, in using such corporate name or firm name
and style upon its stationary, billheads and in its
advertising, state in substance upon such stationery and
billheads and in such advertising that the Member is a member
or licensee of Serta Associates, Inc., a Delaware corporation,
or is engaged in the manufacture and sale of article in
accordance with specifications formulated by Serta.
(d) The Member hereby consents to the appropriation and use by any
other stockholder and licensee of Serta of a corporate name or
firm name and style embodying the word "Serta" which is
approved by Serta pursuant to an agreement between Serta and
such other stockholder and licensee containing the same
provisions as contained in this agreement. The Member shall,
from time to time, upon request, execute and delivery such
documents as may be necessary or proper in Serta's opinion to
permit and consent to such appropriation and use by other
stockholders and licensees of Serta.
(e) The Member shall not manufacture and sell any article under
any corporate name or firm name and style which includes the
word "Serta" unless said article is manufactured and sold in
full compliance with Serta's by-laws, rules, regulations,
resolutions and specifications.
(f) The Member shall not manufacture and sell any article under
any trade name, trademark, or label unless such trade name,
trade-mark or label is adopted and specified by Serta for use
generally by all of its licensees and stockholders.
(g) In the event the Member ceases to be a stockholder of Serta,
or in the event the said Standard License Agreement is
terminated by reason of some default of the Member in the
terms, covenants and conditions of said Standard License
Agreement, or in the event of any default by the Member of any
of the terms, covenants and conditions of this agreement and
such default continues for a period of thirty (30) days after
a written demand by Serta upon the Member to remedy such
default, then in either such event this agreement shall
terminate and the Member shall immediately, upon such
termination of said Standard License Agreement, or upon
ceasing to be a stockholder of Serta, or upon the expiration
of said thirty (30) day period for remedying any default under
the terms of this agreement, as the case may be, cease and
abandon the use of such corporate name or firm name and style.
<PAGE> 13
(h) In the event of a termination of this agreement in the manner
specified in paragraph (g) hereof, the Member shall, within
thirty (30) days of the date of termination of this agreement,
cause such corporate name to be changed by deleting the word
"Serta" therefrom. In the event such firm name and style can
be registered under the provisions of any state law for the
exclusive use by the registrant, then, in the event of the
termination of this agreement as provided in paragraph (g),
the Member shall, within thirty (30) days of such termination,
take such legal steps as may be necessary to change the
registration of such firm name and style by deleting the word
"Serta" therefrom.
(i) In the event of the termination of this agreement by reason of
a default of the Member as herein specified and the Member
fails or refuses to cease and desist from the use of such
corporate name or firm name and style embodying the word
"Serta" therein, or fails and refuses to change such corporate
name or such firm name and style by deleting the word "Serta"
therefrom, then in either such event Serta shall have the
right, without notice to the Member, to obtain an injunction
enjoining the Member from the use of any corporate name or
firm name and style which embodies the word "Serta" thereto.
(j) In the event Serta desires to become qualified as a foreign
corporation in the state or states in which the Member is
doing business under such corporate name or such firm name and
style, the Member shall, upon request of Serta, execute a
written consent to the qualification of Serta in such state or
states.
(k) In the event the Member does not cease from using such
corporate name or firm name and style as provided in
paragraphs (g) and (h) hereof, it is understood and agreed
that Serta will suffer material damages, the exact amount of
which would be difficult, if not impossible, of ascertainment.
Therefore, the Member shall pay to Serta, upon demand, the sum
of Twenty-Five Dollars ($25.00) per day as liquidated damages
for each and every day in which the Member fails to cease and
desist from the use of such corporate name or firm name and
style as required by the terms of this agreement. In addition
to the foregoing penalty, the Member shall pay to Serta its
reasonable costs, expenses and attorneys' fees incurred in and
about one collection of such penalty or in and about the
obtaining of an injunction against the Member, or in and about
any litigation to which Serta is made a party by reason of the
fault of the Member.
(l) In the event the Member is declared a bankrupt, or in the
event any corporation organized by the Member under a
corporate name embodying the word "Serta" is declared
bankrupt, then in either such event, this agreement shall be
terminated as of the data upon which the Member or such
corporation is declared a bankrupt. The occurrence of such
event shall constitute default.
IN WITNESS WHEREOF, Serta has caused these presents to be signed in its
corporate
<PAGE> 14
name by its duly authorized officers, and the Member has caused these presents
to be signed in its corporate name or in its firm name and style by its duly
authorized officers or partners, as the case may be, all on the day and year
first above written.
SERTA ASSOCIATES, INC.
By:
-----------------------------------------
President
Executed and delivered Nov. 24, 1969
ATTEST:
- -------------------------------
Secretary
PALM BEACH BEDDING CO.
----------------------------------------
SEAL
By:
------------------------------------
President
ATTEST:
- -------------------------------
Secretary
SEAL
<PAGE> 1
EXHIBIT 10.7
STANDARD LICENSE AGREEMENT
SERTA, INC.
THIS AGREEMENT, dated this 4th day of November, 1989 by and between SERTA,
INC., a Delaware corporation (hereinafter referred to as "Serta"), and
Herr Manufacturing Co.
(check as appropriate)
( X ) corporation ( ) partnership
( ) sole proprietorship ( ) limited partnership
a Pennsylvania corporation, (hereinafter referred to as "Licensee").
W I T N E S S E T H:
WHEREAS, Serta is a service corporation serving related companies which are
in the business of manufacturing and selling mattresses, other bedding products
and other products of any kind or nature; and
WHEREAS, Serta has heretofore adopted, or otherwise acquired, and now owns,
uses, advertises and authorizes the use and advertising of certain trade names,
trade-marks and labels identifying the aforementioned products and by reason
thereof has created valuable good will in connection with the manufacture and
sale thereof under said trade names, trade-marks and labels, and
WHEREAS, Serta licenses persons, firms and corporations to manufacture the
aforementioned products under standard specifications covering the method or
process of the manufacture thereof, the quality of worksmanship employed in such
manufacture and the quantity and quality of the materials entering in such
manufacture, and to attach or otherwise affix thereto and to the containers in
which the same are packaged, the trade names, trade-marks and labels of Serta
(such products so manufactured and identified are hereinafter referred to as
"Serta products"); and
WHEREAS, Licensee desires to obtain from Serta a license to manufacture and
sell Serta products as a related company of Serta, and
WHEREAS, Licensee has agreed to comply with the provisions of this agreement
and with Serta's by-laws, specifications, rules, resolutions and regulations
covering the manufacture and sale of Serta products and the use of said trade
names, trade-marks and labels now and hereafter in force and effect;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of other good and
valuable considerations, and in further consideration of the covenants
hereinafter contained to be kept and performed by the parties hereto, it is
agreed as follows:
1. (a) Serta hereby gives to Licensee, under the terms and conditions
hereinafter set forth, the right to manufacture and sell Serta products in
accordance with and subject to Serta's by-laws, rules, regulations, resolutions
and specifications from time to time adopted or established by Serta. If at any
time or times hereafter Serta shall adopt or otherwise acquire any additional
trade name, trade-mark or label identifying any of the aforementioned products,
such trade name, trade-mark or label shall be deemed and treated to be included
within the scope of this agreement.
(b) This agreement shall become effective on November 4, 1989 and shall
remain in full force and effect until terminated by the mutual written agreement
of Serta and Licensee or under and shall remain in any of the provisions
hereinafter set forth.
2. Licensee shall have the right to manufacture Serta products pursuant to
this agreement only in the following territory: The territory outlined in red on
the attached map.
(hereinafter referred to as the "manufacturing territory"). Serta shall not,
during the term of this agreement, suffer or permit any other person, firm or
corporation to manufacture Serta products in said manufacturing territory;
provided, however, that Serta may authorize other persons, firms or corporations
to manufacture Serta products other than mattresses and box springs for the sole
purpose of supply and shipment thereof to Serta licensees with exclusive
manufacturing territories in the United States (hereinafter sometimes referred
to as "U.S. primary licensees").
3. Licensee's manufacturing territory shall be deemed to be its Area of
Primary Responsibility for the promotion and sale of Serta products. Licensee
shall at all times exert its best efforts to obtain maximum sales of Serta
products in said manufacturing territory. If Licensee shall not meet such
minimum quota of sales of Serta products in its manufacturing territory as may
from time to time be provided by Serta's by-laws under a plan uniformly
applicable to all U.S. primary licensees, such a failure may be deemed and
treated by Serta to be an event of default by Licensee hereunder.
4. Nothing herein contained shall be deemed or treated to limit or restrict
Licensee in any substantial way from selling Serta products to any person, firm
or corporation or from selling and delivering Serta products anywhere in the
United States of America; provided, however, that if, pursuant to any
modification of the Final Judgment entered in the cause of action entitled
"UNITED STATES OF AMERICA vs SERTA ASSOCIATES, INC., No. 60 C 8043, IN THE
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION"
or to any legislation by the Congress of the United States, it shall become
lawful and proper at any time hereafter for Serta to give and grant to its U.S.
primary licensees exclusive sales territories, then in any such event, upon the
written approval of not less than two-thirds (2/3) of its U.S. primary
1licensees, Serta may, by written notice to such licensees, constitute their
respective exclusive manufacturing territories as exclusive selling territories.
In such event, the
-2-
<PAGE> 3
Licensee shall abide by and comply with the by-laws of Serta from time to time
adopted by its stockholders to implement, protect and control the exclusivity of
such selling territories.
5. In order to control the nature and quality of Serta products, and to
provide for the proper and effective establishment of policy for and
administration of the business of Serta, a complete sot of by-laws, rules,
regulations, resolutions and specifications pertaining to the manufacture and
sale of Serta products is presently in full force and effect and is on file at
the principal office of Serta, Inc. Licensee shall comply with the by-laws,
rules, regulations, resolutions and specifications now and hereafter adopted or
established by Serta or its stockholders.
6. Licensee shall at all times own and hold such number of shares in Serta
as may be required by Serta's by-laws under a plan uniformly applicable to all
U.S. primary licensees. Licensee shall pay any and all fees and assessments
levied against stockholders under any plan approved by Serta's stockholders in
accordance with the by-laws from time to time in force and effect.
7. Serta shall defend any and all litigation to which Licensee may be made
a party arising out of its proper use of the trade names, trade-marks and labels
from time to time adopted by Serta or arising out of the alleged infringement by
Licensee of any patent specified by Serta in connection with the method of
manufacturing Serta products or the proper use of any articles or materials
specified by Serta in the manufacture of such products, provided Licensee gives
Serta timely written notice of any such litigation so as to enable Serta to
appear in such litigation and prepare for the defense thereof. Serta hereby
agrees to save the Licensee harmless from any and all loss, costs or damages
sustained by it arising out of any such litigation, provided that Licensee gives
Serta the notice herein provided and is not in default in the performance of any
of the terms, covenants and conditions hereof.
8. Licensee shall not permit or suffer any of its officers, employees or
agents to injure the good will and business of Serta and Serta trade names and
trade-marks by discrediting the Serta products, the selling policies, the
financial responsibility or the business reputation of any other Serta Licensee.
9. Licensee shall not violate the provisions of said Final Judgment
described in paragraph 4 above, or any modification thereof.
10. (a)Neither this license nor any of the rights or privileges granted to
the Licensee hereunder shall be assignable by Licensee or by operation of law or
otherwise to any other person, firm or corporation. Licensee shall not
sub-license or sub-contract any of said rights or privileges, including, but not
in limitation, the right to manufacture Serta products, to any other person,
firm or corporation whomsoever. Notwithstanding any other provision of this
agreement, any such assignment or sub-license shall forthwith terminate, without
notice, the license hereby granted to Licensee and the rights and interests of
Licensee as a stockholder of Serta and any such sub-contract shall constitute a
default referred to in paragraph 11 below.
-3-
<PAGE> 4
(b) For the purpose of this paragraph 10(b), and paragraphs 10(c) and
10(d) below, the following definitions shall apply:
"Affiliate" of an individual, corporation or partnership shall mean any
person which directly or indirectly controls, is controlled by, or is under
common control with such individual, corporation or partnership and any
person who is an employee of such individual, corporation or partnership, a
partner in such partnership or an officer or director of such corporation.
For the purposes of this definition, "person" means any individual,
corporation, partnership or joint venture, trust, unincorporated association
or any other entity, body, organization or group.
"Control partner" shall mean (individually and collectively and singly
or in the aggregate with affiliates) the partner or partners of a
partnership having the power, directly or indirectly, to direct or cause the
direction of the management and policies of the partnership and having the
authority to bind the partnership.
"Control stockholder" shall mean (individually and collectively and
singly or in the aggregate with affiliates) the owner or owners of the
majority shares in a corporation or those shareholders exercising effective
voting control of a corporation pursuant to any written agreement.
"General partner" shall mean the holder of a general partnership
interest in a partnership.
"General partnership interest" shall mean the interest of a general
partner in a partnership.
"Limited partner" shall mean the holder of a limited partnership
interest in a limited partnership.
"Limited partnership interest" shall mean the interest of a limited
partner in a limited partnership.
"Limited partnership interest coupled with an interest" shall mean a
limited partnership interest held by a limited partner of Licensee, if
Licensee is a limited partnership, which limited partner either directly or
through an affiliate shall (i) hold or shall have any direct or indirect
right to acquire an interest as, or any material participation in the right
of control in, the control partner of Licensee, whether or not such right
shall be exercisable only in the event of a contingency, as, for example,
foreclosure of a security interest granted in connection with any loan,
advance or financial contribution or guaranty made by or on behalf of such
limited partner or (ii) shall have any power to initiate the removal of or
to remove a control partner of Licensee or to otherwise designate any
successor control partner of Licensee.
"Majority shares" shall mean such number of the voting shares in a
corporation as shall amount to more than one-half thereof.
-4-
<PAGE> 5
"Voting shares" shall mean the issued and outstanding voting shares in a
corporation and the voting rights or beneficial interest in its voting
shares.
Each of the following events shall be deemed and treated to be an assignment
of this license prohibited by the provisions of paragraph 10(a) next preceding:
i. The filing by Licensee, or by the control stockholder of Licensee, or by
the control partner of Licensee of a voluntary petition or similar pleading
under any section or sections of any Bankruptcy Act or in any Court to
declare Licensee, or such control stockholder or control partner, insolvent;
ii. An assignment for the benefit of creditors by Licensee or by such
control stockholder or control partner;
iii. The filing, against Licensee or such control stockholder or control
partner of an involuntary petition or similar pleading under any section or
sections of any Bankruptcy Act or any involuntary petition or similar
pleading in any court to declare Licensee or such control stockholder or
control partner insolvent, or the appointment of a receiver for Licensee or
its assets or for such control stockholder or its assets or such control
partner or its assets provided, however, that if such petition or pleading
shall be dismissed or withdrawn, or such appointment shall be vacated within
thirty (30) days after the filing or occurrence thereof, the provisions of
this paragraph 10(b) (iii) shall not apply.
iv. The happening of any event described in subparagraphs (i) through (iii)
above in respect to one or more persons comprising the control stockholder
or control partner which results in a material change in the control
stockholder or control partner shall be deemed to have occurred in respect
of such control stockholder or control partner for purposes of this License
Agreement.
(c) Subject to the provisions of paragraphs 10(d) and 10(e) below, each of
the following events shall likewise be deemed and treated to be an assignment of
this license prohibited by the provisions of paragraph 10(a) above:
(i) The transfer whether voluntary or involuntary, by sale, by operation of
law, or otherwise, of the majority shares in Licensee or of the general
partnership interest of the control partner of Licensee or the limited
partnership interest coupled with an interest of any limited partner of
Licensee.
(ii) The transfer of control from, or any material participation in the
right of control in (i.e., the power, directly or indirectly, to direct or
cause the direction of the management and policies of the control partner or
limited partner and bind the control partner or limited partner) the control
partner or any limited partner with a limited partnership interest coupled
with an interest.
-5-
<PAGE> 6
(iii) The exchange of the majority shares in Licensee for less than the
majority shares in another corporation pursuant to a merger with,
consolidation into or other form of reorganization involving another
corporation.
(iv) The transfer of the majority shares in Licensee by the control
stockholder to another person or persons by successive transfer of such
number of voting, shares in Licensee as will total the majority shares in
Licensee, or as the result of the issuance or successive issuances of
additional voting shares in Licensee, or as the result of the sale or
successive sales of treasury shares by Licensee for cash or other
consideration or in satisfaction of any debt or debts of Licensee, or as
consideration for the acquisition of shares or other interests in another
corporation, firm or proprietorship, or as the result of the merger of
another corporation into the Licensee, or as the result of any combination
of the foregoing events. Two or more transfers or issuances of voting shares
in Licensee shall be deemed and treated to be successive transfers or
successive issuances regardless of the period in which the same shall be
effected.
(v) If the majority shares in Licensee are owned directly or indirectly, by
another corporation and any event hereinabove set forth in paragraph 10(c)
shall occur in respect of such corporation, the occurrence of such event
shall be deemed and treated to be an assignment of this license prohibited
by the provisions of paragraph 10(a) above, with the same force and effect
as if such event had occurred with respect to Licensee.
(d) Transfers to the following described classes of persons shall not be
deemed or treated to be transfers for purposes of paragraph 10(c) above
provided, however, that the shares or interests of such transferees shall
continue to be included among the shares or interests in Licensee for the
purpose of this paragraph 10:
(i) The spouse, father, mother, brothers, sisters, children or grandchildren
of the transferrer, including, but not in limitation, such persons as are so
related through adoption.
(ii) A donee by bona fide gift or a legatee or heir through inheritance,
intrust or otherwise, of a transferrer.
(iii) An individual or individuals who shall acquire their voting shares or
general partnership interest or limited partnership interest in Licensee
pursuant to a contract or contracts in force and effect on the date of
execution of this license; provided that concurrently with the execution of
this license, Licensee furnishes to Serta true and correct copies of such
contract or contracts along with a written statement setting forth the date
of the execution of any such contract or contracts, the persons signatory
thereto and their addresses and the number of voting shares or the number
and percentage interest of the general or limited partnership interests in
Licensee subject thereto; provided, further such contract or contracts, if
given effect, would not violate any of the terms and provisions of this
license, Serta's by-laws, or any rules and regulations of Serta.
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<PAGE> 7
(iv) A transferee of the control stockholder of Licensee or a transferee of
the control stockholder of any corporation ("parent corporation"), which
corporation at the time of such transfer directly or through or together
with one or more subsidiaries owns the majority shares in Licensee, or
controls the control partner of Licensee or controls a limited partner of
Licensee with a limited partnership interest coupled with an interest
provided (a) that one or more classes of the voting shares of Licensee or
such parent corporation or any of such subsidiaries is registered under
Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934 or any
successor statue then in effect, (b) that after giving effect to such
transfer, at least one of the classes of voting shares of Licensee or such
parent corporation or any of such subsidiaries so registered remains, and is
required to remain, so registered, and (c) concurrently with the execution
of this license that Serta shall have been provided with written notice of
such transfer and satisfactory evidence of such required continued
registration.
(v) The admission of a substitute limited partner or a new limited partner
to a partnership other than with respect to a limited partnership interest
coupled with an interest.
(e)
(i) Upon the written request of Licensee to Serta and the submission to
Serta by Licensee of such facts and information as Serta shall request,
Serta may, by the affirmative vote of a majority of its Board of Directors,
consent to any assignment referred to in paragraph 10(c) above. Such consent
shall not be unreasonably withheld.
(ii) If, following a request by Licensee that Serta consent to such an
assignment, a majority of Serta's Board of Directors shall not consent
thereto, or shall not take action thereon within thirty (30) days after
Serta receives from Licensee such facts and information as it shall have
requested concerning such assignment, Licensee may, by written notice to
Serta, request that such consent be considered and acted upon by the
stockholders of Serta at the next annual stockholders' meeting or, if so
requested by Licensee, at a special meeting of the stockholders called by
Serta for such purpose within ten (10) days after it receives such request.
At such meeting the stockholders may consent to such assignment by
affirmatively voting therefor in accordance with Serta's by-laws. Such vote
shall be final and binding on Serta and Licensee.
11. If Licensee shall default in the prompt and full compliance with or
performance of any of the provisions hereof, Serta may terminate the license
hereby granted to Licensee and the rights and interests of Licensee as a
stockholder in Serta upon not less than thirty (30) days prior written notice to
Licensee specifying such default or defaults and the effective date of such
termination. Licensee shall have the right to cure any such default or defaults
prior to the date of termination of this license as specified in such notice.
Nothing contained in this paragraph 11 shall limit or affect the consequences of
a prohibited assignment or sub-licensing by Licensee under paragraph 10(a),
10(b) or 10(c) above.
12. Failure of Serta to notify Licensee of any default hereunder or to take
action with respect thereof shall not constitute a waiver of such default or the
provisions hereof defaulted. Waiver by
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<PAGE> 8
Serta of any remedy, including, but not in limitation, the right to terminate
this license, arising out of any default by Licensee, shall not constitute a
waiver of Serta's right to terminate this license, as provided in paragraph 11
above or to resort to any other remedies on account of any subsequent or
different default.
13. The good will created in connection with the manufacture and sale by
Licensee of Serta products shall at all times be the property of Serta. In the
event this license shall be terminated pursuant to the provisions hereof, all
rights of Licensee to use said trade-marks or to enjoy the benefits of said good
will shall terminate and revert to Serta. From and after the date of such
termination. Licensee shall not manufacture or sell any Serta products and shall
not use or affix any of the trade names, trade-marks or labels theretofore used
by it in connection therewith under the terms of this license upon any articles
thereafter manufactured or sold by Licensee, and shall not hold itself out to
the public as a licensee of Serta, or as having any rights in the Serta name or
good will. Serta shall have the right to enforce by injunction the full and
faithful performance by Licensee of this covenant, and Licensee hereby consents
to the granting of a temporary injunction and a permanent injunction, without
bond, against Licensee.
14. Any territory in the United States which, during the term of this
agreement, shall not be licensed as an exclusive manufacturing territory to any
person, firm or corporation shall, until so licensed, be referred to as "open
territory." If such territory shall remain open territory for more than six
months, and if an exclusive license to manufacture Serta products therein shall
thereafter be granted by Serta, then, in such event, Licensee agrees that in
order to encourage the Licensee under such new license to expend the sums
necessary to establish a factory and full facilities for the manufacture and
sale of Serta products and to create good will for itself and Serta in its
manufacturing territory, Serta may require all, but not less than all, other
U.S. primary Licensees, including, but not in limitation, the Licensee
hereunder, not to sell and deliver Serta products for a period not exceeding
five (5) years to dealers and other persons, firms and corporations in such
manufacturing territory.
15. Except where it is hereinabove specifically stated that any action by
Serta shall be upon the authority or direction of its stockholders, all fights,
powers, authorities and discretions reserved by or granted to Serta hereunder
shall be vested in and exercised by Serta's Board of Directors in accordance
with its by-laws.
16. All notices to be given hereunder shall be sent by United States
certified mail, postage prepaid, and shall be addressed to Serta at the
principal office of Serta, Inc., and to the Licensee at 625 Fountain Avenue,
Lancaster, Pennsylvania 17601. All notices mailed as hereinabove provided shall
be deemed and treated to have been received five (5) days after the date of
mailing. Serta and Licensee shall have the right, by notice given as herein
provided, to change the mailing address to which notices to it shall be sent by
the other party hereto.
17. This agreement supersedes all previous license or franchise agreements
between the parties hereto. The terms and provisions of this agreement are
severable, and if any part hereof shall be held invalid or unenforceable for any
reason, the remaining provisions hereof shall not
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<PAGE> 9
be invalidated but shall remain in full force and effect. This agreement shall
be construed under and in accordance with the laws of the State of Illinois.
18. If there shall be any conflict between any of the terms and provisions
of this agreement and the by-laws of Serta from time to time in force and
effect, then in any such event the terms and provisions of this agreement shall
be controlling.
19. This Agreement may be amended at any time or times, but only upon the
occurrence of all of the following:
(a) Adoption by two-thirds (2/3rds) of the whole Board of Serta;
(b) Approval by the holders of two-thirds (2/3rds) of the issued and
outstanding Class A stock; and
(c) Ratification by two-thirds (2/3rds) of all separate Class A
Stockholders of Serta, voting on a per capita basis without reference to their
respective shareholdings, provided, however, that for purposes of such
ratification only, any group of Stockholders affiliated with each other shall be
deemed and treated as only one Stockholder.
IN WITNESS WHEREOF, Serta and Licensee have caused these presents to be
signed in their respective corporate names by their duly authorized officers,
all on the day and year first above written.
ATTEST: SERTA, INC.
/s/ William H. Foster By /s/ Ray R. Unger
- ----------------------------- ---------------------------
Secretary President
SEAL
ATTEST: HERR MANUFACTURING CO.
/s/ John K. Herr By /s/ William F. Herr
- ----------------------------- ---------------------------
Secretary President
SEAL
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<PAGE> 10
MEMORANDUM OF AGREEMENT
SERTA ASSOCIATES, INC.
THIS MEMORANDUM OF AGREEMENT dated this 1st day of December, 1969, by
and between SERTA ASSOCIATES, INC., a Delaware corporation, party of the first
part, hereinafter sometimes referred to as "Serta," and
Herr Manufacturing Co.
625 Fountain Avenue
Lancaster, Pennsylvania 17604
party of the second part, hereinafter sometimes referred to as "Member,"
WITNESSETH:
WHEREAS, the parties hereto have heretofore entered into a Standard
License Agreement under the terms of which the Member has been given the right
to manufacture and sell certain articles in accordance with Serta's by-laws,
rules, regulations, resolutions and specifications; and
WHEREAS, under the terms of said Standard License Agreement the Member
is also given the right to use certain trade-marks, trade names and labels in
connection with the manufacture and sale of said articles; and
WHEREAS, Serta engages in national advertising of its specification
products; and
WHEREAS, the Member is desirous of gaining the consent of Serta to the
use of the word "Serta" in the corporate name or in the firm name and style
under which the Member is engaged in the manufacture and sale of such articles
in accordance with the terms of said Standard License Agreement; and
WHEREAS, it is to the mutual advantage of the parties hereto to permit
the Member to use the word "Serta" in such corporate or firm name under the
restrictions and upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and in further
consideration of the execution and delivery of said Standard License Agreement
and of the terms, covenants and conditions hereof to be kept and performed by
the parties hereto, it is covenanted and agreed as follows:
(a) The Member shall not appropriate for use or use any corporate
name or firm name and style embodying, the word "Serta" in its business
done under said Standard License Agreement unless and until the Member
has obtained the written
<PAGE> 11
consent of Serta to such appropriation or use by the Member of such
corporate name or firm name and style.
(b) Such corporate name or firm name and style shall be
sufficiently distinctive so as to prevent the public from confusing such
corporate name or firm name and style with the corporate name of Serta
or with the corporate name or firm name and style of any other
stockholder and licensee of Serta.
(c) The Member shall, in using such corporate name or firm name
and style upon its stationery, billheads and in its advertising, state
in substance upon such stationery and billheads and in such advertising
that the Member is a member or licensee of Serta Associates, Inc., a
Delaware corporation or is engaged in the manufacture and sale of
articles in accordance with specifications formulated by Serta.
(d) The Member hereby consents to the appropriation and use by
any other stockholder and licensee of Serta of a corporate name or firm
name and style embodying the word "Serta" which is approved by Serta
pursuant to an agreement between Serta and such other stockholder and
licensee containing the same provisions as contained in this agreement.
The Member shall, from time to time, upon request, execute and deliver
such documents as may be necessary or proper in Serta's opinion to
permit and consent to such appropriation and use by other stockholders
and licensees of Serta.
(e) The Member shall not manufacture and sell any article under
any corporate name or firm name and style which includes the word
"Serta" unless said article is manufactured and sold in full compliance
with Serta's by-laws, rules, regulations, resolutions and
specifications.
(f) The Member shall not manufacture and sell any article under
any trade name, trade-mark, or label unless such trade name, trade-mark,
or label is adopted and specified by Serta for use generally by all of
its licensees and stockholders.
(g) In the event the Member ceases to be a stockholder of Serta,
or in the event the said Standard License Agreement is terminated by
reason of some default of the Member in the terms, covenants and
conditions of said Standard License Agreement, or in the event of any
default by the Member of any of the terms, covenants and conditions of
this agreement and such default continues for a period of thirty (30)
days after a written demand by Serta upon the Member to remedy such
default, then in either such event this agreement shall terminate and
the Member shall immediately, upon such termination of said Standard
License Agreement, or upon ceasing to be a stockholder of Serta, or upon
the expiration of said thirty (30) day period for remedying any default
under the terms of this agreement, as the case may be, cease and abandon
the use of such corporate name or firm name and style.
(h) In the event of a termination of this agreement in the manner
specified in paragraph (g) hereof, the Member shall, within thirty (30)
days of the date of termination
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<PAGE> 12
of this agreement, cause such corporate name to be changed by deleting
the word "Serta" therefrom. In the event such firm name and style can be
registered under the provisions of any state law for the exclusive use
by the registrant, then, in the event of the termination of this
agreement as provided in paragraph (g), the Member shall, within thirty
(30) days of such termination, take such legal steps as may be necessary
to change the registration of such firm name and style by deleting the
word "Serta" therefrom.
(i) In the event of the termination of this agreement by reason
of a default of the Member as herein specified and the Member fails or
refuses to cease and desist from the use of such corporate name or firm
name and style embodying the word "Serta" therein, or fails and refuses
to change such corporate name or such firm name and style by deleting
the word "Serta" therefrom, then in either such event Serta shall have
the right, without notice to the Member, to obtain an injunction
enjoining the Member from the use of any corporate name or firm name and
style which embodies the word "Serta" therein.
(j) In the event Serta desires to become qualified as a foreign
corporation in the state or states in which the Member is doing business
under such corporate name or such firm name and style, the Member shall,
upon request of Serta, execute a written consent to the qualification of
Serta in such state or states.
(k) In the event the Member does not cease from using such
corporate name or firm name and style as provided in paragraphs (g) and
(h) hereof, it is understood and agreed that Serta will suffer material
damages, the exact amount of which would be difficult, if not
impossible, of ascertainment. Therefore, the Member shall pay to Serta,
upon demand, the sum of Twenty-Five Dollars ($25.00) per day as
liquidated damages for each and every day in which the Member fails to
cease and desist from the use of such corporate name or firm name and
style as required by the terms of this agreement. In addition to the
foregoing penalty, the Member shall pay to Serta its reasonable costs,
expenses and attorneys' fees incurred in and about the collection of
such penalty or in and about the obtaining of an injunction against the
Member, or in and about any litigation to which Serta is made a party by
reason of the fault of the Member.
(l) In the event the Member is declared a bankrupt, or in the
event any corporation organized by the Member under a corporate name
embodying the word "Serta" is declared bankrupt, then in either such
event this agreement shall be terminated as of the date upon which the
Member or such corporation is declared a bankrupt. The occurrence of
such event shall constitute a default.
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<PAGE> 13
IN WITNESS WHEREOF, Serta has caused these presents to be signed in its
corporate name by its duly authorized officers, and the Member has caused these
presents to be signed in its corporate name or in its firm name and style by its
duly authorized officers or partners, as the case may be, all on the day and
year first above written.
SERTA ASSOCIATES, INC.
By /s/ J.A. Ferguson
------------------------------
President.
Executed and delivered Nov. 24, 1969
ATTEST:
/s/ Loreese Rhues
- --------------------------------------
Secretary.
SEAL
HERR MANUFACTURING CO.
By /s/ Richard F. Herr
------------------------------
President.
ATTEST:
/s/ Elizabeth Witmer
- --------------------------------------
Secretary.
SEAL
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<PAGE> 1
EXHIBIT 10.8
STANDARD CANADIAN LICENSE AGREEMENT - FORM B
THIS AGREEMENT dated as of and effective the 18th day of May, 1999 by
and between SERTA, INC., a Delaware corporation (hereinafter referred to as
"Serta"), and STAR BEDDING PRODUCTS LIMITED, a corporation organized under the
laws of the Province of New Brunswick (hereinafter referred to as "Licensee").
WITNESSETH:
WHEREAS, Serta is a service organization serving related companies
which are in the business of manufacturing and selling mattresses and other
articles suitable for bedding purposes; and
WHEREAS, Serta has heretofore adopted, or otherwise acquired, and now
owns, uses, advertises and authorizes the use and advertising of certain trade
names, trademarks and labels identifying such articles; and
WHEREAS, Serta licenses persons, firms and corporations to manufacture
such articles under standard specifications covering the method or process of
the manufacture thereof, the quality of workmanship employed in such manufacture
and the quantity and quality of the materials entering into such manufacture;
and
WHEREAS, Licensee desires to obtain from Serta an exclusive right to
manufacture or sell or manufacture and sell mattresses and other articles in the
territory hereinafter described under the specifications now and hereafter
adopted by Serta for the manufacture of such articles and to obtain the right to
attach the trademarks, trade names and labels of Serta to such articles; and
WHEREAS, Licensee desires to be a holder of Class B stock of Serta and
is willing to comply with the By-Laws of Serta now or hereafter in force and
also with the specifications, rules and regulations of Serta in force from time
to time covering the manufacture and sale of such articles and the use of such
trademarks, trade names and labels.
<PAGE> 2
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, it is agreed as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings:
(a) "Affiliate" shall mean any person, firm or corporation
which directly or indirectly controls, is controlled by, or is under common
control with Licensee or any person who is an employee, officer, director or
partner of Licensee.
(b) "Bedding Products" shall mean mattresses, pads, box
springs, bed springs, foundations, sofa beds, studio couches, chair beds, all
other dual purpose sleep equipment, water beds, hybrid flotation systems, and
all mattresses, box springs, bed springs or foundations manufactured for use in
any furniture or products designed at least in part for sleeping.
(c) "Budget Year" shall mean the calendar year.
(d) "Canadian License Form B" shall mean the form of license
so designated by Serta pursuant to Article 37 of the By-Laws of Serta.
(e) "Canadian Licensees" shall mean all persons or entities
which hold a Canadian License Form B from Serta for territories in Canada.
(f) "Canadian National Advertising" shall be defined from time
to time by the Board of Directors of Serta and may apply to any activities
reasonably related to the creation, distribution, placement and supplementing of
advertising of the Serta name, its trademarks and Serta products for exposure or
distribution on a widespread basis throughout all or major portions of Canada.
Without limiting the foregoing, national advertising purposes may include, but
are not limited to, costs and expenses for the purchase of time on network,
regional, local, cable or other television or radio, space in magazines or
newspapers, production of advertising commercials or materials, talent fees,
agency fees, other creative costs, wallboards, cards and other promotional
materials.
2
<PAGE> 3
(g) "Dual Purpose Bedding Products" shall mean those Bedding
Products consisting of sofa beds, studio couches, chair
3
<PAGE> 4
beds and any other similar dual purpose convertible sleep equipment, whether or
not Serta Products.
(h) "Executive Committee" shall mean a committee, the members
of which shall consist of Serta's Vice President of Marketing and a
representative of each Canadian Licensee, one of whom shall serve as Chairman of
such committee and elected by the licensees.
(i) "First Base Year" shall mean the calendar year immediately
preceding the applicable Budget Year.
(j) "Sales" shall mean the total dollar amount in Canadian
dollars of gross sales of Bedding Products and Serta Products manufactured
and/or sold by Licensee and all Affiliates of Licensee, less returns and
adjusted for pricing errors, but with no deductions for trade and quantity
discounts, payments to or for the direct benefit of sales personnel of customers
and/or cash discounts. Any questions which may arise under the provisions of
this Paragraph 1(j) shall be determined in accordance with generally accepted
accounting practices by the certified public accountants of Serta.
(k) "Sales Base" shall mean, for any Budget Year, the total
dollar amount in Canadian Dollars of Sales of Bedding Products and Serta
Products, but excluding Sales of Sears Private Label Products, Dual Purpose
Bedding Products and Stationary Furniture Products; all as established by the
President of Serta in consultation with the Executive Committee and announced to
Licensee on or before September 30 of the First Base Year.
(l) "Sears Private Label Products" shall mean Bedding Products
sold to Sears and bearing a Sears private label brand.
(m) "Second Base Year" shall mean the calendar year
immediately preceding the applicable First Base Year.
(n) "Serta Canada" shall mean any entity owned, controlled or
designated by Serta from time to time which coordinates the implementation and
placement of Canadian National Advertising of Serta or Serta Products in Canada
and performs such other services to or for the benefit of Canadian Licensees as
Serta may specify.
4
<PAGE> 5
(o) "Serta Products" shall mean all products, whether or not
Bedding Products, to which, or to the containers in which the same are packaged,
any trade name, trademark or label of Serta is affixed or which are in any
manner identified as "Serta".
(p) "Stationary Furniture Products" shall mean stationary
upholstered chairs or sofas designed and manufactured to Serta specifications
and bearing a Serta trademark.
(q) "Supplemental Sales Base" shall mean, for any Budget Year,
the total dollar amount in Canadian Dollars of Sales of Dual Purpose Bedding
Products, Stationary Furniture Products and Sears Private Label Products, as
established by the President of Serta in consultation with the Executive
Committee and announced to Licensee on or before September 30 of the First Base
Year.
2. Grant of License.
(a) Serta hereby grants to Licensee the exclusive right and
license to manufacture or sell or manufacture and sell mattresses and other
articles suitable for bedding purposes in the territory described in Exhibit A
attached hereto (the "Territory"), in accordance with the specifications,
By-Laws, rules and regulations of Serta and Serta Canada and the resolutions of
Serta's and Serta Canada's Board of Directors (and any duly constituted
committee of either such Board) in force from time to time.
(b) Licensee shall have the right to manufacture or sell or
manufacture and sell under the license hereby granted so long as Licensee is not
in default in any of the terms, covenants and conditions contained herein to be
kept and performed by Licensee.
(c) A complete set of all specifications, By-Laws and rules
and regulations in force at the date hereof and pertaining to the manufacture or
sale or manufacture and sale under the license hereby granted are attached
hereto as Exhibit B and made a part hereof. All amendments, changes or revisions
of Exhibit B hereafter made by Serta shall become a part hereof to the same
extent as if the same had been in effect at the date hereof.
(d) Licensee shall not sell or deliver any Serta Products to
any customer located outside the Territory.
5
<PAGE> 6
(e) Licensee shall at all times exert its best efforts to
obtain maximum sales of Serta Products in the Territory. If Licensee shall not
meet such minimum quota of Sales of Serta Products in the Territory as may from
time to time be provided in Serta's By-Laws under a plan uniformly applicable to
all United States and Canadian Licensees, such failure may be deemed and treated
by Serta to be a default by Licensee hereunder.
3. Stock Subscription. Licensee hereby subscribes to 50 shares of Class
B capital stock of Serta at a price of $50.00 per share, payable upon demand.
Licensee agrees at all times to remain in good standing as a holder of Class B
stock of Serta and to comply with all of the provisions of the By-Laws of Serta
and Serta Canada, the terms and provisions of Exhibit B and the resolutions
adopted from time to time by Serta's or Serta Canada's Board of Directors (and
any duly constituted committee of either such Board); provided, however, that no
fees, assessments or other obligations for payment may be imposed or assessed
upon Licensee by Serta or Serta Canada except as specifically provided in this
License Agreement, as amended from time to time, or as otherwise agreed to
between Licensee and Serta.
4. National Services Requirement.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Aggregate NSR" shall mean, for any Budget Year,
an amount equal to the greater of (A) the sum of (x) the equivalent in
United States Dollars of the total Sales Base of all Canadian Licensees
for such Budget Year multiplied by the NSR Percentage Factor plus (y)
the equivalent in United States Dollars of the total Supplemental Sales
Base of all Canadian Licensees multiplied by .33%; or (B) United States
$154,000. The equivalent in United States Dollars of Sales shall be
determined by using a conversion factor equal to the average of the
exchange rates between United States Dollars and Canadian Dollars
published in the Wall Street Journal on the 15th day of each month in
the First Base Year.
(ii) "NSR Percentage Factor" shall mean 1.00% for the
Budget Year 1995; 1.10% for the Budget Year 1996; 1.155% for the Budget
Year 1997; 1.21% for the Budget Year 1998; and for each Budget Year
thereafter, the lesser of (A)
6
<PAGE> 7
90% of the percentage factor for such Budget Year established by the
Serta Board of Directors pursuant to Article 55(b) of the Serta By-Laws
with respect to determination of the Base Fee payable by Class A
Stockholders of Serta or (B) 110% of the NSR Percentage Factor for the
First Base Year applicable to such Budget Year.
(iii) "Services" shall include, without limitation,
marketing advice, research and development, engineering services or
advice, technical assistance or advice and sales methods and marketing.
(iv) "Review" shall the most recently updated
Statistical Review of Canadian Business as compiled and published by
Statistics Canada.
(v) "Total Territory Bedding Retail Spending", for
the territory of any Canadian Licensee, shall mean the sum of the
products obtained by multiplying (A) the Estimated Number of Households
for each province or county comprising such Canadian Licensee's
territory, as set forth in Table 4001 of the Review, by (B) the Average
Family Expenditure for Springs, Mattresses, Boxes and Frames for such
province or county, as set forth in Table 2318 of the Review.
(vi) "Index" shall mean the fraction, expressed as a
percentage, the numerator of which is the Total Territory Bedding
Retail Spending for Licensee's Territory and the denominator of which
is the sum of the Total Territory Bedding Retail Spending for the
territories of all Canadian Licensees.
(b) In consideration of the license hereby granted and Serta's
rendition during the term hereof of Services to or for the benefit of its
stockholders and licensees, including Licensee, for each Budget Year, Licensee
shall pay to Serta in United States Dollars Licensee's National Services
Requirement ("NSR"). The NSR for Licensee for each Budget Year shall be an
amount equal to the sum of: (i) 50% of the Aggregate NSR for such Budget Year
divided by the number of Canadian Licensees; and (ii) 50% of the Aggregate NSR
for such Budget Year multiplied by the Index.
(c) Serta's Vice President of Manufacturing shall be
responsible for the development of specifications and quality
7
<PAGE> 8
control with respect to Serta Products manufactured or sold or manufactured and
sold by Licensee.
(d) The Canadian Regional Accounts Program shall be
administered in accordance with the Rule H of Serta's Rules and Regulations
attached hereto as part of Exhibit B.
5. National Advertising Requirement.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "NAR Percentage Factor" shall mean 1.54% for the
Budget Year 1995; 1.67% for the Budget Year 1996; 1.86% for the Budget
Year 1997; 2.00% for the Budget Year 1998; and for each Budget Year
thereafter, the percentage factor for such Budget Year established by
the Serta Board of Directors; provided, however, that the NAR
Percentage Factor for any Budget Year commencing with the Budget Year
1999 shall not exceed 110% of the NAR Percentage Factor for the First
Base Year applicable to such Budget Year.
(ii) "PAR Sales" shall mean, for any Budget year, for
any Canadian Licensee, an amount equal to the sum of (A) 50% of such
Canadian Licensee's total Sales Base for such Budget Year, and (B) 50%
of the total Sales Base of all Canadian Licensees for such Budget Year
multiplied by the Index for such Canadian Licensee.
(b) In further consideration of the license hereby granted,
for each Budget Year, Licensee shall pay to Serta Canada in Canadian Dollars for
Canadian National Advertising Licensee's National Advertising Requirement
("NAR"). The NAR for Licensee for each Budget Year shall be an amount equal to
the greater of (i) the sum of (A) Licensee's PAR Sales for such Budget Year
multiplied by the NAR Percentage Factor plus (B) .67% of Licensee's Supplemental
Sales Base for such Budget Year; or (ii) Canadian $300,000 multiplied by a
fraction, the numerator of which is the sum of (A) Licensee's PAR Sales for such
Budget Year plus (B) Licensee's Supplemental Sales Base for such Budget Year,
and the denominator of which is the sum of (C) the PAR Sales of all Canadian
Licensees for such Budget Year multiplied by the NAR Percentage Factor plus (D)
the Supplemental Sales Base of all Canadian Licensees for such Budget Year.
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<PAGE> 9
(c) All amounts paid to Serta Canada for NAR shall be budgeted
and expended solely for the purposes of Canadian National Advertising as
determined by Serta's Vice President of Marketing, Serta's Vice President of
Advertising and the Chairman of the Executive Committee.
(c) Any amount expended by Licensee for Canadian National
Advertising separate and apart from amounts paid to Serta Canada or Serta shall
not be counted or computed in satisfaction of Licensee's NAR hereunder. If, for
whatever reason, Serta Canada shall not be in existence, fail to function, be
unable to conduct Canadian National Advertising or be unable or unwilling to
receive Licensee's full NAR, Licensee shall pay to Serta in each Budget Year a
fee ("Advertising Fee") in an amount equal to Licensee's NAR, or such portion of
it as may be unpaid from time to time, in monthly installments in United States
Dollars equivalent in value at the time of each installment to the NAR then due,
and in accordance with such procedures as Serta may from time to time prescribe.
Any Advertising Fee so received by Serta shall be budgeted and expended by Serta
solely for the purposes of Canadian National Advertising.
6. Payment; Records.
(a) As a condition to the continuance of the license hereby
granted, so long as Serta Canada shall be in existence and conduct Canadian
National Advertising, Licensee shall pay its NAR to Serta Canada in each Budget
Year and shall enter into such standard agreements, arrangements or contracts
with Serta Canada as Serta Canada may from time to time reasonably require in
connection with its undertaking to conduct Canadian National Advertising.
(b) Licensee's NSR, NAR and, if applicable, Advertising Fee
shall be due and owing on the 12th day of January of each Budget Year and shall
be payable in twelve equal monthly installments on the 12th day of each month of
each such Budget Year. Licensee agrees that on or before January 1 of each
Budget Year it will execute installment notes for each such fee in favor of
Serta or Serta Canada, as the case may be, in the form attached hereto as
Exhibit C and Exhibit D, respectively. Each note shall provide that the payee
may, in its sole discretion, in the event payment of any installment shall not
be made within 10 days after the date it due, place the note with any bank or
banks selected by it for the purpose of collection of such delinquent
installment and
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<PAGE> 10
any other installment that may be due and unpaid. Each note shall further
provide that in the event the note is so placed for collection, the maker
thereof shall be required to pay all costs of collection, including, but not
limited to, attorney's fees.
(c) All fees and requirements required by this License
Agreement to be paid directly to Serta shall be payable in lawful money of the
United States of America. Licensee shall, if directed by Serta, deposit moneys
in payment of such fees in a bank or banks designated by Serta, which may be a
United States bank or banks, a Canadian bank or banks, or any combination
thereof. Although it is understood that Serta is not subject to Canadian income
taxes in respect of the fees provided for in this License Agreement under
present law, in the event that any such taxes are imposed by any Canadian,
provincial or local authority, Licensee may, if required by law, withhold and
pay such taxes. In the event such taxes are imposed, all rates hereunder for
fees shall be adjusted to produce net receipts thereof to Serta or Serta Canada,
as the case may be, in the amounts set forth in this License Agreement without
reduction by reason of any such tax imposed.
(d) On or before the 15th day of each calendar month, Licensee
shall submit to Serta written reports showing the total Sales of Licensee and
its Affiliates of Bedding Products, whether or not Serta Products, and all other
Serta Products, if any, during the preceding calendar month. In addition, within
150 days after the end of each fiscal year of Licensee, Licensee shall furnish
to Serta a copy of the annual audit report of Licensee certified by Licensee's
independent certified public accountants. Licensee shall furnish such further
information, reports and breakdowns concerning such Sales, and Sales of any
items competitive to Serta Products, in such form and at such times as Serta
shall reasonably require from time to time. All such reports and information
shall be signed and certified by an executive officer of Licensee. Licensee
shall permit authorized agents of Serta to examine, at any and all reasonable
times, the books of account and records of Licensee and its Affiliates
pertaining to Sales and its annual financial statements and reports, together
with any reports of data thereon.
7. Additional Assessments. Notwithstanding anything to the contrary
contained in this License Agreement, to the extent that the actual expenses
incurred in any Budget Year for Canadian National Advertising exceed the amount
budgeted for the Aggregate
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<PAGE> 11
NAR, Licensee shall pay to Serta Canada, Licensee's pro rata share of such
excess amount, based on the ratio of Licensee's Sales Base for the First Base
Year to the Sales Base of all Canadian Licensees for the First Base Year. Any
such amount required to be paid by Licensee under this Paragraph 7 shall be
payable upon demand therefor by Serta Canada.
8. Infringement. Serta shall at all times, so long as Licensee is not
in default hereunder, exert its best efforts to protect Licensee in its
exclusive license for the Territory. Serta shall prosecute or defend any and all
litigation to which Licensee may be made a party arising out of the use by the
Licensee of the trade marks, trade names and labels adopted by Serta from time
to time or arising out of the infringement of any patents in connection with the
method of manufacturing Serta Products or in connection with any articles or
materials used in the manufacture of such products, provided that Licensee gives
Serta timely notice of any and all litigation so as to enable Serta to appear in
such litigation and prepare properly for the prosecution of defense thereof.
Serta agrees to save Licensee harmless from any and all loss, costs or damages
sustained by Licensee arising out of any such litigation, so long as Licensee is
not in default in the performance of any of the terms, covenants and conditions
hereof.
9. Termination. If Licensee shall default in the prompt and full
compliance with or performance of any of the provisions of this License
Agreement, Serta may terminate the license hereby granted and the rights and
interests of Licensee as a stockholder of Serta upon not less than 30 days'
prior written notice to Licensee specifying such default or defaults and the
effective date of such termination. Licensee shall have the right to cure any
such default or defaults prior to the date of termination as specified in such
notice. Nothing contained in this Paragraph 9 shall limit or affect the
consequences of a prohibited assignment or sub-licensing by Licensee under
Paragraph 11 of this License Agreement.
10. Good Will. The good will created in connection with the manufacture
or sale or manufacture and sale by Licensee of Serta Products shall at all times
be the property of Serta. In the event the license granted hereby shall be
terminated pursuant to the provisions of this License Agreement, all rights of
Licensee to use such trademarks or to enjoy the benefits of such good will shall
terminate and revert to Serta. From and after the date of such
11
<PAGE> 12
termination, Licensee shall not manufacture or sell any Serta Products and shall
not use or affix any of the trade name, trademarks or labels theretofore used by
it in connection therewith under the terms of the license granted hereby upon
any articles thereafter manufactured or sold by Licensee and Licensee shall not
hold itself out to the public as a licensee of Serta or as having any rights in
the Serta name or good will. Serta shall have the right to enforce by injunction
the full and faithful performance by Licensee of this covenant and Licensee
hereby consents to the granting of a temporary injunction and a permanent
injunction, without bond, against Licensee.
11. Assignment. (a) Neither the license granted hereby nor any of the
rights or privileges granted to Licensee hereunder shall be assignable by
Licensee or by operation of law or otherwise to any other person, firm or
corporation. Licensee shall not sub-license or sub-contract any of such rights
or privileges, including, without limitation, the right to manufacture or sell
or manufacture and sell Serta Products, to any other person, firm or corporation
whomsoever. Notwithstanding any other provision of this License Agreement, any
such assignment or sub-license shall forthwith terminate, without notice, the
license hereby granted to Licensee and the rights and interests of Licensee as a
stockholder of Serta and any such sub-contract shall constitute a default
referred to in Paragraph 9 above.
(b) As used in this Paragraph 11, the following terms shall
have the following meanings:
(i) The term "voting shares" shall mean the issued
and outstanding voting shares in a corporation and the voting rights or
beneficial interest in its voting shares.
(ii) The term "majority shares" shall mean such
number of the voting shares in a corporation as shall amount to more
than one-half thereof.
(iii) The term "control stockholder" shall mean the
owner or owners of the majority shares in a corporation.
(c) Each of the following events shall be deemed and treated
to be an assignment of the license hereby granted prohibited by the provisions
of Paragraph 11(a) above:
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<PAGE> 13
(i) The filing by Licensee, or by the control
stockholder of Licensee, of a voluntary petition or similar pleading
under any section or sections of any Bankruptcy Act or in any court to
declare Licensee, or its control stockholder, insolvent;
(ii) An assignment for the benefit of creditors by
Licensee or by its control stockholder;
(iii) The filing against Licensee or its control
stockholder of any involuntary petition or similar pleading under any
section or sections of any Bankruptcy Act or any involuntary petition
or similar pleading in any court to declare Licensee or its control
stockholder insolvent, or the appointment of a receiver for Licensee or
its assets or for the control stockholder or his assets; provided,
however, that if such petition or pleading shall be dismissed or
withdrawn, or such appointment shall be vacated within 30 days after
the filing or occurrence thereof, the provisions of this Paragraph
11(c)(iii) shall not apply.
(d) Subject to the provisions of Paragraphs 11(e) and 11(f)
below, each of the following events shall also be deemed and treated to be an
assignment of the license hereby granted prohibited by the provisions of
Paragraph 11(a) above:
(i) The transfer, by sale or otherwise, of the
majority shares in Licensee.
(ii) The exchange of the majority shares in Licensee
for less than the majority shares in another corporation pursuant to a
merger with, consolidation into or other form of reorganization
involving another corporation.
(iii) The transfer of the majority shares in Licensee
by the control stockholder to another person or persons by successive
transfers of such number of voting shares in Licensee as will total the
majority shares in Licensee, or as the result of the issuance or
successive issuances of additional voting shares in Licensee, or as the
result of the sale or successive sales of treasury shares by Licensee
for cash or other consideration or in satisfaction of any debt or debts
of Licensee, or as consideration for the acquisition of shares or other
interests in another
13
<PAGE> 14
corporation, firm or proprietorship, or as the result of the merger of
another corporation into Licensee, or as the result of any combination
of the foregoing events. Two or more transfers or issuances of voting
shares in Licensee shall be deemed and treated to be successive
transfers or successive issuances regardless of the period in which the
same shall be effected.
(iv) If the majority shares in Licensee are owned,
directly or indirectly, by another corporation and any event set forth
above in this Paragraph 11(d) shall occur in respect of such
corporation, the occurrence of such event shall be deemed and treated
to be an assignment of this license prohibited by the provisions of
Paragraph 11(a) above, with the same force and effect as if such event
had occurred with respect to Licensee.
(e) Transfers to the following described classes of persons
shall not be deemed or treated to be transfers for purposes of Paragraph 11(d)
above:
(i) The spouse, father, mother, brothers, sisters,
children or grandchildren of the transferor, including, but not in
limitation, such persons as are so related through adoption.
(ii) A donee by bona fide gift or legatee or heir
through inheritance, in trust or otherwise, of a transferor.
(iii) A person or persons who shall acquire their
voting shares in Licensee pursuant to a contract or contracts in force
and effect on the date of execution of this license; provided that
concurrently with the execution of this License Agreement, Licensee
furnishes to Serta a written statement setting forth the date of the
execution of any such contract or contracts, the persons signatory
thereto and their addresses, and the number of voting shares in
Licensee subject thereto.
(iv) A transferee of the control stockholder of
Licensee provided that one or more classes of the voting shares of
Licensee is registered under Section 12(b) or Section 12(g) of the
Securities Exchange Act of 1934 or any successor statute then in effect
or any comparable provisions
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<PAGE> 15
of Canadian law, and provided further that after giving effect to such
transfer, at least one of the classes of voting shares of Licensee so
registered remains, and is required to remain, so registered.
(v) A transferee of the control stockholder of any
corporation ("parent corporation") which directly or through or
together with one or more subsidiaries owns the majority shares in
Licensee, provided that one or more classes of the voting shares of
parent corporation or any of such subsidiaries is registered under
Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934
or any successor statute then in effect or any comparable provision of
Canadian law, and provided further that after giving effect to such
transfer, at least one of the classes of voting shares so registered
remains, and is required to remain, so registered.
(g) Upon the written request of Licensee to Serta and the
submission to Serta by Licensee of such facts and information as Serta shall
request, Serta may, by the affirmative vote of a majority of its Board of
Directors, consent to any assignment referred to in Paragraph 11(d) above. Such
consent shall not be unreasonably withheld. If, following a request by Licensee
that Serta consent to such an assignment, a majority of Serta's Board of
Directors shall not consent thereto, or shall not take action thereon within 30
days after Serta receives from Licensee such facts and information as it shall
have requested concerning such assignment, License may, by written notice to
Serta, request that such consent be considered and acted upon by the Canadian
Licensees at the next annual stockholders' meeting or, if so requested by
Licensee, at a special meeting of the Canadian Licensees called by Serta for
such purpose within 10 days after it receives such request. At such meeting the
Canadian Licensees may consent to such assignment by affirmatively voting
therefor in accordance with Serta's By-laws. Such vote shall be final and
binding on Serta and Licensee.
12. Option to Purchase. In the event that the license hereby granted is
terminated for any reason whatsoever, or in the event Licensee ceases to be a
stockholder of Serta, then in either such event Serta shall have an exclusive,
irrevocable option to purchase within 90 days of the occurrence of such event
any and all materials, such as units, ticking, border, etc., then on hand with
the Licensee specified for use in or as Serta Products at the
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<PAGE> 16
market price of such materials determined as of the date of the occurrence of
such event.
13. Construction. This License Agreement supersedes all prior
agreements and contracts whatsoever between the parties, provided, however, that
this License Agreement is subject to a Memorandum of Agreement of even date
herewith, in the form attached to this License Agreement. The terms and
provisions of this License Agreement are severable and, if any part hereof shall
be held invalid of unenforceable for any reason, the remaining provisions hereof
shall not be invalidated but shall remain in full force and effect.
14. Assignment of Trademarks and Trade Names. Licensee hereby assigns
to Serta all trademarks and trade names now or hereafter registered and used by
Licensee in conjunction with the name Serta or any of the trademarks or trade
names now or hereafter owned by Serta; provided, however, in the event Licensee
wishes to employ, register or cause to be registered a trademark or trade name
in conjunction with the name Serta or any of the trademarks or trade names now
or hereafter owned by Serta, Licensee shall first obtain the written consent of
Serta, which will not be unreasonably withheld, and all such trademarks and
trade names shall thereafter be the property of Serta and rights thereunder
shall be granted to Licensee in accordance with the terms and conditions of this
Licensee Agreement, as amended from time to time.
15. Notices. All notices to be given hereunder shall be sent by United
States or Canadian, as the case may be, certified mail, postage prepaid, and
shall be addressed to Serta at the principal office of Serta and to Licensee at
____________________________ . All notices mailed as herein provided shall be
deemed to have been received 5 days after the date of mailing. Serta and
Licensee shall have the right, by notice given as herein provided, to change the
mailing address to which notices to it shall be sent by the other party.
16. Amendment. This License Agreement may be amended at any time or
times, but only upon the occurrence of both of the following:
(a) approval by two-thirds of the whole Board of Directors of
Serta; and
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(b) approval on a per capita basis of two-thirds of all
Canadian Licensees at the time such action is taken; provided, however, that for
the purposes of this Paragraph 16, Licensees who hold more than one license from
Serta or who are Affiliates of each other shall be counted as and may vote as
one Canadian Licensee, regardless of the number of licenses held.
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<PAGE> 18
IN WITNESS WHEREOF, Serta and Licensee have caused this License
Agreement to be signed in their respective corporate names by their duly
authorized officers, as of the day and year first above written.
SERTA, INC. STAR BEDDING PRODUCTS LIMITED
By:_____________________ By: ______________________________
18
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EXHIBIT A
DESCRIPTION OF TERRITORY
<PAGE> 20
EXHIBIT B
SPECIFICATIONS, BY-LAWS AND RULES AND REGULATIONS
<PAGE> 21
EXHIBIT C
FORM OF INSTALLMENT NOTE FOR NSR
<PAGE> 22
EXHIBIT D
FORM OF INSTALLMENT NOTE FOR NAR
<PAGE> 1
EXHIBIT 10.9
[MASTERPIECE LETTERHEAD]
Date: October 1, 1998
To: Charles Schweitzer
From: Maury S. Knowlton
Enclosed for your review and signature is the contract between Masterpiece Sleep
Products, Inc. and your company.
If you plan to participate in the Masterpiece project and the Las Vegas kickoff
(February 1-5, 1999), please sign and return the contract by October 15, 1998.
If you have questions about the contract, contact Bill West, Masterpiece Brand
Manager, at 630-285-9350 (extension 201) or me (extension 105).
Thank you,
MSK:jws
Enclosure
c: Edward F. Lilly
Bill West
Jeffrey D. Van Tuyle
<PAGE> 2
[MASTERPIECE LETTERHEAD]
MASTERPIECE SLEEP PRODUCTS, INC.
MANUFACTURING & SERVICING AGREEMENT
This agreement is made as of the 1st day of October, 1998, by
and between Masterpiece Sleep Products, Inc. ("Masterpiece"), an Illinois
corporation, and Sleepmaster LLC and affiliates (the "Representative"), a
Delaware corporation (the "Agreement").
WHEREAS, Masterpiece has designed and prepared specifications
for an upscale line of bedding products under the trademark "MASTERPIECE,"
WHEREAS, Masterpiece has no manufacturing, logistical or
customer service capability of its own, and Masterpiece has only limited
administrative and sales support capability;
WHEREAS, Representative is an established manufacturer of
Serta bedding products and is capable, on a sub-contracting basis, to furnish
manufacturing, logistical, customer service, administrative and sales support to
Masterpiece, and Representative desires to provide such services to Masterpiece;
NOW, THEREFORE, Masterpiece and Representative hereby agree as
follows:
1. Responsibilities of Masterpiece
(a) Product Specifications Masterpiece shall design and set all product
specifications and designate trademarks for the "MASTERPIECE" bedding line.
Representative shall be required to comply with all product specifications set
by Masterpiece, including modifications and updates thereof, and to use the
"MASTERPIECE" trademark and any other trademarks only as authorized by
Masterpiece.
(b) Customer Selection Masterpieces shall select all customers and
negotiate a definitive agreement with respect to the supply of "MASTERPIECE"
products with each customer. Masterpiece shall advise Representative of the
terms and conditions of said agreements with all customers for which
Representative shall be the subcontractor for purposes of manufacturing the
products and otherwise servicing the account.
(c) Marketing Strategy Masterpiece shall be responsible for setting
overall marketing strategies and criteria for the selection of retail accounts
to distribute the "MASTERPIECE" line. Masterpiece shall also establish the
parameters and scope, including funding, of all marketing programs, including
co-op advertising programs and such other promotional benefits to customers.
(d) Terms and Conditions of Sale Masterpiece shall be exclusively
responsible for setting prices and other terms and conditions of sale with
customers; provided, however, that the Masterpiece brand manager may authorize
in writing specific parameters within which the
<PAGE> 3
Representative may, while acting as a representative for Masterpiece, vary terms
and conditions of sale other than pricing. Representative shall not have
authority to establish pricing as Masterpiece is exclusively responsible for
setting prices.
(e) Communication With Representative Masterpiece shall communicate its
strategies, program and policies to Representative as set forth in (a)-(d) above
orally or in writing from time to time. Masterpiece shall establish a
Masterpiece brand manager to facilitate communication on these or any other
matters governed by this Agreement.
2. Representative's Responsibilities
Representative shall, in the performance of its duties under this
Agreement, do the following:
(a) Establishment of Customer Relationships
(i) Identify Potential Customers Representative shall render
advice to Masterpiece regarding the potential customers for the
"MASTERPIECE" line that would be best suited to develop the market
therefor, based on Representative's knowledge of and experience with
said potential customers.
(ii) Initial Customer Contact Upon receiving authorization
from Masterpiece, Representative shall contact a potential customer,
utilizing written materials furnished by Masterpiece, to describe the
"MASTERPIECE" product line and marketing program, and to determine the
potential customer's interest therein. Representative shall not deviate
from the provisions and other terms set forth in said materials in any
discussion or communications with a potential customer.
(iii) Evaluation of Potential Customers Representative shall
communicate promptly and fully to Masterpiece Representative's
evaluation of the customer's requirements, sales, potential,
amenability to Masterpiece's terms and conditions, and Brand Marketing
Philosophy, and recommend whether such potential customers should be
contacted by Masterpiece.
(b) Subcontracting Responsibilities
In the event Masterpiece reaches an agreement with potential customers
to handle the "MASTERPIECE" product line, Masterpiece agrees to give
Representative a right of first refusal to serve as Masterpiece's subcontractor
pursuant to the terms of this Agreement and the agreements reached between
Masterpiece and its customers. It is contemplated that Representative will
furnish at least the following services under the subcontract:
(i) Manufacturing and Product Logistics
- Manufacture and ship "MASTERPIECE" products on
order from the
<PAGE> 4
customer pursuant to the terms of Masterpiece's
contract with the customer;
- Maintain supply sources and plant inventory of
raw materials specified for "MASTERPIECE"
products in sufficient quantities to satisfy
customer needs on a timely basis;
- Produce and package "MASTERPIECE" products to
Masterpiece's specifications and to the highest
industry standards of craftsmanship;
- Provide warehousing and delivery services as
required by Masterpiece's commitments to its
various customers;
- Process return goods as required by Masterpiece's
terms and conditions of sale;
- Maintain and operate its facilities in compliance
with all applicable laws and regulations.
(ii) Administration and Customer Service
- Receive and process customer orders;
- Schedule customer deliveries;
- Prepare and send Masterpiece invoices, with
Masterpiece's remittance instructions, for
products shipped;
- Assist in collection activity;
- Process and resolve customer service issues and
warranty claims.
(iii) Sales Support
- Call on customers for purposes of assisting with
sales floor layout and sample display, providing
point-of-sale materials, providing sales force
training, and other similar activities;
- Account for and administer promotional moneys
accrued to customers under Masterpiece's
marketing programs. Masterpiece shall remit to
Representative such moneys as they are collected
from customers;
- Report to Masterpiece any customer deviations
from Masterpiece's Brand Marketing Philosophy and
Operating Policies.
3. Manufacturing and Service Fees
Masterpiece's manufacturing and service fee structure as a percentage
of sales collections
<PAGE> 5
is designed to reward the Representative for its substantial contribution to the
success of the "MASTERPIECE" program. Therefore, the manufacturing and service
fees may vary from customer to customer, and will be documented by a separate
rate sheet prepared for each customer. All compensation due hereunder shall be
payable within ten (10) days after Masterpiece receives payment from the
customer.
4. Use of "MASTERPIECE" Trademark
Representative acknowledges and agrees that Masterpiece owns all right,
title and interest in and to the "MASTERPIECE" trademark and any other
trademarks included in the product specifications of Section 1(a) hereof
(hereinafter collectively TRADEMARKS) and that Representative's use of the
TRADEMARKS inures to the benefit of Masterpiece. Representative agrees that it
will not use the TRADEMARKS except on products manufactured and sold hereunder
as specifically authorized in accordance with Section 1(a) hereof. Registration
and any other protection for the TRADEMARKS shall only be obtained by
Masterpiece in its name and at its expense. Enforcement of the TRADEMARKS by the
institution of litigation or otherwise shall be in the sole discretion of
Masterpiece, but Representative shall at its own expense cooperate with
Masterpiece in any enforcement action undertaken by Masterpiece and shall notify
Masterpiece in the event that Representative obtains information related to
potential infringement of any of the TRADEMARKS.
5. Representative as Independent Contractor
Representative shall identify itself at all times as an "Authorized
Masterpiece Representative." It is expressly agreed that Representative is not
an employee or agent of Masterpiece, and is not authorized to bind, obligate or
enter into any agreement for Masterpiece except as specifically authorized in
writing by Masterpiece. Representative is at all times during the term of this
Agreement a principal acting as an independent contractor. Without limiting the
generality of the foregoing, Representative understands and agrees that the
Representative has no authority to, and will not, directly or indirectly, sign
Masterpiece's name to any lease, contract, or agreement, or otherwise obligate
or contract for or on behalf of Masterpiece, or make any representation or give
any warranty or guarantee other than that specifically authorized in writing by
Masterpiece.
6. Termination
(a) Without Cause. Either party may terminate this Agreement at any
time, without cause, by giving ninety (90) days' prior written notice to the
other party.
(b) With Cause. Masterpiece may terminate this Agreement at any time,
for cause, immediately upon giving written notice thereof to Representative.
"Cause" shall be deemed to include any breach of this Agreement by
Representative, insolvency or any judication in bankruptcy or an assignment for
the benefit of creditors by Representative, change of ownership of the
Representative's business, or a change in the principals who own or manage
<PAGE> 6
Representative's business.
(c) Surviving Obligations. Upon expiration or termination of this
Agreement, all rights and obligations of the parties shall cease, provided that
the parties shall not be relived of (i) any pre-existing obligation to pay
moneys due, or that have become due during the period that this Agreement was in
force, and (ii) any other obligation set forth in this Agreement which is to
take effect on or after the date of expiration or termination, as the case may
be.
7. Assignment
This Agreement is entered into by Masterpiece by reason of the
confidence that it has in Representative. The Agreement is personal in nature
and is not transferable or assignable, in whole or in part, by Representative,
or by operation of law.
8. Governing Law; Venue
This Agreement, and the rights and obligations of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of Illinois. Venue for any action arising under this Agreement shall be in
any court of competent jurisdiction in Chicago, Illinois. The parties further
agree to a bench trial; accordingly, the parties hereby waive their right to a
trial by jury.
9. Each paragraph of this Agreement is severable, and should any court or
other governmental body of competent jurisdiction declare any provision of this
Agreement invalid or unenforceable by reason of any rule of law or public
policy, all other provisions hereof shall remain in full force and effect.
10. Waiver of Breach
Any waiver by Masterpiece of a breach by Representative of any
provision of the Agreement shall not operate or be construed as a waiver of any
subsequent breach by Representative.
11. Entire Agreement and Amendments
This instrument contains the entire agreement of the parties. It may be
change only by an agreement in writing, and if hand delivered or sent by
certified or registered mail, or by confirmed telex or telecopy, to the other
party's principal business office.
REPRESENTATIVE: MASTERPIECE SLEEP PRODUCTS, INC.
By: /s/ James P. Koscica By: /s/ Maury S. Knowlton
Title: Exec VP & CFO Title: Vice President, C.F.O.
Date: 10/01/98 Date: October 1, 1998
<PAGE> 1
EXHIBIT 10.10
EXECUTION COPY
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is dated as of November __, 1996, by and
among Sleepmaster Holdings L.L.C., a New Jersey limited liability company (the
"Company"), Sleepmaster L.L.C., a New Jersey limited liability company
("Sleepmaster"), Charles Schweitzer (the "Executive") and Sleep Investor L.L.C.,
a Delaware limited liability company (the "Investor").
The Company, Sleepmaster and the Executive desire to enter into an
agreement regarding (i) the employment of the Executive as President and Chief
Executive Officer of Sleepmaster, and (ii) certain restrictions regarding the
Company's Class A Common Interests (the "Class A Common") acquired by the
Executive pursuant to the Recapitalization, Redemption and Repurchase Agreement
by and among the Executive, the Company and certain other parties thereto dated
as of October 31, 1996 (the "Recapitalization Agreement").
Certain provisions of this Agreement are intended for the benefit
of, and will be enforceable by, the Investor.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings.
"Affiliate" means, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including with its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means the Company's board of advisors.
"Business Day" means any day other than a Saturday or Sunday or a
day on which commercial banks are required or authorized to close in New York,
New York.
"Cause" means (i) a breach of the Executive's covenants under this
Agreement or any other agreements with the Company or its Subsidiaries and such
breach shall not have been cured within 30 days after written notice to the
Executive, (ii) the commission by the Executive of a felony, a crime involving
moral turpitude or other act causing material harm to the standing and
reputation of the Company or any of its Subsidiaries, or (iii) the Executive's
repeated wilful failure to comply with the reasonable and lawful written
directives of the Board.
"Common Interests" means the Class A Common and the Company's Class
B Common Interests, as adjusted for any unit split, unit dividend, or other
combination, exchange. conversion, recapitalization, merger, consolidation or
reorganization, or if such Common Interests are exchanged for different
interests or securities of the Company, such other interests or securities and
any other Common Interests of the Company hereinafter issued.
<PAGE> 2
"Disability" means the inability, due to illness, accident, injury,
physical or mental incapacity or other disability, of the Executive to carry out
effectively his duties and obligations to the Company or to participate
effectively and actively in the management of the Company or a Subsidiary of the
Company for a period of at least 90 consecutive days or for shorter periods
aggregating at least 120 days (whether or not consecutive) during any
twelve-month period, as determined in the reasonable judgment of the Board.
"Executive Securities" means the Class A Common acquired by the
Executive and will include units of the Company's Common Interests issued with
respect to Executive Securities by way of a split, dividend, combination,
exchange, conversion, or other recapitalization, merger, consolidation or
reorganization. Executive Securities will cease to be Executive Securities when
transferred pursuant to a Qualified Public Offering or Sale of the Company.
Executive Securities will continue to be Executive Securities in the hands of
any holder other than the Executive, including all transferees of the Executive
(except for the Company and the Investor (or its designee)), and except as
otherwise provided herein, each such other holder of Executive Securities will
succeed to all rights and obligations attributable to the Executive as a holder
of Executive Securities hereunder.
"Fair Value" of each unit of Class A Common means the average of the
closing prices of the sales of the Company's membership interests on all
securities exchanges on which the membership interests may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the membership interests are not so listed,
the average of the representative bid and asked prices quoted on the Nasdaq
National Market System ("Nasdaq NMS") as of 4:00 P.M., New York time, or, if on
any day the membership interests are not quoted in the Nasdaq NMS, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Value is
being determined and the 20 consecutive business days prior to such day. If at
any time the Class A Common is not listed on any securities exchange or quoted
in the NMS or the over-the-counter market, the Fair Value of each unit of Class
A Common shall be the fair market value of such unit as determined by the Board
in its good faith judgment.
"GAAP" means U.S. generally accepted accounting principles, as in
effect from time to time and as adopted by the Company with the consent of its
independent public accountants, consistently applied.
"Good Reason Event" means (i) the failure of the Company or
Sleepmaster to make the payments described herein within 5 Business Days of the
applicable payment due date, (ii) the written request by the Board of Advisors
of either the Company or Sleepmaster that the Executive relocate his primary
residence or (iii) a written directive from the Board of Advisors of the Company
or Sleepmaster that results in a substantial reduction of the Executive's job
responsibilities.
"Original Cost" of the Vesting Executive Securities purchased on the
date hereof will be equal to $100.00 per unit.
-2-
<PAGE> 3
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Interests" means the Company's Series A Preferred
Interests, as adjusted for any unit split, unit dividend or other combination,
exchange, conversion, recapitalization, merger, consolidation or reorganization,
or if the Series A Preferred Interests are hereafter changed into or exchanged
for different interests or securities of the Company, such other interests or
securities, and any other preferred interests of the Company hereinafter issued,
"Public Offering" means any sale of securities of the Company in an
underwritten public offering.
"Qualified Public Offering" means any sale, in an underwritten
public offering registered under the Securities Act, of equity securities of the
Company having an aggregate value of at least $20 million.
"Sale of the Company" means the sale of the Company, in a single
transaction or a series of related transactions, to a third party (which is not
an Affiliate of the Investor) pursuant to which such third party proposes to
acquire all or substantially all of the outstanding Common Interests (whether by
merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Securityholders Agreement" means the Securityholders Agreement
dated as of the date hereof by and among the Company, the Executive, the
Investor and certain other parties thereto.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation or a limited liability company, a majority of the
total voting power of securities 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 that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof, or (ii) if a partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest in a
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of partnership, association or other business
entity gains or losses or shall be or control the managing director or general
partner of such partnership, association or other business entity.
"Termination Year" means that fiscal year of the Company during
which the Employment Period ends pursuant to the terms of Section 2(d) hereof.
-3-
<PAGE> 4
"Vesting Executive Securities" means the 400 units of Class A Common
subject to vesting and any securities issued in connection therewith, as
adjusted for any unit split, unit dividend, or other combination, exchange,
recapitalization, merger, consolidation or reorganization. Vesting Executive
Securities will cease to be Vesting Executive Securities when transferred
pursuant to a Qualified Public Offering or Sale of the Company. Vesting
Executive Securities will continue to be Vesting Executive Securities in the
hands of any holder other than the Executive, including all transferees of the
Executive (except for the Company and the Investor (or its designees)), and
except as otherwise provided herein, each such other holder of Vesting Executive
Securities will succeed to all rights and obligations attributable to the
Executive as a holder of Executive Securities hereunder.
2. Employment.
(a) Employment. Sleepmaster agrees to employ the Executive, and the
Executive hereby accepts employment with Sleepmaster, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in Section 2(d) (the "Employment Period"). During
the Employment Period, the Executive shall be the senior executive officer of
the Company and Sleepmaster and, subject to the provisions of the Company's
Amended and Restated Limited Liability Company Operating Agreement dated as of
the date hereof, shall have final authority with respect to any matter which
directly affects the Serta trademarks or licenses.
(b) Position and Duties.
(i) Commencing on the date hereof and continuing during the
Employment Period, the Executive shall serve as President and Chief Executive
Officer of Sleepmaster under the supervision and direction of the Company's and
Sleepmaster's respective hoards of advisors.
(ii) The Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness other than Disability) to the business and affairs
of the Company, Sleepmaster and their Subsidiaries. The Executive shall perform
his duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(iii) So long as the Executive is the duly appointed and
acting Chief Executive Officer and President, the Executive shall serve as a
member of the Board of Advisors of each of the Company and Sleepmaster.
(c) Base Salary and Benefits.
(i) Base Salary. During the Employment Period, Executive's
base salary shall be $290,000 per annum through fiscal year 1996 and will
increase as of January 1, 1997 to $305,000 per annum (the "Base Salary"), which
salary shall be paid by Sleepmaster in regular installments in accordance with
Sleepmaster's general payroll practices and shall be subject to customary
withholding.
(ii) Executive Bonus Plan. For each fiscal year during the
Employment Period, the Executive will be eligible to receive a bonus based on
the Company's achievement of the Target EBITDA for such fiscal year as set forth
on the Company's EBITDA Plan attached as Schedule
-4-
<PAGE> 5
A hereto (the "EBITDA Plan"). In the event the Company or Sleepmaster
consummates an acquisition of another Person prior to December 31, 2001, the
EBITDA Plan will be adjusted in good faith by senior management and approved by
the Board, and such adjusted and approved plan shall, once approved, be deemed
the EBITDA Plan for all purposes hereunder.
(A) Once the Board has determined (which determination
shall be made within thirty (30) days from the issuance of the Company's audited
financial statements) the percentage of EBITDA achieved for such fiscal year as
compared to the Target EBITDA for such fiscal year (the "Achieved EBITDA
Percentage"), so long as the Achieved EBITDA Percentage for such fiscal year
equals or exceeds 80%, the Executive shall be entitled to receive a bonus
payment in an amount equal to the product of (x) the Bonus Multiple (as set
forth opposite the Achieved EBITDA Percentage below), (y) 23% and (z) the
Executive's Base Salary for such fiscal year. The bonus payment shall be made
within five (5) days of the Board's determination.
<TABLE>
<CAPTION>
Achieved EBITDA Percentage Bonus Multiple
<S> <C> <C>
80% 50%
100% 100%
110% 125%
120% 150%
</TABLE>
(B) Each Bonus Multiple set forth above shall increase
linearly as the Achieved EBITDA Percentage increases; therefore, so long as the
Achieved EBITDA Percentage equals or exceeds 80%, in the event the actual
Achieved EBITDA Percentage falls between any of the target Achieved EBITDA
Percentages set forth above, the applicable Bonus Multiple shall be adjusted
accordingly, provided, that in no event shall the Bonus Multiple exceed 150%.
For example, (1) in the event the actual Achieved EBITDA Percentage is 90%, the
Bonus Multiple shall be 75% or (2) in the event the actual Achieved EBITDA
Percentage is 115%, the Bonus Multiple shall be 137.5%.
(C) With respect to fiscal year 1996, the Executive
shall be entitled to receive a bonus as follows: (1) the Executive will be
entitled to receive a portion of the bonus earned by the Executive under that
certain Employment Agreement dated January 2, 1995 between Sleepmaster and the
Executive (the "Previous Agreement") determined based on the portion of fiscal
year 1996 prior to the date hereof and (2) the Executive will be entitled to
receive a portion of the bonus earned by the Executive under this Agreement
determined based on the portion of the fiscal year after the date hereof.
(iii) Benefits. In addition to the Base Salary and any bonuses
payable to the Executive pursuant to Section 2(c)(ii), the Executive shall be
entitled, during the Employment Period, to all benefits set forth on Schedule B
hereto (the "Benefits").
(iv) Expenses. The Company shall reimburse the Executive for
all reasonable expenses incurred by him in the course of performing his duties
under this Agreement which are consistent with the Company's and its
Subsidiaries' policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the requirements of the
Company and its Subsidiaries with respect to reporting and documentation of such
expenses.
-5-
<PAGE> 6
(d) Term. The Employment Period shall end on November 1, 2001,
subject to earlier termination (x) by reason of the Executive's death or
Disability, (y) by resolution of the Board, with or without Cause or (z) upon
the Executive's voluntary resignation with or without a Good Reason Event.
(i) If the Employment Period is terminated on or before
November 1, 2001:
(A) pursuant to Section 2(d)(y) above, by the Company
other than for Cause, the Executive shall be entitled to receive (1) the stated
Base Salary through the period ending on the earlier of November 1, 2001 and the
later of (x) January 2, 2000 and (y) the second anniversary of the date of
termination, and (2) a portion of the bonus payment earned by the Executive
during the Termination Year pro rated based on the number of days of the
Termination Year prior to the date of termination, which such payment will be
made when the bonus payments for such Termination Year are otherwise due.
(B) as a result of the Executive's death or Disability,
the Executive or the Executive's estate, as applicable, shall be entitled to all
previously earned and accrued but unpaid Base Salary up to the date of such
termination but shall not be entitled to any further Base Salary, bonus payments
or Benefits for that year or any future year, or to any other severance
compensation of any kind, nature or amount.
(C) as a result of the Executive's voluntary resignation
other than after a Good Reason Event, or by the Company for Cause, the Executive
shall be entitled to all previously earned and accrued but unpaid Base Salary up
to the date of such termination but shall not be entitled to any further Base
Salary, bonus payments or Benefits for that year or any future year, or to any
other severance compensation of any kind, nature or amount.
(D) as a result of the Executive's voluntary resignation
within 5 days of a Good Reason Event, the Executive shall be entitled to receive
(1) the stated Base Salary through the period ending on the earlier of November
1, 2001 and the later of (x) January 2, 2000 and (y) the second anniversary of
the date of termination, and (2) a portion of the bonus payment earned by the
Executive during the Termination Year pro rated based on the number of days of
the Termination Year prior to the date of determination, which such payment will
be made when the bonus payments for such Termination Year are otherwise due.
(ii) Following the termination of the Employment Period:
(A) the Executive agrees that: (1) the Executive shall
be entitled to the payments provided for in Sections 2(d)(i)(A) or (D), if any,
if and only if Executive has not breached as of the date of termination of the
Employment Period the provisions of Sections 3, 4 and 5 hereof and does not
breach such sections at any time during the period for which such payments are
to be made and (2) the Company's obligation to make such payments will terminate
upon the occurrence of any such breach during any such severance period.
(B) any payments pursuant to Sections 2(d)(i)(A)(1) or
2(d)(i)(D)(1) shall be paid by Sleepmaster in regular installments in accordance
with Sleepmaster's general payroll practices and shall be subject to customary
withholding, and following such payments
-6-
<PAGE> 7
none of the Company, or any of its Subsidiaries shall have any further
obligation to the Executive pursuant to this Section 2(d) except as provided by
law.
(iii) The Executive hereby agrees that except as expressly
provided herein. no severance compensation of any kind, nature or amount shall
be payable to the Executive and except as expressly provided herein, the
Executive hereby irrevocably waives any claim for severance compensation.
(iv) All of the Executive's rights to Benefits hereunder (if
any) shall cease upon the termination of the Employment Period.
(v) Subject to the restrictive covenant contained in Section
5, the Executive acknowledges an obligation to seek or obtain other engagements
or employment in a similar position to mitigate any damages to which the
Executive may be entitled by reason of any termination of this Agreement
pursuant to Sections 2(d)(i)(A) or (D). If the Employee does obtain other
engagements or employment of any nature and in any location, the total
compensation actually earned by the Executive from such other employment or
engagements during the period that he is to receive payments, if any, pursuant
to Sections 2(d)(i)(A) or (D) shall reduce any amounts which the Company would
otherwise be required to pay the Executive under this Agreement.
3. Confidential Information. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
or any of its Subsidiaries concerning the business or affairs of the Company or
any Subsidiary ("Confidential Information") are the property of the Company or
such Subsidiary. Therefore, the Executive agrees that, except as required by law
or court order, he shall not disclose to any unauthorized person or use for his
own account any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
the Executive's acts or omissions to act. The Executive shall deliver to the
Company at the termination of such Executive's employment, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof) relating to
the Confidential Information, Work Product (as defined below) and the business
of the Company or any Subsidiary which he may then possess or have under his
control.
4. Inventions and Patents. The Executive agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Company's
or any of its Subsidiaries' actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by the Executive while employed by the Company or any of its
Subsidiaries ("Work Product") belong to the Company or such Subsidiary. The
Executive will promptly disclose such Work Product to the Board and perform all
actions reasonably requested by the Board (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
-7-
<PAGE> 8
5. Noncompete, Nonsolicitation.
(a) The Executive acknowledges that in the course of his employment
with the Company and its Subsidiaries he has become familiar, and he will become
familiar, with the Company's and its Subsidiaries' trade secrets and with other
Confidential Information and that his services have been and will be of special,
unique and extraordinary value to the Company and its Subsidiaries. Therefore,
the Executive agrees that, during the time he is employed by the Company and its
Subsidiaries and during any applicable Post-Termination Period (the "Noncompete
Period"), he shall not directly or indirectly own, operate, manage, control,
participate in, consult with, advise, provide services for, or in any manner
engage in any business (including by himself or in association with any person,
firm, corporate or other business organization or through any other entity) in
competition with, or potential competition with, the businesses of the Company
or its Subsidiaries as such businesses exist or are in process on the date of
the termination of the Executive's employment, within any geographical area in
which the Company or any of its Subsidiaries engages or plans to engage in such
businesses. Nothing herein shall prohibit the Executive from being a passive
owner of not more than 2% of the outstanding stock of a corporation which is
publicly traded, so long as the Executive has no active participation in the
business of such corporation. For purposes of this Section 5, "Post-Termination
Period" means, as applicable: (i) if the Executive is entitled to receive
payments pursuant to Sections 2(d)(i)(A)(1) or 2(d)(i)(D)(1), then for the
period through the later of (x) January 2, 2000 and (y) the second anniversary
of the date of termination, (ii) if the Employment Period ends on November 1,
2001 and not less than 30 days prior to such date either the Company or
Sleepmaster offers the Executive employment on terms substantially similar to
the terms set forth herein and the Executive refuses such offer, the period of
eighteen (18) months (following the Employment Period) ending on May 1, 2003 or
(iii) if the Employment Period is terminated by the Company for Cause or by the
voluntary resignation of the Executive without a Good Reason Event, the period
of eighteen (18) months following the date of termination.
(b) During the Noncompete Period, the Executive shall not directly
or indirectly through another entity (i) induce or attempt to induce any
employee of the Company or any Subsidiary to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, including without
limitation, inducing or attempting to induce any union, employee or group of
employees to interfere with the business or operations of the Company or its
Subsidiaries, (ii) hire any person who was an employee of the Company or any
Subsidiary at any time during the Executive's employment period, or (iii) induce
or attempt to induce any customer, supplier, distributor, franchisee, licensee
or other business relation of the Company or any Subsidiary to cease doing
business with the Company or such Subsidiary, or in any way interfere with the
relationship between any such customer, supplier, distributor, franchisee,
licensee or business relation and the Company or any Subsidiary.
(c) The Executive agrees that: (i) the covenants set forth in this
Section 5 are reasonable in geographical and temporal scope and in all other
respects, (ii) the Company would not have entered into this Agreement but for
the covenants of the Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 5, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing,
-8-
<PAGE> 9
the parties agree that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or area and
that the court shall be allowed to revise the restrictions contained herein to
cover the maximum period, scope and area permitted by law.
(e) The Executive recognizes and affirms that in the event of his
breach of any provision of this Section 5, money damages would be inadequate and
the Company and the Investor would have no adequate remedy at law. Accordingly,
the Executive agrees that in the event of a breach or a threatened breach by the
Executive of any of the provisions of this Section 5, the Company, in addition
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).
6. Executive Securities.
(a) With respect to the Vesting Executive Securities, within 30 days
from the date hereof, the Executive will make an effective election with the
Internal Revenue Service under Section 83(b) of the Internal Revenue Code and
the regulations promulgated thereunder in the form of Exhibit A attached hereto.
(b) In connection with the acquisition of the Executive Securities,
the Executive represents and warrants to the Company that:
(i) The Executive Securities to be acquired by the Executive
pursuant to this Agreement will be acquired for the Executive's own account and
not with a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws, and the Executive
Securities will not be disposed of in contravention of the Securities Act or any
applicable state securities laws.
(ii) No commission, fee or other remuneration is to be paid or
given, directly or indirectly, to any Person for soliciting the Executive to
purchase the Executive Securities.
(iii) The Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Securities and has determined that
such investment in the Executive Securities is suitable for the Executive, based
upon the Executive's financial situation and needs, as well as the Executive's
other securities holdings.
(iv) The Executive qualifies an "accredited investor" within
the meaning of Rule 501 (a) of Regulation D under the Securities Act.
(v) The Executive is able to bear the economic risk of the
Executive's investment in the Executive Securities for an indefinite period of
time and the Executive understands that the Executive Securities have not been
registered under the Securities Act and cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is
available.
-9-
<PAGE> 10
(vi) The Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of Executive
Securities and has had full access to such other information concerning the
Company as the Executive has requested. The Executive has reviewed, or has had
an opportunity to review, the following documents: (A) the Recapitalization
Agreement; (B) the organization documents of the Company and Sleepmaster; (C)
the loan agreements, notes and related documents with the Company's senior
lenders; (D) the loan agreement, notes and related documents with the Company's
senior subordinated lender; and (E) all of the materials provided by the Company
to any Person providing financing to the Company, including, but not limited to,
the Company's pro forma balance sheet, as well as financial projections,
estimates, forecasts, budgets, summaries, reports and other related documents.
(vii) This Agreement constitutes the legal, valid and binding
obligation of the Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by the Executive does not
and will not conflict with, violate or cause a breach of any agreement, contract
or instrument to which the Executive is a party or any judgment, order or decree
to which the Executive is subject.
(c) As an inducement to the Company to issue the Executive
Securities to the Executive, and as a condition thereto, the Executive
acknowledges and agrees that neither the issuance of the Executive Securities to
the Executive nor any provision contained herein shall entitle the Executive to
remain in the employment of the Company and its Subsidiaries or affect the right
of the Company to terminate the Executive's employment at any time for any
reason.
7. Vesting of Executive Securities. (a) (i) 360 units of the Class A
Common and (ii) 514.28 units of Preferred Interests evidenced by certificates
issued in connection therewith are fully vested as of the date hereof and are
not subject to the terms of Section 4 below. The Vesting Executive Securities
originally acquired by the Executive will become vested in accordance with the
following schedule if, as of each such date, the Executive is still employed by
the Company or its Subsidiaries;
<TABLE>
<CAPTION>
Cumulative Percentage of Units
of Vesting Executive
Date Date Securities Which Will Vest
- ------------------------------------------------ -------------------------------
<S> <C>
First anniversary of the date hereof ("Year 1") 20%
Second anniversary of the date hereof ("Year 2") 40%
Third anniversary of the date hereof ("Year 3") 60%
Fourth anniversary of the date hereof ("Year 4") 80%
Fifth anniversary of the date hereof ("Year 5") 100%
</TABLE>
provided, that all Vesting Executive Securities shall automatically vest in
connection with a Sale of the Company.
-10-
<PAGE> 11
(b) Units of Vesting Executive Securities which have become vested
are referred to herein as "Vested Interests," and all other units of Vesting
Executive Securities are referred to herein as "Unvested Interests."
8. Repurchase Option on Vesting Executive Interests. In the event the
Executive ceases to be employed by the Company and its Subsidiaries for any
reason (the "Termination"), the Vesting Executive Securities (whether held by
the Executive or one or more of the Executive's transferees) will be subject to
repurchase by the Company and the Investor (or its designees) pursuant to the
terms and conditions set forth in this Section 8 (the "Repurchase Option").
(a) (i) The purchase price for each Unvested Interest of Vesting
Executive Securities will be the Executive's Original Cost for such unit plus
interest thereon calculated at a rate per annum equal to the latest published
rate for United States Treasury Bills with a five year maturity as published in
the "Treasury Bonds, Notes & Bills" column of the Wall Street Journal; (ii) the
purchase price for each Vested interest of Vesting Executive Securities will be
the Fair Value for such unit; and (iii) notwithstanding the foregoing, if the
termination of the Employment Period is by the Company for Cause or by the
voluntary resignation of the Executive without a Good Reason Event, then the
purchase price for each Vested Securities and each Unvested Securities will be
the Executive's Original Cost.
(b) The Board may elect to cause the Company to purchase (i) all or
a portion of the Unvested Interests and/or, (ii) all or a portion of the Vested
Interests by delivering written notice (the "Repurchase Notice") to the holder
or holders of the Vesting Executive Securities within 90 days after the
Termination. The Repurchase Notice will set forth the number of Unvested
Interests and Vested Interests to be acquired from each holder, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of units of Vesting Executive Securities
to be repurchased by the Company shall first be satisfied to the extent possible
from the Vesting Executive Securities held by the Executive at the time of
delivery of the Repurchase Notice. If the number of Vesting Interests then held
by the Executive is less than the total number of units of Vesting Executive
Securities the Company has elected to purchase the Company shall purchase the
remaining Vesting Executive Securities elected to be purchased from the other
holder(s) of Executive Securities, pro rata according to the amount of such
Vesting Executive Securities held by such other holder(s) at the time of
delivery of such Repurchase Notice (determined as nearly as practicable to the
nearest share). The number of Unvested Interests and Vested Interests to be
repurchased hereunder will be allocated among the Executive and the other
holders of Vesting Executive Securities (if any) pro rata according to the
number of units of Vesting Executive Securities to be purchased from such
Persons.
(c) If for any reason the Company does not elect to purchase all of
the units of Vesting Executive Securities that are subject to the Repurchase
Option, pursuant to such Repurchase Option, the Investor (or its designees)
shall be entitled to exercise the Repurchase Option for the Vesting Executive
Securities the Company has not elected to purchase (the "Available Securities").
Of the Available Securities, the Vested Interests are referred to herein as
"Available Vested Interests" and Unvested Interests are referred to herein as
"Available Unvested Interests". As soon as practicable after the Company has
determined that there will be Available Securities, but in an event within 150
days after the Termination, the Company shall give written notice (the "Option
Notice") to the Investor (or its
-11-
<PAGE> 12
designees) setting forth the number of Available Vested Interests, Available
Unvested Interests, and the purchase price for each of such Available
Securities. The Investor (or its designees) may elect to purchase all or a
portion of (i) Available Vested Interests, and/or (ii) all or a portion of the
Available Unvested Interests by giving written notice to the Company within 45
days after the Option Notice has been given by the Company. As soon as
practicable, and in any event within ten days after the expiration of the 45-day
period set forth above, the Company shall notify each holder of Vesting
Executive Securities as to the number of Vested Interests or Unvested Interests
being purchased from such holder by the Investor (or its designees) (the
"Supplemental Repurchase Notice"). At the time the Company delivers the
Supplemental Repurchase Notice to the holder(s) of such Vesting Executive
Securities, the Company shall also deliver written notice to the Investor (or
its designees) setting forth the number of Vested Interests and Unvested
Interests which the Investor (or its designees) is entitled to purchase, the
aggregate purchase price and the time and place of the closing of the
transaction.
(d) The closing of the purchase of the Vesting Executive Securities
pursuant to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice, which date
shall not be later than the 30th day after the delivery of the later of such
notices to be delivered (or, if later, the 15th day after the Fair Value is
finally determined) nor earlier than the fifth day after such delivery. The
Company and/or the Investor (or its designee) will pay for the Vesting Executive
Securities to be purchased pursuant to the Repurchase Option by delivery of a
certified or cashier's check or wire transfer of funds. The purchasers of
Vesting Executive Securities hereunder will be entitled to receive customary
presentations and warranties from the sellers as to title, authority and
capacity to sell.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Vesting Executive Securities by the Company shall
be subject to applicable legal restrictions. If any such restrictions prohibit
the repurchase of Vesting Executive Securities hereunder which the Company is
otherwise entitled to make, the Company may make such repurchases as soon as it
is permitted to do so under such restrictions.
(f) If a Sale of the Company shall be consummated within six months
of the consummation of the repurchase of Vesting Executive Securities pursuant
to this Section 8, then with respect to each unit of Vested Interests sold by
the Executive pursuant to this Section 8, the Executive shall be entitled to
receive an amount equal to the difference, if any, (i) between the per unit
consideration (with respect to the Common Interests) received by the Investor in
connection with the Sale of the Company and (ii) the repurchase price per unit
paid to the Executive; provided, that if the Termination is by the Company for
Cause or by the voluntary resignation of the Executive without a Good Reason
Event, this Section 8(f) shall not apply.
9. Restrictions on Transfer.
(a) If certificated, the Executive Securities will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS
-12-
<PAGE> 13
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS SET FORTH IN AN EMPLOYMENT AGREEMENT BETWEEN THE
COMPANY AND THE SIGNATORY THERETO DATED AS OF NOVEMBER __,
1996. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
(b) No holder of Executive Securities may sell, transfer or dispose
of any units of Executive Securities (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an opinion of counsel (reasonably acceptable in form and substance to
the Company) that neither registration nor qualification under the Securities
Act and applicable state securities laws is required in connection with such
transfer.
(c) Each holder of Executive Securities agrees not to effect any
sale or distribution of any Executive Securities or other equity securities of
the Company, or any securities convertible into or exchangeable or exercisable
for any of the Company's equity securities, during the seven days prior to and
the 120 days (or, subject to the requirements of the underwriters, up to 180
days) after the effectiveness of any underwritten public offering, except as
part of such underwritten public offering or if otherwise permitted by the
Company.
10. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient with telephonic confirmation by the sending party. Such notices,
demands and other communications will be sent to the address indicated below:
To the Company or Sleepmaster:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: President
Telecopy No.: (908) 381-4455
With a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
l4th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
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<PAGE> 14
To the Executive:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: Mr. Charles Schweitzer
Telecopy No.: (908) 381-4455
To the Investor:
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) Transfers in Violation of Agreement. Any transfer or attempted
transfer of any Executive Securities in violation of any provision of this
Agreement shall be null and void; and the Company shall not record such transfer
on its books or treat any purported transferee of such Executive Securities as
the owner of such securities for any purpose.
(b) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the Securityholders
Agreement, and the Recapitalization Agreement embody the complete agreement and
understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the
-14-
<PAGE> 15
parties, written or oral, which may have related to the subject matter hereof in
any way, including, without limitation, the Previous Agreement.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Executive, the Company, the Investor and their respective successors and assigns
(including subsequent holders of Executive Securities); provided that the rights
and obligations of the Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Securities
hereunder.
(f) Third Party Beneficiary. This Agreement is intended for the
benefit of, and will be enforceable by, the Investor.
(G) GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING INTERPRETATION OF THE
LAWS GOVERNING LIMITED LIABILITY COMPANIES SHALL BE GOVERNED BY THE NEW JERSEY
LIMITED LIABILITY COMPANY ACT.
(h) Remedies. Each of the parties to this Agreement (including the
Investor) will be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorneys'
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company, the
Executive and the Investor.
* * * * *
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
SLEEPMASTER HOLDINGS L.L.C.
By: James P. Koscica
--------------------------
Name: James P. Koscica
Title:Executive Vice President
SLEEPMASTER L.L.C.
By: James P. Koscica
--------------------------
Name: James P. Koscica
Title:Executive Vice President
/s/ Charles Schweitzer
-------------------------------
CHARLES SCHWEITZER
Agreed and Accepted:
SLEEP INVESTOR L.L.C.
By: John D. Weber
--------------------------
Name: John D. Weber
Title:Member
-16-
<PAGE> 17
SCHEDULE A
EBITDA PLAN
<TABLE>
<CAPTION>
FISCAL YEAR EBITDA TARGET
----------- -------------
<S> <C>
1996 $8,590,000
1997 $10,525,000
1998 $12,323,000
1999 $13,608,000
2000 $15,453,000
2001 $16,137,000
</TABLE>
-17-
<PAGE> 18
SCHEDULE B
EMPLOYEE BENEFITS
Executive Medical Plan --100% reimbursable medical expenses
Personal Term Life Insurance --coverage $1,000,000
Supplemental Disability--Monthly Disability Benefit $5,000
Entertainment Expenses
Car Allowance; $9,000 per annum
Car Expenses
Permitted Vacation: 4 weeks per year
-18-
<PAGE> 1
EXHIBIT 10.11
EXECUTION COPY
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is dated as of November __, 1996, by
and among Sleepmaster Holdings L.L.C., a New Jersey limited liability company
(the "Company"), Sleepmaster L.L.C., a New Jersey limited liability company
("Sleepmaster"), James Koscica (the "Executive") and Sleep Investor L.L.C., a
Delaware limited liability company (the "Investor").
The Company, Sleepmaster and the Executive desire to enter
into an agreement regarding (i) the employment of the Executive as President and
Chief Executive Officer of Sleepmaster, and (ii) certain restrictions regarding
the Company's Class A Common Interests (the "Class A Common") acquired by the
Executive pursuant to the Recapitalization, Redemption and Repurchase Agreement
by and among the Executive, the Company and certain other parties thereto dated
as of October 31, 1996 (the "Recapitalization Agreement").
Certain provisions of this Agreement are intended for the
benefit of, and will be enforceable by, the Investor.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have
the following meanings.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means the Company's board of advisors.
"Business Day" means any day other than a Saturday or Sunday
or a day on which commercial banks are required or authorized to close in New
York, New York.
"Cause" means (i) a breach of the Executive's covenants under
this Agreement or any other agreements with the Company or its Subsidiaries and
such breach shall not have been cured within 30 days after written notice to the
Executive, (ii) the commission by the Executive of a felony, a crime involving
moral turpitude or other act causing material harm to the standing and
reputation of the Company or any of its Subsidiaries, or (iii) the Executive's
repeated wilful failure to comply with the reasonable and lawful written
directives of the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, as adjusted for any unit split, unit dividend, or
other combination, exchange. conversion, recapitalization, merger, consolidation
or reorganization, or if such Common Interests are exchanged for different
interests or securities of the Company, such other interests or securities and
any other Common Interests of the Company hereinafter issued.
<PAGE> 2
"Disability" means the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of the Executive to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
"Executive Securities" means the Class A Common acquired by
the Executive and will include units of the Company's Common Interests issued
with respect to Executive Securities by way of a split, dividend, combination,
exchange, conversion, or other recapitalization, merger, consolidation or
reorganization. Executive Securities will cease to be Executive Securities when
transferred pursuant to a Qualified Public Offering or Sale of the Company.
Executive Securities will continue to be Executive Securities in the hands of
any holder other than the Executive, including all transferees of the Executive
(except for the Company and the Investor (or its designee)), and except as
otherwise provided herein, each such other holder of Executive Securities will
succeed to all rights and obligations attributable to the Executive as a holder
of Executive Securities hereunder.
"Fair Value" of each unit of Class A Common means the average
of the closing prices of the sales of the Company's membership interests on all
securities exchanges on which the membership interests may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the membership interests are not so listed,
the average of the representative bid and asked prices quoted on the Nasdaq
National Market System ("Nasdaq NMS") as of 4:00 P.M., New York time, or, if on
any day the membership interests are not quoted in the Nasdaq NMS, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Value is
being determined and the 20 consecutive business days prior to such day. If at
any time the Class A Common is not listed on any securities exchange or quoted
in the NMS or the over-the-counter market, the Fair Value of each unit of Class
A Common shall be the fair market value of such unit as determined by the Board
in its good faith judgment.
"GAAP" means U.S. generally accepted accounting principles, as
in effect from time to time and as adopted by the Company with the consent of
its independent public accountants, consistently applied.
"Good Reason Event" means (i) the failure of the Company or
Sleepmaster to make the payments described herein within 5 Business Days of the
applicable payment due date, (ii) the written request by the Board of Advisors
of either the Company or Sleepmaster that the Executive relocate his primary
residence or (iii) a written directive from the Board of Advisors of the Company
or Sleepmaster that results in a substantial reduction of the Executive's job
responsibilities.
"Original Cost" of the Vesting Executive Securities purchased
on the date hereof will be equal to $100.00 per unit.
-2-
<PAGE> 3
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Interests" means the Company's Series A Preferred
Interests, as adjusted for any unit split, unit dividend or other combination,
exchange, conversion, recapitalization, merger, consolidation or reorganization,
or if the Series A Preferred Interests are hereafter changed into or exchanged
for different interests or securities of the Company, such other interests or
securities, and any other preferred interests of the Company hereinafter issued,
"Public Offering" means any sale of securities of the Company
in an underwritten public offering.
"Qualified Public Offering" means any sale, in an underwritten
public offering registered under the Securities Act, of equity securities of the
Company having an aggregate value of at least $20 million.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Investor) pursuant to which such third party proposes
to acquire all or substantially all of the outstanding Common Interests (whether
by merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Securityholders Agreement" means the Securityholders
Agreement dated as of the date hereof by and among the Company, the Executive,
the Investor and certain other parties thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (i) if a corporation or a limited liability company, a
majority of the total voting power of securities 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
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Year" means that fiscal year of the Company
during which the Employment Period ends pursuant to the terms of Section 2(d)
hereof.
-3-
<PAGE> 4
"Vesting Executive Securities" means the 400 units of Class A
Common subject to vesting and any securities issued in connection therewith, as
adjusted for any unit split, unit dividend, or other combination, exchange,
recapitalization, merger, consolidation or reorganization. Vesting Executive
Securities will cease to be Vesting Executive Securities when transferred
pursuant to a Qualified Public Offering or Sale of the Company. Vesting
Executive Securities will continue to be Vesting Executive Securities in the
hands of any holder other than the Executive, including all transferees of the
Executive (except for the Company and the Investor (or its designees)), and
except as otherwise provided herein, each such other holder of Vesting Executive
Securities will succeed to all rights and obligations attributable to the
Executive as a holder of Executive Securities hereunder.
2. Employment.
(a) Employment. Sleepmaster agrees to employ the
Executive, and the Executive hereby accepts employment with Sleepmaster, upon
the terms and conditions set forth in this Agreement for the period beginning on
the date hereof and ending as provided in Section 2(d) (the "Employment
Period"). During the Employment Period, the Executive shall be the senior
executive officer of the Company and Sleepmaster and, subject to the provisions
of the Company's Amended and Restated Limited Liability Company Operating
Agreement dated as of the date hereof, shall have final authority with respect
to any matter which directly affects the Serta trademarks or licenses.
(b) Position and Duties.
(i) Commencing on the date hereof and continuing
during the Employment Period, the Executive shall serve as President and Chief
Executive Officer of Sleepmaster under the supervision and direction of the
Company's and Sleepmaster's respective hoards of advisors.
(ii) The Executive shall devote his best efforts
and his full business time and attention (except for permitted vacation periods
and reasonable periods of illness other than Disability) to the business and
affairs of the Company, Sleepmaster and their Subsidiaries. The Executive shall
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(iii) So long as the Executive is the duly
appointed and acting Chief Executive Officer and President, the Executive shall
serve as a member of the Board of Advisors of each of the Company and
Sleepmaster.
(c) Base Salary and Benefits.
(i) Base Salary. During the Employment Period,
Executive's base salary shall be $200,000 per annum through fiscal year 1996 and
will increase as of January 1, 1997 to $210,000 per annum (the "Base Salary"),
which salary shall be paid by Sleepmaster in regular installments in accordance
with Sleepmaster's general payroll practices and shall be subject to customary
withholding.
(ii) Executive Bonus Plan. For each fiscal year
during the Employment Period, the Executive will be eligible to receive a bonus
based on the Company's achievement of the Target EBITDA for such fiscal year as
set forth on the Company's EBITDA Plan attached as Schedule
-4-
<PAGE> 5
A hereto (the "EBITDA Plan"). In the event the Company or Sleepmaster
consummates an acquisition of another Person prior to December 31, 2001, the
EBITDA Plan will be adjusted in good faith by senior management and approved by
the Board, and such adjusted and approved plan shall, once approved, be deemed
the EBITDA Plan for all purposes hereunder.
(A) Once the Board has determined
(which determination shall be made within thirty (30) days from the issuance of
the Company's audited financial statements) the percentage of EBITDA achieved
for such fiscal year as compared to the Target EBITDA for such fiscal year (the
"Achieved EBITDA Percentage"), so long as the Achieved EBITDA Percentage for
such fiscal year equals or exceeds 80%, the Executive shall be entitled to
receive a bonus payment in an amount equal to the product of (x) the Bonus
Multiple (as set forth opposite the Achieved EBITDA Percentage below), (y) 22%
and (z) the Executive's Base Salary for such fiscal year. The bonus payment
shall be made within five (5) days of the Board's determination.
<TABLE>
<CAPTION>
Achieved EBITDA Percentage Bonus Multiple
<S> <C>
80% 50%
100% 100%
110% 125%
120% 150%
</TABLE>
(B) Each Bonus Multiple set forth above
shall increase linearly as the Achieved EBITDA Percentage increases; therefore,
so long as the Achieved EBITDA Percentage equals or exceeds 80%, in the event
the actual Achieved EBITDA Percentage falls between any of the target Achieved
EBITDA Percentages set forth above, the applicable Bonus Multiple shall be
adjusted accordingly, provided, that in no event shall the Bonus Multiple exceed
150%. For example, (1) in the event the actual Achieved EBITDA Percentage is
90%, the Bonus Multiple shall be 75% or (2) in the event the actual Achieved
EBITDA Percentage is 115%, the Bonus Multiple shall be 137.5%.
(C) With respect to fiscal year 1996,
the Executive shall be entitled to receive a bonus as follows: (1) the Executive
will be entitled to receive a portion of the bonus earned by the Executive under
that certain Employment Agreement dated January 2, 1995 between Sleepmaster and
the Executive (the "Previous Agreement") determined based on the portion of
fiscal year 1996 prior to the date hereof and (2) the Executive will be entitled
to receive a portion of the bonus earned by the Executive under this Agreement
determined based on the portion of the fiscal year after the date hereof.
(iii) Benefits. In addition to the Base Salary and
any bonuses payable to the Executive pursuant to Section 2(c)(i), the Executive
shall be entitled, during the Employment Period, to all benefits set forth on
Schedule B hereto (the "Benefits").
(iv) Expenses. The Company shall reimburse the
Executive for all reasonable expenses incurred by him in the course of
performing his duties under this Agreement which are consistent with the
Company's and its Subsidiaries' policies in effect from time to time with
respect to travel, entertainment and other business expenses, subject to the
requirements of the Company and its Subsidiaries with respect to reporting and
documentation of such expenses.
-5-
<PAGE> 6
(d) Term. The Employment Period shall end on November 1,
2001, subject to earlier termination (x) by reason of the Executive's death or
Disability, (y) by resolution of the Board, with or without Cause or (z) upon
the Executive's voluntary resignation with or without a Good Reason Event.
(i) If the Employment Period is terminated on or
before November 1, 2001:
(A) pursuant to Section 2(d)(y) above,
by the Company other than for Cause, the Executive shall be entitled to receive
(1) the stated Base Salary through the period ending on the earlier of November
1, 2001 and the later of (x) January 2, 2000 and (y) the second anniversary of
the date of termination, and (2) a portion of the bonus payment earned by the
Executive during the Termination Year pro rated based on the number of days of
the Termination Year prior to the date of termination, which such payment will
be made when the bonus payments for such Termination Year are otherwise due.
(B) as a result of the Executive's
death or Disability, the Executive or the Executive's estate, as applicable,
shall be entitled to all previously earned and accrued but unpaid Base Salary up
to the date of such termination but shall not be entitled to any further Base
Salary, bonus payments or Benefits for that year or any future year, or to any
other severance compensation of any kind, nature or amount.
(C) as a result of the Executive's
voluntary resignation other than after a Good Reason Event, or by the Company
for Cause, the Executive shall be entitled to all previously earned and accrued
but unpaid Base Salary up to the date of such termination but shall not be
entitled to any further Base Salary, bonus payments or Benefits for that year or
any future year, or to any other severance compensation of any kind, nature or
amount.
(D) as a result of the Executive's
voluntary resignation within 5 days of a Good Reason Event, the Executive shall
be entitled to receive (1) the stated Base Salary through the period ending on
the earlier of November 1, 2001 and the later of (x) January 2, 2000 and (y) the
second anniversary of the date of termination, and (2) a portion of the bonus
payment earned by the Executive during the Termination Year pro rated based on
the number of days of the Termination Year prior to the date of determination,
which such payment will be made when the bonus payments for such Termination
Year are otherwise due.
(ii) Following the termination of the Employment
Period:
(A) the Executive agrees that: (1) the
Executive shall be entitled to the payments provided for in Sections 2(d)(i)(A)
or (D), if any, if and only if Executive has not breached as of the date of
termination of the Employment Period the provisions of Sections 3, 4 and 5
hereof and does not breach such sections at any time during the period for which
such payments are to be made and (2) the Company's obligation to make such
payments will terminate upon the occurrence of any such breach during any such
severance period.
(B) any payments pursuant to Sections
2(d)(i)(A)(1) or 2(d)(i)(D)(1) shall be paid by Sleepmaster in regular
installments in accordance with Sleepmaster's general payroll practices and
shall be subject to customary withholding, and following such payments
-6-
<PAGE> 7
none of the Company, or any of its Subsidiaries shall have any further
obligation to the Executive pursuant to this Section 2(d) except as provided by
law.
(iii) The Executive hereby agrees that except as
expressly provided herein. no severance compensation of any kind, nature or
amount shall be payable to the Executive and except as expressly provided
herein, the Executive hereby irrevocably waives any claim for severance
compensation.
(iv) All of the Executive's rights to Benefits
hereunder (if any) shall cease upon the termination of the Employment Period.
(v) Subject to the restrictive covenant
contained in Section 5, the Executive acknowledges an obligation to seek or
obtain other engagements or employment in a similar position to mitigate any
damages to which the Executive may be entitled by reason of any termination of
this Agreement pursuant to Sections 2(d)(i)(A) or (D). If the Employee does
obtain other engagements or employment of any nature and in any location, the
total compensation actually earned by the Executive from such other employment
or engagements during the period that he is to receive payments, if any,
pursuant to Sections 2(d)(i)(A) or (D) shall reduce any amounts which the
Company would otherwise be required to pay the Executive under this Agreement.
3. Confidential Information. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
or any of its Subsidiaries concerning the business or affairs of the Company or
any Subsidiary ("Confidential Information") are the property of the Company or
such Subsidiary. Therefore, the Executive agrees that, except as required by law
or court order, he shall not disclose to any unauthorized person or use for his
own account any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
the Executive's acts or omissions to act. The Executive shall deliver to the
Company at the termination of such Executive's employment, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof) relating to
the Confidential Information, Work Product (as defined below) and the business
of the Company or any Subsidiary which he may then possess or have under his
control.
4. Inventions and Patents. The Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Company's or any of its Subsidiaries' actual or anticipated business, research
and development or existing or future products or services and which are
conceived, developed or made by the Executive while employed by the Company or
any of its Subsidiaries ("Work Product") belong to the Company or such
Subsidiary. The Executive will promptly disclose such Work Product to the Board
and perform all actions reasonably requested by the Board (whether during or
after the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
-7-
<PAGE> 8
5. Noncompete, Nonsolicitation.
(a) The Executive acknowledges that in the course of his
employment with the Company and its Subsidiaries he has become familiar, and he
will become familiar, with the Company's and its Subsidiaries' trade secrets and
with other Confidential Information and that his services have been and will be
of special, unique and extraordinary value to the Company and its Subsidiaries.
Therefore, the Executive agrees that, during the time he is employed by the
Company and its Subsidiaries and during any applicable Post-Termination Period
(the "Noncompete Period"), he shall not directly or indirectly own, operate,
manage, control, participate in, consult with, advise, provide services for, or
in any manner engage in any business (including by himself or in association
with any person, firm, corporate or other business organization or through any
other entity) in competition with, or potential competition with, the businesses
of the Company or its Subsidiaries as such businesses exist or are in process on
the date of the termination of the Executive's employment, within any
geographical area in which the Company or any of its Subsidiaries engages or
plans to engage in such businesses. Nothing herein shall prohibit the Executive
from being a passive owner of not more than 2% of the outstanding stock of a
corporation which is publicly traded, so long as the Executive has no active
participation in the business of such corporation. For purposes of this Section
5, "Post-Termination Period" means, as applicable: (i) if the Executive is
entitled to receive payments pursuant to Sections 2(d)(i)(A)(1) or
2(d)(i)(D)(1), then for the period through the later of (x) January 2, 2000 and
(y) the second anniversary of the date of termination, (ii) if the Employment
Period ends on November 1, 2001 and not less than 30 days prior to such date
either the Company or Sleepmaster offers the Executive employment on terms
substantially similar to the terms set forth herein and the Executive refuses
such offer, the period of eighteen (18) months (following the Employment Period)
ending on May 1, 2003 or (iii) if the Employment Period is terminated by the
Company for Cause or by the voluntary resignation of the Executive without a
Good Reason Event, the period of eighteen (18) months following the date of
termination.
(b) During the Noncompete Period, the Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any Subsidiary to leave the employ of the Company
or such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, including without
limitation, inducing or attempting to induce any union, employee or group of
employees to interfere with the business or operations of the Company or its
Subsidiaries, (ii) hire any person who was an employee of the Company or any
Subsidiary at any time during the Executive's employment period, or (iii) induce
or attempt to induce any customer, supplier, distributor, franchisee, licensee
or other business relation of the Company or any Subsidiary to cease doing
business with the Company or such Subsidiary, or in any way interfere with the
relationship between any such customer, supplier, distributor, franchisee,
licensee or business relation and the Company or any Subsidiary.
(c) The Executive agrees that: (i) the covenants set
forth in this Section 5 are reasonable in geographical and temporal scope and in
all other respects, (ii) the Company would not have entered into this Agreement
but for the covenants of the Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 5, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing,
-8-
<PAGE> 9
the parties agree that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or area and
that the court shall be allowed to revise the restrictions contained herein to
cover the maximum period, scope and area permitted by law.
(e) The Executive recognizes and affirms that in the
event of his breach of any provision of this Section 5, money damages would be
inadequate and the Company and the Investor would have no adequate remedy at
law. Accordingly, the Executive agrees that in the event of a breach or a
threatened breach by the Executive of any of the provisions of this Section 5,
the Company, in addition and supplementary to other rights and remedies existing
in its favor, may apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce
or prevent any violations of the provisions hereof (without posting a bond or
other security).
6. Executive Securities.
(a) With respect to the Vesting Executive Securities,
within 30 days from the date hereof, the Executive will make an effective
election with the Internal Revenue Service under Section 83(b) of the Internal
Revenue Code and the regulations promulgated thereunder in the form of Exhibit A
attached hereto.
(b) In connection with the acquisition of the Executive
Securities, the Executive represents and warrants to the Company that:
(i) The Executive Securities to be acquired by
the Executive pursuant to this Agreement will be acquired for the Executive's
own account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities laws, and
the Executive Securities will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) No commission, fee or other remuneration is
to be paid or given, directly or indirectly, to any Person for soliciting the
Executive to purchase the Executive Securities.
(iii) The Executive is an executive officer of the
Company, is sophisticated in financial matters and is able to evaluate the risks
and benefits of the investment in the Executive Securities and has determined
that such investment in the Executive Securities is suitable for the Executive,
based upon the Executive's financial situation and needs, as well as the
Executive's other securities holdings.
(iv) The Executive qualifies an "accredited
investor" within the meaning of Rule 501 (a) of Regulation D under the
Securities Act.
(v) The Executive is able to bear the economic
risk of the Executive's investment in the Executive Securities for an indefinite
period of time and the Executive understands that the Executive Securities have
not been registered under the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
-9-
<PAGE> 10
(vi) The Executive has had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of Executive Securities and has had full access to such other
information concerning the Company as the Executive has requested. The Executive
has reviewed, or has had an opportunity to review, the following documents: (A)
the Recapitalization Agreement; (B) the organization documents of the Company
and Sleepmaster; (C) the loan agreements, notes and related documents with the
Company's senior lenders; (D) the loan agreement, notes and related documents
with the Company's senior subordinated lender; and (E) all of the materials
provided by the Company to any Person providing financing to the Company,
including, but not limited to, the Company's pro forma balance sheet, as well as
financial projections, estimates, forecasts, budgets, summaries, reports and
other related documents.
(vii) This Agreement constitutes the legal, valid
and binding obligation of the Executive, enforceable in accordance with its
terms, and the execution, delivery and performance of this Agreement by the
Executive does not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which the Executive is a party or any
judgment, order or decree to which the Executive is subject.
(c) As an inducement to the Company to issue the
Executive Securities to the Executive, and as a condition thereto, the Executive
acknowledges and agrees that neither the issuance of the Executive Securities to
the Executive nor any provision contained herein shall entitle the Executive to
remain in the employment of the Company and its Subsidiaries or affect the right
of the Company to terminate the Executive's employment at any time for any
reason.
7. Vesting of Executive Securities. (a) (i) 180 units of the
Class A Common and (ii) 257.14 units of Preferred Interests evidenced by
certificates issued in connection therewith are fully vested as of the date
hereof and are not subject to the terms of Section 4 below. The Vesting
Executive Securities originally acquired by the Executive will become vested in
accordance with the following schedule if, as of each such date, the Executive
is still employed by the Company or its Subsidiaries;
<TABLE>
<CAPTION>
Cumulative Percentage of Units
of Vesting Executive
Date Date Securities Which Will Vest
- ------------------------------------------------------ -------------------------------
<S> <C>
First anniversary of the date hereof ("Year 1") 20%
Second anniversary of the date hereof ("Year 2") 40%
Third anniversary of the date hereof ("Year 3") 60%
Fourth anniversary of the date hereof ("Year 4") 80%
Fifth anniversary of the date hereof ("Year 5") 100%
</TABLE>
provided, that all Vesting Executive Securities shall automatically vest in
connection with a Sale of the Company.
-10-
<PAGE> 11
(b) Units of Vesting Executive Securities which have
become vested are referred to herein as "Vested Interests," and all other units
of Vesting Executive Securities are referred to herein as "Unvested Interests."
8. Repurchase Option on Vesting Executive Interests. In the event
the Executive ceases to be employed by the Company and its Subsidiaries for any
reason (the "Termination"), the Vesting Executive Securities (whether held by
the Executive or one or more of the Executive's transferees) will be subject to
repurchase by the Company and the Investor (or its designees) pursuant to the
terms and conditions set forth in this Section 8 (the "Repurchase Option").
(a) (i) The purchase price for each Unvested Interest of
Vesting Executive Securities will be the Executive's Original Cost for such unit
plus interest thereon calculated at a rate per annum equal to the latest
published rate for United States Treasury Bills with a five year maturity as
published in the "Treasury Bonds, Notes & Bills" column of the Wall Street
Journal; (ii) the purchase price for each Vested interest of Vesting Executive
Securities will be the Fair Value for such unit; and (iii) notwithstanding the
foregoing, if the termination of the Employment Period is by the Company for
Cause or by the voluntary resignation of the Executive without a Good Reason
Event, then the purchase price for each Vested Securities and each Unvested
Securities will be the Executive's Original Cost.
(b) The Board may elect to cause the Company to purchase
(i) all or a portion of the Unvested Interests and/or, (ii) all or a portion of
the Vested Interests by delivering written notice (the "Repurchase Notice") to
the holder or holders of the Vesting Executive Securities within 90 days after
the Termination. The Repurchase Notice will set forth the number of Unvested
Interests and Vested Interests to be acquired from each holder, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of units of Vesting Executive Securities
to be repurchased by the Company shall first be satisfied to the extent possible
from the Vesting Executive Securities held by the Executive at the time of
delivery of the Repurchase Notice. If the number of Vesting Interests then held
by the Executive is less than the total number of units of Vesting Executive
Securities the Company has elected to purchase the Company shall purchase the
remaining Vesting Executive Securities elected to be purchased from the other
holder(s) of Executive Securities, pro rata according to the amount of such
Vesting Executive Securities held by such other holder(s) at the time of
delivery of such Repurchase Notice (determined as nearly as practicable to the
nearest share). The number of Unvested Interests and Vested Interests to be
repurchased hereunder will be allocated among the Executive and the other
holders of Vesting Executive Securities (if any) pro rata according to the
number of units of Vesting Executive Securities to be purchased from such
Persons.
(c) If for any reason the Company does not elect to
purchase all of the units of Vesting Executive Securities that are subject to
the Repurchase Option, pursuant to such Repurchase Option, the Investor (or its
designees) shall be entitled to exercise the Repurchase Option for the Vesting
Executive Securities the Company has not elected to purchase (the "Available
Securities"). Of the Available Securities, the Vested Interests are referred to
herein as "Available Vested Interests" and Unvested Interests are referred to
herein as "Available Unvested Interests". As soon as practicable after the
Company has determined that there will be Available Securities, but in an event
within 150 days after the Termination, the Company shall give written notice
(the "Option Notice") to the Investor (or its designees) setting forth the
number of Available Vested Interests, Available Unvested Interests, and the
purchase price for each of such Available Securities. The Investor (or its
-11-
<PAGE> 12
designees) may elect to purchase all or a portion of (i) Available Vested
Interests, and/or (ii) all or a portion of the Available Unvested Interests by
giving written notice to the Company within 45 days after the Option Notice has
been given by the Company. As soon as practicable, and in any event within ten
days after the expiration of the 45-day period set forth above, the Company
shall notify each holder of Vesting Executive Securities as to the number of
Vested Interests or Unvested Interests being purchased from such holder by the
Investor (or its designees) (the "Supplemental Repurchase Notice"). At the time
the Company delivers the Supplemental Repurchase Notice to the holder(s) of such
Vesting Executive Securities, the Company shall also deliver written notice to
the Investor (or its designees) setting forth the number of Vested Interests and
Unvested Interests which the Investor (or its designees) is entitled to
purchase, the aggregate purchase price and the time and place of the closing of
the transaction.
(d) The closing of the purchase of the Vesting Executive
Securities pursuant to the Repurchase Option shall take place on the date
designated by the Company in the Repurchase Notice or Supplemental Repurchase
Notice, which date shall not be later than the 30th day after the delivery of
the later of such notices to be delivered (or, if later, the 15th day after the
Fair Value is finally determined) nor earlier than the fifth day after such
delivery. The Company and/or the Investor (or its designee) will pay for the
Vesting Executive Securities to be purchased pursuant to the Repurchase Option
by delivery of a certified or cashier's check or wire transfer of funds. The
purchasers of Vesting Executive Securities hereunder will be entitled to receive
customary presentations and warranties from the sellers as to title, authority
and capacity to sell.
(e) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of Vesting Executive Securities by the Company
shall be subject to applicable legal restrictions. If any such restrictions
prohibit the repurchase of Vesting Executive Securities hereunder which the
Company is otherwise entitled to make, the Company may make such repurchases as
soon as it is permitted to do so under such restrictions.
(f) If a Sale of the Company shall be consummated within
six months of the consummation of the repurchase of Vesting Executive Securities
pursuant to this Section 8, then with respect to each unit of Vested Interests
sold by the Executive pursuant to this Section 8, the Executive shall be
entitled to receive an amount equal to the difference, if any, (i) between the
per unit consideration (with respect to the Common Interests) received by the
Investor in connection with the Sale of the Company and (11) the repurchase
price per unit paid to the Executive; provided, that if the Termination is by
the Company for Cause or by the voluntary resignation of the Executive without a
Good Reason Event, this Section 8(f) shall not apply.
9. Restrictions on Transfer.
(a) If certificated, the Executive Securities will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION
FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS
-12-
<PAGE> 13
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS
AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND THE
SIGNATORY THERETO DATED AS OF NOVEMBER __, 1996. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Securities may sell, transfer
or dispose of any units of Executive Securities (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an opinion of counsel (reasonably acceptable in form and substance to
the Company) that neither registration nor qualification under the Securities
Act and applicable state securities laws is required in connection with such
transfer.
(c) Each holder of Executive Securities agrees not to
effect any sale or distribution of any Executive Securities or other equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for any of the Company's equity securities, during the seven days
prior to and the 120 days (or, subject to the requirements of the underwriters,
up to 180 days) after the effectiveness of any underwritten public offering,
except as part of such underwritten public offering or if otherwise permitted by
the Company.
10. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient with telephonic confirmation by the sending party.
Such notices, demands and other communications will be sent to the address
indicated below:
To the Company or Sleepmaster:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: President
Telecopy No.: (908) 381-4455
With a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
l4th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
-13-
<PAGE> 14
To the Executive:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: Mr. James Koscica
Telecopy No.: (908) 381-4455
To the Investor:
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) Transfers in Violation of Agreement. Any transfer or
attempted transfer of any Executive Securities in violation of any provision of
this Agreement shall be null and void. and the Company shall not record such
transfer on its books or treat any purported transferee of such Executive
Securities as the owner of such securities for any purpose.
(b) Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the
Securityholders Agreement, and the Recapitalization Agreement embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements or representations by or among the
-14-
<PAGE> 15
parties, written or oral, which may have related to the subject matter hereof in
any way, including, without limitation, the Previous Agreement.
(d) Counterparts. This Agreement may be executed in
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Executive, the Company, the Investor and their respective successors and
assigns (including subsequent holders of Executive Securities); provided that
the rights and obligations of the Executive under this Agreement shall not be
assignable except in connection with a permitted transfer of Executive
Securities hereunder.
(f) Third Party Beneficiary. This Agreement is intended
for the benefit of, and will be enforceable by, the Investor.
(G) GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING
INTERPRETATION OF THE LAWS GOVERNING LIMITED LIABILITY COMPANIES SHALL BE
GOVERNED BY THE NEW JERSEY LIMITED LIABILITY COMPANY ACT.
(h) Remedies. Each of the parties to this Agreement
(including the Investor) will be entitled to enforce its rights under this
Agreement specifically, to recover damages and costs (including reasonable
attorneys' fees) caused by any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this
Agreement may be amended and waived only with the prior written consent of the
Company, the Executive and the Investor.
* * * * *
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first written above.
SLEEPMASTER HOLDINGS L.L.C.
By: James P. Koscica
----------------------------------
Name: James P. Koscica
Title: Executive Vice President
SLEEPMASTER L.L.C.
By: James P. Koscica
----------------------------------
Name: James P. Koscica
Title: Executive Vice President
/s/ James Koscica
--------------------------------------
JAMES KOSCICA
Agreed and Accepted:
SLEEP INVESTOR L.L.C.
By: John D. Weber
----------------------------------
Name: John D. Weber
Title: Member
-17-
<PAGE> 17
SCHEDULE A
EBITDA PLAN
<TABLE>
<CAPTION>
FISCAL YEAR EBITDA TARGET
----------------- -------------------
<S> <C>
1996 $ 8,590,000
1997 $10,525,000
1998 $12,323,000
1999 $13,608,000
2000 $15,453,000
2001 $16,137,000
</TABLE>
-18-
<PAGE> 18
SCHEDULE B
EMPLOYEE BENEFITS
Executive Medical Plan --100% reimbursable medical expenses
Personal Term Life Insurance --coverage $1,000,000
Supplemental Disability--Monthly Disability Benefit $5,000
Entertainment Expenses
Car Allowance; $7,800 per annum
Car Expenses
Permitted Vacation: 4 weeks per year
-19-
<PAGE> 1
EXHIBIT 10.12
EXECUTION COPY
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is dated as of November __, 1996, by
and among Sleepmaster Holdings L.L.C., a New Jersey limited liability company
(the "Company"), Sleepmaster L.L.C., a New Jersey limited liability company
("Sleepmaster"), Timothy DuPont (the "Executive") and Sleep Investor L.L.C., a
Delaware limited liability company (the "Investor").
The Company, Sleepmaster and the Executive desire to enter
into an agreement regarding (i) the employment of the Executive as President and
Chief Executive Officer of Sleepmaster, and (ii) certain restrictions regarding
the Company's Class A Common Interests (the "Class A Common") acquired by the
Executive pursuant to the Recapitalization, Redemption and Repurchase Agreement
by and among the Executive, the Company and certain other parties thereto dated
as of October 31, 1996 (the "Recapitalization Agreement").
Certain provisions of this Agreement are intended for the
benefit of, and will be enforceable by, the Investor.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have
the following meanings.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means the Company's board of advisors.
"Business Day" means any day other than a Saturday or Sunday
or a day on which commercial banks are required or authorized to close in New
York, New York.
"Cause" means (i) a breach of the Executive's covenants under
this Agreement or any other agreements with the Company or its Subsidiaries and
such breach shall not have been cured within 30 days after written notice to the
Executive, (ii) the commission by the Executive of a felony, a crime involving
moral turpitude or other act causing material harm to the standing and
reputation of the Company or any of its Subsidiaries, or (iii) the Executive's
repeated wilful failure to comply with the reasonable and lawful written
directives of the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, as adjusted for any unit split, unit dividend, or
other combination, exchange. conversion, recapitalization, merger, consolidation
or reorganization, or if such Common Interests are exchanged for different
interests or securities of the Company, such other interests or securities and
any other Common Interests of the Company hereinafter issued.
<PAGE> 2
"Disability" means the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of the Executive to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
"Executive Securities" means the Class A Common acquired by
the Executive and will include units of the Company's Common Interests issued
with respect to Executive Securities by way of a split, dividend, combination,
exchange, conversion, or other recapitalization, merger, consolidation or
reorganization. Executive Securities will cease to be Executive Securities when
transferred pursuant to a Qualified Public Offering or Sale of the Company.
Executive Securities will continue to be Executive Securities in the hands of
any holder other than the Executive, including all transferees of the Executive
(except for the Company and the Investor (or its designee)), and except as
otherwise provided herein, each such other holder of Executive Securities will
succeed to all rights and obligations attributable to the Executive as a holder
of Executive Securities hereunder.
"Fair Value" of each unit of Class A Common means the average
of the closing prices of the sales of the Company's membership interests on all
securities exchanges on which the membership interests may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the membership interests are not so listed,
the average of the representative bid and asked prices quoted on the Nasdaq
National Market System ("Nasdaq NMS") as of 4:00 P.M., New York time, or, if on
any day the membership interests are not quoted in the Nasdaq NMS, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Value is
being determined and the 20 consecutive business days prior to such day. If at
any time the Class A Common is not listed on any securities exchange or quoted
in the NMS or the over-the-counter market, the Fair Value of each unit of Class
A Common shall be the fair market value of such unit as determined by the Board
in its good faith judgment.
"GAAP" means U.S. generally accepted accounting principles, as
in effect from time to time and as adopted by the Cornpany with the consent of
its independent public accountants, consistently applied.
"Good Reason Event" means (i) the failure of the Company or
Sleepmaster to make the payments described herein within 5 Business Days of the
applicable payment due date, (ii) the written request by the Board of Advisors
of either the Company or Sleepmaster that the Executive relocate his primary
residence or (iii) a written directive from the Board of Advisors of the Company
or Sleepmaster that results in a substantial reduction of the Executive's job
responsibilities.
"Original Cost" of the Vesting Executive Securities purchased
on the date hereof will be equal to $100.00 per unit.
-2-
<PAGE> 3
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Interests" means the Company's Series A Preferred
Interests, as adjusted for any unit split, unit dividend or other combination,
exchange, conversion, recapitalization, merger, consolidation or reorganization,
or if the Series A Preferred Interests are hereafter changed into or exchanged
for different interests or securities of the Company, such other interests or
securities, and any other preferred interests of the Company hereinafter issued,
"Public Offering" means any sale of securities of the Company
in an underwritten public offering.
"Qualified Public Offering" means any sale, in an underwritten
public offering registered under the Securities Act, of equity securities of the
Company having an aggregate value of at least $20 million.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Investor) pursuant to which such third party proposes
to acquire all or substantially all of the outstanding Common Interests (whether
by merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Securityholders Agreement" means the Securityholders
Agreement dated as of the date hereof by and among the Company, the Executive,
the Investor and certain other parties thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (i) if a corporation or a limited liability company, a
majority of the total voting power of securities 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
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Year" means that fiscal year of the Company
during which the Employment Period ends pursuant to the terms of Section 2(d)
hereof.
-3-
<PAGE> 4
"Vesting Executive Securities" means the 400 units of Class A
Common subject to vesting and any securities issued in connection therewith, as
adjusted for any unit split, unit dividend, or other combination, exchange,
recapitalization, merger, consolidation or reorganization. Vesting Executive
Securities will cease to be Vesting Executive Securities when transferred
pursuant to a Qualified Public Offering or Sale of the Company. Vesting
Executive Securities will continue to be Vesting Executive Securities in the
hands of any holder other than the Executive, including all transferees of the
Executive (except for the Company and the Investor (or its designees)), and
except as otherwise provided herein, each such other holder of Vesting Executive
Securities will succeed to all rights and obligations attributable to the
Executive as a holder of Executive Securities hereunder.
2. Employment.
(a) Employment. Sleepmaster agrees to employ the
Executive, and the Executive hereby accepts employment with Sleepmaster, upon
the terms and conditions set forth in this Agreement for the period beginning on
the date hereof and ending as provided in Section 2(d) (the "Employment
Period"). During the Employment Period, the Executive shall be the senior
executive officer of the Company and Sleepmaster and, subject to the provisions
of the Company's Amended and Restated Limited Liability Company Operating
Agreement dated as of the date hereof, shall have final authority with respect
to any matter which directly affects the Serta trademarks or licenses.
(b) Position and Duties.
(i) Commencing on the date hereof and continuing
during the Employment Period, the Executive shall serve as President and Chief
Executive Officer of Sleepmaster under the supervision and direction of the
Company's and Sleepmaster's respective hoards of advisors.
(ii) The Executive shall devote his best efforts
and his full business time and attention (except for permitted vacation periods
and reasonable periods of illness other than Disability) to the business and
affairs of the Company, Sleepmaster and their Subsidiaries. The Executive shall
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(iii) So long as the Executive is the duly
appointed and acting Chief Executive Officer and President, the Executive shall
serve as a member of the Board of Advisors of each of the Company and
Sleepmaster.
(c) Base Salary and Benefits.
(i) Base Salary. During the Employment Period,
Executive's base salary shall be $106,000 per annum through fiscal year 1996 and
will increase as of January 1, 1997 to $111,000 per annum (the "Base Salary"),
which salary shall be paid by Sleepmaster in regular installments in accordance
with Sleepmaster's general payroll practices and shall be subject to customary
withholding.
(ii) Executive Bonus Plan. For each fiscal year
during the Employment Period, the Executive will be eligible to receive a bonus
based on the Company's achievement of the Target EBITDA for such fiscal year as
set forth on the Company's EBITDA Plan attached as Schedule
-4-
<PAGE> 5
A hereto (the "EBITDA Plan"). In the event the Company or Sleepmaster
consummates an acquisition of another Person prior to December 31, 2001, the
EBITDA Plan will be adjusted in good faith by senior management and approved by
the Board, and such adjusted and approved plan shall, once approved, be deemed
the EBITDA Plan for all purposes hereunder.
(A) Once the Board has determined
(which determination shall be made within thirty (30) days from the issuance of
the Company's audited financial statements) the percentage of EBITDA achieved
for such fiscal year as compared to the Target EBITDA for such fiscal year (the
"Achieved EBITDA Percentage"), so long as the Achieved EBITDA Percentage for
such fiscal year equals or exceeds 80%, the Executive shall be entitled to
receive a bonus payment in an amount equal to the product of (x) the Bonus
Multiple (as set forth opposite the Achieved EBITDA Percentage below), (y) 40.5%
and (z) the Executive's Base Salary for such fiscal year. The bonus payment
shall be made within five (5) days of the Board's determination.
<TABLE>
<CAPTION>
Achieved EBITDA Percentage Bonus Multiple
<S> <C>
80% 50%
100% 100%
110% 125%
120% 150%
</TABLE>
(B) Each Bonus Multiple set forth above
shall increase linearly as the Achieved EBITDA Percentage increases; therefore,
so long as the Achieved EBITDA Percentage equals or exceeds 80%, in the event
the actual Achieved EBITDA Percentage falls between any of the target Achieved
EBITDA Percentages set forth above, the applicable Bonus Multiple shall be
adjusted accordingly, provided, that in no event shall the Bonus Multiple exceed
150%. For example, (1) in the event the actual Achieved EBITDA Percentage is
90%, the Bonus Multiple shall be 75% or (2) in the event the actual Achieved
EBITDA Percentage is 115%, the Bonus Multiple shall be 137.5%.
(C) With respect to fiscal year 1996,
the Executive shall be entitled to receive a bonus as follows: (1) the Executive
will be entitled to receive a portion of the bonus earned by the Executive under
that certain Employment Agreement dated January 2, 1995 between Sleepmaster and
the Executive (the "Previous Agreement") determined based on the portion of
fiscal year 1996 prior to the date hereof and (2) the Executive will be entitled
to receive a portion of the bonus earned by the Executive under this Agreement
determined based on the portion of the fiscal year after the date hereof.
(iii) Benefits. In addition to the Base Salary and
any bonuses payable to the Executive pursuant to Section 2(c)(ii), the Executive
shall be entitled, during the Employment Period, to all benefits set forth on
Schedule B hereto (the "Benefits").
(iv) Expenses. The Company shall reimburse the
Executive for all reasonable expenses incurred by him in the course of
performing his duties under this Agreement which are consistent with the
Company's and its Subsidiaries' policies in effect from time to time with
respect to travel, entertainment and other business expenses, subject to the
requirements of the Company and its Subsidiaries with respect to reporting and
documentation of such expenses.
-5-
<PAGE> 6
(d) Term. The Employment Period shall end on November 1,
2001, subject to earlier termination (x) by reason of the Executive's death or
Disability, (y) by resolution of the Board, with or without Cause or (z) upon
the Executive's voluntary resignation with or without a Good Reason Event.
(i) If the Employment Period is terminated on or
before November 1, 2001:
(A) pursuant to Section 2(d)(y) above,
by the Company other than for Cause, the Executive shall be entitled to receive
(1) the stated Base Salary through the period ending on the earlier of November
1, 2001 and the later of (x) January 2, 2000 and (y) the second anniversary of
the date of termination, and (2) a portion of the bonus payment earned by the
Executive during the Termination Year pro rated based on the number of days of
the Termination Year prior to the date of termination, which such payment will
be made when the bonus payments for such Termination Year are otherwise due.
(B) as a result of the Executive's
death or Disability, the Executive or the Executive's estate, as applicable,
shall be entitled to all previously earned and accrued but unpaid Base Salary up
to the date of such termination but shall not be entitled to any further Base
Salary, bonus payments or Benefits for that year or any future year, or to any
other severance compensation of any kind, nature or amount.
(C) as a result of the Executive's
voluntary resignation other than after a Good Reason Event, or by the Company
for Cause, the Executive shall be entitled to all previously earned and accrued
but unpaid Base Salary up to the date of such termination but shall not be
entitled to any further Base Salary, bonus payments or Benefits for that year or
any future year, or to any other severance compensation of any kind, nature or
amount.
(D) as a result of the Executive's
voluntary resignation within 5 days of a Good Reason Event, the Executive shall
be entitled to receive (1) the stated Base Salary through the period ending on
the earlier of November 1, 2001 and the later of (x) January 2, 2000 and (y) the
second anniversary of the date of termination, and (2) a portion of the bonus
payment earned by the Executive during the Termination Year pro rated based on
the number of days of the Termination Year prior to the date of determination,
which such payment will be made when the bonus payments for such Termination
Year are otherwise due.
(ii) Following the termination of the Employment
Period:
(A) the Executive agrees that: (1) the
Executive shall be entitled to the payments provided for in Sections 2(d)(i)(A)
or (D), if any, if and only if Executive has not breached as of the date of
termination of the Employment Period the provisions of Sections 3, 4 and 5
hereof and does not breach such sections at any time during the period for which
such payments are to be made and (2) the Company's obligation to make such
payments will terminate upon the occurrence of any such breach during any such
severance period.
(B) any payments pursuant to Sections
2(d)(i)(A)(1) or 2(d)(i)(D)(1) shall be paid by Sleepmaster in regular
installments in accordance with Sleepmaster's general payroll practices and
shall be subject to customary withholding, and following such payments
-6-
<PAGE> 7
none of the Company, or any of its Subsidiaries shall have any further
obligation to the Executive pursuant to this Section 2(d) except as provided by
law.
(iii) The Executive hereby agrees that except as
expressly provided herein. no severance compensation of any kind, nature or
amount shall be payable to the Executive and except as expressly provided
herein, the Executive hereby irrevocably waives any claim for severance
compensation.
(iv) All of the Executive's rights to Benefits
hereunder (if any) shall cease upon the termination of the Employment Period.
(v) Subject to the restrictive covenant
contained in Section 5, the Executive acknowledges an obligation to seek or
obtain other engagements or employment in a similar position to mitigate any
damages to which the Executive may be entitled by reason of any termination of
this Agreement pursuant to Sections 2(d)(i)(A) or (D). If the Employee does
obtain other engagements or employment of any nature and in any location, the
total compensation actually earned by the Executive from such other employment
or engagements during the period that he is to receive payments, if any,
pursuant to Sections 2(d)(i)(A) or (D) shall reduce any amounts which the
Company would otherwise be required to pay the Executive under this Agreement.
3. Confidential Information. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
or any of its Subsidiaries concerning the business or affairs of the Company or
any Subsidiary ("Confidential Information") are the property of the Company or
such Subsidiary. Therefore, the Executive agrees that, except as required by law
or court order, he shall not disclose to any unauthorized person or use for his
own account any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
the Executive's acts or omissions to act. The Executive shall deliver to the
Company at the termination of such Executive's employment, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof) relating to
the Confidential Information, Work Product (as defined below) and the business
of the Company or any Subsidiary which he may then possess or have under his
control.
4. Inventions and Patents. The Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Company's or any of its Subsidiaries' actual or anticipated business, research
and development or existing or future products or services and which are
conceived, developed or made by the Executive while employed by the Company or
any of its Subsidiaries ("Work Product") belong to the Company or such
Subsidiary. The Executive will promptly disclose such Work Product to the Board
and perform all actions reasonably requested by the Board (whether during or
after the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
-7-
<PAGE> 8
5. Noncompete, Nonsolicitation.
(a) The Executive acknowledges that in the course of his
employment with the Company and its Subsidiaries he has become familiar, and he
will become familiar, with the Company's and its Subsidiaries' trade secrets and
with other Confidential Information and that his services have been and will be
of special, unique and extraordinary value to the Company and its Subsidiaries.
Therefore, the Executive agrees that, during the time he is employed by the
Company and its Subsidiaries and during any applicable Post-Termination Period
(the "Noncompete Period"), he shall not directly or indirectly own, operate,
manage, control, participate in, consult with, advise, provide services for, or
in any manner engage in any business (including by himself or in association
with any person, firm, corporate or other business organization or through any
other entity) in competition with, or potential competition with, the businesses
of the Company or its Subsidiaries as such businesses exist or are in process on
the date of the termination of the Executive's employment, within any
geographical area in which the Company or any of its Subsidiaries engages or
plans to engage in such businesses. Nothing herein shall prohibit the Executive
from being a passive owner of not more than 2% of the outstanding stock of a
corporation which is publicly traded, so long as the Executive has no active
participation in the business of such corporation. For purposes of this Section
5, "Post-Termination Period" means, as applicable: (i) if the Executive is
entitled to receive payments pursuant to Sections 2(d)(i)(A)(1) or
2(d)(i)(D)(1), then for the period through the later of (x) January 2, 2000 and
(y) the second anniversary of the date of termination, (ii) if the Employment
Period ends on November 1, 2001 and not less than 30 days prior to such date
either the Company or Sleepmaster offers the Executive employment on terms
substantially similar to the terms set forth herein and the Executive refuses
such offer, the period of eighteen (18) months (following the Employment Period)
ending on May 1, 2003 or (iii) if the Employment Period is terminated by the
Company for Cause or by the voluntary resignation of the Executive without a
Good Reason Event, the period of eighteen (18) months following the date of
termination.
(b) During the Noncompete Period, the Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any Subsidiary to leave the employ of the Company
or such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, including without
limitation, inducing or attempting to induce any union, employee or group of
employees to interfere with the business or operations of the Company or its
Subsidiaries, (ii) hire any person who was an employee of the Company or any
Subsidiary at any time during the Executive's employment period, or (iii) induce
or attempt to induce any customer, supplier, distributor, franchisee, licensee
or other business relation of the Company or any Subsidiary to cease doing
business with the Company or such Subsidiary, or in any way interfere with the
relationship between any such customer, supplier, distributor, franchisee,
licensee or business relation and the Company or any Subsidiary.
(c) The Executive agrees that: (i) the covenants set
forth in this Section 5 are reasonable in geographical and temporal scope and in
all other respects, (ii) the Company would not have entered into this Agreement
but for the covenants of the Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 5, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing,
-8-
<PAGE> 9
the parties agree that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or area and
that the court shall be allowed to revise the restrictions contained herein to
cover the maximum period, scope and area permitted by law.
(e) The Executive recognizes and affirms that in the
event of his breach of any provision of this Section 5, money damages would be
inadequate and the Company and the Investor would have no adequate remedy at
law. Accordingly, the Executive agrees that in the event of a breach or a
threatened breach by the Executive of any of the provisions of this Section 5,
the Company, in addition and supplementary to other rights and remedies existing
in its favor, may apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce
or prevent any violations of the provisions hereof (without posting a bond or
other security).
6. Executive Securities.
(a) With respect to the Vesting Executive Securities,
within 30 days from the date hereof, the Executive will make an effective
election with the Internal Revenue Service under Section 83(b) of the Internal
Revenue Code and the regulations promulgated thereunder in the form of Exhibit A
attached hereto.
(b) In connection with the acquisition of the Executive
Securities, the Executive represents and warrants to the Company that:
(i) The Executive Securities to be acquired by
the Executive pursuant to this Agreement will be acquired for the Executive's
own account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities laws, and
the Executive Securities will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) No commission, fee or other remuneration is
to be paid or given, directly or indirectly, to any Person for soliciting the
Executive to purchase the Executive Securities.
(iii) The Executive is an executive officer of the
Company, is sophisticated in financial matters and is able to evaluate the risks
and benefits of the investment in the Executive Securities and has determined
that such investment in the Executive Securities is suitable for the Executive,
based upon the Executive's financial situation and needs, as well as the
Executive's other securities holdings.
(iv) The Executive qualifies an "accredited
investor" within the meaning of Rule 501 (a) of Regulation D under the
Securities Act.
(v) The Executive is able to bear the economic
risk of the Executive's investment in the Executive Securities for an indefinite
period of time and the Executive understands that the Executive Securities have
not been registered under the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
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<PAGE> 10
(vi) The Executive has had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of Executive Securities and has had full access to such other
information concerning the Company as the Executive has requested. The Executive
has reviewed, or has had an opportunity to review, the following documents: (A)
the Recapitalization Agreement; (B) the organization documents of the Company
and Sleepmaster; (C) the loan agreements, notes and related documents with the
Company's senior lenders; (D) the loan agreement, notes and related documents
with the Company's senior subordinated lender; and (E) all of the materials
provided by the Company to any Person providing financing to the Company,
including, but not limited to, the Company's pro forma balance sheet, as well as
financial projections, estimates, forecasts, budgets, summaries, reports and
other related documents.
(vii) This Agreement constitutes the legal, valid
and binding obligation of the Executive, enforceable in accordance with its
terms, and the execution, delivery and performance of this Agreement by the
Executive does not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which the Executive is a party or any
judgment, order or decree to which the Executive is subject.
(c) As an inducement to the Company to issue the
Executive Securities to the Executive, and as a condition thereto, the Executive
acknowledges and agrees that neither the issuance of the Executive Securities to
the Executive nor any provision contained herein shall entitle the Executive to
remain in the employment of the Company and its Subsidiaries or affect the right
of the Company to terminate the Executive's employment at any time for any
reason.
7. Vesting of Executive Securities. (a) (i) 180 units of the
Class A Common and (ii) 257.14 units of Preferred Interests evidenced by
certificates issued in connection therewith are fully vested as of the date
hereof and are not subject to the terms of Section 4 below. The Vesting
Executive Securities originally acquired by the Executive will become vested in
accordance with the following schedule if, as of each such date, the Executive
is still employed by the Company or its Subsidiaries;
<TABLE>
<CAPTION>
Cumulative Percentage of Units
of Vesting Executive
Date Date Securities Which Will Vest
- --------------------------------------------------------- -------------------------------
<S> <C>
First anniversary of the date hereof ("Year 1") 20%
Second anniversary of the date hereof ("Year 2") 40%
Third anniversary of the date hereof ("Year 3") 60%
Fourth anniversary of the date hereof ("Year 4") 80%
Fifth anniversary of the date hereof ("Year 5") 100%
</TABLE>
provided, that all Vesting Executive Securities shall automatically vest in
connection with a Sale of the Company.
-10-
<PAGE> 11
(b) Units of Vesting Executive Securities which have
become vested are referred to herein as "Vested Interests," and all other units
of Vesting Executive Securities are referred to herein as "Unvested Interests."
8. Repurchase Option on Vesting Executive Interests. In the event
the Executive ceases to be employed by the Company and its Subsidiaries for any
reason (the "Termination"), the Vesting Executive Securities (whether held by
the Executive or one or more of the Executive's transferees) will be subject to
repurchase by the Company and the Investor (or its designees) pursuant to the
terms and conditions set forth in this Section 8 (the "Repurchase Option").
(a) (i) The purchase price for each Unvested Interest of
Vesting Executive Securities will be the Executive's Original Cost for such unit
plus interest thereon calculated at a rate per annum equal to the latest
published rate for United States Treasury Bills with a five year maturity as
published in the "Treasury Bonds, Notes & Bills" column of the Wall Street
Journal; (ii) the purchase price for each Vested interest of Vesting Executive
Securities will be the Fair Value for such unit; and (iii) notwithstanding the
foregoing, if the termination of the Employment Period is by the Company for
Cause or by the voluntary resignation of the Executive without a Good Reason
Event, then the purchase price for each Vested Securities and each Unvested
Securities will be the Executive's Original Cost.
(b) The Board may elect to cause the Company to purchase
(i) all or a portion of the Unvested Interests and/or, (ii) all or a portion of
the Vested Interests by delivering written notice (the "Repurchase Notice") to
the holder or holders of the Vesting Executive Securities within 90 days after
the Termination. The Repurchase Notice will set forth the number of Unvested
Interests and Vested Interests to be acquired from each holder, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of units of Vesting Executive Securities
to be repurchased by the Company shall first be satisfied to the extent possible
from the Vesting Executive Securities held by the Executive at the time of
delivery of the Repurchase Notice. If the number of Vesting Interests then held
by the Executive is less than the total number of units of Vesting Executive
Securities the Company has elected to purchase the Company shall purchase the
remaining Vesting Executive Securities elected to be purchased from the other
holder(s) of Executive Securities, pro rata according to the amount of such
Vesting Executive Securities held by such other holder(s) at the time of
delivery of such Repurchase Notice (determined as nearly as practicable to the
nearest share). The number of Unvested Interests and Vested Interests to be
repurchased hereunder will be allocated among the Executive and the other
holders of Vesting Executive Securities (if any) pro rata according to the
number of units of Vesting Executive Securities to be purchased from such
Persons.
(c) If for any reason the Company does not elect to
purchase all of the units of Vesting Executive Securities that are subject to
the Repurchase Option, pursuant to such Repurchase Option, the Investor (or its
designees) shall be entitled to exercise the Repurchase Option for the Vesting
Executive Securities the Company has not elected to purchase (the "Available
Securities"). Of the Available Securities, the Vested Interests are referred to
herein as "Available Vested Interests" and Unvested Interests are referred to
herein as "Available Unvested Interests". As soon as practicable after the
Company has determined that there will be Available Securities, but in an event
within 150 days after the Termination, the Company shall give written notice
(the "Option Notice") to the Investor (or its designees) setting forth the
number of Available Vested Interests, Available Unvested Interests, and the
purchase price for each of such Available Securities. The Investor (or its
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<PAGE> 12
designees) may elect to purchase all or a portion of (i) Available Vested
Interests, and/or (ii) all or a portion of the Available Unvested Interests by
giving written notice to the Company within 45 days after the Option Notice has
been given by the Company. As soon as practicable, and in any event within ten
days after the expiration of the 45-day period set forth above, the Company
shall notify each holder of Vesting Executive Securities as to the number of
Vested Interests or Unvested Interests being purchased from such holder by the
Investor (or its designees) (the "Supplemental Repurchase Notice"). At the time
the Company delivers the Supplemental Repurchase Notice to the holder(s) of such
Vesting Executive Securities, the Company shall also deliver written notice to
the Investor (or its designees) setting forth the number of Vested Interests and
Unvested Interests which the Investor (or its designees) is entitled to
purchase, the aggregate purchase price and the time and place of the closing of
the transaction.
(d) The closing of the purchase of the Vesting Executive
Securities pursuant to the Repurchase Option shall take place on the date
designated by the Company in the Repurchase Notice or Supplemental Repurchase
Notice, which date shall not be later than the 30th day after the delivery of
the later of such notices to be delivered (or, if later, the 15th day after the
Fair Value is finally determined) nor earlier than the fifth day after such
delivery. The Company and/or the Investor (or its designee) will pay for the
Vesting Executive Securities to be purchased pursuant to the Repurchase Option
by delivery of a certified or cashier's check or wire transfer of funds. The
purchasers of Vesting Executive Securities hereunder will be entitled to receive
customary presentations and warranties from the sellers as to title, authority
and capacity to sell.
(e) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of Vesting Executive Securities by the Company
shall be subject to applicable legal restrictions. If any such restrictions
prohibit the repurchase of Vesting Executive Securities hereunder which the
Company is otherwise entitled to make, the Company may make such repurchases as
soon as it is permitted to do so under such restrictions.
(f) If a Sale of the Company shall be consummated within
six months of the consummation of the repurchase of Vesting Executive Securities
pursuant to this Section 8, then with respect to each unit of Vested Interests
sold by the Executive pursuant to this Section 8, the Executive shall be
entitled to receive an amount equal to the difference, if any, (i) between the
per unit consideration (with respect to the Common Interests) received by the
Investor in connection with the Sale of the Company and (11) the repurchase
price per unit paid to the Executive; provided, that if the Termination is by
the Company for Cause or by the voluntary resignation of the Executive without a
Good Reason Event, this Section 8(f) shall not apply.
9. Restrictions on Transfer.
(a) If certificated, the Executive Securities will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION
FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS
-12-
<PAGE> 13
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS
AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND THE
SIGNATORY THERETO DATED AS OF NOVEMBER __, 1996. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Securities may sell, transfer
or dispose of any units of Executive Securities (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an opinion of counsel (reasonably acceptable in form and substance to
the Company) that neither registration nor qualification under the Securities
Act and applicable state securities laws is required in connection with such
transfer.
(c) Each holder of Executive Securities agrees not to
effect any sale or distribution of any Executive Securities or other equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for any of the Company's equity securities, during the seven days
prior to and the 120 days (or, subject to the requirements of the underwriters,
up to 180 days) after the effectiveness of any underwritten public offering,
except as part of such underwritten public offering or if otherwise permitted by
the Company.
10. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient with telephonic confirmation by the sending party.
Such notices, demands and other communications will be sent to the address
indicated below:
To the Company or Sleepmaster:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: President
Telecopy No.: (908) 381-4455
With a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
l4th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
-13-
<PAGE> 14
To the Executive:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: Mr. Timothy DuPont
Telecopy No.: (908) 381-4455
To the Investor:
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) Transfers in Violation of Agreement. Any transfer or
attempted transfer of any Executive Securities in violation of any provision of
this Agreement shall be null and void. and the Company shall not record such
transfer on its books or treat any purported transferee of such Executive
Securities as the owner of such securities for any purpose.
(b) Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the
Securityholders Agreement, and the Recapitalization Agreement embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements or representations by or among the
-14-
<PAGE> 15
parties, written or oral, which may have related to the subject matter hereof in
any way, including, without limitation, the Previous Agreement.
(d) Counterparts. This Agreement may be executed in
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Executive, the Company, the Investor and their respective successors and
assigns (including subsequent holders of Executive Securities); provided that
the rights and obligations of the Executive under this Agreement shall not be
assignable except in connection with a permitted transfer of Executive
Securities hereunder.
(f) Third Party Beneficiary. This Agreement is intended
for the benefit of, and will be enforceable by, the Investor.
(G) GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING
INTERPRETATION OF THE LAWS GOVERNING LIMITED LIABILITY COMPANIES SHALL BE
GOVERNED BY THE NEW JERSEY LIMITED LIABILITY COMPANY ACT.
(h) Remedies. Each of the parties to this Agreement
(including the Investor) will be entitled to enforce its rights under this
Agreement specifically, to recover damages and costs (including reasonable
attorneys' fees) caused by any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this
Agreement may be amended and waived only with the prior written consent of the
Company, the Executive and the Investor.
* * * * *
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first written above.
SLEEPMASTER HOLDINGS L.L.C.
By: James P. Koscica
-------------------------------------
Name: James P. Koscica
Title: Executive Vice President
SLEEPMASTER L.L.C.
By: James P. Koscica
-------------------------------------
Name: James P. Koscica
Title: Executive Vice President
/s/ Timothy DuPont
-----------------------------------------
TIMOTHY DUPONT
Agreed and Accepted:
SLEEP INVESTOR L.L.C.
By: John D. Weber
-------------------------------------
Name: John D. Weber
Title: Member
-16-
<PAGE> 17
SCHEDULE A
EBITDA PLAN
<TABLE>
<CAPTION>
FISCAL YEAR EBITDA TARGET
----------------- -------------------
<S> <C>
1996 $ 8,590,000
1997 $10,525,000
1998 $12,323,000
1999 $13,608,000
2000 $15,453,000
2001 $16,137,000
</TABLE>
-17-
<PAGE> 18
SCHEDULE B
EMPLOYEE BENEFITS
Executive Medical Plan --100% reimbursable medical expenses
Personal Term Life Insurance --coverage $299,760
Permitted Vacation: 3 weeks per year
-18-
<PAGE> 1
EXHIBIT 10.13
EXECUTION COPY
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is dated as of November __, 1996, by
and among Sleepmaster Holdings L.L.C., a New Jersey limited liability company
(the "Company"), Sleepmaster L.L.C., a New Jersey limited liability company
("Sleepmaster"), Michael Reilly (the "Executive") and Sleep Investor L.L.C., a
Delaware limited liability company (the "Investor").
The Company, Sleepmaster and the Executive desire to enter
into an agreement regarding (i) the employment of the Executive as President and
Chief Executive Officer of Sleepmaster, and (ii) certain restrictions regarding
the Company's Class A Common Interests (the "Class A Common") acquired by the
Executive pursuant to the Recapitalization, Redemption and Repurchase Agreement
by and among the Executive, the Company and certain other parties thereto dated
as of October 31, 1996 (the "Recapitalization Agreement").
Certain provisions of this Agreement are intended for the
benefit of, and will be enforceable by, the Investor.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have
the following meanings.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means the Company's board of advisors.
"Business Day" means any day other than a Saturday or Sunday
or a day on which commercial banks are required or authorized to close in New
York, New York.
"Cause" means (i) a breach of the Executive's covenants under
this Agreement or any other agreements with the Company or its Subsidiaries and
such breach shall not have been cured within 30 days after written notice to the
Executive, (ii) the commission by the Executive of a felony, a crime involving
moral turpitude or other act causing material harm to the standing and
reputation of the Company or any of its Subsidiaries, or (iii) the Executive's
repeated wilful failure to comply with the reasonable and lawful written
directives of the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, as adjusted for any unit split, unit dividend, or
other combination, exchange. conversion, recapitalization, merger, consolidation
or reorganization, or if such Common Interests are exchanged for different
interests or securities of the Company, such other interests or securities and
any other Common Interests of the Company hereinafter issued.
<PAGE> 2
"Disability" means the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of the Executive to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
"Executive Securities" means the Class A Common acquired by
the Executive and will include units of the Company's Common Interests issued
with respect to Executive Securities by way of a split, dividend, combination,
exchange, conversion, or other recapitalization, merger, consolidation or
reorganization. Executive Securities will cease to be Executive Securities when
transferred pursuant to a Qualified Public Offering or Sale of the Company.
Executive Securities will continue to be Executive Securities in the hands of
any holder other than the Executive, including all transferees of the Executive
(except for the Company and the Investor (or its designee)), and except as
otherwise provided herein, each such other holder of Executive Securities will
succeed to all rights and obligations attributable to the Executive as a holder
of Executive Securities hereunder.
"Fair Value" of each unit of Class A Common means the average
of the closing prices of the sales of the Company's membership interests on all
securities exchanges on which the membership interests may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the membership interests are not so listed,
the average of the representative bid and asked prices quoted on the Nasdaq
National Market System ("Nasdaq NMS") as of 4:00 P.M., New York time, or, if on
any day the membership interests are not quoted in the Nasdaq NMS, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Value is
being determined and the 20 consecutive business days prior to such day. If at
any time the Class A Common is not listed on any securities exchange or quoted
in the NMS or the over-the-counter market, the Fair Value of each unit of Class
A Common shall be the fair market value of such unit as determined by the Board
in its good faith judgment.
"GAAP" means U.S. generally accepted accounting principles, as
in effect from time to time and as adopted by the Company with the consent of
its independent public accountants, consistently applied.
"Good Reason Event" means (i) the failure of the Company or
Sleepmaster to make the payments described herein within 5 Business Days of the
applicable payment due date, (ii) the written request by the Board of Advisors
of either the Company or Sleepmaster that the Executive relocate his primary
residence or (iii) a written directive from the Board of Advisors of the Company
or Sleepmaster that results in a substantial reduction of the Executive's job
responsibilities.
"Original Cost" of the Vesting Executive Securities purchased
on the date hereof will be equal to $100.00 per unit.
-2-
<PAGE> 3
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Interests" means the Company's Series A Preferred
Interests, as adjusted for any unit split, unit dividend or other combination,
exchange, conversion, recapitalization, merger, consolidation or reorganization,
or if the Series A Preferred Interests are hereafter changed into or exchanged
for different interests or securities of the Company, such other interests or
securities, and any other preferred interests of the Company hereinafter issued,
"Public Offering" means any sale of securities of the Company
in an underwritten public offering.
"Qualified Public Offering" means any sale, in an underwritten
public offering registered under the Securities Act, of equity securities of the
Company having an aggregate value of at least $20 million.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Investor) pursuant to which such third party proposes
to acquire all or substantially all of the outstanding Common Interests (whether
by merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Securityholders Agreement" means the Securityholders
Agreement dated as of the date hereof by and among the Company, the Executive,
the Investor and certain other parties thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (i) if a corporation or a limited liability company, a
majority of the total voting power of securities 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
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Year" means that fiscal year of the Company
during which the Employment Period ends pursuant to the terms of Section 2(d)
hereof.
-3-
<PAGE> 4
"Vesting Executive Securities" means the 400 units of Class A
Common subject to vesting and any securities issued in connection therewith, as
adjusted for any unit split, unit dividend, or other combination, exchange,
recapitalization, merger, consolidation or reorganization. Vesting Executive
Securities will cease to be Vesting Executive Securities when transferred
pursuant to a Qualified Public Offering or Sale of the Company. Vesting
Executive Securities will continue to be Vesting Executive Securities in the
hands of any holder other than the Executive, including all transferees of the
Executive (except for the Company and the Investor (or its designees)), and
except as otherwise provided herein, each such other holder of Vesting Executive
Securities will succeed to all rights and obligations attributable to the
Executive as a holder of Executive Securities hereunder.
2. Employment.
(a) Employment. Sleepmaster agrees to employ the
Executive, and the Executive hereby accepts employment with Sleepmaster, upon
the terms and conditions set forth in this Agreement for the period beginning on
the date hereof and ending as provided in Section 2(d) (the "Employment
Period"). During the Employment Period, the Executive shall be the senior
executive officer of the Company and Sleepmaster and, subject to the provisions
of the Company's Amended and Restated Limited Liability Company Operating
Agreement dated as of the date hereof, shall have final authority with respect
to any matter which directly affects the Serta trademarks or licenses.
(b) Position and Duties.
(i) Commencing on the date hereof and continuing
during the Employment Period, the Executive shall serve as President and Chief
Executive Officer of Sleepmaster under the supervision and direction of the
Company's and Sleepmaster's respective hoards of advisors.
(ii) The Executive shall devote his best efforts
and his full business time and attention (except for permitted vacation periods
and reasonable periods of illness other than Disability) to the business and
affairs of the Company, Sleepmaster and their Subsidiaries. The Executive shall
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(iii) So long as the Executive is the duly
appointed and acting Chief Executive Officer and President, the Executive shall
serve as a member of the Board of Advisors of each of the Company and
Sleepmaster.
(c) Base Salary and Benefits.
(i) Base Salary. During the Employment Period,
Executive's base salary shall be $163,000 per annum through fiscal year 1996 and
will increase as of January 1, 1997 to $171,000 per annum (the "Base Salary"),
which salary shall be paid by Sleepmaster in regular installments in accordance
with Sleepmaster's general payroll practices and shall be subject to customary
withholding.
(ii) Executive Bonus Plan. For each fiscal year
during the Employment Period, the Executive will be eligible to receive a bonus
based on the Company's achievement of the Target EBITDA for such fiscal year as
set forth on the Company's EBITDA Plan attached as Schedule
-4-
<PAGE> 5
A hereto (the "EBITDA Plan"). In the event the Company or Sleepmaster
consummates an acquisition of another Person prior to December 31, 2001, the
EBITDA Plan will be adjusted in good faith by senior management and approved by
the Board, and such adjusted and approved plan shall, once approved, be deemed
the EBITDA Plan for all purposes hereunder.
(A) Once the Board has determined
(which determination shall be made within thirty (30) days from the issuance of
the Company's audited financial statements) the percentage of EBITDA achieved
for such fiscal year as compared to the Target EBITDA for such fiscal year (the
"Achieved EBITDA Percentage"), so long as the Achieved EBITDA Percentage for
such fiscal year equals or exceeds 80%, the Executive shall be entitled to
receive a bonus payment in an amount equal to the product of (x) the Bonus
Multiple (as set forth opposite the Achieved EBITDA Percentage below), (y) 21.5%
and (z) the Executive's Base Salary for such fiscal year. The bonus payment
shall be made within five (5) days of the Board's determination.
<TABLE>
<CAPTION>
Achieved EBITDA Percentage Bonus Multiple
<S> <C>
80% 50%
100% 100%
110% 125%
120% 150%
</TABLE>
(B) Each Bonus Multiple set forth above
shall increase linearly as the Achieved EBITDA Percentage increases; therefore,
so long as the Achieved EBITDA Percentage equals or exceeds 80%, in the event
the actual Achieved EBITDA Percentage falls between any of the target Achieved
EBITDA Percentages set forth above, the applicable Bonus Multiple shall be
adjusted accordingly, provided, that in no event shall the Bonus Multiple exceed
150%. For example, (1) in the event the actual Achieved EBITDA Percentage is
90%, the Bonus Multiple shall be 75% or (2) in the event the actual Achieved
EBITDA Percentage is 115%, the Bonus Multiple shall be 137.5%.
(C) With respect to fiscal year 1996,
the Executive shall be entitled to receive a bonus as follows: (1) the Executive
will be entitled to receive a portion of the bonus earned by the Executive under
that certain Employment Agreement dated January 2, 1995 between Sleepmaster and
the Executive (the "Previous Agreement") determined based on the portion of
fiscal year 1996 prior to the date hereof and (2) the Executive will be entitled
to receive a portion of the bonus earned by the Executive under this Agreement
determined based on the portion of the fiscal year after the date hereof.
(iii) Benefits. In addition to the Base Salary and
any bonuses payable to the Executive pursuant to Section 2(c)(ii), the Executive
shall be entitled, during the Employment Period, to all benefits set forth on
Schedule B hereto (the "Benefits").
(iv) Expenses. The Company shall reimburse the
Executive for all reasonable expenses incurred by him in the course of
performing his duties under this Agreement which are consistent with the
Company's and its Subsidiaries' policies in effect from time to time with
respect to travel, entertainment and other business expenses, subject to the
requirements of the Company and its Subsidiaries with respect to reporting and
documentation of such expenses.
-5-
<PAGE> 6
(d) Term. The Employment Period shall end on November 1,
2001, subject to earlier termination (x) by reason of the Executive's death or
Disability, (y) by resolution of the Board, with or without Cause or (z) upon
the Executive's voluntary resignation with or without a Good Reason Event.
(i) If the Employment Period is terminated on or
before November 1, 2001:
(A) pursuant to Section 2(d)(y) above,
by the Company other than for Cause, the Executive shall be entitled to receive
(1) the stated Base Salary through the period ending on the earlier of November
1, 2001 and the later of (x) January 2, 2000 and (y) the second anniversary of
the date of termination, and (2) a portion of the bonus payment earned by the
Executive during the Termination Year pro rated based on the number of days of
the Termination Year prior to the date of termination, which such payment will
be made when the bonus payments for such Termination Year are otherwise due.
(B) as a result of the Executive's
death or Disability, the Executive or the Executive's estate, as applicable,
shall be entitled to all previously earned and accrued but unpaid Base Salary up
to the date of such termination but shall not be entitled to any further Base
Salary, bonus payments or Benefits for that year or any future year, or to any
other severance compensation of any kind, nature or amount.
(C) as a result of the Executive's
voluntary resignation other than after a Good Reason Event, or by the Company
for Cause, the Executive shall be entitled to all previously earned and accrued
but unpaid Base Salary up to the date of such termination but shall not be
entitled to any further Base Salary, bonus payments or Benefits for that year or
any future year, or to any other severance compensation of any kind, nature or
amount.
(D) as a result of the Executive's
voluntary resignation within 5 days of a Good Reason Event, the Executive shall
be entitled to receive (1) the stated Base Salary through the period ending on
the earlier of November 1, 2001 and the later of (x) January 2, 2000 and (y) the
second anniversary of the date of termination, and (2) a portion of the bonus
payment earned by the Executive during the Termination Year pro rated based on
the number of days of the Termination Year prior to the date of determination,
which such payment will be made when the bonus payments for such Termination
Year are otherwise due.
(ii) Following the termination of the Employment
Period:
(A) the Executive agrees that: (1) the
Executive shall be entitled to the payments provided for in Sections 2(d)(i)(A)
or (D), if any, if and only if Executive has not breached as of the date of
termination of the Employment Period the provisions of Sections 3, 4 and 5
hereof and does not breach such sections at any time during the period for which
such payments are to be made and (2) the Company's obligation to make such
payments will terminate upon the occurrence of any such breach during any such
severance period.
(B) any payments pursuant to Sections
2(d)(i)(A)(1) or 2(d)(i)(D)(1) shall be paid by Sleepmaster in regular
installments in accordance with Sleepmaster's general payroll practices and
shall be subject to customary withholding, and following such payments
-6-
<PAGE> 7
none of the Company, or any of its Subsidiaries shall have any further
obligation to the Executive pursuant to this Section 2(d) except as provided by
law.
(iii) The Executive hereby agrees that except as
expressly provided herein. no severance compensation of any kind, nature or
amount shall be payable to the Executive and except as expressly provided
herein, the Executive hereby irrevocably waives any claim for severance
compensation.
(iv) All of the Executive's rights to Benefits
hereunder (if any) shall cease upon the termination of the Employment Period.
(v) Subject to the restrictive covenant
contained in Section 5, the Executive acknowledges an obligation to seek or
obtain other engagements or employment in a similar position to mitigate any
damages to which the Executive may be entitled by reason of any termination of
this Agreement pursuant to Sections 2(d)(i)(A) or (D). If the Employee does
obtain other engagements or employment of any nature and in any location, the
total compensation actually earned by the Executive from such other employment
or engagements during the period that he is to receive payments, if any,
pursuant to Sections 2(d)(i)(A) or (D) shall reduce any amounts which the
Company would otherwise be required to pay the Executive under this Agreement.
3. Confidential Information. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
or any of its Subsidiaries concerning the business or affairs of the Company or
any Subsidiary ("Confidential Information") are the property of the Company or
such Subsidiary. Therefore, the Executive agrees that, except as required by law
or court order, he shall not disclose to any unauthorized person or use for his
own account any Confidential Information without the prior written consent of
the Board, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
the Executive's acts or omissions to act. The Executive shall deliver to the
Company at the termination of such Executive's employment, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof) relating to
the Confidential Information, Work Product (as defined below) and the business
of the Company or any Subsidiary which he may then possess or have under his
control.
4. Inventions and Patents. The Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Company's or any of its Subsidiaries' actual or anticipated business, research
and development or existing or future products or services and which are
conceived, developed or made by the Executive while employed by the Company or
any of its Subsidiaries ("Work Product") belong to the Company or such
Subsidiary. The Executive will promptly disclose such Work Product to the Board
and perform all actions reasonably requested by the Board (whether during or
after the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
-7-
<PAGE> 8
5. Noncompete, Nonsolicitation.
(a) The Executive acknowledges that in the course of his
employment with the Company and its Subsidiaries he has become familiar, and he
will become familiar, with the Company's and its Subsidiaries' trade secrets and
with other Confidential Information and that his services have been and will be
of special, unique and extraordinary value to the Company and its Subsidiaries.
Therefore, the Executive agrees that, during the time he is employed by the
Company and its Subsidiaries and during any applicable Post-Termination Period
(the "Noncompete Period"), he shall not directly or indirectly own, operate,
manage, control, participate in, consult with, advise, provide services for, or
in any manner engage in any business (including by himself or in association
with any person, firm, corporate or other business organization or through any
other entity) in competition with, or potential competition with, the businesses
of the Company or its Subsidiaries as such businesses exist or are in process on
the date of the termination of the Executive's employment, within any
geographical area in which the Company or any of its Subsidiaries engages or
plans to engage in such businesses. Nothing herein shall prohibit the Executive
from being a passive owner of not more than 2% of the outstanding stock of a
corporation which is publicly traded, so long as the Executive has no active
participation in the business of such corporation. For purposes of this Section
5, "Post-Termination Period" means, as applicable: (i) if the Executive is
entitled to receive payments pursuant to Sections 2(d)(i)(A)(1) or
2(d)(i)(D)(1), then for the period through the later of (x) January 2, 2000 and
(y) the second anniversary of the date of termination, (ii) if the Employment
Period ends on November 1, 2001 and not less than 30 days prior to such date
either the Company or Sleepmaster offers the Executive employment on terms
substantially similar to the terms set forth herein and the Executive refuses
such offer, the period of eighteen (18) months (following the Employment Period)
ending on May 1, 2003 or (iii) if the Employment Period is terminated by the
Company for Cause or by the voluntary resignation of the Executive without a
Good Reason Event, the period of eighteen (18) months following the date of
termination.
(b) During the Noncompete Period, the Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any Subsidiary to leave the employ of the Company
or such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, including without
limitation, inducing or attempting to induce any union, employee or group of
employees to interfere with the business or operations of the Company or its
Subsidiaries, (ii) hire any person who was an employee of the Company or any
Subsidiary at any time during the Executive's employment period, or (iii) induce
or attempt to induce any customer, supplier, distributor, franchisee, licensee
or other business relation of the Company or any Subsidiary to cease doing
business with the Company or such Subsidiary, or in any way interfere with the
relationship between any such customer, supplier, distributor, franchisee,
licensee or business relation and the Company or any Subsidiary.
(c) The Executive agrees that: (i) the covenants set
forth in this Section 5 are reasonable in geographical and temporal scope and in
all other respects, (ii) the Company would not have entered into this Agreement
but for the covenants of the Executive contained herein, and (iii) the covenants
contained herein have been made in order to induce the Company to enter into
this Agreement.
(d) If, at the time of enforcement of this Section 5, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing,
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<PAGE> 9
the parties agree that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or area and
that the court shall be allowed to revise the restrictions contained herein to
cover the maximum period, scope and area permitted by law.
(e) The Executive recognizes and affirms that in the
event of his breach of any provision of this Section 5, money damages would be
inadequate and the Company and the Investor would have no adequate remedy at
law. Accordingly, the Executive agrees that in the event of a breach or a
threatened breach by the Executive of any of the provisions of this Section 5,
the Company, in addition and supplementary to other rights and remedies existing
in its favor, may apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce
or prevent any violations of the provisions hereof (without posting a bond or
other security).
6. Executive Securities.
(a) With respect to the Vesting Executive Securities,
within 30 days from the date hereof, the Executive will make an effective
election with the Internal Revenue Service under Section 83(b) of the Internal
Revenue Code and the regulations promulgated thereunder in the form of Exhibit A
attached hereto.
(b) In connection with the acquisition of the Executive
Securities, the Executive represents and warrants to the Company that:
(i) The Executive Securities to be acquired by
the Executive pursuant to this Agreement will be acquired for the Executive's
own account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities laws, and
the Executive Securities will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) No commission, fee or other remuneration is
to be paid or given, directly or indirectly, to any Person for soliciting the
Executive to purchase the Executive Securities.
(iii) The Executive is an executive officer of the
Company, is sophisticated in financial matters and is able to evaluate the risks
and benefits of the investment in the Executive Securities and has determined
that such investment in the Executive Securities is suitable for the Executive,
based upon the Executive's financial situation and needs, as well as the
Executive's other securities holdings.
(iv) The Executive qualifies an "accredited
investor" within the meaning of Rule 501 (a) of Regulation D under the
Securities Act.
(v) The Executive is able to bear the economic
risk of the Executive's investment in the Executive Securities for an indefinite
period of time and the Executive understands that the Executive Securities have
not been registered under the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
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<PAGE> 10
(vi) The Executive has had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of Executive Securities and has had full access to such other
information concerning the Company as the Executive has requested. The Executive
has reviewed, or has had an opportunity to review, the following documents: (A)
the Recapitalization Agreement; (B) the organization documents of the Company
and Sleepmaster; (C) the loan agreements, notes and related documents with the
Company's senior lenders; (D) the loan agreement, notes and related documents
with the Company's senior subordinated lender; and (E) all of the materials
provided by the Company to any Person providing financing to the Company,
including, but not limited to, the Company's pro forma balance sheet, as well as
financial projections, estimates, forecasts, budgets, summaries, reports and
other related documents.
(vii) This Agreement constitutes the legal, valid
and binding obligation of the Executive, enforceable in accordance with its
terms, and the execution, delivery and performance of this Agreement by the
Executive does not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which the Executive is a party or any
judgment, order or decree to which the Executive is subject.
(c) As an inducement to the Company to issue the
Executive Securities to the Executive, and as a condition thereto, the Executive
acknowledges and agrees that neither the issuance of the Executive Securities to
the Executive nor any provision contained herein shall entitle the Executive to
remain in the employment of the Company and its Subsidiaries or affect the right
of the Company to terminate the Executive's employment at any time for any
reason.
7. Vesting of Executive Securities. (a) (i) 180 units of the
Class A Common and (ii) 257.14 units of Preferred Interests evidenced by
certificates issued in connection therewith are fully vested as of the date
hereof and are not subject to the terms of Section 4 below. The Vesting
Executive Securities originally acquired by the Executive will become vested in
accordance with the following schedule if, as of each such date, the Executive
is still employed by the Company or its Subsidiaries;
<TABLE>
<CAPTION>
Cumulative Percentage of Units
of Vesting Executive
Date Date Securities Which Will Vest
- -------------------------------------------------------- -------------------------------
<S> <C>
First anniversary of the date hereof ("Year 1") 20%
Second anniversary of the date hereof ("Year 2") 40%
Third anniversary of the date hereof ("Year 3") 60%
Fourth anniversary of the date hereof ("Year 4") 80%
Fifth anniversary of the date hereof ("Year 5") 100%
</TABLE>
provided, that all Vesting Executive Securities shall automatically vest in
connection with a Sale of the Company.
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<PAGE> 11
(b) Units of Vesting Executive Securities which have
become vested are referred to herein as "Vested Interests," and all other units
of Vesting Executive Securities are referred to herein as "Unvested Interests."
8. Repurchase Option on Vesting Executive Interests. In the event
the Executive ceases to be employed by the Company and its Subsidiaries for any
reason (the "Termination"), the Vesting Executive Securities (whether held by
the Executive or one or more of the Executive's transferees) will be subject to
repurchase by the Company and the Investor (or its designees) pursuant to the
terms and conditions set forth in this Section 8 (the "Repurchase Option").
(a) (i) The purchase price for each Unvested Interest of
Vesting Executive Securities will be the Executive's Original Cost for such unit
plus interest thereon calculated at a rate per annum equal to the latest
published rate for United States Treasury Bills with a five year maturity as
published in the "Treasury Bonds, Notes & Bills" column of the Wall Street
Journal; (ii) the purchase price for each Vested interest of Vesting Executive
Securities will be the Fair Value for such unit; and (iii) notwithstanding the
foregoing, if the termination of the Employment Period is by the Company for
Cause or by the voluntary resignation of the Executive without a Good Reason
Event, then the purchase price for each Vested Securities and each Unvested
Securities will be the Executive's Original Cost.
(b) The Board may elect to cause the Company to purchase
(i) all or a portion of the Unvested Interests and/or, (ii) all or a portion of
the Vested Interests by delivering written notice (the "Repurchase Notice") to
the holder or holders of the Vesting Executive Securities within 90 days after
the Termination. The Repurchase Notice will set forth the number of Unvested
Interests and Vested Interests to be acquired from each holder, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of units of Vesting Executive Securities
to be repurchased by the Company shall first be satisfied to the extent possible
from the Vesting Executive Securities held by the Executive at the time of
delivery of the Repurchase Notice. If the number of Vesting Interests then held
by the Executive is less than the total number of units of Vesting Executive
Securities the Company has elected to purchase the Company shall purchase the
remaining Vesting Executive Securities elected to be purchased from the other
holder(s) of Executive Securities, pro rata according to the amount of such
Vesting Executive Securities held by such other holder(s) at the time of
delivery of such Repurchase Notice (determined as nearly as practicable to the
nearest share). The number of Unvested Interests and Vested Interests to be
repurchased hereunder will be allocated among the Executive and the other
holders of Vesting Executive Securities (if any) pro rata according to the
number of units of Vesting Executive Securities to be purchased from such
Persons.
(c) If for any reason the Company does not elect to
purchase all of the units of Vesting Executive Securities that are subject to
the Repurchase Option, pursuant to such Repurchase Option, the Investor (or its
designees) shall be entitled to exercise the Repurchase Option for the Vesting
Executive Securities the Company has not elected to purchase (the "Available
Securities"). Of the Available Securities, the Vested Interests are referred to
herein as "Available Vested Interests" and Unvested Interests are referred to
herein as "Available Unvested Interests". As soon as practicable after the
Company has determined that there will be Available Securities, but in an event
within 150 days after the Termination, the Company shall give written notice
(the "Option Notice") to the Investor (or its designees) setting forth the
number of Available Vested Interests, Available Unvested Interests, and the
purchase price for each of such Available Securities. The Investor (or its
-11-
<PAGE> 12
designees) may elect to purchase all or a portion of (i) Available Vested
Interests, and/or (ii) all or a portion of the Available Unvested Interests by
giving written notice to the Company within 45 days after the Option Notice has
been given by the Company. As soon as practicable, and in any event within ten
days after the expiration of the 45-day period set forth above, the Company
shall notify each holder of Vesting Executive Securities as to the number of
Vested Interests or Unvested Interests being purchased from such holder by the
Investor (or its designees) (the "Supplemental Repurchase Notice"). At the time
the Company delivers the Supplemental Repurchase Notice to the holder(s) of such
Vesting Executive Securities, the Company shall also deliver written notice to
the Investor (or its designees) setting forth the number of Vested Interests and
Unvested Interests which the Investor (or its designees) is entitled to
purchase, the aggregate purchase price and the time and place of the closing of
the transaction.
(d) The closing of the purchase of the Vesting Executive
Securities pursuant to the Repurchase Option shall take place on the date
designated by the Company in the Repurchase Notice or Supplemental Repurchase
Notice, which date shall not be later than the 30th day after the delivery of
the later of such notices to be delivered (or, if later, the 15th day after the
Fair Value is finally determined) nor earlier than the fifth day after such
delivery. The Company and/or the Investor (or its designee) will pay for the
Vesting Executive Securities to be purchased pursuant to the Repurchase Option
by delivery of a certified or cashier's check or wire transfer of funds. The
purchasers of Vesting Executive Securities hereunder will be entitled to receive
customary presentations and warranties from the sellers as to title, authority
and capacity to sell.
(e) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of Vesting Executive Securities by the Company
shall be subject to applicable legal restrictions. If any such restrictions
prohibit the repurchase of Vesting Executive Securities hereunder which the
Company is otherwise entitled to make, the Company may make such repurchases as
soon as it is permitted to do so under such restrictions.
(f) If a Sale of the Company shall be consummated within
six months of the consummation of the repurchase of Vesting Executive Securities
pursuant to this Section 8, then with respect to each unit of Vested Interests
sold by the Executive pursuant to this Section 8, the Executive shall be
entitled to receive an amount equal to the difference, if any, (i) between the
per unit consideration (with respect to the Common Interests) received by the
Investor in connection with the Sale of the Company and (11) the repurchase
price per unit paid to the Executive; provided, that if the Termination is by
the Company for Cause or by the voluntary resignation of the Executive without a
Good Reason Event, this Section 8(f) shall not apply.
9. Restrictions on Transfer.
(a) If certificated, the Executive Securities will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION
FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS
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<PAGE> 13
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS
AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND THE
SIGNATORY THERETO DATED AS OF NOVEMBER __, 1996. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Securities may sell, transfer
or dispose of any units of Executive Securities (except pursuant to an effective
registration statement under the Securities Act) without first delivering to the
Company an opinion of counsel (reasonably acceptable in form and substance to
the Company) that neither registration nor qualification under the Securities
Act and applicable state securities laws is required in connection with such
transfer.
(c) Each holder of Executive Securities agrees not to
effect any sale or distribution of any Executive Securities or other equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for any of the Company's equity securities, during the seven days
prior to and the 120 days (or, subject to the requirements of the underwriters,
up to 180 days) after the effectiveness of any underwritten public offering,
except as part of such underwritten public offering or if otherwise permitted by
the Company.
10. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient with telephonic confirmation by the sending party.
Such notices, demands and other communications will be sent to the address
indicated below:
To the Company or Sleepmaster:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: President
Telecopy No.: (908) 381-4455
With a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
l4th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
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<PAGE> 14
To the Executive:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: Mr. Michael Reilly
Telecopy No.: (908) 381-4455
To the Investor:
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) Transfers in Violation of Agreement. Any transfer or
attempted transfer of any Executive Securities in violation of any provision of
this Agreement shall be null and void. and the Company shall not record such
transfer on its books or treat any purported transferee of such Executive
Securities as the owner of such securities for any purpose.
(b) Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the
Securityholders Agreement, and the Recapitalization Agreement embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements or representations by or among the
-14-
<PAGE> 15
parties, written or oral, which may have related to the subject matter hereof in
any way, including, without limitation, the Previous Agreement.
(d) Counterparts. This Agreement may be executed in
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Executive, the Company, the Investor and their respective successors and
assigns (including subsequent holders of Executive Securities); provided that
the rights and obligations of the Executive under this Agreement shall not be
assignable except in connection with a permitted transfer of Executive
Securities hereunder.
(f) Third Party Beneficiary. This Agreement is intended
for the benefit of, and will be enforceable by, the Investor.
(G) GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING
INTERPRETATION OF THE LAWS GOVERNING LIMITED LIABILITY COMPANIES SHALL BE
GOVERNED BY THE NEW JERSEY LIMITED LIABILITY COMPANY ACT.
(h) Remedies. Each of the parties to this Agreement
(including the Investor) will be entitled to enforce its rights under this
Agreement specifically, to recover damages and costs (including reasonable
attorneys' fees) caused by any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this
Agreement may be amended and waived only with the prior written consent of the
Company, the Executive and the Investor.
* * * * *
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first written above.
SLEEPMASTER HOLDINGS L.L.C.
By: James P. Koscica
----------------------------------------
Name: James P. Koscica
Title: Executive Vice President
SLEEPMASTER L.L.C.
By: James P. Koscica
----------------------------------------
Name: James P. Koscica
Title: Executive Vice President
/s/ Michael Reilly
--------------------------------------------
MICHAEL REILLY
Agreed and Accepted:
SLEEP INVESTOR L.L.C.
By: John D. Weber
--------------------------------------------
Name: John D. Weber
Title: Member
-16-
<PAGE> 17
SCHEDULE A
EBITDA PLAN
<TABLE>
<CAPTION>
FISCAL YEAR EBITDA TARGET
----------------- -------------------
<S> <C>
1996 $ 8,590,000
1997 $10,525,000
1998 $12,323,000
1999 $13,608,000
2000 $15,453,000
2001 $16,137,000
</TABLE>
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<PAGE> 18
SCHEDULE B
EMPLOYEE BENEFITS
Executive Medical Plan --100% reimbursable medical expenses
Personal Term Life Insurance --coverage $265,793
Entertainment Expenses
Car Allowance; $6,120 per annum
Permitted Vacation: 3 weeks per year
-18-
<PAGE> 1
EXHIBIT 10.14
OPTION AGREEMENT
This OPTION AGREEMENT is made as of November __, 1996, between
Sleepmaster Holdings L.L.C., a New Jersey limited liability company (the
"Company"), and Charles Schweitzer ("Grantee"). Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in
Article I.
In order to advance the Company's best interests by providing
additional incentives to certain key employees of the Company and its
Subsidiaries, the Company wishes to grant options to purchase additional
ownership interests in the Company subject to the terms and conditions of this
Agreement.
Article I
Definitions
For purposes of this Agreement the following terms are defined
as follows:
"Achieved Result" means, with respect to any Vesting Date:
(1) the product of (x) the arithmetic average of Actual EBITDA for each of the
two previous Fiscal Years prior to such Vesting Date and (y) seven;
minus (2) the sum of (A) all outstanding Indebtedness of the Company and its
Subsidiaries as of the Vesting Date and, (B) the liquidation value of the
Preferred Interests outstanding on such Vesting Date.
"Actual EBITDA" means the Company's and Sleepmaster L.L.C.'s
("Sleepmaster's") consolidated EBITDA for a particular Fiscal Year as set forth
on the Company's audited consolidated financial statements for such Fiscal Year;
provided, that for purposes of calculating the Company's and Sleepmaster's
consolidated EBITDA for a particular Fiscal Year, the Company shall give effect
to any acquisition of all of the capital stock or all, or substantially all, of
the consolidated assets of an unaffiliated Person (an "Acquired Business") by
the Company or Sleepmaster (whether such Acquired Business was acquired by means
of a merger, consolidation, asset purchase, security purchase or otherwise) on
an actual basis, as though such acquisition had occurred on the first day of
such Fiscal Year.
"Board" means the Board of Advisors of the Company.
"Cause" means (i) a breach of Grantee's covenants under this
Agreement or any other agreement with the Company or its Subsidiaries and such
breach shall not have been cured within 30 days after written notice to Grantee,
(ii) the commission by Grantee of a felony, a crime involving moral turpitude or
other act causing material harm to the standing and reputation of the Company or
any of its Subsidiaries, or (iii) Grantee's repeated wilful failure to comply
with the reasonable and lawful written directives of the Board.
"Class A Common" means the Company's Class A Common Interests,
or if the Class A Common is hereafter exchanged into or exchanged for different
units or securities of the Company, such other units or securities, all as
adjusted for any unit split, unit dividend, combination, exchange, conversion,
recapitalization, merger, consolidation or reorganization.
<PAGE> 2
EXECUTION COPY
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate or, if for any reason the
Board has not designated such a committee, the Board. The Committee, if other
than the Board, shall be composed of two or more directors as appointed from
time to time by the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, or if the outstanding Common Interests are hereafter
changed into or exchanged for different interests or securities of the Company,
such other interests or securities.
"Disability" shall mean the inability, due to illness,
accident, injury, physical or mental incapacity or other disability, of Grantee
to carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
"EBITDA" means, for any period determined on a consolidated
basis, (a) net income determined in conformity with United States generally
accepted accounting principles; plus, (b) to the extent deducted in determining
net income for such period (i) federal and state income taxes, (ii) interest
expenses , (iii) amortization, depreciation, and similar non-cash charges; and
minus (c) to the extent included in determining net income for such period,
extraordinary or nonrecurring gains as set forth on the Company's consolidated
audited financial statement for such period;
"Employment Agreement" means the Employment Agreement dated as
of November __, 1996 by and among the Company, Grantee, Sleepmaster L.L.C. and
Sleep Investor L.L.C.
"Expiration Date" means the close of business on November 1,
2006, subject to earlier expiration as provided in Section 5.
"Fair Market Value" per unit on any given date, means the fair
market value of such unit as shall be determined by the Committee or the Board
in its good faith business judgment.
"Family Group" means Grantee's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Grantee, Grantee's
spouse, and/or their descendants.
<PAGE> 3
EXECUTION COPY
"Fiscal Year" means, for the Company, a twelve month
accounting period ending on the last day of December in each year.
"Form" means those forms of the Internal Revenue Service used
by taxpayers to file federal income tax returns or reports required under the
Code or applicable Treasury Regulations promulgated thereunder.
"Indebtedness" shall mean all indebtedness of the Company or
any of its Subsidiaries including, without limitation (i) all obligations for
borrowed money or evidenced by bonds, debentures, notes, letters of credit or
other similar instruments, (ii) obligations as lessee under capital leases,
(iii) obligations to pay the deferred purchase price of property or services,
except accounts payable arising in the ordinary course of business, (iv) all
debt of other Persons guaranteed or otherwise supported by the Company or any of
its Subsidiaries, and (v) any interest, principal, prepayment penalty, fees or
expenses in respect of items listed in clauses (i) through (iv).
"Measurement Date" means the date on which any taxable income
resulting from the exercise of an Option is determined under applicable federal
income tax law.
"Option Shares" means (i) all units of Class A Common issued
or issuable upon the exercise of an Option, and (ii) all units of Class A Common
issued with respect to the Class A Common referred to in clause (i) above by way
of a unit dividend or unit split or in connection with any combination,
exchange, conversion, merger, consolidation, recapitalization, or other
reorganization affecting the Class A Common. Option Shares will continue to be
Option Shares in the hands of any holder other than Grantee (except for the
Company), and each such transferee thereof will succeed to the rights and
obligations of a holder of Option Shares hereunder.
"Permitted Transferee" means those persons to whom the Grantee
is authorized (1) pursuant to terms and conditions of the Securityholders
Agreement, to transfer Option Shares, or (2) pursuant to Section 5, to transfer
Options.
"Preferred Interests" means the Company's Series A Preferred
Interests, or if the Series A Preferred Interests are hereafter changed into or
exchanged for different interests or securities of the Company, such other
interests or securities, and any other Preferred Interests of the Company
hereinafter issued.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Investor) pursuant to which such third party proposes
to acquire all or substantially all of the outstanding Common Interests (whether
by merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
<PAGE> 4
EXECUTION COPY
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders
Agreement dated as of the date hereof by and among Grantee, the Company, Sleep
Investor L.L.C. and certain other parties thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company association or other
business entity of which (i) if a corporation or a limited liability company, a
majority of the total voting power of securities 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
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Date" means the date upon which Grantee's
employment with the Company terminated including by reason of death or
Disability.
"Vesting Date" means either December 31, 1999 or December 31,
2001 as the context requires.
Article II
1. Grant of Option. The Company hereby grants to
Grantee, as of the date first above written, an option (the "Option") to
purchase 212 units of the Company's Class A Common (which number of units may be
adjusted as provided in Section 13 below) at the exercise price per unit of
$100, subject to the terms and conditions set forth herein. The Option is
intended to be a "nonqualified stock option" for purposes of the Code.
2. Vesting of Options.
(a) Except as provided in Section 2(b), no
portion of the Option shall vest prior to December 31, 1999. The Option shall
vest based upon the achievement by the Company of certain targets for the 24
month period preceding each Vesting Date as set forth below (each, a "Target"),
if as of each such date the Grantee is still employed by the Company or a
Subsidiary of the Company. On each Vesting Date 50% of the Option shall vest if
as of such
<PAGE> 5
Vesting Date the Achieved Result equals or exceeds the Target set forth opposite
such Vesting Date in the table below:
<TABLE>
<CAPTION>
Percent of Option
Vesting Date Target Subject to Vesting
------------ ------------ ----------------------
<S> <C> <C>
12/31/99 $ 60,000,000 50% of original Option
12/31/01 $115,000,000 50% of original Option
</TABLE>
provided, that if the Achieved Result at December 31, 1999 does not equal or
exceed the Target for such date, but at December 31, 2001 the Achieved Result
equals or exceeds $130,000,000, then 100% of the Option shall vest.
(b) (i) In the event of a Sale of the Company at
any time prior to December 31, 1999, if the aggregate cash consideration
received by the holders of the Company's Common Interests equals or exceeds
either the Target for December 31, 1999 or the Target for December 31, 2001,
then the applicable portion(s) of the Option shall vest upon the consummation of
such Sale of the Company, and (ii) in the event of a Sale of the Company after
December 31, 1999 but before December 31, 2001, if the aggregate cash
consideration received by the holders of the Company's Common Interests equals
or exceeds the Target for December 31, 2001, then 50% of the Option shall vest
upon the consummation of such Sale of the Company; provided, that if a Sale of
the Company does not occur prior to December 31, 2001, then this Section 2(b)
shall be of no further force or effect.
(c) If as of December 31, 2001 any portion of
the Option has not vested, such portion shall, at the option of the Company, be
automatically transferred to the Company without consideration and the Committee
(in its sole discretion) may regrant such portion of the Option.
3. Conditions to Exercise. Subject to the conditions set
forth in this Section 3 and in Section 4 of this Agreement, the Option may be
exercised by written notice to the Company's Secretary at any time and from time
to time but only to the extent it has become vested. An Option shall not be
exercisable, in any event, after the tenth anniversary of the date of grant.
Options are subject to cancellation as provided herein. The Option may not be
exercised by Grantee until the Company has received payment from the Executive
in an amount equal to the full purchase price for the units of Common Interests
being acquired hereunder. Payment of such exercise price may be made in cash
(including check, bank draft, or money order).
4. Withholding Tax Requirements.
(a) Amount of Withholding. It shall be a
condition to the exercise of any Option that Grantee make appropriate payment or
other provision acceptable to the Company with respect to any withholding tax
requirement arising from such exercise. The amount of withholding tax required,
if any, with respect to any Option exercise (the
<PAGE> 6
EXECUTION COPY
"Withholding Amount") shall be determined by the Treasurer or other appropriate
officer of the Company, and Grantee shall furnish such information and make such
representations as such officer requires to make such determination.
(b) Withholding Procedure. If the Company
determines that withholding tax is required with respect to any Option exercise,
the Company shall notify Grantee of the Withholding Amount, and Grantee shall
pay to the Company an amount not less than the Withholding Amount. In lieu of
making such payment, the Grantee may pay the Withholding Amount by either (i)
delivering to the Company a number of units of Class A Common having an
aggregate Fair Market Value as of the Measurement Date not less than the
Withholding Amount, or (ii) directing the Company to withhold and not deliver or
issue to the Grantee a number of units of Class A Common, otherwise issuable
upon the exercise of the Option, having an aggregate Fair Market Value as of the
Measurement Date not less than the Withholding Amount. In addition, if the
Committee approves, the Grantee may elect pursuant to the prior sentence to
deliver or direct the withholding of units of Class A Common having an aggregate
Fair Market Value in excess of the minimum Withholding Amount but not in excess
of the Grantee's applicable highest marginal combined federal income and state
income tax rate, as estimated in good faith by such Grantee. Any fractional
interests resulting from the delivery or withholding of units of Class A Common
to meet withholding tax requirements shall be settled in cash. All amounts paid
to or withheld by the Company and the value of all units of Class A Common
delivered to or withheld by the Company pursuant to this Section 4 shall be
deposited in accordance with applicable law by the Company as withholding tax
for Grantee's account. If the Treasurer or other appropriate officer of the
Company determines that no withholding tax is required with respect to the
exercise of any Option, but it is determined subsequently that the exercise
resulted in taxable income as to which withholding is required (as a result of a
disposition of the Option Shares or otherwise), Grantee shall promptly, upon
being notified of the withholding requirement, pay to the Company (by means
acceptable to the Company) the amount required to be withheld, and the Company
may, at its election, condition any transfer of Option Shares issued upon
exercise of the Option upon receipt of such payment.
(c) Notification of Inquiries and Agreements.
Grantee and each Permitted Transferee shall notify the Company in writing within
10 days after the date Grantee or any such Permitted Transferee (i) first
obtains knowledge of any Internal Revenue Service inquiry, audit, assertion,
determination, investigation, or question relating in any manner to the value of
Options granted hereunder; (ii) includes or agrees (including, without
limitation, in any settlement, closing, or other similar agreement) to include
in gross income with respect to any Option granted under this Agreement (A) any
amount in excess of the amount reported on Form 1099 or Form W-2 to the Grantee
by the Company, or (B) if the Grantee received no such Form, any amount; or
(iii) sells, disposes, or otherwise transfers Option Shares acquired pursuant to
this Agreement. Upon request, Grantee or any such Permitted Transferee shall
provide to the Company any information or document relating to any event
described in the preceding sentence which the Company (in its sole discretion)
requires in order to calculate and substantiate any change in the Company's tax
liability as a result of such event.
<PAGE> 7
EXECUTION COPY
5. Expiration of Options. Any part of any Option that
was not vested and exercisable on Grantee's Termination Date shall expire and be
forfeited on such date, and any part of any Option that was vested and
exercisable on Grantee's Termination Date shall also expire and be forfeited;
provided, however, that if Grantee (i) dies or becomes subject to any
Disability, the part of the Option that is vested and exercisable shall expire
180 days from the date of death or Disability, but in no event after the
Expiration Date, (ii) retires (with the approval of the Committee), the part of
the Option that is vested and exercisable shall expire 90 days from the date of
retirement, and (iii) is discharged other than for Cause, the part of the Option
that is vested and exercisable shall expire 30 days from the date of discharge,
but in no event after the Expiration Date. In the event of the death of Grantee,
Options that are not vested and exercisable on the date of death shall terminate
and Options that are vested as of the date of death may be exercised by only the
executor or administrator of Grantee's estate or the person or persons to whom
Grantee's rights under the Options pass by will or by the laws of descent and
distribution. In the event that Grantee (or Grantee's executor, administrator or
permitted successor as described in the immediately preceding sentence)
exercises any vested Option following Grantee's Termination Date, the repurchase
right of the Company and Sleep Investor L.L.C. set forth in Section 8 of the
Employment Agreement shall be extended for a period of sixty (60) days.
6. Right to Repurchase Option Shares Upon Termination of
Employment. In the event Grantee's employment with the Company is terminated for
any reason (including death or Disability), the Option Shares actually issued
(whether held by Grantee or one or more Permitted Transferees and including any
Option Shares acquired subsequent to such termination of employment) will be
subject to repurchase by the Company pursuant to the terms and conditions of
Section 8 of Grantee's Employment Agreement and shall be deemed "Vested
Interests" for all purposes thereunder (including, without limitation, Section
8(f) of the Employment Agreement).
7. Restrictions on Transfer of Option. This Option may
not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed
of by Grantee, except by will or by the laws of descent and distribution and is
exercisable during Grantee's lifetime only by Grantee (or, if Grantee is
incapacitated, by Grantee's legal guardian or legal representative). If Grantee
or anyone claiming under or through Grantee attempts to violate this Paragraph
7, such attempted violation shall be null, void, and without effect, and the
Company's obligation hereunder shall terminate.
8. Restrictions on Transfer of Option Shares. Except as
provided in the Securityholders Agreement and subject to Section 16 hereof, the
Grantee may not sell, pledge, or otherwise transfer any interest in any Option
Shares.
9. Administration. Any action taken or decision made by
the Company, the Board, or the Committee or its delegates arising out of or in
connection with the construction,
<PAGE> 8
EXECUTION COPY
administration, interpretation or effect of this Agreement shall lie within its
sole and absolute discretion, as the case may be, and shall be final,
conclusive, and binding on Grantee and all persons claiming under or through
Grantee. By accepting this grant, Grantee and each person claiming under or
through Grantee shall be conclusively deemed to have indicated acceptance and
ratification of, and consent to, any action taken by the Company, the Board, or
the Committee or its delegates with respect to this Agreement.
10. Rights as Securityholder. Unless and until a
certificate or certificates representing the Option Shares shall have been
issued to Grantee, Grantee shall not be a securityholder or have any of the
rights or privileges of a securityholder of the Company with respect to units of
Common Interests acquired upon exercise of the Option. Once a certificate or
certificates representing the Option Shares have been issued to Grantee, the
securities underlying such certificate or certificates shall be (i) "Executive
Interests" for all purposes of the Securityholders Agreement and (ii) "Executive
Securities" for all purposes of Grantee's Employment Agreement, and with respect
to such securities, Grantee shall have all of the rights and obligations
thereunder.
11. Investment Representation. Grantee hereby
acknowledges that the Option Shares that Grantee may acquire by exercising the
Option shall be acquired for investment without a view to distribution, within
the meaning of the Securities Act, and shall not be sold, transferred, assigned,
pledged, or hypothecated in the absence of an effective registration statement
for the Option Shares under the Securities Act and applicable state securities
laws or an applicable exemption from the registration requirements of the Act
and any applicable state securities laws. Grantee also agrees that the Option
Shares that Grantee may acquire by exercising the Option will not be sold or
otherwise disposed of in any manner that would constitute a violation of any
applicable federal or state securities laws.
12. Listing, Registration, and Legal Compliance. If at
any time the Committee, in its discretion, determines that the listing,
registration, or qualification of the Option Shares upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent, or approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of Options or the
purchase or issuance of Option Shares thereunder, no Options may be granted or
exercised, in whole or in part, unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. Grantee agrees to supply the
Company with such certificates, representations, and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent, or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may impose, at any time, any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee may, in its discretion and without Grantee's consent,
<PAGE> 9
EXECUTION COPY
so reduce such period on not less than 15 days' written notice to the holders
thereof.
13. Adjustments. In the event of a reorganization,
recapitalization, unit dividend, unit split, or such other combination or other
change in the units of Class A Common, the Board or the Committee may, in order
to prevent the dilution or enlargement of rights under outstanding Options, and
as such Board or Committee determines in good faith to be appropriate, adjust
(1) the number and type of units as to which options may be granted under the
Plan, (2) the number and type of units covered by outstanding Options, (3) the
exercise price specified herein, and (4) other provisions of this Agreement
specifying a number or percentage of units.
14. Rights of Grantee. Nothing in this Agreement shall
interfere with or limit in any way the right of the Company or any Subsidiary to
terminate Grantee's employment at any time (with or without Cause), or to confer
upon Grantee any right to continue in the employ of the Company or any
Subsidiary for any period of time, or to continue to receive Grantee's current
(or other) rate of compensation.
15. Amendment of Outstanding Options. The Committee may
amend or modify any Option; provided, however, that except as expressly
contemplated elsewhere herein, no amendment or modification shall impair the
rights of Grantee without the consent of Grantee unless the holders of 80% of
all Options (based upon the number of Option Shares to be obtained upon
exercise) granted by the Company pursuant to the Option Agreements consent to
such amendment in writing and such amendment affects all Grantees under the
Option Agreements similarly. No amendment or modification to this Option
Agreement shall be valid without the prior written consent of Sleep Investor
L.L.C.
16. Restricted Securities. All Class A Common issued
pursuant to the terms of this Agreement shall constitute "restricted
securities," as that term is defined in Rule 144 promulgated by the Securities
and Exchange Commission pursuant to the Securities Act, and may not be
transferred except in compliance with the registration requirements of the
Securities Act or an exemption therefrom. In connection with any such transfer,
the Company may require the transferor to provide a written opinion of counsel
to the effect that such transfer complies with the Securities Act and other
applicable securities laws. If the units are certificated, certificates
representing the Option Shares shall bear the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE
<PAGE> 10
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN
REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN OPTION GRANT MADE BY THE COMPANY, A COPY OF WHICH MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE
OF BUSINESS WITHOUT CHARGE."
In addition, Grantee agrees by acceptance of the Option not to
effect any public sale or distribution of any equity securities of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180 days after the
effectiveness of any underwritten registration, except as part of such
underwritten registration if otherwise permitted.
17. Notices. Any notice hereunder to the Company shall be
addressed to the attention of the president of the Company, and any notice
hereunder to Grantee shall be addressed to Grantee at Grantee's last address on
the records of the Company, subject to the right of the Company or Grantee to
designate at any time hereafter in writing some other address. Any notice shall
be deemed to have been duly given when delivered personally, one day following
dispatch if sent by reputable overnight courier, fees prepaid, or three days
following mailing if sent by registered mail, return receipt requested, postage
prepaid and addressed as set forth above.
18. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of any successors to the Company and all persons
lawfully claiming under Grantee.
19. GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING
INTERPRETATION OF THE LAWS GOVERNING LIMITED LIABILITY COMPANIES SHALL BE
GOVERNED BY THE NEW JERSEY LIMITED LIABILITY COMPANY ACT.
* * * * *
<PAGE> 11
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IN WITNESS WHEREOF, the Company and Grantee have executed this
Option Agreement as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
Name:
Title:
GRANTEE
Employee's Signature
Name of Employee (Print)
Accepted and agreed
solely for purposes
of Section 15 hereof
SLEEP INVESTOR L.L.C.
By:__________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.15
EXECUTION COPY
OPTION AGREEMENT
This OPTION AGREEMENT is made as of November __, 1996, between
Sleepmaster Holdings L.L.C., a New Jersey limited liability company (the
"Company"), and James Koscica ("Grantee"). Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in
Article I.
In order to advance the Company's best interests by providing
additional incentives to certain key employees of the Company and its
Subsidiaries, the Company wishes to grant options to purchase additional
ownership interests in the Company subject to the terms and conditions of this
Agreement.
Article I
Definitions
For purposes of this Agreement the following terms are defined
as follows:
"Achieved Result" means, with respect to any Vesting Date:
(1) the product of (x) the arithmetic average of Actual EBITDA for each of the
two previous Fiscal Years prior to such Vesting Date and (y) seven;
minus (2) the sum of (A) all outstanding Indebtedness of the Company and its
Subsidiaries as of the Vesting Date and, (B) the liquidation value of the
Preferred Interests outstanding on such Vesting Date.
"Actual EBITDA" means the Company's and Sleepmaster L.L.C.'s
("Sleepmaster's") consolidated EBITDA for a particular Fiscal Year as set forth
on the Company's audited consolidated financial statements for such Fiscal Year;
provided, that for purposes of calculating the Company's and Sleepmaster's
consolidated EBITDA for a particular Fiscal Year, the Company shall give effect
to any acquisition of all of the capital stock or all, or substantially all, of
the consolidated assets of an unaffiliated Person (an "Acquired Business") by
the Company or Sleepmaster (whether such Acquired Business was acquired by means
of a merger, consolidation, asset purchase, security purchase or otherwise) on
an actual basis, as though such acquisition had occurred on the first day of
such Fiscal Year.
"Board" means the Board of Advisors of the Company.
"Cause" means (i) a breach of Grantee's covenants under this
Agreement or any other agreement with the Company or its Subsidiaries and such
breach shall not have been cured within 30 days after written notice to Grantee,
(ii) the commission by Grantee of a felony, a crime involving moral turpitude or
other act causing material harm to the standing and reputation of the Company or
any of its Subsidiaries, or (iii) Grantee's repeated wilful failure to comply
with the reasonable and lawful written directives of the Board.
"Class A Common" means the Company's Class A Common Interests,
or if the Class A Common is hereafter exchanged into or exchanged for different
units or securities of the Company, such other units or securities, all as
adjusted for any unit split, unit dividend, combination, exchange, conversion,
recapitalization, merger, consolidation or reorganization.
<PAGE> 2
EXECUTION COPY
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate or, if for any reason the
Board has not designated such a committee, the Board. The Committee, if other
than the Board, shall be composed of two or more directors as appointed from
time to time by the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, or if the outstanding Common Interests are hereafter
changed into or exchanged for different interests or securities of the Company,
such other interests or securities.
"Disability" shall mean the inability, due to illness,
accident, injury, physical or mental incapacity or other disability, of Grantee
to carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
"EBITDA" means, for any period determined on a consolidated
basis, (a) net income determined in conformity with United States generally
accepted accounting principles; plus, (b) to the extent deducted in determining
net income for such period (i) federal and state income taxes, (ii) interest
expenses , (iii) amortization, depreciation, and similar non-cash charges; and
minus (c) to the extent included in determining net income for such period,
extraordinary or nonrecurring gains as set forth on the Company's consolidated
audited financial statement for such period;
"Employment Agreement" means the Employment Agreement dated as
of November __, 1996 by and among the Company, Grantee, Sleepmaster L.L.C. and
Sleep Investor L.L.C.
"Expiration Date" means the close of business on November 1,
2006, subject to earlier expiration as provided in Section 5.
"Fair Market Value" per unit on any given date, means the fair
market value of such unit as shall be determined by the Committee or the Board
in its good faith business judgment.
"Family Group" means Grantee's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Grantee, Grantee's
spouse, and/or their descendants.
<PAGE> 3
EXECUTION COPY
"Fiscal Year" means, for the Company, a twelve month
accounting period ending on the last day of December in each year.
"Form" means those forms of the Internal Revenue Service used
by taxpayers to file federal income tax returns or reports required under the
Code or applicable Treasury Regulations promulgated thereunder.
"Indebtedness" shall mean all indebtedness of the Company or
any of its Subsidiaries including, without limitation (i) all obligations for
borrowed money or evidenced by bonds, debentures, notes, letters of credit or
other similar instruments, (ii) obligations as lessee under capital leases,
(iii) obligations to pay the deferred purchase price of property or services,
except accounts payable arising in the ordinary course of business, (iv) all
debt of other Persons guaranteed or otherwise supported by the Company or any of
its Subsidiaries, and (v) any interest, principal, prepayment penalty, fees or
expenses in respect of items listed in clauses (i) through (iv).
"Measurement Date" means the date on which any taxable income
resulting from the exercise of an Option is determined under applicable federal
income tax law.
"Option Shares" means (i) all units of Class A Common issued
or issuable upon the exercise of an Option, and (ii) all units of Class A Common
issued with respect to the Class A Common referred to in clause (i) above by way
of a unit dividend or unit split or in connection with any combination,
exchange, conversion, merger, consolidation, recapitalization, or other
reorganization affecting the Class A Common. Option Shares will continue to be
Option Shares in the hands of any holder other than Grantee (except for the
Company), and each such transferee thereof will succeed to the rights and
obligations of a holder of Option Shares hereunder.
"Permitted Transferee" means those persons to whom the Grantee
is authorized (1) pursuant to terms and conditions of the Securityholders
Agreement, to transfer Option Shares, or (2) pursuant to Section 5, to transfer
Options.
"Preferred Interests" means the Company's Series A Preferred
Interests, or if the Series A Preferred Interests are hereafter changed into or
exchanged for different interests or securities of the Company, such other
interests or securities, and any other Preferred Interests of the Company
hereinafter issued.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Investor) pursuant to which such third party proposes
to acquire all or substantially all of the outstanding Common Interests (whether
by merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
<PAGE> 4
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"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders
Agreement dated as of the date hereof by and among Grantee, the Company, Sleep
Investor L.L.C. and certain other parties thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company association or other
business entity of which (i) if a corporation or a limited liability company, a
majority of the total voting power of securities 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
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Date" means the date upon which Grantee's
employment with the Company terminated including by reason of death or
Disability.
"Vesting Date" means either December 31, 1999 or December 31,
2001 as the context requires.
Article II
1. Grant of Option. The Company hereby grants to
Grantee, as of the date first above written, an option (the "Option") to
purchase 106 units of the Company's Class A Common (which number of units may be
adjusted as provided in Section 13 below) at the exercise price per unit of
$100, subject to the terms and conditions set forth herein. The Option is
intended to be a "nonqualified stock option" for purposes of the Code.
2. Vesting of Options.
(a) Except as provided in Section 2(b), no
portion of the Option shall vest prior to December 31, 1999. The Option shall
vest based upon the achievement by the Company of certain targets for the 24
month period preceding each Vesting Date as set forth below (each, a "Target"),
if as of each such date the Grantee is still employed by the Company or a
Subsidiary of the Company. On each Vesting Date 50% of the Option shall vest if
as of such
<PAGE> 5
Vesting Date the Achieved Result equals or exceeds the Target set forth opposite
such Vesting Date in the table below:
<TABLE>
<CAPTION>
Percent of Option
Vesting Date Target Subject to Vesting
------------ ------------ ----------------------
<S> <C> <C>
12/31/99 $ 60,000,000 50% of original Option
12/31/01 $115,000,000 50% of original Option
</TABLE>
provided, that if the Achieved Result at December 31, 1999 does not equal or
exceed the Target for such date, but at December 31, 2001 the Achieved Result
equals or exceeds $130,000,000, then 100% of the Option shall vest.
(b) (i) In the event of a Sale of the Company at
any time prior to December 31, 1999, if the aggregate cash consideration
received by the holders of the Company's Common Interests equals or exceeds
either the Target for December 31, 1999 or the Target for December 31, 2001,
then the applicable portion(s) of the Option shall vest upon the consummation of
such Sale of the Company, and (ii) in the event of a Sale of the Company after
December 31, 1999 but before December 31, 2001, if the aggregate cash
consideration received by the holders of the Company's Common Interests equals
or exceeds the Target for December 31, 2001, then 50% of the Option shall vest
upon the consummation of such Sale of the Company; provided, that if a Sale of
the Company does not occur prior to December 31, 2001, then this Section 2(b)
shall be of no further force or effect.
(c) If as of December 31, 2001 any portion of
the Option has not vested, such portion shall, at the option of the Company, be
automatically transferred to the Company without consideration and the Committee
(in its sole discretion) may regrant such portion of the Option.
3. Conditions to Exercise. Subject to the conditions set
forth in this Section 3 and in Section 4 of this Agreement, the Option may be
exercised by written notice to the Company's Secretary at any time and from time
to time but only to the extent it has become vested. An Option shall not be
exercisable, in any event, after the tenth anniversary of the date of grant.
Options are subject to cancellation as provided herein. The Option may not be
exercised by Grantee until the Company has received payment from the Executive
in an amount equal to the full purchase price for the units of Common Interests
being acquired hereunder. Payment of such exercise price may be made in cash
(including check, bank draft, or money order).
4. Withholding Tax Requirements.
(a) Amount of Withholding. It shall be a
condition to the exercise of any Option that Grantee make appropriate payment or
other provision acceptable to the Company with respect to any withholding tax
requirement arising from such exercise. The amount of withholding tax required,
if any, with respect to any Option exercise (the
<PAGE> 6
EXECUTION COPY
"Withholding Amount") shall be determined by the Treasurer or other appropriate
officer of the Company, and Grantee shall furnish such information and make such
representations as such officer requires to make such determination.
(b) Withholding Procedure. If the Company
determines that withholding tax is required with respect to any Option exercise,
the Company shall notify Grantee of the Withholding Amount, and Grantee shall
pay to the Company an amount not less than the Withholding Amount. In lieu of
making such payment, the Grantee may pay the Withholding Amount by either (i)
delivering to the Company a number of units of Class A Common having an
aggregate Fair Market Value as of the Measurement Date not less than the
Withholding Amount, or (ii) directing the Company to withhold and not deliver or
issue to the Grantee a number of units of Class A Common, otherwise issuable
upon the exercise of the Option, having an aggregate Fair Market Value as of the
Measurement Date not less than the Withholding Amount. In addition, if the
Committee approves, the Grantee may elect pursuant to the prior sentence to
deliver or direct the withholding of units of Class A Common having an aggregate
Fair Market Value in excess of the minimum Withholding Amount but not in excess
of the Grantee's applicable highest marginal combined federal income and state
income tax rate, as estimated in good faith by such Grantee. Any fractional
interests resulting from the delivery or withholding of units of Class A Common
to meet withholding tax requirements shall be settled in cash. All amounts paid
to or withheld by the Company and the value of all units of Class A Common
delivered to or withheld by the Company pursuant to this Section 4 shall be
deposited in accordance with applicable law by the Company as withholding tax
for Grantee's account. If the Treasurer or other appropriate officer of the
Company determines that no withholding tax is required with respect to the
exercise of any Option, but it is determined subsequently that the exercise
resulted in taxable income as to which withholding is required (as a result of a
disposition of the Option Shares or otherwise), Grantee shall promptly, upon
being notified of the withholding requirement, pay to the Company (by means
acceptable to the Company) the amount required to be withheld, and the Company
may, at its election, condition any transfer of Option Shares issued upon
exercise of the Option upon receipt of such payment.
(c) Notification of Inquiries and Agreements.
Grantee and each Permitted Transferee shall notify the Company in writing within
10 days after the date Grantee or any such Permitted Transferee (i) first
obtains knowledge of any Internal Revenue Service inquiry, audit, assertion,
determination, investigation, or question relating in any manner to the value of
Options granted hereunder; (ii) includes or agrees (including, without
limitation, in any settlement, closing, or other similar agreement) to include
in gross income with respect to any Option granted under this Agreement (A) any
amount in excess of the amount reported on Form 1099 or Form W-2 to the Grantee
by the Company, or (B) if the Grantee received no such Form, any amount; or
(iii) sells, disposes, or otherwise transfers Option Shares acquired pursuant to
this Agreement. Upon request, Grantee or any such Permitted Transferee shall
provide to the Company any information or document relating to any event
described in the preceding sentence which the Company (in its sole discretion)
requires in order to calculate and substantiate any change in the Company's tax
liability as a result of such event.
<PAGE> 7
EXECUTION COPY
5. Expiration of Options. Any part of any Option that
was not vested and exercisable on Grantee's Termination Date shall expire and be
forfeited on such date, and any part of any Option that was vested and
exercisable on Grantee's Termination Date shall also expire and be forfeited;
provided, however, that if Grantee (i) dies or becomes subject to any
Disability, the part of the Option that is vested and exercisable shall expire
180 days from the date of death or Disability, but in no event after the
Expiration Date, (ii) retires (with the approval of the Committee), the part of
the Option that is vested and exercisable shall expire 90 days from the date of
retirement, and (iii) is discharged other than for Cause, the part of the Option
that is vested and exercisable shall expire 30 days from the date of discharge,
but in no event after the Expiration Date. In the event of the death of Grantee,
Options that are not vested and exercisable on the date of death shall terminate
and Options that are vested as of the date of death may be exercised by only the
executor or administrator of Grantee's estate or the person or persons to whom
Grantee's rights under the Options pass by will or by the laws of descent and
distribution. In the event that Grantee (or Grantee's executor, administrator or
permitted successor as described in the immediately preceding sentence)
exercises any vested Option following Grantee's Termination Date, the repurchase
right of the Company and Sleep Investor L.L.C. set forth in Section 8 of the
Employment Agreement shall be extended for a period of sixty (60) days.
6. Right to Repurchase Option Shares Upon Termination of
Employment. In the event Grantee's employment with the Company is terminated for
any reason (including death or Disability), the Option Shares actually issued
(whether held by Grantee or one or more Permitted Transferees and including any
Option Shares acquired subsequent to such termination of employment) will be
subject to repurchase by the Company pursuant to the terms and conditions of
Section 8 of Grantee's Employment Agreement and shall be deemed "Vested
Interests" for all purposes thereunder (including, without limitation, Section
8(f) of the Employment Agreement).
7. Restrictions on Transfer of Option. This Option may
not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed
of by Grantee, except by will or by the laws of descent and distribution and is
exercisable during Grantee's lifetime only by Grantee (or, if Grantee is
incapacitated, by Grantee's legal guardian or legal representative). If Grantee
or anyone claiming under or through Grantee attempts to violate this Paragraph
7, such attempted violation shall be null, void, and without effect, and the
Company's obligation hereunder shall terminate.
8. Restrictions on Transfer of Option Shares. Except as
provided in the Securityholders Agreement and subject to Section 16 hereof, the
Grantee may not sell, pledge, or otherwise transfer any interest in any Option
Shares.
9. Administration. Any action taken or decision made by
the Company, the Board, or the Committee or its delegates arising out of or in
connection with the construction,
<PAGE> 8
EXECUTION COPY
administration, interpretation or effect of this Agreement shall lie within its
sole and absolute discretion, as the case may be, and shall be final,
conclusive, and binding on Grantee and all persons claiming under or through
Grantee. By accepting this grant, Grantee and each person claiming under or
through Grantee shall be conclusively deemed to have indicated acceptance and
ratification of, and consent to, any action taken by the Company, the Board, or
the Committee or its delegates with respect to this Agreement.
10. Rights as Securityholder. Unless and until a
certificate or certificates representing the Option Shares shall have been
issued to Grantee, Grantee shall not be a securityholder or have any of the
rights or privileges of a securityholder of the Company with respect to units of
Common Interests acquired upon exercise of the Option. Once a certificate or
certificates representing the Option Shares have been issued to Grantee, the
securities underlying such certificate or certificates shall be (i) "Executive
Interests" for all purposes of the Securityholders Agreement and (ii) "Executive
Securities" for all purposes of Grantee's Employment Agreement, and with respect
to such securities, Grantee shall have all of the rights and obligations
thereunder.
11. Investment Representation. Grantee hereby
acknowledges that the Option Shares that Grantee may acquire by exercising the
Option shall be acquired for investment without a view to distribution, within
the meaning of the Securities Act, and shall not be sold, transferred, assigned,
pledged, or hypothecated in the absence of an effective registration statement
for the Option Shares under the Securities Act and applicable state securities
laws or an applicable exemption from the registration requirements of the Act
and any applicable state securities laws. Grantee also agrees that the Option
Shares that Grantee may acquire by exercising the Option will not be sold or
otherwise disposed of in any manner that would constitute a violation of any
applicable federal or state securities laws.
12. Listing, Registration, and Legal Compliance. If at
any time the Committee, in its discretion, determines that the listing,
registration, or qualification of the Option Shares upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent, or approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of Options or the
purchase or issuance of Option Shares thereunder, no Options may be granted or
exercised, in whole or in part, unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. Grantee agrees to supply the
Company with such certificates, representations, and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent, or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may impose, at any time, any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee may, in its discretion and without Grantee's consent,
<PAGE> 9
EXECUTION COPY
so reduce such period on not less than 15 days' written notice to the holders
thereof.
13. Adjustments. In the event of a reorganization,
recapitalization, unit dividend, unit split, or such other combination or other
change in the units of Class A Common, the Board or the Committee may, in order
to prevent the dilution or enlargement of rights under outstanding Options, and
as such Board or Committee determines in good faith to be appropriate, adjust
(1) the number and type of units as to which options may be granted under the
Plan, (2) the number and type of units covered by outstanding Options, (3) the
exercise price specified herein, and (4) other provisions of this Agreement
specifying a number or percentage of units.
14. Rights of Grantee. Nothing in this Agreement shall
interfere with or limit in any way the right of the Company or any Subsidiary to
terminate Grantee's employment at any time (with or without Cause), or to confer
upon Grantee any right to continue in the employ of the Company or any
Subsidiary for any period of time, or to continue to receive Grantee's current
(or other) rate of compensation.
15. Amendment of Outstanding Options. The Committee may
amend or modify any Option; provided, however, that except as expressly
contemplated elsewhere herein, no amendment or modification shall impair the
rights of Grantee without the consent of Grantee unless the holders of 80% of
all Options (based upon the number of Option Shares to be obtained upon
exercise) granted by the Company pursuant to the Option Agreements consent to
such amendment in writing and such amendment affects all Grantees under the
Option Agreements similarly. No amendment or modification to this Option
Agreement shall be valid without the prior written consent of Sleep Investor
L.L.C.
16. Restricted Securities. All Class A Common issued
pursuant to the terms of this Agreement shall constitute "restricted
securities," as that term is defined in Rule 144 promulgated by the Securities
and Exchange Commission pursuant to the Securities Act, and may not be
transferred except in compliance with the registration requirements of the
Securities Act or an exemption therefrom. In connection with any such transfer,
the Company may require the transferor to provide a written opinion of counsel
to the effect that such transfer complies with the Securities Act and other
applicable securities laws. If the units are certificated, certificates
representing the Option Shares shall bear the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE
<PAGE> 10
EXECUTION COPY
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN
REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN OPTION GRANT MADE BY THE COMPANY, A COPY OF WHICH MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE
OF BUSINESS WITHOUT CHARGE."
In addition, Grantee agrees by acceptance of the Option not to
effect any public sale or distribution of any equity securities of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180 days after the
effectiveness of any underwritten registration, except as part of such
underwritten registration if otherwise permitted.
17. Notices. Any notice hereunder to the Company shall be
addressed to the attention of the president of the Company, and any notice
hereunder to Grantee shall be addressed to Grantee at Grantee's last address on
the records of the Company, subject to the right of the Company or Grantee to
designate at any time hereafter in writing some other address. Any notice shall
be deemed to have been duly given when delivered personally, one day following
dispatch if sent by reputable overnight courier, fees prepaid, or three days
following mailing if sent by registered mail, return receipt requested, postage
prepaid and addressed as set forth above.
18. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of any successors to the Company and all persons
lawfully claiming under Grantee.
19. GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS
HERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING
INTERPRETATION OF THE LAWS GOVERNING LIMITED LIABILITY COMPANIES SHALL BE
GOVERNED BY THE NEW JERSEY LIMITED LIABILITY COMPANY ACT.
* * * * *
<PAGE> 11
EXECUTION COPY
IN WITNESS WHEREOF, the Company and Grantee have executed this
Option Agreement as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
Name:
Title:
GRANTEE
Employee's Signature
Name of Employee (Print)
Accepted and agreed
solely for purposes
of Section 15 hereof
SLEEP INVESTOR L.L.C.
By:__________________________
Name:
Title:
<PAGE> 1
Exhibit 10.16
EXECUTION COPY
OPTION AGREEMENT
This OPTION AGREEMENT is made as of November __, 1996, between
Sleepmaster Holdings L.L.C., a New Jersey limited liability company (the
"Company"), and Timothy DuPont ("Grantee"). Capitalized terms used
not otherwise defined herein shall have the meanings assigned
to such terms in Article 1.
In order to advance the Company's best interests by providing
additional incentives to certain key employees of the Company and its
Subsidiaries, the Company wishes to grant options to purchase additional
ownership interests in the Company subject to the terms and conditions of this
Agreement.
Article I
Definitions
For purposes of this Agreement the following terms are defined
as follows:
"Achieved Result" means, with respect to any Vesting Date:
(1 ) the product of (x) the arithmetic average of Actual EBITDA for each of the
two previous Fiscal Years prior to such Vesting Date and (y) seven,
minus (2) the sum of (A) all outstanding Indebtedness of the Company and its
Subsidiaries as of the Vesting Date and, (B) the liquidation value of the
Preferred Interests outstanding on such Vesting Date.
"Actual EBITDA" means the Company's and Sleepmaster L.L.C.'s
("Sleepmaster's") consolidated EBITDA for a particular Fiscal Year as set forth
on the Company's audited consolidated financial statements for such Fiscal Year;
provided, that for purposes of calculating the Company's and Sleepmaster's
consolidated EBITDA for a particular Fiscal Year, the Company shall give effect
to any acquisition of all of the capital stock or all, or substantially all, of
the consolidated assets of an unaffiliated Person (an "Acquired Business") by
the Company or Sleepmaster (whether such Acquired Business was acquired by means
of a merger, consolidation, asset purchase, security purchase or otherwise) on
an actual basis, as though such acquisition had occurred on the first day of
such Fiscal Year.
"Board" means the Board of Advisors of the Company.
"Cause" means (i) a breach of Grantee's covenants under this
Agreement or any other agreement with the Company or its Subsidiaries and such
breach shall not have been cured within 30 days after written notice to Grantee,
(ii) the commission by Grantee of a felony, a crime involving
<PAGE> 2
moral turpitude or other act causing material harm to the standing and
reputation of the Company or any of its Subsidiaries, or (iii) Grantee's
repeated wilful failure to comply with the reasonable and lawful written
directives of the Board.
"Class A Common" means the Company's Class A Common Interests,
or if the Class A Common is hereafter exchanged into or exchanged for different
units or securities of the Company, such other units or securities, all as
adjusted for any unit split, unit dividend, combination, exchange, conversion,
recapitalization, merger, consolidation or reorganization.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate or, if for any reason the
Board has not designated such a committee, the Board. The Committee, if other
than the Board, shall be composed of two or more directors as appointed from
time to time by the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, or if the outstanding Common Interests are hereafter
changed into or exchanged for different interests or securities of the Company,
such other interests or securities.
"Disability" shall mean the inability, due to illness,
accident, injury, physical or mental incapacity or other disability, of Grantee
to carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable) judgment of the
Board.
"EBITDA" means, for any period determined on a consolidated
basis, (a) net income determined in conformity with United States generally
accepted accounting principles; plus, (b) to the extent deducted in determining
net income for such period (i) federal and state income taxes, (ii) interest
expenses, (iii) amortization, depreciation, and similar non-cash charges; and
minus (c) to the extent included in determining net income for such period,
extraordinary or nonrecurring gains as set forth on the Company's consolidated
audited financial statement for such period;
"Employment Agreement" means the Employment Agreement dated as
of November __, 1996 by and among the Company, Grantee, Sleepmaster L.L.C. and
Sleep Investor L.L.C.
"Expiration Date" means the close of business on November 1,
2006, subject to earlier expiration as provided in Section 5.
"Fair Market Value" per unit on any given date, means the fair
market value of such unit as shall be determined by the Committee or the Board
in its good faith business judgment.
-2-
<PAGE> 3
"Family Group" means Grantee's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Grantee, Grantee's
spouse, and/or their descendants.
"Fiscal Year" means, for the Company, a twelve month
accounting period ending on the last day of December in each year.
"Form" means those forms of the Internal Revenue Service used
by taxpayers to file federal income tax returns or reports required under the
Code or applicable Treasury Regulations promulgated thereunder.
"Indebtedness" shall mean all indebtedness of the Company or
any of its Subsidiaries including, without limitation (i) all obligations for
borrowed money or evidenced by bonds, debentures, notes, letters of credit or
other similar instruments, (ii) obligations as lessee under capital leases,
(iii) obligations to pay the deferred purchase price of property or services,
except accounts payable arising in the ordinary course of business, (iv) all
debt of other Persons guaranteed or otherwise supported by the Company or any of
its Subsidiaries, and (v) any interest, principal, prepayment penalty, fees or
expenses in respect of items listed in clauses (i) through (iv).
"Measurement Date" means the date on which any taxable income
resulting from the exercise of an Option is determined under applicable federal
income tax law.
"Option Shares" means (i) all units of Class A Common issued
or issuable upon the exercise of an Option, and (ii) all units of Class A Common
issued with respect to the Class A Common referred to in clause (i) above by way
of a unit dividend or unit split or in connection with any combination,
exchange, conversion, merger, consolidation, recapitalization, or other
reorganization affecting the Class A Common. Option Shares will continue to be
Option Shares ill the hands of any holder other than Grantee (except for the
Company), and each such transferee thereof will succeed to the rights and
obligations of a holder of Option Shares hereunder.
"Permitted Transferee" means those persons to whom the Grantee
is authorized (1) pursuant to terms and conditions of the Securityholders
Agreement, to transfer Option Shares, or (2) pursuant to Section 5, to transfer
Options.
"Preferred Interests" means the Company's Series A Preferred Interests,
or if the Series A Preferred Interests are hereafter changed into or exchanged
for different interests or securities of the Company, such other interests or
securities, and any other Preferred Interests of the Company hereinafter issued.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Investor) pursuant to which such third party proposes
to acquire all or substantially all of the outstanding Common Interests (whether
by merger, consolidation, recapitalization, reorganization, purchase of title
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
"Securities Act" means the Securities Act of 1933, as amended.
-3-
<PAGE> 4
"Securityholders Agreement" means the Securityholders Agreement dated
as of the date hereof by and among Grantee, the Company, Sleep Investor L.L.C.
and certain other parties thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company association or other
business entity of which (i) if a corporation or a limited liability company, a
majority of the total voting power of securities 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
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Date" means the date upon which Grantee's
employment with the Company terminated including by reason of death or
Disability.
"Vesting Date" means either December 31, 1999 or December 31,
2001 as the context requires.
Article II
1. Grant of Option. The Company hereby grants to Grantee, as
of the date first above written, an option (the "Option") to purchase 106 units
of the Company's Class A Common (which number of units may be adjusted as
provided in Section 13 below) at the exercise price per unit of $100, subject to
the terms and conditions set forth herein. The Option is intended to be a
nonqualified stock option for purposes of the Code.
2. Vesting of Options.
(a) Except as provided in Section 2(b), no portion of
the Option shall vest prior to December 31, 1999. The Option shall vest based
upon the achievement by the Company of certain targets for the 24 month period
preceding each Vesting Date as set forth below (each, a "Target"), if as of each
such date the Grantee is still employed by the Company or a Subsidiary of the
Company. On each Vesting Date 50% of the Option shall vest if as of such Vesting
Date the Achieved Result equals or exceeds the Target set forth opposite such
Vesting Date in the table below:
<TABLE>
<CAPTION>
Target
Percent of Option
Vesting Date Target Subject to Vesting
------------ ------ ------------------
<S> <C> <C>
</TABLE>
-4-
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
12/31/99 $60,000,000 50% of original Option
12/31/01 $115,000,000 50% of original Option
</TABLE>
provided, that if the Achieved Result at December 31, 1999 does not equal or
exceed the Target for such date, but at December 31, 2001 the Achieved Result
equals or exceeds $130,000,000, then 100% of the Option shall vest.
(b) (i) In the event of a Sale of the Company at any time
prior to December 31, 1999, if the aggregate cash consideration received by the
holders of the Company's Common Interests equals or exceeds either the Target
for December 31, 1999 or the Target for December 31, 2001, then the applicable
portion(s) of the Option shall vest upon the consummation of such Sale of the
Company, and (ii) in the event of a Sale of the Company after December 31, 1999
but before December 31, 2001, if the aggregate cash consideration received by
the holders of' the Company's Common Interests equals or exceeds the Target for
December 31, 2001, then 50% of the Option shall vest upon the consummation of
such Sale of the Company; provided, that if a Sale of the Company does not occur
prior to December 31, 2001, then this Section 2(b) shall he of no further force
or effect.
(c) If as of December 31, 2001 any portion of the Option has
not vested, such portion shall, at the option of the Company, be automatically
transferred to the Company without consideration and the Committee (in its sole
discretion) may regret such portion of the Option.
3. Conditions to Exercise. Subject to the conditions
set forth in this Section 33 and in Section 4 of this Agreement, the Option may
be exercised by written notice to the Company's Secretary, at any time and from
time to time but only to the extent it has become vested. An Option shall not be
exercisable, in any event, after the tenth anniversary of the date of the grant.
Options are subject to cancellation as provided herein. The Option may not be
exercised by Grantee until the Company has received payment from the Executive
in an amount equal to the full purchase price for the units of Common Interests
being acquired hereunder. Payment of such exercise price may be made in cash
(including check, bank draft, or money order).
4. Withholding Tax Requirements.
(a) Amount of Withholding. It shall be a condition to
the exercise of any Option that Grantee make appropriate payment or other
provision acceptable to the Company with respect to any withholding tax
requirement arising from such exercise. The amount of withholding tax required,
if any, with respect to any Option exercise (the "Withholding Amount") shall be
determined by the Treasurer or other appropriate officer of the Company, and
Grantee shall furnish such information and make such representations as such
officer requires to make such determination.
-5-
<PAGE> 6
(b) Withholding Procedure. If the Company determines that
withholding tax is required with respect to any Option exercise, the Company
shall notify Grantee of the Withholding Amount, and Grantee shall pay to the
Company an amount not less than the Withholding Amount. In lieu of making such
payment, the Grantee may pay the Withholding Amount by either (i) delivering to
the Company a number of units of Class A Common having an aggregate Fair Market
Value as of the Measurement Date not less than the Withholding Amount, or (ii)
directing the Company to withhold and not deliver or issue to the Grantee a
number of units of Class A Common, otherwise issuable upon the exercise of the
Option, having an aggregate Fair Market Value as of the Measurement Date not
less than the Withholding Amount. In addition, if the Committee approves, the
Grantee may elect pursuant to the prior sentence to deliver or direct the
withholding of units of Class A Common having an aggregate Fair Market Value in
excess of the minimum Withholding Amount but not in excess of the Grantee's
applicable highest marginal combined federal income and state income tax rate,
as estimated in good faith by such Grantee. Any fractional interests resulting
from the delivery or withholding of units of Class A Common to meet withholding
tax requirements shall be settled in cash. All amounts paid to or withheld by
the Company and the value of all units of Class A Common delivered to or
withheld by the Company pursuant to this Section 4 shall be deposited in
accordance with applicable law by the Company, as withholding tax for Grantee's
account. If the Treasurer or other appropriate officer of the Company determines
that no withholding tax is required with respect to the exercise of any Option,
but it is determined subsequently that the exercise resulted in taxable income
as to which withholding is required (as a result of a disposition of the Option
Shares or otherwise), Grantee shall promptly required. Upon being notified of
the withholding requirement, pay to the Company (by means acceptable to the
Company) the amount required to be withheld, and the Company may, at its
election, condition any transfer of Option Share, issued upon exercise of the
Option upon receipt of such payment.
(c) Notification of Inquiries and Agreements. Grantee and each
Permitted Transferee shall notify the Company in writing within 10 days after
the date Grantee or any such Permitted Transferee (i) first obtains knowledge of
any Internal Revenue Service inquiry, audit, assertion, determination,
investigation, or question relating in any manner to the value of Options
granted hereunder, (ii) includes or agrees (including, without limitation, in
any settlement, closing, or other similar agreement) to include in gross income
with respect to any Option granted under this Agreement (A) any amount in excess
of the amount reported on Form 1099 or Form W-2 to the Grantee by the Company,
or (B) if the Grantee received no such Form, any amount; or (iii) sells,
disposes, or otherwise transfers Option Shares acquired pursuant to this
Agreement. Upon request, Grantee or any such Permitted Transferee shall provide
to the Company any information or document relating to any event described in
the preceding sentence which the Company (in its sole discretion) requires in
order to calculate and substantiate any change in the Company's tax liability as
a result of such event.
5. Expiration of Options. Any part of any Option that was not
vested and exercisable on Grantee's Termination Date shall expire and be
forfeited on such date, and any part of any Option that was vested and
exercisable on Grantee's Termination Date shall also expire and be forfeited;
provided, however, that if Grantee (i) dies or becomes subject to an),
Disability, the part of the Option that is vested and exercisable shall expire
180 days from the date of death or Disability, but in no event after the
Expiration Date, (ii) retires (with the approval of the Committee), the part
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of the Option that is vested and exercisable shall expire 90 days from the date
of retirement, and (iii) is discharged other than for Cause, the part of the
Option that is vested and exercisable shall expire 30 days from the date of
discharge, but in no event after the Expiration Date. In the event of the death
of Grantee, Options that are not vested and exercisable on the date of death
shall terminate and Options that are vested as of the date of death may be
exercised by only the executor or administrator of Grantee's estate or the
person or persons to whom Grantee's rights under the Options pass by will or by
the laws of descent and distribution. In the event that Grantee (or Grantee's
executor, administrator or permitted successor as described in the immediately
preceding sentence) exercises any vested Option following Grantee's Termination
Date, the repurchase right of the Company and Sleep Investor L.L.C. set forth in
Section 8 of the Employment Agreement shall be extended for a period of sixty
(60) days.
6. Right to Repurchase Option Shares Upon Termination of
Employment. In the event Grantee's employment with the Company is terminated for
any reason (including death or disability), the Option Shares actually issued
(whether held by Grantee or one or more Permitted Transferees and including any
Option Shares acquired subsequent to such termination of employment) will be
subject to repurchase by the Company pursuant to the terms and conditions of
Section 8 of Grantee's Employment Agreement and shall be deemed "Vested
Interests" for all purposes thereunder (including, without limitation, Section
9(f) of the Employment Agreement).
7. Restrictions on Transfer of Option. This Option
may not be sold, assigned, transferred, pledged, hypothecated, or otherwise
disposed of by Grantee, except by will or by the laws of descent and
distribution and is exercisable during Grantee's lifetime only by Grantee (or,
if Grantee is incapacitated, by Grantee's legal guardian or legal
representative). If Grantee or anyone claiming under or through Grantee attempts
to violate this Paragraph 7, such attempted violation shall be null, void, and
without effect, and the Company's obligation hereunder shall terminate.
8. Restrictions on Transfer of Option Shares. Except as
provided in the Securityholders Agreement and subject to Section 16 hereof, the
Grantee may not sell, pledge, or otherwise transfer any interest in any Option
Shares.
9. Administration. Any action taken or decision made by the
Company, the Board, or the Committee or its delegates arising out of or in
connection with the construction, administration, interpretation or effect of
this Agreement shall lie within its sole and absolute discretion, as the case
may be, and shall be final, conclusive, and binding on Grantee and all persons
claiming under or through Grantee. By accepting this grant, Grantee and each
person claiming under or through Grantee shall be conclusively deemed to have
indicated acceptance and ratification of, and consent to, any action taken by
the Company, the Board, or the Committee or its delegates with respect to this
Agreement.
10. Rights as Securityholder. Unless and until a certificate
or certificates representing the Option Shares shall have been issued to
Grantee, Grantee shall not be a securityholder or have any of the rights or
privileges of a securityholder of the Company with respect to units of Common
Interests acquired upon exercise of the Option. Once a certificate or
certificates representing the Option Shares have been issued to Grantee, the
securities underlying such certificate
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or certificates shall be (i) "Executive Interests" for all purposes of the
Securityholder Agreement and (ii) "Executive Securities" for all purposes of
Grantee's Employment Agreement, and with respect to such securities, Grantee
shall have all of the rights and obligations thereunder.
11. Investment Representation. Grantee hereby acknowledges
that the Option Shares that Grantee may acquire by exercising the Option shall
be acquired for investment without a view to distribution, within the meaning of
the Securities Act, and shall not be sold, transferred, assigned, pledged, or
hypothecated in the absence of an effective registration statement for the
Option Shares under the Securities Act and applicable state securities laws or
an applicable exemption from the registration requirements of the Act and any
applicable state securities laws. Grantee also agrees that the Option Shares
that Grantee may acquire by exercising the Option will not be sold or otherwise
disposed of in any manner that would constitute a violation of any applicable
federal or state securities laws.
12. Listing, Registration, and Legal Compliance. If at any
time the Committee, in its discretion, determines that the listing,
registration, or qualification of the Option Shares upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent, or approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of Options or the
purchase or issuance of Option Shares thereunder, no Options may he granted or
exercised, in whole or in part, unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. Grantee agrees to supply the
Company with such certificates, representations, and information as the Company
shall request and shall otherwise cooperate, with the Company in obtaining such
listing, registration, qualification, consent, or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may impose, at any time, any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section I 6(h) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise finds it desirable because of federal or state regulatory requirements
to reduce the period during which any Options may be exercised, the Committee
may, in its discretion and without Grantee's consent, so reduce such period on
not less than 15 days' written notice to the holders thereof.
13. Adjustment. In the event of a reorganization,
recapitalization, unit dividend, unit split, or such other combination or other
chant, in the units of Class A Common, the Board or the Committee may, in order
to prevent the dilution or enlargement of rights under outstanding Options, and
as such Board or Committee determines in good faith to be appropriate, adjust
(1) the number and type of units as to which options may be granted under the
Plan, (2) the number and type of units covered by outstanding Options, (3) the
exercise price specified herein, and (4) other provisions of this Agreement
specifying a number or percentage of units.
14. Rights of Grantee. Nothing in this Agreement shall
interfere with or limit In any way the right of the Company or any Subsidiary to
terminate Grantee's employment at any time (with or without Cause), or to confer
upon Grantee any right to continue in the employ of the
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Company or any Subsidiary for any period of time, or to continue to receive
Grantee's current (or other) rate of compensation.
15. Amendment of Outstanding Options. The Committee may amend
or modify any Option; provided, however, that except as expressly contemplated
elsewhere herein, no amendment or modification shall impair the rights of
Grantee without the consent of Grantee unless the holders of 80% of all Options
(based upon the number of Option Shares to be obtained upon exercise) granted by
the Company pursuant to the Option Agreements consent to such amendment in
writing and such amendment affects all Grantees under the Option Agreements
similarly. No amendment or modification to this Option Agreement shall be valid
without the prior written consent of Steep Investor L.L.C.
16. Restricted Securities. All Class A Common issued pursuant
to the terms of this Agreement shall constitute "restricted securities," as that
term is defined in Rule 144 promulgated by the Securities and Exchange
Commission pursuant to the Securities Act, and nim, not be transferred except in
compliance with the registration requirements of the Securities Act or an
exemption therefrom. In connection with any such transfer, the Company may
require the transferor to provide a written opinion of counsel to the effect
that such transfer complies with the Securities Act and other applicable
securities laws. If the units are certificated, certificates representing, the
Opt on Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION' FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN OPTION GRANT MADE BY THE COMPANY, A COPY OF WHICH MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
In addition, Grantee agrees by acceptance of the Option not to
effect any public sale or distribution of any equity securities of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180 days after the
effectiveness of any underwritten registration, except as part of such
underwritten registration if otherwise permitted
17. Notices. Any notice hereunder to the Company shall be
addressed to the attention of the president of the Company, and any notice
hereunder to Grantee shall be addressed to Grantee at Grantee's last address on
the records of the Company, subject to the fight of the Company or Grantee to
designate at any time hereafter in writing some other address. Any notice shall
be deemed to have been duly given when delivered personally, one day following
dispatch if
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sent by reputable overnight courier, fees prepaid, or three days following
mailing if sent by registered mail, return receipt requested, postage prepaid
and addressed as set forth above.
18. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Grantee.
19. Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits hereto will be
governed by and construed in accordance with the domestic laws of the State of
New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York; provided, that any questions requiring interpretation of the
laws governing limited liability companies shall be governed by the New Jersey
Limited Liability Company Act.
* * * * *
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IN WITNESS WHEREOF, the Company and Grantee have executed this
Option Agreement as of the date first above written.
SLEEPMASTER HOLDINGS L.LC.
/s/
---------------------------------
Name:
Title:
GRANTEE
Employee's Signature
Name of Employee (Print)
Accepted and agreed
solely for purposes
of Section 15 hereof
SLEEP INVESTOR L.L.C.
By:
-------------------------------
Name:
Title:
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EXHIBIT 10.17
EXECUTION COPY
OPTION AGREEMENT
This OPTION AGREEMENT is made as of November __, 1996, between
Sleepmaster Holdings L.L.C., a New Jersey limited liability company (the
"Company"), and Michael Reilly ("Grantee"). Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in
Article 1.
In order to advance the Company's best interests by providing
additional incentives to certain key employees of the Company and its
Subsidiaries, the Company wishes to grant options to purchase additional
ownership interests in the Company subject to the terms and conditions of this
Agreement.
Article I
Definitions
For purposes of this Agreement the following terms are defined
as follows:
"Achieved Result" means, with respect to any Vesting Date:
(1) the product of (x) the arithmetic average of Actual EBITDA for each of the
two previous Fiscal Years prior to such Vesting Date and (y) seven,
minus (2) the sum of (A) all outstanding Indebtedness of the Company and its
Subsidiaries as of the Vesting Date and, (B) the liquidation value of the
Preferred Interests outstanding on such Vesting Date.
"Actual EBITDA" means the Company's and Sleepmaster L.L.C.'s
("Sleepmaster's") consolidated EBITDA for a particular Fiscal Year as set forth
on the Company's audited consolidated financial statements for such Fiscal Year;
provided, that for purposes of calculating the Company's and Sleepmaster's
consolidated EBITDA for a particular Fiscal Year, the Company shall give effect
to any acquisition of all of the capital stock or all, or substantially all, of
the consolidated assets of an unaffiliated Person (an "Acquired Business") by
the Company or Sleepmaster (whether such Acquired Business was acquired by means
of a merger, consolidation, asset purchase, security purchase or otherwise) on
an actual basis, as though such acquisition had occurred on the first day of
such Fiscal Year.
"Board" means the Board of Advisors of the Company.
"Cause" means (i) a breach of Grantee's covenants under this
Agreement or any other agreement with the Company or its Subsidiaries and such
breach shall not have been cured within 30 days after written notice to Grantee,
(ii) the commission by Grantee of a felony, a crime involving moral turpitude or
other act causing material harm to the standing and reputation of the Company or
any of its Subsidiaries, or (iii) Grantee's repeated wilful failure to comply
with the reasonable and lawful written directives of the Board.
<PAGE> 2
EXECUTION COPY
"Class A Common" means the Company's Class A Common Interests,
or if the Class A Common is hereafter exchanged into or exchanged for different
units or securities of the Company, such other units or securities, all as
adjusted for any unit split, unit dividend, combination, exchange, conversion,
recapitalization, merger, consolidation or reorganization.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate or, if for any reason the
Board has not designated such a committee, the Board. The Committee, if other
than the Board, shall be composed of two or more directors as appointed from
time to time by the Board.
"Common Interests" means the Class A Common and the Company's
Class B Common Interests, or if the outstanding Common Interests are hereafter
changed into or exchanged for different interests or securities of the Company,
such other interests or securities.
"Disability" shall mean the inability, due to illness,
accident, injury, physical or mental incapacity or other disability, of Grantee
to carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable) judgment of the
Board.
"EBITDA" means, for any period determined on a consolidated
basis, (a) net income determined in conformity with United States generally
accepted accounting principles; plus, (b) to the extent deducted in determining
net income for such period (i) federal and state income taxes, (ii) interest
expenses, (iii) amortization, depreciation, and similar non-cash charges; and
minus (c) to the extent included in determining net income for such period,
extraordinary or nonrecurring gains as set forth on the Company's consolidated
audited financial statement for such period;
"Employment Agreement" means the Employment Agreement dated as
of November __, 1996 by and among the Company, Grantee, Sleepmaster L.L.C. and
Sleep Investor L.L.C.
"Expiration Date" means the close of business on November 1,
2006, subject to earlier expiration as provided in Section 5.
"Fair Market Value" per unit on any given date, means the fair
market value of such unit as shall be determined by the Committee or the Board
in its good faith business judgment.
"Family Group" means Grantee's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Grantee, Grantee's
spouse, and/or their descendants.
"Fiscal Year" means, for the Company, a twelve month
accounting period ending on the last day of December in each year.
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EXECUTION COPY
"Form" means those forms of the Internal Revenue Service used
by taxpayers to file federal income tax returns or reports required under the
Code or applicable Treasury Regulations promulgated thereunder.
"Indebtedness" shall mean all indebtedness of the Company or
any of its Subsidiaries including, without limitation (i) all obligations for
borrowed money or evidenced by bonds, debentures, notes, letters of credit or
other similar instruments, (ii) obligations as lessee under capital leases,
(iii) obligations to pay the deferred purchase price of property or services,
except accounts payable arising in the ordinary course of business, (iv) all
debt of other Persons guaranteed or otherwise supported by the Company or any of
its Subsidiaries, and (v) any interest, principal, prepayment penalty, fees or
expenses in respect of items listed in clauses (i) through (iv).
"Measurement Date" means the date on which any taxable income
resulting from the exercise of an Option is determined under applicable federal
income tax law.
"Option Shares" means (i) all units of Class A Common issued
or issuable upon the exercise of an Option, and (ii) all units of Class A Common
issued with respect to the Class A Common referred to in clause (i) above by way
of a unit dividend or unit split or in connection with any combination,
exchange, conversion, merger, consolidation, recapitalization, or other
reorganization affecting the Class A Common. Option Shares will continue to be
Option Shares ill the hands of any holder other than Grantee (except for the
Company), and each such transferee thereof will succeed to the rights and
obligations of a holder of Option Shares hereunder.
"Permitted Transferee" means those persons to whom the Grantee
is authorized (1) pursuant to terms and conditions of the Securityholders
Agreement, to transfer Option Shares, or (2) pursuant to Section 5, to transfer
Options.
"Preferred Interests" means the Company's Series A Preferred
Interests, or if the Series A Preferred Interests are hereafter changed into or
exchanged for different interests or securities of the Company, such other
interests or securities, and any other Preferred Interests of the Company
hereinafter issued.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Investor) pursuant to which such third party proposes
to acquire all or substantially all of the outstanding Common Interests (whether
by merger, consolidation, recapitalization, reorganization, purchase of title
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Company or Sleepmaster.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders
Agreement dated as of the date hereof by and among Grantee, the Company, Sleep
Investor L.L.C. and certain other parties thereto.
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<PAGE> 4
EXECUTION COPY
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company association or other
business entity of which (i) if a corporation or a limited liability company, a
majority of the total voting power of securities 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
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Date" means the date upon which Grantee's
employment with the Company terminated including by reason of death or
Disability.
"Vesting Date" means either December 31, 1999 or December 31,
2001 as the context requires.
Article II
1. Grant of Option. The Company hereby grants to Grantee, as
of the date first above written, an option (the "Option") to purchase 106 units
of the Company's Class A Common (which number of units may be adjusted as
provided in Section 13 below) at the exercise price per unit of $100, subject to
the terms and conditions set forth herein. The Option is intended to be a
nonqualified stock option for purposes of the Code.
2. Vesting of Options.
(a) Except as provided in Section 2(b), no
portion of the Option shall vest prior to December 31, 1999. The Option shall
vest based upon the achievement by the Company of certain targets for the 24
month period preceding each Vesting Date as set forth below (each, a "Target"),
if as of each such date the Grantee is still employed by the Company or a
Subsidiary of the Company. On each Vesting Date 50% of the Option shall vest if
as of such Vesting Date the Achieved Result equals or exceeds the Target set
forth opposite such Vesting Date in the table below:
<TABLE>
<CAPTION>
Target
Percent of Option
Vesting Date Target Subject to Vesting
------------ ------ ------------------
<S> <C> <C>
</TABLE>
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EXECUTION COPY
<TABLE>
<CAPTION>
<S> <C> <C>
12/31/99 $60,000,000 50% of original Option
12/31/01 $115,000,000 50% of original Option
</TABLE>
provided, that if the Achieved Result at December 31, 1999 does not equal or
exceed the Target for such date, but at December 31, 2001 the Achieved Result
equals or exceeds $130,000,000, then 100% of the Option shall vest.
(b) (i) In the event of a Sale of the Company at any time
prior to December 31, 1999, if the aggregate cash consideration received by the
holders of the Company's Common Interests equals or exceeds either the Target
for December 31, 1999 or the Target for December 31, 2001, then the applicable
portion(s) of the Option shall vest upon the consummation of such Sale of the
Company, and (ii) in the event of a Sale of the Company after December 31, 1999
but before December 31, 2001, if the aggregate cash consideration received by
the holders of' the Company's Common Interests equals or exceeds the Target for
December 31, 2001, then 50% of the Option shall vest upon the consummation of
such Sale of the Company; provided, that if a Sale of the Company does not occur
prior to December 31, 2001, then this Section 2(b) shall he of no further force
or effect.
(c) If as of December 31, 2001 any portion of the Option has
not vested, such portion shall, at the option of the Company, be automatically
transferred to the Company without consideration and the Committee (in its sole
discretion) may regret such portion of the Option.
3. Conditions to Exercise. Subject to the conditions set forth
in this Section 33 and in Section 4 of this Agreement, the Option may be
exercised by written notice to the Company's Secretary, at any time and from
time to time but only to the extent it has become vested. An Option shall not be
exercisable, in any event, after the tenth anniversary of the date of the grant.
Options are subject to cancellation as provided herein. The Option may not be
exercised by Grantee until the Company has received payment from the Executive
in an amount equal to the full purchase price for the units of Common Interests
being acquired hereunder. Payment of such exercise price may be made in cash
(including check, bank draft, or money order).
4. Withholding Tax Requirements.
(a) Amount of Withholding. It shall be a
condition to the exercise of any Option that Grantee make appropriate payment or
other provision acceptable to the Company with respect to any withholding tax
requirement arising from such exercise. The amount of withholding tax required,
if any, with respect to any Option exercise (the "Withholding Amount") shall be
determined by the Treasurer or other appropriate officer of the Company, and
Grantee shall furnish such information and make such representations as such
officer requires to make such determination.
(b) Withholding Procedure. If the Company determines that
withholding tax is required with respect to any Option exercise, the Company
shall notify Grantee of the Withholding Amount, and Grantee shall pay to the
Company an amount not less than the Withholding Amount.
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EXECUTION COPY
In lieu of making such payment, the Grantee may pay the Withholding Amount by
either (i) delivering to the Company a number of units of Class A Common having
an aggregate Fair Market Value as of the Measurement Date not less than the
Withholding Amount, or (ii) directing the Company to withhold and not deliver or
issue to the Grantee a number of units of Class A Common, otherwise issuable
upon the exercise of the Option, having an aggregate Fair Market Value as of the
Measurement Date not less than the Withholding Amount. In addition, if the
Committee approves, the Grantee may elect pursuant to the prior sentence to
deliver or direct the withholding of units of Class A Common having an aggregate
Fair Market Value in excess of the minimum Withholding Amount but not in excess
of the Grantee's applicable highest marginal combined federal income and state
income tax rate, as estimated in good faith by such Grantee. Any fractional
interests resulting from the delivery or withholding of units of Class A Common
to meet withholding tax requirements shall be settled in cash. All amounts paid
to or withheld by the Company and the value of all units of Class A Common
delivered to or withheld by the Company pursuant to this Section 4 shall be
deposited in accordance with applicable law by the Company, as withholding tax
for Grantee's account. If the Treasurer or other appropriate officer of the
Company determines that no withholding tax is required with respect to the
exercise of any Option, but it is determined subsequently that the exercise
resulted in taxable income as to which withholding is required (as a result of a
disposition of the Option Shares or otherwise), Grantee shall promptly required.
Upon being notified of the withholding requirement, pay to the Company (by means
acceptable to the Company) the amount required to be withheld, and the Company
may, at its election, condition any transfer of Option Share, issued upon
exercise of the Option upon receipt of such payment.
(c) Notification of Inquiries and Agreements. Grantee and each
Permitted Transferee shall notify the Company in writing within 10 days after
the date Grantee or any such Permitted Transferee (i) first obtains knowledge of
any Internal Revenue Service inquiry, audit, assertion, determination,
investigation, or question relating in any manner to the value of Options
granted hereunder, (ii) includes or agrees (including, without limitation, in
any settlement, closing, or other similar agreement) to include in gross income
with respect to any Option granted under this Agreement (A) any amount in excess
of the amount reported on Form 1099 or Form W-2 to the Grantee by the Company,
or (B) if the Grantee received no such Form, any amount; or (iii) sells,
disposes, or otherwise transfers Option Shares acquired pursuant to this
Agreement. Upon request, Grantee or any such Permitted Transferee shall provide
to the Company any information or document relating to any event described in
the preceding sentence which the Company (in its sole discretion) requires in
order to calculate and substantiate any change in the Company's tax liability as
a result of such event.
5. Expiration of Options. Any part of any Option that was not
vested and exercisable on Grantee's Termination Date shall expire and be
forfeited on such date, and any part of any Option that was vested and
exercisable on Grantee's Termination Date shall also expire and be forfeited;
provided, however, that if Grantee (i) dies or becomes subject to an),
Disability, the part of the Option that is vested and exercisable shall expire
180 days from the date of death or Disability, but in no event after the
Expiration Date, (ii) retires (with the approval of the Committee), the part of
the Option that is vested and exercisable shall expire 90 days from the date of
retirement, and (iii) is discharged other than for Cause, the part of the Option
that is vested and exercisable shall expire
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EXECUTION COPY
30 days from the date of discharge, but in no event after the Expiration Date.
In the event of the death of Grantee, Options that are not vested and
exercisable on the date of death shall terminate and Options that are vested as
of the date of death may be exercised by only the executor or administrator of
Grantee's estate or the person or persons to whom Grantee's rights under the
Options pass by will or by the laws of descent and distribution. In the event
that Grantee (or Grantee's executor, administrator or permitted successor as
described in the immediately preceding sentence) exercises any vested Option
following Grantee's Termination Date, the repurchase right of the Company and
Sleep Investor L.L.C. set forth in Section 8 of the Employment Agreement shall
be extended for a period of sixty (60) days.
6. Right to Repurchase Option Shares Upon Termination of
Employment. In the event Grantee's employment with the Company is terminated for
any reason (including death or disability), the Option Shares actually issued
(whether held by Grantee or one or more Permitted Transferees and including any
Option Shares acquired subsequent to such termination of employment) will be
subject to repurchase by the Company pursuant to the terms and conditions of
Section 8 of Grantee's Employment Agreement and shall be deemed "Vested
Interests" for all purposes thereunder (including, without limitation, Section
9(f) of the Employment Agreement).
7. Restrictions on Transfer of Option. This Option may not be
sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of by
Grantee, except by will or by the laws of descent and distribution and is
exercisable during Grantee's lifetime only by Grantee (or, if Grantee is
incapacitated, by Grantee's legal guardian or legal representative). If Grantee
or anyone claiming under or through Grantee attempts to violate this Paragraph
7, such attempted violation shall be null, void, and without effect, and the
Company's obligation hereunder shall terminate.
8. Restrictions on Transfer of Option Shares. Except as
provided in the Securityholders Agreement and subject to Section 16 hereof, the
Grantee may not sell, pledge, or otherwise transfer any interest in any Option
Shares.
9. Administration. Any action taken or decision made by the
Company, the Board, or the Committee or its delegates arising out of or in
connection with the construction, administration, interpretation or effect of
this Agreement shall lie within its sole and absolute discretion, as the case
may be, and shall be final, conclusive, and binding on Grantee and all persons
claiming under or through Grantee. By accepting this grant, Grantee and each
person claiming under or through Grantee shall be conclusively deemed to have
indicated acceptance and ratification of, and consent to, any action taken by
the Company, the Board, or the Committee or its delegates with respect to this
Agreement.
10. Rights as Securityholder. Unless and until a certificate
or certificates representing the Option Shares shall have been issued to
Grantee, Grantee shall not be a securityholder or have any of the rights or
privileges of a securityholder of the Company with respect to units of Common
Interests acquired upon exercise of the Option. Once a certificate or
certificates representing the Option Shares have been issued to Grantee, the
securities underlying such certificate or certificates shall be (i) "Executive
Interests" for all purposes of the Securityholder Agreement and
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EXECUTION COPY
(ii) "Executive Securities" for all purposes of Grantee's Employment Agreement,
and with respect to such securities, Grantee shall have all of the rights and
obligations thereunder.
11. Investment Representation. Grantee hereby acknowledges
that the Option Shares that Grantee may acquire by exercising the Option shall
be acquired for investment without a view to distribution, within the meaning of
the Securities Act, and shall not be sold, transferred, assigned, pledged, or
hypothecated in the absence of an effective registration statement for the
Option Shares under the Securities Act and applicable state securities laws or
an applicable exemption from the registration requirements of the Act and any
applicable state securities laws. Grantee also agrees that the Option Shares
that Grantee may acquire by exercising the Option will not be sold or otherwise
disposed of in any manner that would constitute a violation of any applicable
federal or state securities laws.
12. Listing, Registration, and Legal Compliance. If at any
time the Committee, in its discretion, determines that the listing,
registration, or qualification of the Option Shares upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent, or approval of any governmental regulatory body, is necessary or
desirable as a condition to or in connection with the granting of Options or the
purchase or issuance of Option Shares thereunder, no Options may he granted or
exercised, in whole or in part, unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. Grantee agrees to supply the
Company with such certificates, representations, and information as the Company
shall request and shall otherwise cooperate, with the Company in obtaining such
listing, registration, qualification, consent, or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may impose, at any time, any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section I 6(h) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise finds it desirable because of federal or state regulatory requirements
to reduce the period during which any Options may be exercised, the Committee
may, in its discretion and without Grantee's consent, so reduce such period on
not less than 15 days' written notice to the holders thereof.
13. Adjustment. In the event of a reorganization,
recapitalization, unit dividend, unit split, or such other combination or other
chant, in the units of Class A Common, the Board or the Committee may, in order
to prevent the dilution or enlargement of rights under outstanding Options, and
as such Board or Committee determines in good faith to be appropriate, adjust
(1) the number and type of units as to which options may be granted under the
Plan, (2) the number and type of units covered by outstanding Options, (3) the
exercise price specified herein, and (4) other provisions of this Agreement
specifying a number or percentage of units.
14. Rights of Grantee. Nothing in this Agreement shall
interfere with or limit In any way the right of the Company or any Subsidiary to
terminate Grantee's employment at any time (with or without Cause), or to confer
upon Grantee any right to continue in the employ of the
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EXECUTION COPY
Company or any Subsidiary for any period of time, or to continue to receive
Grantee's current (or other) rate of compensation.
15. Amendment of Outstanding Options. The Committee may amend
or modify any Option; provided, however, that except as expressly contemplated
elsewhere herein, no amendment or modification shall impair the rights of
Grantee without the consent of Grantee unless the holders of 80% of all Options
(based upon the number of Option Shares to be obtained upon exercise) granted by
the Company pursuant to the Option Agreements consent to such amendment in
writing and such amendment affects all Grantees under the Option Agreements
similarly. No amendment or modification to this Option Agreement shall be valid
without the prior written consent of Steep Investor L.L.C.
16. Restricted Securities. All Class A Common issued pursuant
to the terms of this Agreement shall constitute "restricted securities," as that
term is defined in Rule 144 promulgated by the Securities and Exchange
Commission pursuant to the Securities Act, and nim, not be transferred except in
compliance with the registration requirements of the Securities Act or an
exemption therefrom. In connection with any such transfer, the Company may
require the transferor to provide a written opinion of counsel to the effect
that such transfer complies with the Securities Act and other applicable
securities laws. If the units are certificated, certificates representing, the
Opt on Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION' FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN OPTION GRANT MADE BY THE COMPANY, A COPY OF WHICH MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
In addition, Grantee agrees by acceptance of the Option not to
effect any public sale or distribution of any equity securities of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180 days after the
effectiveness of any underwritten registration, except as part of such
underwritten registration if otherwise permitted
17. Notices. Any notice hereunder to the Company shall be
addressed to the attention of the president of the Company, and any notice
hereunder to Grantee shall be addressed to Grantee at Grantee's last address on
the records of the Company, subject to the fight of the Company or Grantee to
designate at any time hereafter in writing some other address. Any notice shall
be deemed to have been duly given when delivered personally, one day following
dispatch if
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EXECUTION COPY
sent by reputable overnight courier, fees prepaid, or three days following
mailing if sent by registered mail, return receipt requested, postage prepaid
and addressed as set forth above.
18. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Grantee.
19. Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits hereto will be
governed by and construed in accordance with the domestic laws of the State of
New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York; provided, that any questions requiring interpretation of the
laws governing limited liability companies shall be governed by the New Jersey
Limited Liability Company Act.
* * * * *
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EXECUTION COPY
IN WITNESS WHEREOF, the Company and Grantee have executed this
Option Agreement as of the date first above written.
SLEEPMASTER HOLDINGS L.LC.
/s/
---------------------------------------
Name:
Title:
GRANTEE
Employee's Signature
Name of Employee (Print)
Accepted and agreed
solely for purposes
of Section 15 hereof
SLEEP INVESTOR L.L.C.
By:
---------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), dated as of
March __, 1998, by and between PALM BEACH BEDDING COMPANY, a Florida corporation
(the "Company"), and MICHAEL W. BUBIS (the "Executive"), and joined in by
SLEEPMASTER L.L.C., a New Jersey limited liability company ("Sleepmaster"), and
by SLEEPMASTER HOLDINGS, L.L.C., a New Jersey limited liability company
("Holdings"), each for purposes of being bound by the covenants respectively
made by them in this Agreement.
W I T N E S S E T H:
WHEREAS, Sleepmaster Acquisition Corp. ("Sub"), a Florida corporation
and a wholly-owned subsidiary of Sleepmaster, has merged with and into the
Company, pursuant to the Agreement and Plan of Merger, dated as of March 2, 1998
(the "Merger Agreement"), whereupon the separate existence of Sub shall cease
and the Company shall continue as the surviving corporation and become a
wholly-owned subsidiary of Sleepmaster, upon the terms and conditions set forth
in the Merger Agreement (the "Merger"); and
WHEREAS, the Executive has heretofore been employed by the Company as
its President; and
WHEREAS, the Company desires to continue to employ the Executive after
the Merger and it is a condition precedent to the transactions contemplated by
the Merger Agreement that this Agreement be entered into, and the Executive
desires to accept such continued employment, upon the terms and conditions set
forth in this Agreement; and
WHEREAS, the Executive and the Company wish to set forth the terms of
the continued employment of the Executive.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, of the foregoing recitals which are acknowledged by the
parties to be true and correct in all respects and which are incorporated into
this Agreement, and of other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, it is mutually covenanted and
agreed by and between the Executive and the Company, as follows:
1. Employment. Subject to the terms and conditions of this
Agreement, during the Employment Term (as defined in Section 2) the Company will
employ the Executive, and the Executive will be employed exclusively by the
Company. The Executive will hold the office of President and such additional
offices as the Board of Directors of the Company (the "Board") may from time to
time determine. The Executive will devote his entire business efforts to the
Company. The Executive's duties shall be full time and shall include all the
responsibilities of a chief executive officer of a bedding manufacturing and
sales company. In that connection, the Executive agrees to perform such duties
as the Board shall reasonably required, consistent with the services previously
furnished by the Executive to the Company as President during the period
commencing in calendar year 1992 through the date of this Agreement and
consistent with the employment status previously
<PAGE> 2
enjoyed by the Executive during the aforesaid period and subject to the terms of
this Agreement; provided, that the Board may require one or more signatures in
addition to the addition to the signature of the Executive on certain or all of
the Company's bank drafts and checks. Nothing in this Section 1, however, will
prevent the Executive from making and monitoring personal investments and
engaging in community affairs that are not inconsistent with the Executive's
duties under this Agreement, including his duties and obligations under Sections
8, 9 and 10. Sleepmaster will vote its shares of stock in the Company to cause
the Executive to be elected as a director of the Company during the Employment
Term of this Agreement and will encourage its own members to cause the Executive
to be elected to the Board of Advisors of Sleepmaster during the Employment
Term. Sleepmaster and the Company each agree and acknowledge that it is a
material term of this Agreement that during the Employment Term the Executive be
named and serve as a member of the Board of Advisors of Sleepmaster and
Holdings. The Executive will fulfill his duties as a director of the Company and
as a member of the Boards of Advisors of Sleepmaster and Holdings without
additional compensation.
2. Employment Term. As used in this Agreement, "Employment Term"
means the three-year period beginning on the date of this Agreement and ending
on the third anniversary of such date, projected to be on or about February 28,
2001 (the "Expiration Date"); provided, that if the Company terminates the
Executive's employment prior to the Expiration Date, or if the Executive
terminates his employment with the Company prior to the Expiration Date or if
the Executive's employment with the Company terminates by reason of the
Executive's death prior to the Expiration Date, "Employment Term" shall mean the
period commencing as of the date of this Agreement and ending on the date of
such termination. Notwithstanding that the Employment Term may end prior to the
Expiration Date as a result of events described in the preceding sentence, the
Company's continuing obligations to the Executive in each such instance are
described in Sections 5, 6 and 7 of this Agreement, and the Executive's
continuing obligations to the Company in each such instance are described in
Sections 9, 10, 11, and 12 of this Agreement.
3. Compensation.
(a) During the first twelve-month period within the
Employment Term, the Executive's base salary (the "Base Salary") shall be paid
at the rate of $290,000 per annum. Immediately following such twelve-month
period and thereafter during the Employment Term the Base Salary shall be
increased at twelve-month intervals by a percentage of increase consistent with
the increases granted to other members of senior management of the Company and
Sleepmaster relating to the same twelve-month period. The Base Salary for each
year of this Agreement shall be paid by the Company in equal regular
installments in accordance with the Company's general payroll practices, but no
less frequently than monthly, and shall be subject to customary federal
withholding with respect to wages.
(b) For each fiscal year during the Employment Term, the
Executive will be eligible to receive a bonus (the "Bonus Payment") based on the
Company's achievement of the Target EBITDA for such fiscal year as set forth on
the Company's EBITDA Plan attached as Schedule A hereto (the "EBITDA Plan").
Except as otherwise provided in Section 7, if any portion of the Executive's
employment during the Employment Term is less than a full fiscal year of the
Company (a "Fiscal Year"), then with respect to each such shortened Fiscal Year
the Target EBITDA shall be prorated (on the basis of a 365-day year). The Bonus
Payment with respect to the Executive's
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services during such shortened period shall be calculated utilizing a "replaced"
Target EBITDA amount for purposes of calculating the Bonus Payment during that
shortened period, equal to an amount equal to the Target EBITDA with respect to
such Fiscal Year containing such shortened period, multiplied by a fraction the
numerator of which is the number of days during which the Executive was employed
under this Agreement within the such shortened period and the denominator of
which is 365.
(c) The Company will cause to be prepared, at its own
expense and within a reasonable period of time after the end of each Fiscal Yar
any part of which occurs during the Employment Term, financial statements
showing the Company's achieved EBITDA computed as provided above for any partial
Fiscal Year. Such financial statements must have been audited by the certified
public accounting firm regularly engaged at the time by the Company, which firm
must have expressed an opinion that these financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied.
(d) Once the Board has determined (which determination
shall be made within 30 days from the issuance of the Company's audited
financial statements) the achieved EBITDA for such Fiscal Year (or shortened
period) as compared to the Target EBITDA for such Fiscal Year (or shortened
period), (the "Achieved EBITDA Percentage"), then so long as the Achieved EBITDA
Percentage for such Fiscal Year (or shortened period) equals or exceeds 80%,
subject to the provisions of Sections 5 and 6, the Executive shall be entitled
to receive the Bonus Payment in an amount equal to the product of (x) the Bonus
Multiple (as set forth opposite the Achieved EBITDA Percentage below), (y) 20%
and (z) the Executive's Base Salary for such Fiscal Year. The Bonus Payment
shall be made within ten business days of the Board's determination.
<TABLE>
<CAPTION>
---------------------------------------------
Achieved EBITDA Percentage Bonus Multiple
---------------------------------------------
<S> <C>
80% 50%
---------------------------------------------
100% 100%
---------------------------------------------
110% 125%
---------------------------------------------
120% 150%
---------------------------------------------
</TABLE>
(e) Each Bonus Multiple set forth above shall increase
linearly as the Achieved EBITDA Percentage increases; therefore, so long as the
Achieved EBITDA Percentage equals or exceeds 80%, if the actual Achieved EBITDA
falls between any of the target Achieved EBITDA Percentages set forth above, the
applicable Bonus Multiple shall be adjusted accordingly; provided, that in no
event shall the Bonus Multiple exceed 150%. For example: (1) if the actual
Achieved EBITDA Percentage is 90%, the Bonus Multiple shall be 75% or (2) the
actual Achieved EBITDA Percentage is 115%, the Bonus Multiple shall be 137.5%.
4. Executive Benefits.
(a) During the Employment Term, the Executive shall be
entitled to participate in such retirement, profit sharing and pension plans and
life and other insurance programs, as well as other benefits programs, which are
available to senior executive employees of Sleepmaster who are
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<PAGE> 4
similarly situated, subject to the Company's policies with respect to all of
such benefits or insurance programs or plans; provided, that except as expressly
set forth herein, the Company shall not be obligated to institute or maintain
any particular benefit or insurance program or plan or aspect thereof.
(b) During the Employment Term, the Executive will be
entitled to four weeks' paid vacation each Fiscal Year in accordance with the
vacation policies of Sleepmaster in effect for its executive officers and the
executive officers of the Company from time to time. Vacation must be taken by
the Executive at such time or times as is mutually agreeable. During the
Employment Term, the Executive will also be entitled to the paid holidays and
other paid leave set forth in the Company's employment policies. Vacation days
and holidays during any Fiscal Year that are not used by the Executive during
such Fiscal Year may not be used in any subsequent Fiscal Year.
(c) During the Employment Term, the Company shall
reimburse the Executive or pay all reasonable travel and entertainment expenses,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities undertaken on behalf of the Company, in a manner
consistent with the Executive's current employment and status as the President
of the Company, subject to the Executive's submission of such documentation as
the Company shall require.
(d) During the Employment Term, the Company will furnish
the Executive office space, equipment, supplies, and such other facilities and
secretarial and other personnel as the Company deems necessary or appropriate
for the performance of the Executive's duties under this Agreement and
consistent with the current status of the Executive as the President of the
Company.
(e) During the Employment Term, the Company will provide
the Executive with an annual allowance of $3,000 for payment of dues in such
professional societies, organizations and social clubs as shall be determined by
the Executive to have a legitimate business purpose.
(f) During the Employment Term, the Company will provide
the Executive with an annual Nine Thousand Dollar ($9,000.00) automobile
allowance, payable in equal monthly installments, and the Executive will provide
his own automobile, and maintain and insure it at his own expense, for his
business use in connection with the Executive's employment under this Agreement.
5. Termination.
(a) The Company shall have the right, at its election, to
terminate the Executive's employment with the Company as follows:
(i) upon the death of the Executive, subject to
the terms of Section 6(a);
(ii) for Cause (as defined in and subject to the
terms of Section 5(b)), upon notice from the Company to the
Executive; and
(iii) without Cause, defined as any termination by
the Company of the Executive's employment relationship with
the Company for any reason or for no reason, other than upon
the death of the Executive or for "Cause" as defined in and
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<PAGE> 5
subject to the terms of Section 5(b). The consequences of a
"without Cause" termination are described in Section 7 of this
Agreement.
(b) As used in this Agreement, "Cause" shall be defined
only as follows:
(i) the conviction of the Executive convicted of
a felony under state or federal criminal law where the felony
has a material adverse effect on the Company or brings the
Company into disrepute;
(ii) a judicial determination that the Executive
has engaged in fraud or embezzlement against the Company or
engaged in gross negligence or willful misconduct injurious to
the Company;
(iii) the material breach by the Executive of any
of the Executive's material covenants under this Agreement and
the failure of the Executive to cure such material breach in
the manner hereinafter described (the Company and the
Executive hereby agree that the Company's failure to achieve
performance targets shall not be deemed a breach by the
Executive under this Agreement). For purposes of this Section
5(b)(iii), "material" means a matter having substantial import
or consequences.
Upon any termination of the Executive's employment by the Company for
Cause, the Company shall pay to the Executive the accrued (but unpaid) Base
Salary then in effect prorated on a daily basis up to the date specified in such
termination notice and such Base Salary shall thereafter cease to be payable by
the Company to the Executive as of such specified date, and the Executive shall
not receive any Base Salary accruing thereafter or any Bonus Payment for the
Fiscal Year in which such termination occurs or for any subsequent period, or
any other benefit with respect to his employment with the Company, other than as
may be specified by state or federal law. In order for Cause to be a basis for
termination of the Employment Term under Section 5(b)(iii), the Company shall
first send a notice to the Executive setting forth in reasonable detail the
specified act or omission of the Executive which constitutes the material breach
of any of the Executive's material covenants under this Agreement and shall
specify a period of not less than 30 days during which the Executive shall have
an opportunity to cure such material breach. If after such cure period the
Company reasonably determines that the Executive has failed to cure such
material breach, the Company shall so notify the Executive, and the Executive's
employment under this Agreement shall terminate upon a date set forth therein.
During such cure period the Executive shall continue to have uninterrupted
access to the Company's places of business solely to discharge his duties under
this Agreement and to cure such material breach.
(c) The Executive shall have the right, at his election,
to terminate the Employment Term and the Executive's employment relationship
with the Company by notice to the Company within 30 days after the occurrence of
a Good Reason Event as defined below in this Section. As used in this Agreement,
a "Good Reason Event" means any of the following, after required notice and
permitted cure:
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<PAGE> 6
(i) the Company's or Sleepmaster's material
breach of any material covenant of this Agreement, including,
but not limited to, the failure of the Executive to be elected
to the Board of the Company and to the Board of Advisors of
Sleepmaster and Holdings;
(ii) the assignment of the Executive without his
consent to a position, responsibilities or duties of a
materially lesser status or degree of responsibility than the
Executive's position, responsibilities or duties with the
Company as of January 1, 1997;
(iii) the relocation of the Company's principal
executive offices outside the metropolitan West Palm Beach,
Florida area without the Executive's consent; or
(iv) the requirement by the Company that the
Executive be based anywhere other than the Company's principal
executive offices without the Executive's consent.
In order for the occurrence of any Good Reason Event to be a basis for
termination of the Employment Term under Section 5(c), the Executive shall first
send a notice to the Company setting forth in reasonable detail the material
breach or specific act or omission of the Company which constitutes the Good
Reason Event and shall specify a period of not less than 30 days during which
the Company shall have an opportunity to cure such material breach or act or
omission if such act or omission is, in the good faith determination of the
Executive, curable within 30 days; provided, that if in good faith the Executive
has determined the material breach or act or omission not to be so curable, the
notice may further state that the Executive's employment under this Agreement
shall terminate upon a date set forth therein. If after such cure period the
Executive reasonably determines that the Company has failed to cure such
material breach or act or omission, the Executive shall so notify the Company,
and the Executive's employment under this Agreement shall terminate upon a date
set forth therein. During such cure period the Executive shall continue to have
uninterrupted access to the Company's places of business to discharge his duties
under this Agreement. Upon a termination of the Employment Term and the
Executive's employment relationship with the Company by the Executive as a
result of the occurrence of a Good Reason Event the Company shall be financially
obligated to the Executive in the manner and to the extent itemized in Section 7
of this Agreement.
(d) The Executive shall have the right, at his election
upon written notice to the Company, to terminate the Employment Term and the
Executive's employment relationship with the Company, immediately upon the
Executive's voluntary resignation other than upon the occurrence of a Good
Reason Event. Upon such voluntary resignation other than upon the occurrence of
a Good Reason Event, the Company will pay the Executive the accrued (but unpaid)
Base Salary then in effect, prorated on a daily basis up to the date of the
Executive's voluntary resignation but the Company shall have no obligation to
pay any additional compensation to the Executive under this Agreement, including
any additional Base Salary or any Bonus Payment due for the Fiscal Year in which
such voluntary resignation or termination by the Executive occurred or for any
subsequent Fiscal Year. Such voluntary resignation by the Executive other than
upon the occurrence of a Good Reason Event shall not be deemed a material breach
by the Executive of any material covenant under this Agreement and shall not
subject the Executive to any obligation, financial or otherwise, to the Company,
except with respect to the Executive's violations of the terms of Sections 9,
10, 11 and 12 of this Agreement.
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<PAGE> 7
(e) Upon any termination of the Employment Term, whether
by the Company or the Executive, or upon the Expiration Date, the Executive
shall resign all offices and directorships and from any other offices (including
as a member of the Board of Advisors) held with the Company and its subsidiaries
and affiliates, including Sleepmaster and Holdings.
(f) Upon any termination of the Employment Term, whether
by the Company or the Executive, or upon the Expiration Date, the Company will
reimburse the Executive for all out-of-pocket expenses with respect to which
executive employees of the Company are generally entitled to reimbursement
through the date of termination of the Employment Term, and with respect to
which the Executive is entitled by virtue of Section 4, subject to the
Executive's submission of such documentation as the Company shall require. All
payments shall be made for purposes of this Section 5(f) at the time they would
have been made if this Agreement had not been terminated.
6. Death and Disability.
(a) Death. The Employment Term shall immediately
terminate upon the Executive's death. If the Executive dies prior to the
Expiration Date, the Company will pay the Executive's legal representatives, as
set forth below, in full and complete satisfaction of all of the Company's
obligations under this Agreement, (i) the accrued (but unpaid) Base Salary then
in effect prorated on a daily basis up to the date of the Executive's death;
(ii) the remaining (and unaccrued) Base Salary in effect at the time of his
death that would have been paid to the Executive through the Expiration Date.
Payments in satisfaction of the Company's obligations to the Executive pursuant
to this Section 6(a) shall be made to the legal representative of the Executive
in regular installments in accordance with the Company's general payroll
practices, at the times such payments would have been made to the Executive had
he not died; provided, that at such time as the Company receives (as named
beneficiary thereunder) proceeds of any insurance policy on the life of the
Executive, the Company will promptly pay to the Executive's legal representative
within ten days of its receipt of such proceeds, a lump sum payment equal to (i)
the accrued (but unpaid) Base Salary then in effect prorated on a daily basis up
to the date of the Executive's death and (ii) the remaining (and unaccrued) Base
Salary then in effect at the time of his death that would have been paid to the
Executive through the Expiration Date (to the extent of such proceeds), but only
if and to the extent not previously paid. Any such lump sum payment of life
insurance proceeds shall be applied in the inverse order of payment obligations
of the Company, from the Expiration Date back towards the date of the
Executive's death, with any unsatisfied obligations of the Company due to the
insufficiency of the receipted life insurance proceeds being satisfied
periodically as if the Company had not received life insurance proceeds as a
result of the death of the Executive; and (iii) any Bonus Payment due for the
Fiscal Year in which the Executive's death occurred, prorated to reflect only
that portion of the Fiscal Year prior to the death of the Executive, payable at
the time such Bonus Payment would have been made to the Executive had he not
died.
(b) Disability. If during the Employment Term the
Executive suffers from a "disability" as defined and determined in Section 6(d):
(i) the Base Salary otherwise payable during the Disability Period (as herein
defined) shall nevertheless be payable on the terms set forth herein to the
Executive as a disability benefit ("Disability Benefit") but shall be reduced by
disability insurance proceeds paid to the Executive pursuant to any benefit plan
of the Company; (ii) any Bonus
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<PAGE> 8
Payment for the calendar year in which the Disability occurred shall be prorated
to reflect only that portion of the fiscal year during which the Executive
performed services if the Disability equals or exceed 120 days of such year but
otherwise shall not be subject to proration in the event of Disability; and
(iii) the Company shall not have the right to terminate this Agreement due to
such Disability. If the Executive dies at any time prior to the Expiration Date,
the provisions of Section 6(a) shall apply and the Company will pay the
Executive's legal representatives, within 10 days of their appointment, the
remaining (and unaccrued) Base Salary in effect at the time of his death that
would have been paid to the Executive through the Expiration Date in the same
manner and under the same conditions as stipulated in Section 6(a) above.
(c) Determination of Disability. For purposes of this
Section, the Executive will be deemed to have a "disability" if, for physical or
mental reasons, the Executive is unable to perform the essential functions of
the Executive's duties under this Agreement for 120 consecutive days, or 180
days during any twelve month period, as determined in accordance with this
Section 6(d). The disability of the Executive will be determined by a medical
doctor selected by written agreement of the Company and the Executive upon the
request of either party by notice to the other. If the Company and the Executive
cannot agree on the selection of a medical doctor, each of them will select a
medical doctor and the two medical doctors will select a third medical doctor
who will determine whether the Executive has a disability. The determination of
the medical doctor selected under this Section will be binding on both parties.
The Executive must submit to a reasonable number of examinations by the medical
doctor making the determination of disability under this Section and the
Executive hereby authorizes the disclosure and release to the Company of such
determination and all supporting medical records. If the Executive is not
legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section 6(d), for
the purposes of submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section.
7. Termination by Company without Cause or by the Executive for
Good Reason. If the Executive terminates the Employment Term upon the occurrence
of a Good Reason Event, as provided in Section 5(c), or if the Company
terminates the Employment Term "without Cause" as provided in Section 5(a)(iii),
the Executive's Base Salary in effect at the time of the event for the period
from the date of termination through the Expiration Date shall be paid by the
Company to the Executive, in a lump sum, not later than the effective date
specified in the termination notice (or, if there is no date specified in the
termination notice, the date which is five business days after the date of the
notice). In addition thereto, on the same date, the Executive shall receive in
lieu of and in total satisfaction of any Bonus Payment due or to become due
under this Agreement an amount equal to Two Thousand Three Hundred Dollars
($2,300.00) multiplied by the number of months in the period beginning with the
end of the most recently completed Fiscal Year prior to the date of termination
and ending on the Expiration Date (the "Stub Period"), and the Executive shall
also receive, together with the foregoing, the Company's assumption of COBRA
payments made with respect to the Executive, to maintain in place medical
insurance coverage provided to the Executive under Section 4(a) through the
Expiration Date and (payable on the same date as the lump sum Base Salary
payment), the Company's good faith estimate of the monetary equivalent of the
benefits payable under Section 4(a), through the Expiration Date (including the
premium cost of obtaining and maintaining the same health insurance benefits
enjoyed by the Executive if the Company's COBRA coverage for the Executive
cannot remain in effect from the date of such termination through the Expiration
Date). In addition the Executive shall receive,
- 8 -
<PAGE> 9
together with the foregoing (payable on the same date as the lump sum Base
Salary payment), the Company's good faith estimate of the monetary equivalent of
the benefits payable under Sections 4(e) and 4(f), through the Expiration Date
(valued at the Executive's replacement cost) which the Executive would have
received during the Stub Period. The provisions of this Section 7 are also the
exclusive provisions that will apply if a court or arbitrator should determine
that the Company's termination of the Executive's employment was "without Cause"
or was by reason of a material breach by the Company of any of its obligations
under this Agreement or was upon the occurrence of a Good Reason Event (although
the payment of such benefits by virtue of this Section 7 are not conditioned on
such judicial or arbitration determination), but shall not preclude or limit any
action by the Executive based on any alleged gross negligence, recklessness or
tortious conduct by the Company in connection with such termination. The
Executive hereby agrees that, subject to and upon the satisfaction by the
Company of each of its obligations to the Executive pursuant to Sections 5, 6
and 7, no severance compensation of any kind, nature or amount shall be payable
to the Executive and, except as expressly provided in Sections 5, 6 and 7 of
this Agreement, the Executive hereby irrevocably waives any claim for severance
compensation.
8. Key-Man Insurance. The Company shall have the right to obtain
a life insurance policy or policies on the life of Executive, in amounts
determined by the Board of Directors of the Company (but in no event in excess
of One Million Dollars ($1,000,000)), and Executive agrees to make himself
available for such physical examinations and will execute such applications and
other documents and otherwise cooperate with the Company, as may be necessary to
facilitate the issuance of such policy or policies. If the Company obtains an
insurance policy (the "Policy") on the life of Executive, all proceeds payable
in respect thereof shall be the property solely of the Company. If Executive's
employment terminates for any reason other than Executive's Death, Executive may
request that the Policy be assigned to Executive by giving written notice to the
Company to that effect, and subject to obtaining any requisite consent from the
insurer, the Company shall, if Executive has so requested, assign the Policy to
Executive, subject to Executive's reimbursement to the Company of any premiums
paid by the Company which relate to any period following the date of termination
of Executive's employment, and the cash value, if any, of the Policy.
9. Repurchase Option on Executive Interests. If the Executive
ceases to be employed by the Company for any reason, including, but not limited
to, the failure or inability of the Company and the Executive to elect to
continue the Executive's employment with the Company after the Expiration Date,
the membership interests of Holdings being acquired by the Executive as of the
date of this Agreement (referred to as the "Executive Securities") (whether held
by the Executive or by one or more of the Executive's transferees) will be
subject to repurchase by Holdings and Sleep Investor, L.L.C. (the "Investor")
(or its designee) pursuant to the terms and conditions set forth in this Section
(the "Repurchase Option").
(a) The purchase price for each Executive Security will
be the Fair Value for such unit (as defined on Schedule B). Notwithstanding the
foregoing, (i) if the termination of the Employment Term is by the Company for
Cause, then the purchase price for each of the Executive Securities will be the
Executive's original cost thereof plus interest thereon accrued from the date of
this Agreement through the date of payment for such Executive Security,
calculated at a rate per annum equal to the latest published rate for United
States Treasury Notes with a five-year maturity, as published in the "Treasury
Bonds, Notes & Bills" column of The Wall Street Journal; and (ii) if the
- 9 -
<PAGE> 10
termination of the Employment Term is by the voluntary resignation of the
Executive without a Good Reason Event, then the purchase price for each
Executive Security will be the Executive's original cost thereof.
(b) The Board of Advisors of Holdings may elect to cause
Holdings to purchase all, but not less than all of the Executive Securities by
delivering written notice (the "Repurchase Notice") to the holder or holders
thereof within 90 days after the termination of the Executive's employment with
the Company. The Repurchase Notice will set forth the aggregate consideration to
be paid for the Executive Securities, as determined in Section 9(a) above, and
the time and place for the closing of the transaction.
(c) If for any reason Holdings does not elect to purchase
all of the Executive Securities that are subject to the Repurchase Option,
pursuant to such Repurchase Option, the Investor (or its designees) shall be
entitled to exercise the Repurchase Option for the Executive Securities which
Holdings has not elected to purchase; provided, however, that if Holdings and
the Investor fail to purchase all of the Executive Securities, that are subject
to the Repurchase Option, no acquisition of any of the Executive Securities will
be concluded.
(d) The closing of the purchase of the Executive
Securities pursuant to the Repurchase Option shall take place on the date
designated by Holdings in the Repurchase Notice, which date shall not be later
than the 30th day after the delivery of the later of such notices to be
delivered (or, if later, the 15th day after the Fair Value is finally
determined) nor earlier than the fifth day after such delivery. Holdings and/or
the Investor (or its designee) will pay for the Executive Securities, purchased
pursuant to the Repurchase Option by delivery of a certified or cashier's check
or wire transfer of good federal funds in an amount equal to the purchase price
therefor times the number of all the Executive Securities. The purchasers of
Executive Securities hereunder will be entitled to receive customary
representations and warranties from the sellers as to title, authority and
capacity to sell.
(e) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of Executive Securities by Holdings or the
Investor shall be subject to applicable legal restrictions. If any such
restrictions prohibit the repurchase of Executive Securities hereunder which
Holdings is otherwise entitled to make, Holdings may make such repurchases as
soon as it is permitted to do so under such restrictions.
(f) If a "Sale of Holdings" (as hereinafter defined)
shall be consummated within six months of the consummation of the repurchase of
Executive Securities pursuant to this Section, then with respect to each
Executive Security sold by the Executive pursuant to this Section, the Executive
shall be entitled to receive an amount equal to the difference, if any, (i)
between the per unit consideration received by Holdings or the Investor in
connection with the Sale of Holdings and (ii) the repurchase price of the
Executive Securities, per unit paid to the Executive; provided, that if the
termination of the Executive's employment with the Company is by the Company for
Cause or as a result of the voluntary resignation of the Executive without a
Good Reason Event, this Section shall not apply. For purposes of this Agreement
the term "Sale of Holdings" means (i) the sale of Holdings, in a single
transaction or a series of related transactions, to a third party (which is not
an Affiliate of Holdings) pursuant to which such third party proposes to acquire
all or substantially all of the
- 10 -
<PAGE> 11
outstanding Common Interests (whether by merger, consolidation,
recapitalization, reorganization, purchase of the outstanding Common Interests
or otherwise) or (ii) the sale of all or substantially all of the consolidated
assets of Holding or Sleepmaster. For purposes of this Agreement the term
"Affiliate" of Holdings means any entity that directly or indirectly controls,
or is controlled by, or is under common control with Holdings.
10. Return of Property and Nondisclosure. Upon termination or
expiration of the Executive's employment pursuant to this Agreement, the
Executive will promptly deliver to the Company all data, lists, information,
memoranda, documents and all other property belonging to the Company or
containing "Confidential Information" or "Trade Secrets" of the Company or
Sleepmaster (both as defined below), including, among other things, that which
relates to services performed by the Executive for the Company, or was created
or obtained by the Executive while performing services for the Company or by
virtue of the Executive's relationship with the Company. Except as required in
order to perform his obligations under this Agreement during the Employment Term
and except for disclosure required by law or to permit enforcement of this
Agreement, the Executive shall not, without the express prior written consent of
the Company, disclose or divulge to any other person or entity, or use or modify
for use, directly or indirectly, in any way, for any person or entity any of the
Company's Confidential Information or Trade Secrets at any time (during or after
the Executive's employment) during which data or information continues to
constitute Confidential Information or a Trade Secret. For purposes of this
Agreement, "Confidential Information" of the Company or Sleepmaster shall mean
any valuable, competitively sensitive data or information related to the
business of the Company or Sleepmaster (other than Trade Secrets) that are not
generally known by or readily available to the competitors of the Company or
Sleepmaster. "Trade Secrets" shall mean information or data of the Company or
Sleepmaster including, but not limited to, technical or nontechnical data,
financial information, programs, devices, methods, techniques, drawings,
processes, financial plans, product plans, or lists of actual or potential
customers or suppliers, that: (a) derive economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from their disclosure or
use; and (b) are the subject of efforts that are reasonable under the
circumstances to maintain their secrecy. To the extent that the foregoing
definition is inconsistent with a definition of "trade secret" mandated under
applicable law, the latter definition shall govern for purposes of interpreting
the Executive's obligation under this Agreement. None of the foregoing
obligations and restrictions applies to any part of the Confidential Information
or Trade Secrets that the Executive demonstrates was or became generally
available to the public other than as a result of a nonpermitted disclosure by
the Executive. Except for disclosure required by law or to permit enforcement of
this Agreement, the terms of this Agreement shall be deemed Confidential
Information of the Company or Sleepmaster and shall not be discussed or
disclosed by Executive with any person other than Executive's spouse, attorney
or accountant.
11. Noncompetition. The Executive acknowledges that he has
substantial experience and expertise in the mattress business and that, as such,
the services to be performed by him are of a special, unique, unusual and
extraordinary character. The Executive further acknowledges that the nature of
the services, position and expertise of the Executive are such that he is
capable of competing with the Company. In consideration of this Employment
Agreement and the remuneration payable to the Executive under this Employment
Agreement, the Executive covenants and agrees that the Executive shall not,
without the prior written consent of the Board, during the "Restricted Period"
(a)
- 11 -
<PAGE> 12
directly or indirectly enter into the employ of or render any advice or
services, whether or not for compensation, to any "Person" engaged in any
"Competitive Business," (b) directly or indirectly engage in any Competitive
Business, (c) directly or indirectly become interested, whether or not for
compensation, in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee, trustee,
consultant, advisor or in any other relationship or capacity or, in the case of
any such company whose securities are traded on a national securities exchange
in the United States or otherwise or in the over-the-counter market, acquire,
directly or indirectly, an interest in excess of one percent (1%) of the
outstanding capital stock of such company. For purposes of this Section,
"Restricted Period" shall mean the period commencing as of the Effective Date of
this Agreement and ending on the Expiration Date. For purposes of this Section,
any "Competitive Business" shall mean any business which is principally engaged
in the manufacturing and sales of mattresses and other bedding products and
which is located within the marketing area of Sleepmaster, the Company or any
other subsidiary of Sleepmaster as of such time. For purposes of this Section,
"Person" shall mean any corporation, partnership, trust, individual or any other
entity. In the event that any provision of this Section is considered by a court
of competent jurisdiction to be excessive in its duration, in the area to which
it applies or in any other respect, it shall be considered modified and valid
for such duration, for such area and in such other respects as such court may
determine reasonable under the circumstances.
12. Nonsolicitation. While he is employed by the Company, and for
a period of three years thereafter, the Executive will not, directly or
indirectly, without the prior written consent of the Company, solicit or attempt
to solicit any employee, consultant, contractor or other personnel of the
Company (other than Robert A. Kramer, John Fenn Foster and Martin Dytrych) to
terminate, alter or lessen that party's affiliation with the Company or to
violate the terms of any agreement or understanding with the Company. At any
time the Executive may engage the services of the foregoing three individuals
(or their respective professional service firms) in any matter in which the
Executive's interest may be adverse to that of the Company, and the Company
agrees in such case not to assert the existence of a conflict of interest so as
to disqualify any of such individuals (or their respective professional service
firms) from representing the Executive.
13. Specific Remedies. In the event of the violation or threatened
violation by the Executive of any of the covenants or provisions of Sections 10,
11, or 12, the Company or any holder of greater than 20% of the capital stock of
the Company on behalf of the Company, shall have (i) the right and remedy of
specific enforcement and performance of Sections 10, 11 and 12, including
injunctive relief, it being acknowledged and agreed that any such violation or
threatened violation will cause irreparable injury to the Company and that
monetary damages will not provide an adequate remedy to the Company, and (ii)
rights to any and all damages available as a matter of law.
14. Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be sufficiently given if
delivered in person, if mailed by certified mail, return receipt requested,
postage prepaid, if delivered by confirmed telefax or if sent by a nationally
recognized overnight courier, delivery prepaid, addressed as follows:
- 12 -
<PAGE> 13
Executive:
Michael W. Bubis
2366 Inland Cove Road
Palm Beach Garden, Florida 33410
with copies to:
Robert A. Kramer, Esq.
Robert A. Kramer, P.A.
316 South Baylen Street
Pensacola, Florida 32501
Company:
Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036-6520
with copies to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen
& Quentel
200 Park Avenue
New York, New York 10166
Attn: William A. Newman, Esq.
Fax No.: (212) 223-7161
All such written notices and communications delivered as aforesaid shall be
deemed given for purposes of this Agreement on the day such notice or
communication is received if delivered personally or by telefax, or, if
delivered by certified mail, as aforesaid, on the date that is four business
days after deposit in the mail or, if delivered by nationally recognized
overnight courier, two days after it has been so sent.
15. General.
(a) This Agreement and all transactions contemplated by
this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Florida, without regard to principles of
conflicts of laws. The Company, Sleepmaster and the Executive acknowledge that a
substantial portion of the negotiations, anticipated performance and execution
of this Agreement occurred or shall occur in Palm Beach County, Florida, and
that, therefore, without limiting the jurisdiction or venue of any other federal
or state courts, each of the Company, Sleepmaster and the Executive irrevocably
and unconditionally: (a) agrees that any suit, action or legal proceeding
arising out of or relating to this Agreement may be brought in the courts of
record of the State of Florida in Palm Beach County or the District Court of the
United States, Southern District of Florida; (b) consents to the jurisdiction of
each such court in any suit, action or proceeding; (c) waives
- 13 -
<PAGE> 14
any objection which it may have to the laying of venue of any such suit, action
or proceeding in any of such courts; and (d) agrees that service of any court
paper may be effected on such party by mail, as provided in this Agreement, or
in such other manner as may be provided under applicable laws or court rules in
said state.
(b) This Agreement contains the entire understanding of
the Company, Sleepmaster and the Executive with respect to its subject matter
and supersedes all previous written and oral agreements between the parties with
respect to the subject matter set forth herein. There are no representations,
promises, warranties, covenants or undertakings other than as expressly set
forth herein or therein. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(c) This Agreement may not be modified or amended except
by a writing signed by both of the Company and the Executive.
(d) Any provision of this Agreement that is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this section, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable in any other
jurisdiction. If the covenant should be deemed invalid, illegal or unenforceable
because its scope is considered excessive, such covenant should be modified so
that the scope of the covenant is reduced only to the minimum extent necessary
to render the modified covenant valid, legal and enforceable.
(e) All of the covenants contained in this Agreement
shall survive its expiration or termination for any reason, for the applicable
statutory period of limitations.
(f) This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
(g) The headings and titles to the sections of this
Agreement are inserted for convenience only and shall not be deemed a part of or
affect the construction or interpretation of any provisions hereof.
- 14 -
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
COMPANY:
PALM BEACH BEDDING COMPANY
By: /s/ Charles Schweitzer
---------------------------------
Name: Charles Schweitzer
-------------------------------
Title: Chairman of the Board
------------------------------
EXECUTIVE:
/s/ Michael W. Bubis
-------------------------------------
Michael W. Bubis
- 15 -
<PAGE> 16
And joined by Sleepmaster and Holdings for the purpose of being bound to perform
the covenants made by Sleepmaster and Holdings in this Agreement.
SLEEPMASTER L.L.C.
By: /s/ Charles Schweitzer
---------------------------------
Name: Charles Schweitzer
-------------------------------
Title: Manager
------------------------------
By: /s/ James P. Koscica
---------------------------------
Name: James P. Koscica
-------------------------------
Title: Manager
------------------------------
SLEEPMASTER HOLDINGS, L.L.C.
By: /s/ Charles Schweitzer
---------------------------------
Name: Charles Schweitzer
-------------------------------
Title: Manager
------------------------------
By: /s/ James P. Koscica
---------------------------------
Name: James P. Koscica
-------------------------------
Title: Manager
------------------------------
- 16 -
<PAGE> 17
SCHEDULE A
EBITDA Plan
<TABLE>
<CAPTION>
Fiscal Year EBITDA Target
----------------- -------------------
<S> <C>
1998 $ 6,100,000
1999 7,087,000
2000 8,213,000
2001 9,495,000
2002 10,575,000
</TABLE>
- 17 -
<PAGE> 18
SCHEDULE B
The Board of Advisors of Holdings (the "Board") will initially
determine the Fair Value of the Executive's Executive Securities as follows: (i)
with reference to Preferred Units of Holdings owned by the Executive, the Fair
Value of each unit shall be the amount per Unit that would be paid to the
Executive if Holdings were dissolved and liquidated as of the date of the
exercise of the Repurchase Option and (ii) with respect to Common Units of
Holdings owned by the Executive, the Fair Value of each such unit shall be the
Board's good faith estimate of the fair market value of Holding's common equity
divided by the number of Common Units of Holdings outstanding on a fully diluted
basis. Upon making its determination, the Board will notify the Executive of the
Fair Value to be paid. Not later than 30 days following his receipt of the
Board's determination, the Executive may notify Holdings that he does not agree
with the Board's determination and, in the absence of such notice, the Board
shall be entitled to presume that the Executive agrees with its determination.
If the Executive notifies Holdings that he disagrees within the required time
period, the Executive and Holdings shall promptly negotiate in good faith to
resolve the issue or issues which form the basis for such disagreement and will
revise the Fair Value accordingly. If the Executive and Holdings are unable to
resolve their disagreement within 30 days after the Executive has sent his
notice disagreeing with the Board's determination, the Executive and Holdings
will refer such dispute to a professional appraiser with experience in valuing
businesses of the approximate size of Holdings on a going concern basis mutually
acceptable to the Executive and Holdings (the "Outside Appraiser") to determine
the Fair Value of Holding's equity. If Executive and Holdings are unable to
agree on the choice of an Outside Appraiser, they will select an investment
banking firm with demonstrated expertise in mid-market mergers and acquisitions
transactions in the southeastern United States as the Outside Appraiser. The
determination of any Outside Appraiser firm so selected will be set forth in
writing and will be conclusive and binding upon Holdings and the Executive.
Holdings and the Executive will each pay one half of the fees, expenses and
costs of the Outside Appraiser for the services described herein. In no event
shall any determination of Fair Value, whether by the Board or the Outside
Appraiser, apply a discount to the value of the Executive Securities for lack of
marketability or minority interest.
-18-
<PAGE> 19
DRAFT: 2/24/98
SLEEPMASTER HOLDINGS L.L.C. CAPITALIZATION CHART - POST PBBC ACQUISITION
<TABLE>
<CAPTION>
- ------------------- ----------------------------- ------------------ --------------------------- -------------------- --------------
COMMON UNITS/%
SLEEPMASTER COMMON UNITS/%
% OF COMMON OPTIONS ONLY PBBC OPTIONS ONLY
COMMON INTERESTS ISSUED AND ISSUED & % OF PREFERRED WITHOUT EXERCISE WITHOUT EXERCISE OF
MEMBER OUTSTANDING OUTSTANDING PREFERRED UNITS INTEREST OF WARRANT WARRANT
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Management 2,366 27.95% 1,542.84 15.04% 2,896/32.19% 2,475/28.86%
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Schweitzer 720 8.51 514.28 5.01 932/10.36 720/8.40
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Koscica 360 4.25 257.14 2.51 466/5.18 360/4.20
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
DuPont 360 4.25 257.14 2.51 466/5.18 360/4.20
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Reilly 360 4.25 257.14 2.51 466/5.18 360/4.20
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Tauber 50 0.59 -- -- 50/0.55 50/0.6
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Phillips 50 0.59 -- -- 50/0.55 50/0.6
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Bubis 466 5.51 257.14 2.51 466/5.18 466/5.43
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
PBBC Mngt -- -- -- -- -- 109/1.27
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
PMI* 1,000 11.81 1,428.56 13.93 1,000/11.12 1,000/11.66
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
CVC* 760.71 voting 45.5 5,547.88 54.09 3,852.3/42.82 3,852.3/44.93
3,091.59 nonvoting
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
CCT* 133.76 voting 8 975.68 9.51 677.46/7.53 677.46/7.9
543.7 nonvoting
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Coinvestors* 99.9 voting 5.98 728.57 7.10 505.89/5.62 505.89/5.9
405.99 nonvoting
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
Boyle* 45.6 voting 0.76 33.58 0.33 64.31/0.72 64.31/0.75
18.71 nonvoting
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
TOTAL: 8,465.96 100% 10,257.11 100% 8,995.96/100% 8,574.96/100%
- ------------------ --------------------------- ----------- --------------- -------------- ---------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
COMMON UNITS/% PBBC COMMON UNITS/% UPON
AND SLEEPMASTER EXERCISE OF WARRANTS COMMON UNITS/%
OPTIONS WITHOUT WITHOUT MANAGEMENT ON A FULLY
MEMBER EXERCISE OF WARRANT OPTIONS DILUTED BASIS
- ------------------ ------------------- -------------------- --------------
<S> <C> <C> <C>
Management 3,005/33% 2,366/21.77% 3,005/26.11%
- ------------------ ------------------- -------------------- --------------
Schweitzer 932/10.23 720/6.63 932/8.10
- ------------------ ------------------- -------------------- --------------
Koscica 466/5.12 360/3.31 466/4.05
- ------------------ ------------------- -------------------- --------------
DuPont 466/5.12 360/3.31 466/4.05
- ------------------ ------------------- -------------------- --------------
Reilly 466/5.12 360/3.31 466/4.05
- ------------------ ------------------- -------------------- --------------
Tauber 50/0.55 50/0.46 50/0.43
- ------------------ ------------------- -------------------- --------------
Phillips 50/0.55 50/0.46 50/0.43
- ------------------ ------------------- -------------------- --------------
Bubis 466/5.12 466/4.29 466/4.05
- ------------------ ------------------- -------------------- --------------
PBBC Mngt 109/1.19 -- 109/0.95
- ------------------ ------------------- -------------------- --------------
PMI* 1,000/10.98 3,403/31.31 3,403/29.57
- ------------------ ------------------- -------------------- --------------
CVC* 3,852.3/42.31 3,852.30/35.44 3,852.3/33.47
- ------------------ ------------------- -------------------- --------------
CCT* 677.46/7.44 677.46/6.23 677.46/5.89
- ------------------ ------------------- -------------------- --------------
Coinvestors* 505.89/5.56 505.89/4.66 505.89/4.40
- ------------------ ------------------- -------------------- --------------
Boyle* 64.31/0.71 64.31/0.59 64.31/0.56
- ------------------ ------------------- -------------------- --------------
TOTAL: 9,104.96/100% 10,868.96/100% 11,508.15/100%
- ------------------ ------------------- -------------------- --------------
</TABLE>
* Interests are held indirectly through Sleep Investor LLC
<PAGE> 1
EXHIBIT 10.19
EXECUTION COPY
EMPLOYMENT AND STOCK PURCHASE AGREEMENT
This EMPLOYMENT AND STOCK PURCHASE AGREEMENT is dated as of
February 26, 1999, by and among Herr Manufacturing Company, a Pennsylvania
corporation (the "Company"), Sleepmaster Holdings L.L.C., a New Jersey limited
liability company ("Holdings"), Sleepmaster L.L.C., a New Jersey limited
liability company ("Sleepmaster"), Stuart W. Herr (the "Executive"), Charles
Schweitzer ("Schweitzer"), and Sleep Investor L.L.C., a Delaware limited
liability company (the "Investor").
WHEREAS the parties desire to enter into an agreement
regarding (i) the employment of the Executive as President of the Company and
(ii) the sale by Schweitzer and the purchase by the Executive of 21.16 units of
Holdings' Class A Common Interests (the "Class A Common") upon terms and
conditions set forth herein;
WHEREAS, as an inducement to the Company Group to enter into
this Agreement, the Executive has agreed to the provisions of this Agreement
including, without limitation, Sections 3, 4 and 5; and
WHEREAS, certain provisions of this Agreement are intended for
the benefit of, and will be enforceable by, the Investor;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein , the following terms shall have
the following meanings.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means Holding's board of advisors.
"Business Day" means any day other than a Saturday or Sunday
or a day on which commercial banks are required or authorized to close in New
York, New York.
"Cause" means (i) a material breach of the Executive's
covenants under this Agreement or any other agreements with the Company or its
Subsidiaries and such breach shall not have been cured within 30 days after
written notice to the Executive; provided that, a breach of any of the
Executive's covenants contained in Sections 3, 4 or 5 of this Agreement shall be
deemed material and the cure period for such breach shall be 5 days, (ii) the
commission by the Executive of a felony, a crime involving moral turpitude or
other act causing material harm to the standing and reputation of the Company or
any of its Subsidiaries, or (iii) the Executive's repeated wilful failure to
comply with the reasonable and lawful written directives of the Board.
<PAGE> 2
"Common Interests" means the Class A Common and Holdings'
Class B Common Interests, as adjusted for any unit split, unit dividend, or
other combination, exchange, conversion, recapitalization, merger, consolidation
or reorganization, or if such Common Interests are exchanged for different
interests or securities of Holdings, such other interests or securities and any
other Common Interests of Holdings hereinafter issued.
"Company Group" means the Company, Holdings, Sleepmaster and
their respective Subsidiaries.
"Disability" means the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of the Executive to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 150 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
"Executive Securities" means the Class A Common purchased by
the Executive and will include units of Holdings' Common Interests issued with
respect to Executive Securities by way of a split, dividend, combination,
exchange, conversion, or other recapitalization, merger, consolidation or
reorganization. Executive Securities will cease to be Executive Securities when
transferred pursuant to a Qualified Public Offering or Sale of Holdings.
Executive Securities will continue to be Executive Securities in the hands of
any holder other than the Executive, including all transferees of the Executive
(except for Holdings and the Investor (or its designee)), and except as
otherwise provided herein, each such other holder of Executive Securities will
succeed to all rights and obligations attributable to the Executive as a holder
of Executive Securities hereunder.
"Fair Value" of each unit of Class A Common means the average
of the closing prices of the sales of Holdings' membership interests on all
securities exchanges on which the membership interests may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the membership interests are not so listed,
the average of the representative bid and asked prices quoted on the Nasdaq
National Market System ("Nasdaq NMS") as of 4:00 P.M., New York time, or, if on
any day the membership interests are not quoted in the Nasdaq NMS, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Value is
being determined and the 20 consecutive business days prior to such day. If at
any time the Class A Common is not listed on any securities exchange or quoted
in the Nasdaq NMS or the over-the-counter market, the Fair Value of each unit of
Class A Common shall be the fair market value of such unit as determined by the
Board in its good faith judgment; provided, that in the event the Executive
disagrees with the determination of the Board, and the Executive and the Board
are unable to resolve their disagreement within twenty (20) days of such
determination, then the determination of Fair Value shall be submitted to an
independent valuation firm selected by the Executive from three valuation firms
proposed by the Board (it being understood that none of the three proposed
valuation firms shall have been hired by any member of the Company Group within
the prior twenty-four (24) month period) (the "Valuation Specialist") who shall
make a determination of Fair Value as soon as practicable and, in any event,
within thirty (30) days. The fees and expenses
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<PAGE> 3
of the Valuation Specialist shall be borne by the Company unless the difference
between the determination of the Board and the determination of the Valuation
Specialist is less than 15% more than the determination of the Board, in which
case, the fees and expenses of the Valuation Specialist shall be borne by the
Executive. In any such determination of Fair Value, whether by the Board or by
the Valuation Specialist, the determination shall be made based on the value of
Holdings as a going concern and no discount for lack of marketability or
minority interest shall be applied.
"Full Cost" shall mean (x) in the case where such medical
insurance benefits are being provided under the medical insurance plan sponsored
by the Company Group, 100% of the applicable cost of such benefits determined
under COBRA (or any superseding statute), or (y) in the case where such medical
insurance benefits are not being provided under the medical insurance plan
sponsored by the Company Group (and subject to the commercially reasonable best
efforts obligation of the Company Group as described in Section 2(d)(v)), then
the full cost of such medical insurance benefits.
"GAAP" means U.S. generally accepted accounting principles, as
in effect from time to time and as adopted by the Company with the consent of
its independent public accountants, consistently applied.
"Good Reason Event" means (I) a material breach (and a breach
of Section 2(c)(I) or Section 2(c)(iii) shall be material) of this Agreement by
the Company which is not cured within 30 days after written notice to the
Company, (ii) the relocation of the Executive's office more than 30 miles from
Lancaster, Pennsylvania,(iii) a substantial reduction by the Company of the
Executive's job responsibilities which is not cured within 30 days after written
notice to the Company, or (v) a substantial reduction by the Company of the
Executive's job responsibilities which is not connected to the Executive's
illness or disability (prior to a determination that the Executive has a
Disability).
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any sale of securities of Holdings in
an underwritten public offering.
"Qualified Public Offering" means any sale, in an underwritten
public offering registered under the Securities Act, of equity securities of
Holdings having an aggregate value of at least $20 million.
"Sale of Holdings" means the sale of Holdings, in a single
transaction or a series of related transactions, to a third party (which is not
an Affiliate of the Investor) pursuant to which such third party proposes to
acquire all or substantially all of the outstanding Common Interests (whether by
merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Holdings.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
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<PAGE> 4
"Securityholders Agreement" means the Securityholders
Agreement dated as of March 3, 1998 by and among the Company, the Investor and
certain other parties thereto.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of February 26, 1999 by and among the Company, Sleepmaster, and the
Stockholders listed on the Seller signature page attached thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (I) if a corporation or a limited liability company
(with voting securities), a majority of the total voting power of securities
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 that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
limited liability company (without voting securities), association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, limited liability company (without voting
securities), association or other business entity if such Person or Persons
shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director or general partner of such partnership, limited liability
company, association or other business entity.
"Termination Year" means that fiscal year of the Company
during which the Employment Period ends pursuant to the terms of Section 2(d)
hereof.
2. Employment.
(a) Employment. The Company agrees to employ the Executive,
and the Executive hereby accepts employment with the Company, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in Section 2(d) (the "Employment Period").
(b) Position and Duties.
(i) Commencing on the date hereof and continuing during
the Employment Period, the Executive shall serve as President of the Company
under the supervision and direction of the Board.
(ii) The Executive shall devote his best efforts and his
full business time and attention (except for permitted vacation periods and
reasonable periods of illness other than Disability) to the business and affairs
of the Company. The Executive shall perform his duties and responsibilities to
the best of his abilities in a diligent, trustworthy, businesslike and efficient
manner. Subject to the provisions of Section 5 of this Agreement, nothing in
this Section 2(b) will prevent the Executive from volunteering in community
activities and serving on the board of directors of non-profit organizations.
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<PAGE> 5
(c) Base Salary and Benefits.
(i) Base Salary. During the Employment Period, the
Executive's base salary shall be $235,000 per annum (the "Base Salary"), which
salary shall be paid by the Company in regular installments in accordance with
the Company's general payroll practices and shall be subject to customary
withholding.
(ii) Executive Bonus Plan. For each fiscal year during the
Employment Period, the Executive will be eligible to receive a bonus based on
the Company's achievement of the Target EBITDA for such fiscal year. Other than
fiscal year 1999, in the event the Termination Year is less than the Company's
full fiscal year the Executive shall be entitled to receive a portion of the
bonus earned for such fiscal year pro rated based on the number of days in the
Termination Year prior to the date of termination, which such bonus shall be
determined in accordance with Section 2(c)(ii)(A). "Target EBITDA" for the
Company shall be $4.4 million for fiscal year 1999 and for each subsequent
fiscal year shall be determined by the Board no later than March 31st of such
fiscal year. In the event Sleepmaster transfers any of its accounts to the
Company, the Target EBITDA will be adjusted in good faith by the Board, and such
adjusted Target EBITDA shall be the Target EBITDA for such fiscal year.
(A) Once the Board has determined (which
determination shall be made within thirty (30) days from the issuance of the
Company's audited financial statements) the percentage of EBITDA achieved for
such fiscal year as compared to the Target EBITDA for such fiscal year (the
"Achieved EBITDA Percentage"), so long as the Achieved EBITDA Percentage for
such fiscal year equals or exceeds 80%, the Executive shall be entitled to
receive a bonus payment in an amount equal to the product of (x) the Bonus
Multiple (as set forth opposite the Achieved EBITDA Percentage below), (y) 30%,
and (z) the Executive's Base Salary for such fiscal year. The bonus payment
shall be made within five (5) days of the Board's determination and in any event
on or prior to May 1. The method used to calculate EBITDA shall be consistent
with the method used by the Company Group to calculate EBITDA in determining
bonus payments due to other senior executives of the Company Group; provided,
that the Executive acknowledges that any such bonus payments due to the
Executive hereunder will be based on the Company's EBITDA. The bonus payment
shall be subject to customary withholding.
<TABLE>
<CAPTION>
Achieved EBITDA Percentage Bonus Multiple
-------------------------- --------------
<S> <C>
80% 50%
100% 100%
110% 125%
120% 150%
</TABLE>
(B) Each Bonus Multiple set forth above shall
increase linearly as the Achieved EBITDA Percentage increases; therefore, so
long as the Achieved EBITDA Percentage equals or exceeds 80%, in the event the
actual Achieved EBITDA Percentage falls between any of the target Achieved
EBITDA Percentages set forth above, the applicable Bonus Multiple shall be
adjusted accordingly; provided, that in no event shall the Bonus Multiple exceed
150%. For example, (1) in the event the actual Achieved EBITDA Percentage is
90%, the Bonus Multiple shall
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<PAGE> 6
be 75% or (2) in the event the actual Achieved EBITDA Percentage is 115%, the
Bonus Multiple shall be 137.5%.
(iii) Benefits. In addition to the Base Salary and any
bonuses payable to the Executive pursuant to Section 2(c)(ii), the Executive
shall be entitled, during the Employment Period, to all benefits set forth on
Schedule A hereto (the "Benefits").
(iv) Expenses. The Company shall reimburse the Executive
for all reasonable expenses incurred by him in the course of performing his
duties under this Agreement which are consistent with the Company Group's
policies in effect from time to time with respect to travel, entertainment and
other business expenses for executive employees, subject to the requirements of
the Company Group with respect to reporting and documentation of such expenses.
(d) Term. The Employment Period shall end on February 26,
2004, subject to earlier termination (x) by reason of the Executive's death or
Disability, (y) by resolution of the Board, with or without Cause or (z) upon
the Executive's voluntary resignation with or without a Good Reason Event.
(i) If the Employment Period is terminated on or before
February 26, 2004:
(A) by resolution of the Board other than for Cause
or as a result of the Executive's voluntary resignation within 60 days following
a Good Reason Event, the Executive shall be entitled to receive (1) all
previously earned and accrued but unpaid Base Salary up to the date of such
termination, (2) a portion of the bonus payment earned by the Executive during
the Termination Year pro rated based on the number of days of the Termination
Year prior to the date of termination, which such payment will be made when the
bonus payments for such Termination Year are otherwise due, and (3) an amount
equal to the Base Salary from the date of termination through the fifth
anniversary of the date of this Agreement.
(B) as a result of the Executive's death or
Disability, the Executive or the Executive's estate, as applicable, shall be
entitled to (1) all previously earned and accrued but unpaid Base Salary up to
the date of such termination and (2) a portion of the bonus payment earned by
the Executive during the Termination Year pro rated based on the number of days
of the Termination Year prior to the date of termination, which such payment
will be made when the bonus payments for such Termination Year are otherwise
due. The Executive shall not be entitled to any further Base Salary, bonus
payments or Benefits for that year or any future year, or to any other severance
compensation of any kind, nature or amount.
(C) as a result of the Executive's voluntary
resignation other than within 60 days following a Good Reason Event, or by
resolution of the Board for Cause, the Executive shall be entitled to all
previously earned and accrued but unpaid Base Salary up to the date of such
termination but shall not be entitled to any further Base Salary, bonus payments
or Benefits for that year or any future year, or to any other severance
compensation of any kind, nature or amount.
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<PAGE> 7
(ii) Following the termination of the Employment Period:
(A) the Executive agrees that: (1) the Executive
shall be entitled to the payments provided for in Section 2(d)(I)(A) and Section
2(d)(I)(B), if any, if and only if Executive has not breached as of the date of
termination of the Employment Period the provisions of Sections 3, 4 and 5
hereof and does not breach such sections at any time during the period for which
such payments are to be made and (2) the Company's obligation to make such
payments will terminate upon the occurrence of any such breach during any such
severance period.
(B) any payments with respect to Base Salary
pursuant to Section 2(d)(I)(A) shall be paid by the Company in regular
installments and any other payments pursuant to Section 2(d)(I)(A) or 2(d)(I)(B)
shall be paid by the Company in accordance with the Company's general payroll
practices and shall be subject to customary withholding, and following such
payments none of the Company Group shall have any further obligation to the
Executive pursuant to this Section 2(d) except as provided by law.
(iii) THE EXECUTIVE HEREBY AGREES THAT EXCEPT AS EXPRESSLY
PROVIDED HEREIN, NO SEVERANCE COMPENSATION OF ANY KIND, NATURE OR AMOUNT SHALL
BE PAYABLE TO THE EXECUTIVE AND EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE
EXECUTIVE HEREBY IRREVOCABLY WAIVES ANY CLAIM FOR SEVERANCE COMPENSATION.
(iv) Except as provided in Section 2(d)(v) below, all of
the Executive's rights to Benefits hereunder (if any) shall cease upon the
termination of the Employment Period.
(v) If the Executive's employment is terminated other than
by (A) resolution of the Board for Cause or (B) the Executive's voluntary
resignation other than within 60 days following a Good Reason Event, the
Executive and his spouse (and the Executive's eligible family members) shall be
entitled to continue to participate in the medical insurance plan sponsored by
the Company Group and to receive the level of medical insurance benefits
afforded to the other executives in the Company Group until, with respect to
each of the Executive and his spouse, the date that such person reaches the age
at which he or she becomes eligible for Medicare benefits (or, if the Medicare
program is no longer in existence, any government sponsored successor to the
Medicare program) or if the Medicare program is no longer in existence and no
successor program exists, the age of 70 (the "Insurance Termination Date");
provided, that the Executive shall pay the Full Cost of such medical insurance
benefits relating to the continuance of the Executive's and his spouse's (and,
if applicable the Executive's other family members) medical insurance following
termination. The Company Group agrees to use commercially reasonable best
efforts to provide such benefits under its medical insurance plan which shall
include engaging a qualified broker or consultant to seek to obtain such
benefits under a Company group plan or program, obtaining quotations from group
carriers, individual carriers and third party administrators, and keeping the
Executive informed as to and, insofar as practicable, involving the Executive in
the process of obtaining such benefits. The Company Group shall not be obligated
to provide medical insurance benefits to any of the Executive's family members
(other than the Executive's spouse as provided herein) after the Insurance
Termination Date as it applies to the Executive.
(vi) The Executive has no obligation to seek or obtain
other engagements or employment to mitigate any damages to which the Executive
may be entitled by reason of any
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<PAGE> 8
termination of this Agreement pursuant to Section 2(d)(I)(A). If the Executive
does obtain other engagements or employment of any nature and in any location,
the total cash payments received by the Executive as wages or salary from such
other employment or engagements, as reported to the Internal Revenue Service on
the Executive's Form 1040, during the period that he is to receive payments, if
any, pursuant to Section 2(d)(I)(A) shall reduce any amounts which the Company
would otherwise be required to pay the Executive under this Agreement.
3. Confidential Information. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
Group concerning the business or affairs of the Company Group (including the
Company Group's technology, computer programs, know-how, designs, inventions,
methods of doing business and supplier and customer information ("Confidential
Information") are the property of such member of the Company Group. Therefore,
the Executive agrees that, except as required by law or court order, he shall
not disclose to any unauthorized person or use for his own account any
Confidential Information without the prior written consent of the Board, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of the Executive's acts
or omissions to act. The Executive shall deliver to the Company at the
termination of such Executive's employment, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes and
software and other documents and data (and copies thereof) relating to the
Confidential Information, Work Product (as defined below) and the business of
the Company Group which he may then possess or have under his control.
4. Inventions and Patents. The Executive agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Company
Group's actual or anticipated business, research and development or existing or
future products or services and which are conceived, developed or made by the
Executive while employed by the Company Group ("Work Product") belong to such
member of the Company Group and the Executive hereby assigns all right, title
and interest in and to such work product to such member of the Company Group.
The Executive will promptly disclose such Work Product to the Board and perform
all actions reasonably requested by the Board (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
5. Noncompete, Nonsolicitation.
(a) The Executive acknowledges that in the course of his
employment with the Company he has become familiar, and he will become familiar,
with the Company Group's trade secrets and with other Confidential Information
and that his services have been and will be of special, unique and extraordinary
value to the Company Group. Therefore, the Executive agrees that, during the
time he is employed by the Company Group and during any applicable
Post-Termination Period (the "Noncompete Period"), he shall not directly or
indirectly own, operate, manage, control, participate in, consult with, advise,
provide services for, or in any manner engage (including by himself or in
association with any person, firm, corporate or other business organization or
through any other entity) in (I) the manufacture or distribution of mattresses,
box springs, bedding products or other products competitive with such products
or (ii) any other business which competes with a business of the Company Group
in which the Executive actively participated as part of his employment with the
Company and/or the Company Group within any geographical
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<PAGE> 9
area in which the Company Group has obtained or is in the process of obtaining a
Serta license as of the date of the termination of the Executive's employment.
Nothing herein shall prohibit the Executive from (x) being a passive owner of
not more than 2% of the outstanding stock of a corporation which is publicly
traded, so long as the Executive has no active participation in the business of
such corporation or (y) from owning an interest in Holdings. For purposes of
this Section 5, "Post-Termination Period" means, as applicable: the period
beginning on the date of termination through the later of (x) the last date on
which the Executive is restricted pursuant to the provisions of Section 5B of
the Stock Purchase Agreement or (y) the twelve-month anniversary date of the
date of termination.
(b) During the Noncompete Period, the Executive shall not
directly or indirectly through another entity (I) induce or attempt to induce
any employee of the Company Group to leave the employ of the Company Group, or
in any way interfere with the relationship between the Company Group and any
employee thereof, including without limitation, inducing or attempting to induce
any union, employee or group of employees to interfere with the business or
operations of the Company Group, (ii) hire any person who was an employee of the
Company Group at any time during the Executive's employment period, or (iii)
induce or attempt to induce any customer, supplier, distributor, franchisee,
licensee or other business relation of the Company Group to cease doing business
with the Company Group, or in any way interfere with the relationship between
any such customer, supplier, distributor, franchisee, licensee or business
relation and the Company Group.
(c) The Executive agrees that: (I) the covenants set forth in
this Section 5 are reasonable in geographical and temporal scope and in all
other respects, (ii) the Company Group would not have entered into this
Agreement but for the covenants of the Executive contained herein, and (iii) the
covenants contained herein have been made in order to induce the Company Group
to enter into this Agreement.
(d) If, at the time of enforcement of this Section 5, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) The Executive recognizes and affirms that in the event of
his breach of any provision of this Section 5, money damages would be inadequate
and the Company Group and the Investor would have no adequate remedy at law.
Accordingly, the Executive agrees that in the event of a breach or a threatened
breach by the Executive of any of the provisions of this Section 5, the Company
Group, in addition and supplementary to other rights and remedies existing in
its favor, may apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof (without posting a bond or other
security).
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<PAGE> 10
6. Executive Securities.
(a) Upon execution of this Agreement, the Executive will
purchase from Schweitzer, and Schweitzer will sell to the Executive 21.16 units
of Class A Common at a price of $8,637.29 per unit for an aggregate price of
$182,765.0 (the "Purchase Price"). Schweitzer will deliver to the Executive
certificates representing such units (either duly endorsed in blank or in the
name of the Executive) and the Executive will deliver to Schweitzer a check or
wire transfer of immediately available funds in the aggregate amount equal to
the Purchase Price.
(b) Upon execution of this Agreement, the Executive shall
execute and deliver a joinder to the Securityholders Agreement (the "Joinder
Agreement").
(c) With respect to the Executive Securities, within 30 days
from the date hereof, the Executive will make an effective election with the
Internal Revenue Service under Section 83(b) of the Internal Revenue Code and
the regulations promulgated thereunder in the form of Exhibit A attached hereto.
(d) In connection with the acquisition of the Executive
Securities, the Executive represents and warrants to Schweitzer and Holdings
that:
(i) The Executive Securities to be acquired by the
Executive pursuant to this Agreement will be acquired for the Executive's own
account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities laws, and
the Executive Securities will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) No commission, fee or other remuneration is to be
paid or given, directly or indirectly, to any Person for soliciting the
Executive to purchase the Executive Securities.
(iii) The Executive is an executive officer of the
Company, is sophisticated in financial matters and is able to evaluate the risks
and benefits of the investment in the Executive Securities and has determined
that such investment in the Executive Securities is suitable for the Executive,
based upon the Executive's financial situation and needs, as well as the
Executive's other securities holdings.
(iv) The Executive qualifies an "accredited investor"
within the meaning of Rule 501(a) of Regulation D under the Securities Act.
(v) The Executive is able to bear the economic risk of the
Executive's investment in the Executive Securities for an indefinite period of
time and the Executive understands that the Executive Securities have not been
registered under the Securities Act and cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is
available.
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<PAGE> 11
(vi) The Executive has had an opportunity to ask questions
and receive answers concerning the terms and conditions of the offering of
Executive Securities and has had access to such other information concerning
Holdings as the Executive has requested. The Executive has reviewed, or has had
an opportunity to review, the following documents: (A) the organization
documents of Holdings; (B) the loan agreements, notes and related documents with
the lenders of the Company Group; and (C) financial statements related to the
Company Group.
(vii) This Agreement constitutes the legal, valid and
binding obligation of the Executive, enforceable in accordance with its terms,
and the execution, delivery and performance of this Agreement by the Executive
does not and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which the Executive is a party or any judgment, order
or decree to which the Executive is subject.
(e) In connection with the sale of the Executives Securities,
Schweitzer represents and warrants to the Executive that:
(i) the Executive Securities are held beneficially and of
record by Schweitzer free and clear of any mortgage, pledge, security interest,
encumbrance, claim, right of possession, or other defect in title or lien.
(ii) this Agreement constitutes a valid and binding
obligation of Schweitzer, enforceable in accordance with its terms.
(iii) the fulfillment of and compliance with the
respective terms of this Section 6 will not conflict with or result in a breach
of the terms, conditions or provisions of any agreement to which Schweitzer or
the Executive Securities are subject which would prevent the transfer of the
Executive Securities pursuant to this Agreement.
(f) The Executive acknowledges and agrees that neither the
purchase of the Executive Securities by the Executive nor any provision
contained herein shall entitle the Executive to remain in the employment of the
Company Group and its Subsidiaries or affect the right of the Company Group and
its Subsidiaries to terminate the Executive's employment at any time for any
reason.
7. Representations and Warranties of Holdings. Holdings hereby
represents and warrants to the Executive that:
(a) Immediately following the consummation of the transactions
contemplated hereby, the authorized units of Holdings shall consist of (i) Class
A Common, of which 8,465 units shall be issued and outstanding, (ii) Class B
Common Interests, of which no units shall be issued and outstanding, and (iii)
Preferred Interests, of which 10,357.1 units shall be issued and outstanding. As
of immediately following the consummation of the transactions contemplated
hereby, all of the outstanding units of Holdings' shall be validly issued, fully
paid and nonassessable.
(b) There are no statutory or contractual securityholders
preemptive rights or rights of refusal with respect to the issuance of the
Executive Securities hereunder. Neither
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<PAGE> 12
Schweitzer nor Holdings has violated any applicable federal or state securities
laws in connection with the offer and sale of the Executive Securities hereunder
and such sale does not require registration under the Securities Act or any
applicable state securities laws.
8. Repurchase Option on Executive Interests. In the event the Executive
ceases to be employed by the Company Group for any reason (the "Termination"),
the Executive Securities (whether held by the Executive or one or more of the
Executive's transferees) will be subject to repurchase by Schweizer and Holdings
pursuant to the terms and conditions set forth in this Section 8 (the
"Repurchase Option").
(a) The purchase price for each unit of Executive Securities
will be the Fair Value for such unit; provided, that if, on or prior to the
fifth anniversary of the date hereof, the termination of the Employment Period
is by resolution of the Board for Cause or by the voluntary resignation of the
Executive other than within 60 days following a Good Reason Event, then the
purchase price for each unit of Executive Securities will be the Executive's
Original Cost.
(b) Schweitzer may elect to purchase all, but not less than
all, of the Executive Securities held by the Executive by delivering written
notice (the "Repurchase Notice") to the holder or holders of the Executive
Securities within 90 days after the Termination. The Repurchase Notice will set
forth the number of units to be acquired from each holder, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of units of Executive Securities to be
repurchased by Schweitzer shall first be satisfied to the extent possible from
the Executive Securities held by the Executive at the time of delivery of the
Repurchase Notice. If the number of units then held by the Executive is less
than the total number of units of Executive Securities Schweitzer has elected to
purchase, Schweitzer shall purchase the remaining Executive Securities elected
to be purchased from the other holder(s) of Executive Securities, pro rata
according to the amount of such Executive Securities held by such other
holder(s) at the time of delivery of such Repurchase Notice (determined as
nearly as practicable to the nearest share). The number of units to be
repurchased hereunder will be allocated among the Executive and the other
holders of Executive Securities (if any) pro rata according to the number of
units of Executive Securities to be purchased from such Persons.
(c) If for any reason Schweitzer does not elect to purchase
all of the units of Executive Securities that are subject to the Repurchase
Option, pursuant to such Repurchase Option, Holdings shall be entitled to
exercise the Repurchase Option for the Executive Securities Schweitzer has not
elected to purchase (the "Available Interests"). As soon as practicable after
Schweitzer has determined that there will be Available Interests, but in any
event within 150 days after the Termination, Schweitzer shall give written
notice (the "Option Notice") to Holdings setting forth the number of Available
Interests, and the purchase price for each of such Available Interests. The
Board may elect to cause Holdings to purchase all, but not less than all, of
Available Interests by giving written notice to Schweitzer within 45 days after
the Option Notice has been given by Schweitzer. As soon as practicable, and in
any event within ten days after the expiration of the 45-day period set forth
above, Holdings shall notify each holder of Executive Securities as to the
number of units being purchased from such holder by Holdings (the "Supplemental
Repurchase Notice").
-12-
<PAGE> 13
(d) The closing of the purchase of the Executive Securities
pursuant to the Repurchase Option shall take place on the date designated by
Schweitzer in the Repurchase Notice or by Holdings in the Supplemental
Repurchase Notice, which date shall not be later than the 30th day after the
delivery of the later of such notices to be delivered (or, if later, the 15th
day after the Fair Value is finally determined) nor earlier than the fifth day
after such delivery. Schweitzer and/or Holdings will pay for the Executive
Securities to be purchased pursuant to the Repurchase Option by delivery of a
certified or cashier's check or wire transfer of funds, except that Holdings may
pay up to 50% of the aggregate consideration in the form of a three year
subordinated promissory note bearing 6% interest and payable, as to principal
and interest, in three equal annual installments on the first three
anniversaries of the closing of such repurchase. The purchasers of Executive
Securities hereunder will be entitled to receive customary representations and
warranties from the sellers as to title, authority and capacity to sell.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive Securities by Holdings shall be subject
to applicable legal restrictions. If any such restrictions prohibit the
repurchase of Executive Securities hereunder which Holdings is otherwise
entitled to make, Holdings may make such repurchases as soon as it is permitted
to do so under such restrictions.
9. Restrictions on Transfer.
(a) If certificated, the Executive Securities will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN EMPLOYMENT AGREEMENT
BETWEEN THE ISSUER AND THE SIGNATORY THERETO DATED AS OF
FEBRUARY 26, 1999. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY
THE HOLDER HEREOF AT THE ISSUER'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Securities may sell, transfer or
dispose of any units of Executive Securities (except pursuant to an effective
registration statement under the Securities Act) without first delivering to
Holdings an opinion of counsel (reasonably acceptable in form and substance to
Holdings) that neither registration nor qualification under the Securities Act
and applicable state securities laws is required in connection with such
transfer.
(c) Each holder of Executive Securities agrees not to effect
any sale or distribution of any Executive Securities or other equity securities
of Holdings, or any securities convertible into or exchangeable or exercisable
for any of Holdings's equity securities, during the
-13-
<PAGE> 14
seven days prior to and the 120 days (or, subject to the requirements of the
underwriters, up to 180 days) after the effectiveness of any underwritten public
offering, except as part of such underwritten public offering or if otherwise
permitted by Holdings.
(d) Each holder of Executive Securities acknowledges that the
Executive Securities are subject to additional restrictions contained in the
Securityholders Agreement.
10. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient with telephonic confirmation by the sending party. Such notices,
demands and other communications will be sent to the address indicated below:
To the Company:
Herr Manufacturing Company
18 Prestige Lane
Lancaster, PA 17603
Attention: President
Telecopy No.: (717) 392-6154
With copies to:
Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: President
Telecopy No.: (908) 381-4455
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Kimberly P. Taylor, Esq.
Telecopy No.: (212) 446-4900
-14-
<PAGE> 15
To any other Member of the Company Group or the Investor:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: President
Telecopy No.: (908) 381-4455
With copies to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Kimberly P. Taylor, Esq.
Telecopy No.: (212) 446-4900
To the Executive:
c/o Herr Manufacturing Company
18 Prestige Lane
Lancaster, PA 17603
Attention: Mr. Stuart W. Herr
With a copy to:
Barley, Snyder, Senft & Cohen, LLC
126 East King Street
Lancaster, PA 17602-2893
Attention: John Shirk, Esq.
Telecopy No.: (717) 291-4660
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) Transfers in Violation of Agreement. Any transfer or
attempted transfer of any Executive Securities in violation of any provision of
this Agreement shall be null and void, and
-15-
<PAGE> 16
Holdings shall not record such transfer on its books or treat any purported
transferee of such Executive Securities as the owner of such securities for any
purpose.
(b) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the Joinder Agreement,
the Securityholders Agreement and the Stock Purchase Agreement embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way,
including, without limitation, the Previous Agreement.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Executive, the Company Group, and the Investor and their respective
successors and assigns (including subsequent holders of Executive Securities);
provided that the rights and obligations of the Executive under this Agreement
shall not be assignable except in connection with a permitted transfer of
Executive Securities hereunder.
(f) Third Party Beneficiary. This Agreement is intended for
the benefit of, and will be enforceable by, the Investor.
(g) GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE COMMONWEALTH OF PENNSYLVANIA
OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE COMMONWEALTH OF PENNSYLVANIA; PROVIDED, THAT ANY
QUESTIONS REQUIRING INTERPRETATION OF THE LAWS GOVERNING LIMITED LIABILITY
COMPANIES SHALL BE GOVERNED BY THE NEW JERSEY LIMITED LIABILITY COMPANY ACT.
(h) JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS BROUGHT
BY OR AGAINST THE COMPANY OR THE EXECUTIVE WITH RESPECT TO THIS AGREEMENT SHALL
BE BROUGHT IN ANY STATE COURT OF COMPETENT JURISDICTION IN THE CITY OF
PHILADELPHIA IN THE COMMONWEALTH OF PENNSYLVANIA OR FEDERAL COURT IN THE EASTERN
DISTRICT OF THE COMMONWEALTH OF PENNSYLVANIA. BY EXECUTION AND DELIVERY OF THIS
AGREEMENT THE COMPANY AND THE EXECUTIVE ACCEPT
-16-
<PAGE> 17
FOR ITSELF AND HIMSELF AND IN CONNECTION WITH ITS OR HIS RESPECTIVE PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. THE COMPANY AND THE EXECUTIVE WAIVE ANY CLAIMS
THAT SUCH JURISDICTION IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON
LACK OF VENUE.
(i) Dispute Resolution.
(i) Arbitration. In the event of disputes between the
Parties with respect to the terms and conditions of this Agreement (other than
disputes with respect to Sections 3, 4, and 5 of this Agreement), such disputes
shall be resolved by and through an arbitration proceeding to be conducted under
the auspices of the Philadelphia Court of Common Pleas or the American
Arbitration Association (or any like organization successor thereto) in the
Eastern District of Pennsylvania. Such arbitration proceeding shall be conducted
in as expedited a manner as is practical, and the arbitrator or arbitrators in
any such arbitration (an "Arbitration") shall be persons who are expert in the
subject of mergers and acquisitions. Both the foregoing agreement of the Parties
to arbitrate any and all such claims, and the results, determination, finding,
judgment and/or award rendered through such Arbitration, shall be final and
binding on the Parties hereto and may be specifically enforced by legal
proceedings. The parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may, in its sole discretion, ask for specific performance and/or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement.
(ii) Procedure. The Arbitration shall be conducted before
a panel of arbitrators selected in accordance with the rules of the American
Arbitration Association. Each Party shall bear separately the cost of their
respective attorneys, witnesses and experts in connection with such arbitration.
Time is of the essence of this arbitration procedure, and the arbitrators shall
be instructed and required to render their decision within ten (10) days
following completion of the Arbitration.
(iii) Equitable Remedies. With respect to Sections 3, 4
and 5 of this Agreement, each of the Parties will be entitled to enforce its
rights under this Agreement specifically, to recover damages and costs
(including reasonable attorneys' fees) caused by any breach of Sections 3, 4, or
5 and to exercise all other rights existing in its favor. The parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any
breach of Sections 3, 4, or 5 and that any Party may, in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit), ask for specific performance and/or other injunctive
relief in order to enforce or prevent any violations of such provisions.
-17-
<PAGE> 18
(j) Amendment and Waiver. The provisions of this Agreement may
be amended and waived only with the prior written consent of the Company, the
Executive and the Investor.
(k) Guaranty. The Company's obligations contained in this
Agreement are hereby guaranteed by Sleepmaster and Holdings for so long as any
of such entities own, either directly or indirectly, Stock of the Company.
* * * * *
-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first written above.
SLEEPMASTER HOLDINGS L.L.C.
By: __________________________
Name:
Title:
SLEEPMASTER L.L.C.
By: __________________________
Name:
Title:
HERR MANUFACTURING COMPANY
By: ___________________________
Name:
Title:
_____________________________________
STUART W. HERR
Agreed and Accepted:
SLEEP INVESTOR L.L.C.
By: __________________________
Name:
Title:
<PAGE> 20
SCHEDULE A
EMPLOYEE BENEFITS
Medical, dental and life insurance benefits and short-term and long-term
disability benefits at least equal to the benefits provided by the Company's
group medical, dental and life insurance plans and the Company's Disability
Income Plan described on Schedules 6P and 6V to the Stock Purchase Agreement
(the "Existing Plans") on terms at least as favorable as those available to the
Executive under the Existing Plans.
Permitted Vacation -- 4 weeks per year
Entertainment Expenses
Car Allowances; $700 per month
Car Expenses
Lancaster Country Club Membership ($6,000 per annum)
Hamilton Club Membership ($1,200 per annum)
Schedule A, Page 1
<PAGE> 21
EXHIBIT A
[ ]1999
ELECTION TO INCLUDE SECURITIES IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased units of Common Interests (the
"Interests"), of Sleepmaster Holdings L.L.C. ("Holdings") on [ ]. Under certain
circumstances, Holdings has the right to repurchase the Interests at cost from
the undersigned (or from the holder of the Interests, if different from the
undersigned) should the undersigned cease to be employed by the Company Group
and its subsidiaries. Hence, the Interests are subject to a substantial risk of
forfeiture and are non-transferable. The undersigned desires to make an election
to have the Interests taxed under the provision of Code Section 83(b) at the
time he purchased the Interests.
Therefore, pursuant to Code Section 83(b) and Treasury
Regulation Section 1.83-2 promulgatED thereunder, the undersigned hereby makes
an election, with respect to the Interests (described below), to report as
taxable income for calendar year [ ] the excess (if any) of the Interests' fair
market value on [ ] over the purchase price thereof.
The following information is supplied in accordance with
Treasury Regulation Section 1.83-2(e):
1. The name, address and social security number of the
undersigned:
Name: Stuart W. Herr
Address:
SSN:
2. A description of the property with respect to which the
election is being made: [ ] Class A Common Interests of Sleepmaster Holdings
L.L.C.
3. The date on which the property was transferred: [ ]. The
taxable year for which such election is made: calendar 1999.
4. The restrictions to which the property is subject: If
during the first five years after the purchase of the Interests the undersigned
ceases to be employed by the Company Group or any of its subsidiaries by reason
of the undersigned's voluntary resignation or by termination of the undersigned
by the Company Group or any of its subsidiaries for Cause (as defined), the
Interests will be subject to repurchase by the Company Group at cost, and at any
time prior to a public offering by Holdings or a sale of Holdings the
undersigned ceases to be employed by the Company Group or any of its
subsidiaries, the Interests will be subject to repurchase by Holdings at fair
value.
A-1
<PAGE> 22
5. The fair market value on [ ] of the property with respect
to which the election is being made, determined without regard to any lapse
restrictions: [$ ] per Interest.
6. The amount paid for such property: [$ ] per Interest.
A copy of this election has been furnished to the Secretary of
Holdings pursuant to Treasury Regulations Section 1.83-2(e)(7).
Dated: _____________, [ ] __________________________
Name:
A-2
<PAGE> 23
March 3, 1998
Sun Trust Bank, South Florida, N.A.
501 South Flagler Drive
West Palm Beach, Florida 33401
First Source Financial Inc.
2850 W. Golf Road
West Tower - 5th Floor
Rolling Meadows, Illinois 60008
Re: Agreement and Plan of Merger, dated as of February 28, 1998
and effective as of March 3, 1998, by and among Sleepmaster
L.L.C., Sleepmaster Acquisition Corp. and Palm Beach Bed
Gentlemen:
Reference is made to (a) the above-referenced Agreement and
Plan of Merger (the "Merger Agreement") and (b) the Investor Subscription
Agreement (the "Subscription Agreement"), dated the date hereof, between
Sleepmaster Holdings L.L.C., a New Jersey limited liability company ("Holding"),
and the undersigned Michael W. Bubis ("MWB"). Capitalized terms used herein
without definition shall have the respective meanings given them in the Merger
Agreement.
1. Holdings hereby acknowledges that pursuant to Section
3.2(c) of the merger Agreement, Sleepmaster is obligated to pay the Funding
Amount to the Representative by wire transfer of immediately available funds.
2. Holdings hereby confirms that, subject top the terms and
conditions of the Merger Agreement, pursuant to written instructions heretofore
given it by the Representative, at the Effective Time it will cause Sleepmaster
to pay the Funding Amount as required pursuant to Section 3.2(c) of the Merger
Agreement into the following account:
Foster, Foster & Heffling IOTA Trust Account
Account No. 0391006514600
ABA No.: 067006076
501 South Flagler Drive
West Palm Beach, Florida 33401
Phone: (561) 838-5110
Fax: (561) 939-5122
<PAGE> 24
SunTrust Bank, South Florida, N.A.
Sleepmaster Holdings L.L.C.
March 3, 1998
Page 2
3. MWB hereby acknowledges that, as of the Effective time, he
shall have the right to receive his Pro Rata Portion of the Closing Merger
Consideration from the Funding Amount and that he desires to pay the
subscription price referred to in the Subscription Agreement to Holdings from
such Pro Rata Portion of the Closing Merger Consideration.
4. MWB hereby irrevocably instructs and directs the
Representative, immediately, upon the Representative's receipt of the Funding
Amount, to pay the sum of $1,000,000 by wire transfer of immediately available
funds to the following account of Holdings (the "Holdings Account") at LaSalle
National Bank:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
5. The undersigned Representative, having been appointed as
such pursuant to the Power of Attorney, hereby acknowledges the foregoing
instructions of MWB and hereby confirms that, upon the Representative's receipt
of the funding Amount, he will pay on behalf of MWB the amount of $1,000,000
pursuant to the instructions of MWB contained herein to Holdings in satisfaction
of the subscription price due under the Subscription Agreement.
6. In furtherance of the foregoing, the Representative hereby
irrevocably authorizes Sun Trust Bank, South Florida, N.A., immediately upon its
receipt of the Funding Amount to wire transfer $1,000,000 to the Holdings
Account in satisfaction of the obligations of MWB under the Subscription
Agreement.
Very truly yours,
SLEEPMASTER HOLDINGS L.L.C.
By:
-----------------------------------
--------------------------------------
Michael W. Bubis
<PAGE> 25
SunTrust Bank, South Florida, N.A.
Sleepmaster Holdings L.L.C.
March 3, 1998
Page 3
---------------------------------------
John Fenn Foster, as Representative
<PAGE> 1
EXHIBIT 10.20
EXECUTION COPY
EMPLOYMENT AND STOCK PURCHASE AGREEMENT
This EMPLOYMENT AND STOCK PURCHASE AGREEMENT is dated as of
February 26, 1999, by and among Herr Manufacturing Company, a Pennsylvania
corporation (the "Company"), Sleepmaster Holdings L.L.C., a New Jersey limited
liability company ("Holdings"), Sleepmaster L.L.C., a New Jersey limited
liability company ("Sleepmaster"), John K. Herr III (the "Executive"), Charles
Schweitzer ("Schweitzer"), and Sleep Investor L.L.C., a Delaware limited
liability company (the "Investor").
WHEREAS the parties desire to enter into an agreement
regarding (i) the employment of the Executive as Chief Operating Officer of the
Company and (ii) the sale by Schweitzer and the purchase by the Executive of
21.16 units of Holdings' Class A Common Interests (the "Class A Common") upon
terms and conditions set forth herein;
WHEREAS, as an inducement to the Company Group to enter into
this Agreement, the Executive has agreed to the provisions of this Agreement
including, without limitation, Sections 3, 4 and 5; and
WHEREAS, certain provisions of this Agreement are intended for
the benefit of, and will be enforceable by, the Investor;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have
the following meanings.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means Holding's board of advisors.
"Business Day" means any day other than a Saturday or Sunday
or a day on which commercial banks are required or authorized to close in New
York, New York.
"Cause" means (i) a material breach of the Executive's
covenants under this Agreement or any other agreements with the Company or its
Subsidiaries and such breach shall not have been cured within 30 days after
written notice to the Executive; provided that, a breach of any of the
Executive's covenants contained in Sections 3, 4 or 5 of this Agreement shall be
deemed material and the cure period for such breach shall be 5 days, (ii) the
commission by the Executive of a felony, a crime involving moral turpitude or
other act causing material harm to the standing and reputation of the Company or
any of its Subsidiaries, or (iii) the Executive's repeated wilful failure to
comply with the reasonable and lawful written directives of the Board.
<PAGE> 2
"Common Interests" means the Class A Common and Holdings'
Class B Common Interests, as adjusted for any unit split, unit dividend, or
other combination, exchange, conversion, recapitalization, merger, consolidation
or reorganization, or if such Common Interests are exchanged for different
interests or securities of Holdings, such other interests or securities and any
other Common Interests of Holdings hereinafter issued.
"Company Group" means the Company, Holdings, Sleepmaster and
their respective Subsidiaries.
"Disability" means the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of the Executive to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company or a
Subsidiary of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 150 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable judgment of the
Board.
"Executive Securities" means the Class A Common purchased by
the Executive and will include units of Holdings' Common Interests issued with
respect to Executive Securities by way of a split, dividend, combination,
exchange, conversion, or other recapitalization, merger, consolidation or
reorganization. Executive Securities will cease to be Executive Securities when
transferred pursuant to a Qualified Public Offering or Sale of Holdings.
Executive Securities will continue to be Executive Securities in the hands of
any holder other than the Executive, including all transferees of the Executive
(except for Holdings and the Investor (or its designee)), and except as
otherwise provided herein, each such other holder of Executive Securities will
succeed to all rights and obligations attributable to the Executive as a holder
of Executive Securities hereunder.
"Fair Value" of each unit of Class A Common means the average
of the closing prices of the sales of Holdings' membership interests on all
securities exchanges on which the membership interests may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the membership interests are not so listed,
the average of the representative bid and asked prices quoted on the Nasdaq
National Market System ("Nasdaq NMS") as of 4:00 P.M., New York time, or, if on
any day the membership interests are not quoted in the Nasdaq NMS, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Value is
being determined and the 20 consecutive business days prior to such day. If at
any time the Class A Common is not listed on any securities exchange or quoted
in the Nasdaq NMS or the over-the-counter market, the Fair Value of each unit of
Class A Common shall be the fair market value of such unit as determined by the
Board in its good faith judgment; provided, that in the event the Executive
disagrees with the determination of the Board, and the Executive and the Board
are unable to resolve their disagreement within twenty (20) days of such
determination, then the determination of Fair Value shall be submitted to an
independent valuation firm selected by the Executive from three valuation firms
proposed by the Board (it being understood that none of the three proposed
valuation firms shall have been hired by any member of the Company Group within
the prior twenty-four (24) month period) (the "Valuation Specialist") who shall
make a determination of Fair Value as soon as practicable and, in any event,
within thirty (30) days. The fees and expenses
-2-
<PAGE> 3
of the Valuation Specialist shall be borne by the Company unless the difference
between the determination of the Board and the determination of the Valuation
Specialist is less than 15% more than the determination of the Board, in which
case, the fees and expenses of the Valuation Specialist shall be borne by the
Executive. In any such determination of Fair Value, whether by the Board or by
the Valuation Specialist, the determination shall be made based on the value of
Holdings as a going concern and no discount for lack of marketability or
minority interest shall be applied.
"Full Cost " shall mean (x) in the case where such medical
insurance benefits are being provided under the medical insurance plan sponsored
by the Company Group, 100% of the applicable cost of such benefits determined
under COBRA (or any superseding statute), or (y) in the case where such medical
insurance benefits are not being provided under the medical insurance plan
sponsored by the Company Group (and subject to the commercially reasonable best
efforts obligation of the Company Group as described in Section 2(d)(v)), then
the full cost of such medical insurance benefits.
"GAAP" means U.S. generally accepted accounting principles, as
in effect from time to time and as adopted by the Company with the consent of
its independent public accountants, consistently applied.
"Good Reason Event" means (i) a material breach (and a breach
of Section 2(c)(i) or Section 2(c)(iii) shall be material) of this Agreement by
the Company which is not cured within 30 days after written notice to the
Company, (ii) the relocation of the Executive's office more than 30 miles from
Lancaster, Pennsylvania, (iii) travel requiring the Executive to spend more than
four (4) days per month or twenty (20) days per year a distance of over fifty
(50) miles from Lancaster, Pennsylvania,(iv) a substantial reduction by the
Company of the Executive's job responsibilities which is not cured within 30
days after written notice to the Company, or (v) a substantial reduction by the
Company of the Executive's job responsibilities which is not connected to the
Executive's illness or disability (prior to a determination that the Executive
has a Disability).
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any sale of securities of Holdings in
an underwritten public offering.
"Qualified Public Offering" means any sale, in an underwritten
public offering registered under the Securities Act, of equity securities of
Holdings having an aggregate value of at least $20 million.
"Sale of Holdings" means the sale of Holdings, in a single
transaction or a series of related transactions, to a third party (which is not
an Affiliate of the Investor) pursuant to which such third party proposes to
acquire all or substantially all of the outstanding Common Interests (whether by
merger, consolidation, recapitalization, reorganization, purchase of the
outstanding Common Interests or otherwise) or all or substantially all of the
consolidated assets of the Holdings.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
-3-
<PAGE> 4
"Securityholders Agreement" means the Securityholders
Agreement dated as of March 3, 1998 by and among the Company, the Investor and
certain other parties thereto.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of February 26, 1999 by and among the Company, Sleepmaster, and the
Stockholders listed on the Seller signature page attached thereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (i) if a corporation or a limited liability company
(with voting securities), a majority of the total voting power of securities
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 that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
limited liability company (without voting securities), association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, limited liability company (without voting
securities), association or other business entity if such Person or Persons
shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director or general partner of such partnership, limited liability
company, association or other business entity.
"Termination Year" means that fiscal year of the Company
during which the Employment Period ends pursuant to the terms of Section 2(d)
hereof.
2. Employment.
(a) Employment. The Company agrees to employ the Executive,
and the Executive hereby accepts employment with the Company, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in Section 2(d) (the "Employment Period").
(b) Position and Duties.
(i) Commencing on the date hereof and continuing during
the Employment Period, the Executive shall serve as Chief Operating Officer of
the Company under the supervision and direction of the Board.
(ii) The Executive shall devote his best efforts and his
full business time and attention (except for permitted vacation periods and
reasonable periods of illness other than Disability) to the business and affairs
of the Company. The Executive shall perform his duties and responsibilities to
the best of his abilities in a diligent, trustworthy, businesslike and efficient
manner. Subject to the provisions of Section 5 of this Agreement, nothing in
this Section 2(b) will prevent the Executive from volunteering in community
activities and serving on the board of directors of non-profit organizations.
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<PAGE> 5
(c) Base Salary and Benefits.
(i) Base Salary. During the Employment Period, the
Executive's base salary shall be $175,000 per annum (the "Base Salary"), which
salary shall be paid by the Company in regular installments in accordance with
the Company's general payroll practices and shall be subject to customary
withholding.
(ii) Executive Bonus Plan. For each fiscal year during the
Employment Period, the Executive will be eligible to receive a bonus based on
the Company's achievement of the Target EBITDA for such fiscal year. Other than
fiscal year 1999, in the event the Termination Year is less than the Company's
full fiscal year the Executive shall be entitled to receive a portion of the
bonus earned for such fiscal year pro rated based on the number of days in the
Termination Year prior to the date of termination, which such bonus shall be
determined in accordance with Section 2(c)(ii)(A). "Target EBITDA" for the
Company shall be $4.4 million for fiscal year 1999 and for each subsequent
fiscal year shall be determined by the Board no later than March 31st of such
fiscal year. In the event Sleepmaster transfers any of its accounts to the
Company, the Target EBITDA will be adjusted in good faith by the Board, and such
adjusted Target EBITDA shall be the Target EBITDA for such fiscal year.
(A) Once the Board has determined (which
determination shall be made within thirty (30) days from the issuance of the
Company's audited financial statements) the percentage of EBITDA achieved for
such fiscal year as compared to the Target EBITDA for such fiscal year (the
"Achieved EBITDA Percentage"), so long as the Achieved EBITDA Percentage for
such fiscal year equals or exceeds 80%, the Executive shall be entitled to
receive a bonus payment in an amount equal to the product of (x) the Bonus
Multiple (as set forth opposite the Achieved EBITDA Percentage below), (y) 30%,
and (z) the Executive's Base Salary for such fiscal year. The bonus payment
shall be made within five (5) days of the Board's determination and in any event
on or prior to May 1. The method used to calculate EBITDA shall be consistent
with the method used by the Company Group to calculate EBITDA in determining
bonus payments due to other senior executives of the Company Group; provided,
that the Executive acknowledges that any such bonus payments due to the
Executive hereunder will be based on the Company's EBITDA. The bonus payment
shall be subject to customary withholding.
<TABLE>
<CAPTION>
Achieved EBITDA Percentage Bonus Multiple
-------------------------- --------------
<S> <C>
80% 50%
100% 100%
110% 125%
120% 150%
</TABLE>
(B) Each Bonus Multiple set forth above shall
increase linearly as the Achieved EBITDA Percentage increases; therefore, so
long as the Achieved EBITDA Percentage equals or exceeds 80%, in the event the
actual Achieved EBITDA Percentage falls between any of the target Achieved
EBITDA Percentages set forth above, the applicable Bonus Multiple shall be
adjusted accordingly; provided, that in no event shall the Bonus Multiple exceed
150%. For example, (1) in the event the actual Achieved EBITDA Percentage is
90%, the Bonus Multiple shall
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<PAGE> 6
be 75% or (2) in the event the actual Achieved EBITDA Percentage is 115%, the
Bonus Multiple shall be 137.5%.
(iii) Benefits. In addition to the Base Salary and any
bonuses payable to the Executive pursuant to Section 2(c)(ii), the Executive
shall be entitled, during the Employment Period, to all benefits set forth on
Schedule A hereto (the "Benefits").
(iv) Expenses. The Company shall reimburse the Executive
for all reasonable expenses incurred by him in the course of performing his
duties under this Agreement which are consistent with the Company Group's
policies in effect from time to time with respect to travel, entertainment and
other business expenses for executive employees, subject to the requirements of
the Company Group with respect to reporting and documentation of such expenses.
(d) Term. The Employment Period shall end on February 26,
2004, subject to earlier termination (x) by reason of the Executive's death or
Disability, (y) by resolution of the Board, with or without Cause or (z) upon
the Executive's voluntary resignation with or without a Good Reason Event.
(i) If the Employment Period is terminated on or before
February 26, 2004:
(A) by resolution of the Board other than for Cause
or as a result of the Executive's voluntary resignation within 60 days following
a Good Reason Event, the Executive shall be entitled to receive (1) all
previously earned and accrued but unpaid Base Salary up to the date of such
termination, (2) a portion of the bonus payment earned by the Executive during
the Termination Year pro rated based on the number of days of the Termination
Year prior to the date of termination, which such payment will be made when the
bonus payments for such Termination Year are otherwise due, and (3) an amount
equal to the Base Salary from the date of termination through the fifth
anniversary of the date of this Agreement.
(B) as a result of the Executive's death or
Disability, the Executive or the Executive's estate, as applicable, shall be
entitled to (1) all previously earned and accrued but unpaid Base Salary up to
the date of such termination and (2) a portion of the bonus payment earned by
the Executive during the Termination Year pro rated based on the number of days
of the Termination Year prior to the date of termination, which such payment
will be made when the bonus payments for such Termination Year are otherwise
due. The Executive shall not be entitled to any further Base Salary, bonus
payments or Benefits for that year or any future year, or to any other severance
compensation of any kind, nature or amount.
(C) as a result of the Executive's voluntary
resignation other than within 60 days following a Good Reason Event, or by
resolution of the Board for Cause, the Executive shall be entitled to all
previously earned and accrued but unpaid Base Salary up to the date of such
termination but shall not be entitled to any further Base Salary, bonus payments
or Benefits for that year or any future year, or to any other severance
compensation of any kind, nature or amount.
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<PAGE> 7
(ii) Following the termination of the Employment
Period:
(A) the Executive agrees that: (1) the Executive
shall be entitled to the payments provided for in Section 2(d)(i)(A) and Section
2(d)(i)(B), if any, if and only if Executive has not breached as of the date of
termination of the Employment Period the provisions of Sections 3, 4 and 5
hereof and does not breach such sections at any time during the period for which
such payments are to be made and (2) the Company's obligation to make such
payments will terminate upon the occurrence of any such breach during any such
severance period.
(B) any payments with respect to Base Salary
pursuant to Section 2(d)(i)(A) shall be paid by the Company in regular
installments and any other payments pursuant to Section 2(d)(i)(A) or 2(d)(i)(B)
shall be paid by the Company in accordance with the Company's general payroll
practices and shall be subject to customary withholding, and following such
payments none of the Company Group shall have any further obligation to the
Executive pursuant to this Section 2(d) except as provided by law.
(iii) THE EXECUTIVE HEREBY AGREES THAT EXCEPT AS EXPRESSLY
PROVIDED HEREIN, NO SEVERANCE COMPENSATION OF ANY KIND, NATURE OR AMOUNT SHALL
BE PAYABLE TO THE EXECUTIVE AND EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE
EXECUTIVE HEREBY IRREVOCABLY WAIVES ANY CLAIM FOR SEVERANCE COMPENSATION.
(iv) Except as provided in Section 2(d)(v) below, all of
the Executive's rights to Benefits hereunder (if any) shall cease upon the
termination of the Employment Period.
(v) If the Executive's employment is terminated other than
by (A) resolution of the Board for Cause or (B) the Executive's voluntary
resignation other than within 60 days following a Good Reason Event, the
Executive and his spouse (and the Executive's eligible family members) shall be
entitled to continue to participate in the medical insurance plan sponsored by
the Company Group and to receive the level of medical insurance benefits
afforded to the other executives in the Company Group until, with respect to
each of the Executive and his spouse, the date that such person reaches the age
at which he or she becomes eligible for Medicare benefits (or, if the Medicare
program is no longer in existence, any government sponsored successor to the
Medicare program) or if the Medicare program is no longer in existence and no
successor program exists, the age of 70 (the "Insurance Termination Date");
provided, that the Executive shall pay the Full Cost of such medical insurance
benefits relating to the continuance of the Executive's and his spouse's (and,
if applicable the Executive's other family members) medical insurance following
termination. The Company Group agrees to use commercially reasonable best
efforts to provide such benefits under its medical insurance plan which shall
include engaging a qualified broker or consultant to seek to obtain such
benefits under a Company group plan or program, obtaining quotations from group
carriers, individual carriers and third party administrators, and keeping the
Executive informed as to and, insofar as practicable, involving the Executive in
the process of obtaining such benefits. The Company Group shall not be obligated
to provide medical insurance benefits to any of the Executive's family members
(other than the Executive's spouse as provided herein) after the Insurance
Termination Date as it applies to the Executive.
(vi) The Executive has no obligation to seek or obtain
other engagements or employment to mitigate any damages to which the Executive
may be entitled by reason of any
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<PAGE> 8
termination of this Agreement pursuant to Section 2(d)(i)(A). If the Executive
does obtain other engagements or employment of any nature and in any location,
the total cash payments received by the Executive as wages or salary from such
other employment or engagements, as reported to the Internal Revenue Service on
the Executive's Form 1040, during the period that he is to receive payments, if
any, pursuant to Section 2(d)(i)(A) shall reduce any amounts which the Company
would otherwise be required to pay the Executive under this Agreement.
3. Confidential Information. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
Group concerning the business or affairs of the Company Group (including the
Company Group's technology, computer programs, know-how, designs, inventions,
methods of doing business and supplier and customer information) ("Confidential
Information") are the property of such member of the Company Group. Therefore,
the Executive agrees that, except as required by law or court order, he shall
not disclose to any unauthorized person or use for his own account any
Confidential Information without the prior written consent of the Board, unless
and to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of the Executive's acts
or omissions to act. The Executive shall deliver to the Company at the
termination of such Executive's employment, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes and
software and other documents and data (and copies thereof) relating to the
Confidential Information, Work Product (as defined below) and the business of
the Company Group which he may then possess or have under his control.
4. Inventions and Patents. The Executive agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Company
Group's actual or anticipated business, research and development or existing or
future products or services and which are conceived, developed or made by the
Executive while employed by the Company Group ("Work Product") belong to such
member of the Company Group and the Executive hereby assigns all right, title
and interest in and to such work product to such member of the Company Group.
The Executive will promptly disclose such Work Product to the Board and perform
all actions reasonably requested by the Board (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
5. Noncompete, Nonsolicitation.
(a) The Executive acknowledges that in the course of his
employment with the Company he has become familiar, and he will become familiar,
with the Company Group's trade secrets and with other Confidential Information
and that his services have been and will be of special, unique and extraordinary
value to the Company Group. Therefore, the Executive agrees that, during the
time he is employed by the Company Group and during any applicable
Post-Termination Period (the "Noncompete Period"), he shall not directly or
indirectly own, operate, manage, control, participate in, consult with, advise,
provide services for, or in any manner engage (including by himself or in
association with any person, firm, corporate or other business organization or
through any other entity) in (i) the manufacture or distribution of mattresses,
box springs, bedding products or other products competitive with such products
or (ii) any other business which competes with a business of the Company Group
in which the Executive actively participated as part of his employment with the
Company and/or the Company Group within any geographical
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<PAGE> 9
area in which the Company Group has obtained or is in the process of obtaining a
Serta license as of the date of the termination of the Executive's employment.
Nothing herein shall prohibit the Executive from (x) being a passive owner of
not more than 2% of the outstanding stock of a corporation which is publicly
traded, so long as the Executive has no active participation in the business of
such corporation or (y) from owning an interest in Holdings. For purposes of
this Section 5, "Post-Termination Period" means, as applicable: the period
beginning on the date of termination through the later of (x) the last date on
which the Executive is restricted pursuant to the provisions of Section 5B of
the Stock Purchase Agreement or (y) the twelve-month anniversary date of the
date of termination.
(b) During the Noncompete Period, the Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company Group to leave the employ of the Company Group, or
in any way interfere with the relationship between the Company Group and any
employee thereof, including without limitation, inducing or attempting to induce
any union, employee or group of employees to interfere with the business or
operations of the Company Group, (ii) hire any person who was an employee of the
Company Group at any time during the Executive's employment period, or (iii)
induce or attempt to induce any customer, supplier, distributor, franchisee,
licensee or other business relation of the Company Group to cease doing business
with the Company Group, or in any way interfere with the relationship between
any such customer, supplier, distributor, franchisee, licensee or business
relation and the Company Group.
(c) The Executive agrees that: (i) the covenants set forth in
this Section 5 are reasonable in geographical and temporal scope and in all
other respects, (ii) the Company Group would not have entered into this
Agreement but for the covenants of the Executive contained herein, and (iii) the
covenants contained herein have been made in order to induce the Company Group
to enter into this Agreement.
(d) If, at the time of enforcement of this Section 5, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) The Executive recognizes and affirms that in the event of
his breach of any provision of this Section 5, money damages would be inadequate
and the Company Group and the Investor would have no adequate remedy at law.
Accordingly, the Executive agrees that in the event of a breach or a threatened
breach by the Executive of any of the provisions of this Section 5, the Company
Group, in addition and supplementary to other rights and remedies existing in
its favor, may apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof (without posting a bond or other
security).
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<PAGE> 10
6. Executive Securities.
(a) Upon execution of this Agreement, the Executive will
purchase from Schweitzer, and Schweitzer will sell to the Executive 21.16 units
of Class A Common at a price of $8,637.29 per unit for an aggregate price of
$182,765.0 (the "Purchase Price"). Schweitzer will deliver to the Executive
certificates representing such units (either duly endorsed in blank or in the
name of the Executive) and the Executive will deliver to Schweitzer a check or
wire transfer of immediately available funds in the aggregate amount equal to
the Purchase Price.
(b) Upon execution of this Agreement, the Executive shall
execute and deliver a joinder to the Securityholders Agreement (the "Joinder
Agreement").
(c) With respect to the Executive Securities, within 30 days
from the date hereof, the Executive will make an effective election with the
Internal Revenue Service under Section 83(b) of the Internal Revenue Code and
the regulations promulgated thereunder in the form of Exhibit A attached hereto.
(d) In connection with the acquisition of the Executive
Securities, the Executive represents and warrants to Schweitzer and Holdings
that:
(i) The Executive Securities to be acquired by the
Executive pursuant to this Agreement will be acquired for the Executive's own
account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities laws, and
the Executive Securities will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) No commission, fee or other remuneration is to be
paid or given, directly or indirectly, to any Person for soliciting the
Executive to purchase the Executive Securities.
(iii) The Executive is an executive officer of the
Company, is sophisticated in financial matters and is able to evaluate the risks
and benefits of the investment in the Executive Securities and has determined
that such investment in the Executive Securities is suitable for the Executive,
based upon the Executive's financial situation and needs, as well as the
Executive's other securities holdings.
(iv) The Executive qualifies an "accredited investor"
within the meaning of Rule 501(a) of Regulation D under the Securities Act.
(v) The Executive is able to bear the economic risk of the
Executive's investment in the Executive Securities for an indefinite period of
time and the Executive understands that the Executive Securities have not been
registered under the Securities Act and cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is
available.
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<PAGE> 11
(vi) The Executive has had an opportunity to ask questions
and receive answers concerning the terms and conditions of the offering of
Executive Securities and has had access to such other information concerning
Holdings as the Executive has requested. The Executive has reviewed, or has had
an opportunity to review, the following documents: (A) the organization
documents of Holdings; (B) the loan agreements, notes and related documents with
the lenders of the Company Group; and (C) financial statements related to the
Company Group.
(vii) This Agreement constitutes the legal, valid and
binding obligation of the Executive, enforceable in accordance with its terms,
and the execution, delivery and performance of this Agreement by the Executive
does not and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which the Executive is a party or any judgment, order
or decree to which the Executive is subject.
(e) In connection with the sale of the Executives Securities,
Schweitzer represents and warrants to the Executive that:
(i) the Executive Securities are held beneficially and of
record by Schweitzer free and clear of any mortgage, pledge, security interest,
encumbrance, claim, right of possession, or other defect in title or lien.
(ii) this Agreement constitutes a valid and binding
obligation of Schweitzer, enforceable in accordance with its terms.
(iii) the fulfillment of and compliance with the
respective terms of this Section 6 will not conflict with or result in a breach
of the terms, conditions or provisions of any agreement to which Schweitzer or
the Executive Securities are subject which would prevent the transfer of the
Executive Securities pursuant to this Agreement.
(f) The Executive acknowledges and agrees that neither the
purchase of the Executive Securities by the Executive nor any provision
contained herein shall entitle the Executive to remain in the employment of the
Company Group and its Subsidiaries or affect the right of the Company Group and
its Subsidiaries to terminate the Executive's employment at any time for any
reason.
7. Representations and Warranties of Holdings. Holdings hereby
represents and warrants to the Executive that:
(a) Immediately following the consummation of the transactions
contemplated hereby, the authorized units of Holdings shall consist of (i) Class
A Common, of which 8,465 units shall be issued and outstanding, (ii) Class B
Common Interests, of which no units shall be issued and outstanding, and (iii)
Preferred Interests, of which 10,357.1 units shall be issued and outstanding. As
of immediately following the consummation of the transactions contemplated
hereby, all of the outstanding units of Holdings' shall be validly issued, fully
paid and nonassessable.
(b) There are no statutory or contractual securityholders
preemptive rights or rights of refusal with respect to the issuance of the
Executive Securities hereunder. Neither
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<PAGE> 12
Schweitzer nor Holdings has violated any applicable federal or state securities
laws in connection with the offer and sale of the Executive Securities hereunder
and such sale does not require registration under the Securities Act or any
applicable state securities laws.
8. Repurchase Option on Executive Interests. In the event the Executive
ceases to be employed by the Company Group for any reason (the "Termination"),
the Executive Securities (whether held by the Executive or one or more of the
Executive's transferees) will be subject to repurchase by Schweitzer and
Holdings pursuant to the terms and conditions set forth in this Section 8 (the
"Repurchase Option").
(a) The purchase price for each unit of Executive Securities
will be the Fair Value for such unit; provided, that if, on or prior to the
fifth anniversary of the date hereof, the termination of the Employment Period
is by resolution of the Board for Cause or by the voluntary resignation of the
Executive other than within 60 days following a Good Reason Event, then the
purchase price for each unit of Executive Securities will be the Executive's
Original Cost.
(b) Schweitzer may elect to purchase all, but not less than
all, of the Executive Securities held by the Executive by delivering written
notice (the "Repurchase Notice") to the holder or holders of the Executive
Securities within 90 days after the Termination. The Repurchase Notice will set
forth the number of units to be acquired from each holder, the aggregate
consideration to be paid for such securities and the time and place for the
closing of the transaction. The number of units of Executive Securities to be
repurchased by Schweitzer shall first be satisfied to the extent possible from
the Executive Securities held by the Executive at the time of delivery of the
Repurchase Notice. If the number of units then held by the Executive is less
than the total number of units of Executive Securities Schweitzer has elected to
purchase, Schweitzer shall purchase the remaining Executive Securities elected
to be purchased from the other holder(s) of Executive Securities, pro rata
according to the amount of such Executive Securities held by such other
holder(s) at the time of delivery of such Repurchase Notice (determined as
nearly as practicable to the nearest share). The number of units to be
repurchased hereunder will be allocated among the Executive and the other
holders of Executive Securities (if any) pro rata according to the number of
units of Executive Securities to be purchased from such Persons.
(c) If for any reason Schweitzer does not elect to purchase
all of the units of Executive Securities that are subject to the Repurchase
Option, pursuant to such Repurchase Option, Holdings shall be entitled to
exercise the Repurchase Option for the Executive Securities Schweitzer has not
elected to purchase (the "Available Interests"). As soon as practicable after
Schweitzer has determined that there will be Available Interests, but in any
event within 150 days after the Termination, Schweitzer shall give written
notice (the "Option Notice") to Holdings setting forth the number of Available
Interests, and the purchase price for each of such Available Interests. The
Board may elect to cause Holdings to purchase all, but not less than all, of
Available Interests by giving written notice to Schweitzer within 45 days after
the Option Notice has been given by Schweitzer. As soon as practicable, and in
any event within ten days after the expiration of the 45-day period set forth
above, Holdings shall notify each holder of Executive Securities as to the
number of units being purchased from such holder by Holdings (the "Supplemental
Repurchase Notice").
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<PAGE> 13
(d) The closing of the purchase of the Executive Securities
pursuant to the Repurchase Option shall take place on the date designated by
Schweitzer in the Repurchase Notice or by Holdings in the Supplemental
Repurchase Notice, which date shall not be later than the 30th day after the
delivery of the later of such notices to be delivered (or, if later, the 15th
day after the Fair Value is finally determined) nor earlier than the fifth day
after such delivery. Schweitzer and/or Holdings will pay for the Executive
Securities to be purchased pursuant to the Repurchase Option by delivery of a
certified or cashier's check or wire transfer of funds, except that Holdings may
pay up to 50% of the aggregate consideration in the form of a three year
subordinated promissory note bearing 6% interest and payable, as to principal
and interest, in three equal annual installments on the first three
anniversaries of the closing of such repurchase. The purchasers of Executive
Securities hereunder will be entitled to receive customary representations and
warranties from the sellers as to title, authority and capacity to sell.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive Securities by Holdings shall be subject
to applicable legal restrictions. If any such restrictions prohibit the
repurchase of Executive Securities hereunder which Holdings is otherwise
entitled to make, Holdings may make such repurchases as soon as it is permitted
to do so under such restrictions.
9. Restrictions on Transfer.
(a) If certificated, the Executive Securities will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN EMPLOYMENT AGREEMENT
BETWEEN THE ISSUER AND THE SIGNATORY THERETO DATED AS OF
FEBRUARY 26, 1999. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY
THE HOLDER HEREOF AT THE ISSUER'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) No holder of Executive Securities may sell, transfer or
dispose of any units of Executive Securities (except pursuant to an effective
registration statement under the Securities Act) without first delivering to
Holdings an opinion of counsel (reasonably acceptable in form and substance to
Holdings) that neither registration nor qualification under the Securities Act
and applicable state securities laws is required in connection with such
transfer.
(c) Each holder of Executive Securities agrees not to effect
any sale or distribution of any Executive Securities or other equity securities
of Holdings, or any securities convertible into or exchangeable or exercisable
for any of Holdings's equity securities, during the
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<PAGE> 14
seven days prior to and the 120 days (or, subject to the requirements of the
underwriters, up to 180 days) after the effectiveness of any underwritten public
offering, except as part of such underwritten public offering or if otherwise
permitted by Holdings.
(d) Each holder of Executive Securities acknowledges that the
Executive Securities are subject to additional restrictions contained in the
Securityholders Agreement.
10. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient with telephonic confirmation by the sending party. Such notices,
demands and other communications will be sent to the address indicated below:
To the Company:
Herr Manufacturing Company
18 Prestige Lane
Lancaster, PA 17603
Attention: President
Telecopy No.: (717) 392-6154
With copies to:
Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: President
Telecopy No.: (908) 381-4455
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Kimberly P. Taylor, Esq.
Telecopy No.: (212) 446-4900
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<PAGE> 15
To any other Member of the Company Group or the Investor:
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, NJ 07036
Attention: President
Telecopy No.: (908) 381-4455
With copies to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Kimberly P. Taylor, Esq.
Telecopy No.: (212) 446-4900
To the Executive:
c/o Herr Manufacturing Company
18 Prestige Lane
Lancaster, PA 17603
Attention: Mr. John K. Herr III
With a copy to:
Barley, Snyder, Senft & Cohen, LLC
126 East King Street
Lancaster, PA 17602-2893
Attention: John Shirk, Esq.
Telecopy No.: (717) 291-4660
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) Transfers in Violation of Agreement. Any transfer or
attempted transfer of any Executive Securities in violation of any provision of
this Agreement shall be null and void, and
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<PAGE> 16
Holdings shall not record such transfer on its books or treat any purported
transferee of such Executive Securities as the owner of such securities for any
purpose.
(b) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the Joinder Agreement,
the Securityholders Agreement and the Stock Purchase Agreement embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way,
including, without limitation, the Previous Agreement.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Executive, the Company Group, and the Investor and their respective
successors and assigns (including subsequent holders of Executive Securities);
provided that the rights and obligations of the Executive under this Agreement
shall not be assignable except in connection with a permitted transfer of
Executive Securities hereunder.
(f) Third Party Beneficiary. This Agreement is intended for
the benefit of, and will be enforceable by, the Investor.
(g) GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE COMMONWEALTH OF PENNSYLVANIA
OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE COMMONWEALTH OF PENNSYLVANIA; PROVIDED, THAT ANY
QUESTIONS REQUIRING INTERPRETATION OF THE LAWS GOVERNING LIMITED LIABILITY
COMPANIES SHALL BE GOVERNED BY THE NEW JERSEY LIMITED LIABILITY COMPANY ACT.
(h) JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS BROUGHT
BY OR AGAINST THE COMPANY OR THE EXECUTIVE WITH RESPECT TO THIS AGREEMENT SHALL
BE BROUGHT IN ANY STATE COURT OF COMPETENT JURISDICTION IN THE CITY OF
PHILADELPHIA IN THE COMMONWEALTH OF PENNSYLVANIA OR FEDERAL COURT IN THE EASTERN
DISTRICT OF THE COMMONWEALTH OF PENNSYLVANIA. BY EXECUTION AND DELIVERY OF THIS
AGREEMENT THE COMPANY AND THE EXECUTIVE ACCEPT
-16-
<PAGE> 17
FOR ITSELF AND HIMSELF AND IN CONNECTION WITH ITS OR HIS RESPECTIVE PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. THE COMPANY AND THE EXECUTIVE WAIVE ANY CLAIMS
THAT SUCH JURISDICTION IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON
LACK OF VENUE.
(i) Dispute Resolution.
(i) Arbitration. In the event of disputes between the
Parties with respect to the terms and conditions of this Agreement (other than
disputes with respect to Sections 3, 4, and 5 of this Agreement), such disputes
shall be resolved by and through an arbitration proceeding to be conducted under
the auspices of the Philadelphia Court of Common Pleas or the American
Arbitration Association (or any like organization successor thereto) in the
Eastern District of Pennsylvania. Such arbitration proceeding shall be conducted
in as expedited a manner as is practical, and the arbitrator or arbitrators in
any such arbitration (an "Arbitration") shall be persons who are expert in the
subject of mergers and acquisitions. Both the foregoing agreement of the Parties
to arbitrate any and all such claims, and the results, determination, finding,
judgment and/or award rendered through such Arbitration, shall be final and
binding on the Parties hereto and may be specifically enforced by legal
proceedings. The parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may, in its sole discretion, ask for specific performance and/or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement.
(ii) Procedure. The Arbitration shall be conducted before
a panel of arbitrators selected in accordance with the rules of the American
Arbitration Association. Each Party shall bear separately the cost of their
respective attorneys, witnesses and experts in connection with such arbitration.
Time is of the essence of this arbitration procedure, and the arbitrators shall
be instructed and required to render their decision within ten (10) days
following completion of the Arbitration.
(iii) Equitable Remedies. With respect to Sections 3, 4
and 5 of this Agreement, each of the Parties will be entitled to enforce its
rights under this Agreement specifically, to recover damages and costs
(including reasonable attorneys' fees) caused by any breach of Sections 3, 4, or
5 and to exercise all other rights existing in its favor. The parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any
breach of Sections 3, 4, or 5 and that any Party may, in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit), ask for specific performance and/or other injunctive
relief in order to enforce or prevent any violations of such provisions.
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<PAGE> 18
(j) Amendment and Waiver. The provisions of this Agreement may
be amended and waived only with the prior written consent of the Company, the
Executive and the Investor.
(k) Guaranty. The Company's obligations contained in this
Agreement are hereby guaranteed by Sleepmaster and Holdings for so long as any
of such entities own, either directly or indirectly, Stock of the Company.
* * * * *
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the date first written above.
SLEEPMASTER HOLDINGS L.L.C.
By: __________________________
Name:
Title:
SLEEPMASTER L.L.C.
By: __________________________
Name:
Title:
HERR MANUFACTURING COMPANY
By: _________________________
Name:
Title:
__________________________________
JOHN K. HERR, III
Agreed and Accepted:
SLEEP INVESTOR L.L.C.
By: __________________________
Name:
Title:
<PAGE> 20
SCHEDULE A
EMPLOYEE BENEFITS
Medical, dental and life insurance benefits and short-term and long-term
disability benefits at least equal to the benefits provided by the Company's
group medical, dental and life insurance plans and the Company's Disability
Income Plan described on Schedules 6P and 6V to the Stock Purchase Agreement
(the "Existing Plans") on terms at least as favorable as those available to the
Executive under the Existing Plans.
Permitted Vacation: Four weeks per year.
Schedule A, Page 1
<PAGE> 21
EXHIBIT A
[ ]1999
ELECTION TO INCLUDE SECURITIES IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased units of Common Interests (the
"Interests"), of Sleepmaster Holdings L.L.C. ("Holdings") on [ ]. Under certain
circumstances, Holdings has the right to repurchase the Interests at cost from
the undersigned (or from the holder of the Interests, if different from the
undersigned) should the undersigned cease to be employed by the Company Group
and its subsidiaries. Hence, the Interests are subject to a substantial risk of
forfeiture and are non-transferable. The undersigned desires to make an election
to have the Interests taxed under the provision of Code Section 83(b) at the
time he purchased the Interests.
Therefore, pursuant to Code Section 83(b) and Treasury
Regulation Section 1.83-2 promulgatED thereunder, the undersigned hereby makes
an election, with respect to the Interests (described below), to report as
taxable income for calendar year [ ] the excess (if any) of the Interests' fair
market value on [ ] over the purchase price thereof.
The following information is supplied in accordance with
Treasury Regulation Section 1.83-2(e):
1. The name, address and social security number of the
undersigned:
Name: John K. Herr III
Address:
SSN:
2. A description of the property with respect to which the
election is being made: [ ] Class A Common Interests of Sleepmaster Holdings
L.L.C.
3. The date on which the property was transferred: [ ]. The
taxable year for which such election is made: calendar 1999.
4. The restrictions to which the property is subject: If
during the first five years after the purchase of the Interests the undersigned
ceases to be employed by the Company Group or any of its subsidiaries by reason
of the undersigned's voluntary resignation or by termination of the undersigned
by the Company Group or any of its subsidiaries for Cause (as defined), the
Interests will be subject to repurchase by the Company Group at cost, and at any
time prior to a public offering by Holdings or a sale of Holdings the
undersigned ceases to be employed by the Company Group or any of its
subsidiaries, the Interests will be subject to repurchase by Holdings at fair
value.
5. The fair market value on [ ] of the property with respect
to which the election is being made, determined without regard to any lapse
restrictions: [$ ] per Interest.
A-1
<PAGE> 22
6. The amount paid for such property: [$ ] per Interest.
A copy of this election has been furnished to the Secretary of
Holdings pursuant to Treasury Regulations Section 1.83-2(e)(7).
Dated: _____________, [ ] __________________________
Name:
A - 2
<PAGE> 1
EXHIBIT 10.21
THESE WARRANTS AND THE UNITS OF COMMON INTERESTS PURCHASABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND
MUST BE HELD INDEFINITELY UNLESS SUBSEQUENTLY REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR DISPOSED
OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS. THESE WARRANTS AND THE UNITS OF COMMON INTERESTS
PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON TRANSFER
AS SET FORTH HEREIN AND THAT CERTAIN SECURITYHOLDERS AGREEMENT
AMONG THE ISSUER AND ITS MEMBERS.
SLEEPMASTER HOLDINGS L.L.C.
AMENDED AND RESTATED COMMON INTEREST PURCHASE WARRANTS
Dated as of February 26, 1999
Security No. SH-W-B1 403 Warrants
Sleepmaster Holdings L.L.C., a New Jersey limited liability
company (the "Company"), by this certificate (a "Warrant Certificate") certifies
that, for value received, ATWELL & CO., as nominee for PMI Mezzanine Fund, L.P.,
or registered assigns (sometimes hereinafter referred to as the
"Warrantholders") is the registered holder of warrants (said warrants and any
warrants issued in exchange therefor or transfer or replacement thereof being
hereinafter collectively referred to as the "Warrants") to purchase from the
Company Four Hundred Three (403) fully paid and nonassessable Class A Common
Units (together with units issued upon exchange, transfer or replacement
thereof, the "Units") of the Company (together with the Class B Common Units, if
any, the "Common Interests"), at any time or from time to time until 5:00 p.m.
Los Angeles time on March 3, 2010, at an exercise price of One Cent ($0.01) per
unit, subject to adjustment as provided herein (as such price may be adjusted,
the "Exercise Price"), upon surrender of an equal number of Warrants and payment
of the Exercise Price therefore but only subject to the terms and conditions set
forth herein. The Exercise Price and the number of Units purchasable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth herein. These Warrants are amended and restated from,
and are being
<PAGE> 2
issued in exchange for, those certain Common Interests Purchase Warrants of the
Company originally issued on March 3, 1998 ("the Old Warrants").
1. Exercise of Warrants. No Warrant may be exercised after
5:00 p.m., Los Angeles time, on March 3, 2010 (the "Termination Date"). All
Warrants evidenced hereby shall thereafter become void. Warrants may be
exercised to purchase Units from the Company on or after the date hereof and on
or before 5:00 p.m., Los Angeles time, on the Termination Date, at the Exercise
Price, subject to adjustment, as hereinafter referred to. The registered holder
of Warrants evidenced by this Warrant Certificate may exercise them, subject to
Section 6, by surrendering this Warrant Certificate, with the form of election
to purchase set forth hereon properly completed and executed, together with
payment of the Exercise Price (a) in cash or by wire transfer of federal funds
or other delivery of immediately available funds or (if the exercise is by the
person to whom the Warrants are initially issued) by check reasonably acceptable
to the Company, (b) to the extent permitted by law, by delivery of Senior
Subordinated Notes due 2007 of the Subsidiary (as defined below), duly endorsed
or accompanied by appropriate instruments of transfer duly executed by the
registered holder thereof, which Notes shall be applied to the payment of the
Exercise Price at 100% of their original principal amount plus accrued interest
to the date of delivery, or (c) by a combination of the methods specified in
clauses (a) and (b); provided, however, that if the Warrant so exercised has
been duly assigned in accordance with the provisions of Section 12, such
assignee may exercise such Warrant prior to, or in the absence of, the
registration of such assignment as though such assignee were the registered
holder of such Warrant. The rights, privileges, obligations and restrictions
created or conveyed by this Warrant Certificate in the Units or to the holders
thereof shall survive the transfer of the Units or the remaining Warrants to
another person and/or the exercise, expiration or other termination of the
Warrants, and shall inhere in the Units and inure to the benefit of and be
binding upon the holders thereof until, and shall expire upon, the termination
of such rights, privileges, obligations, and restrictions as provided herein or
in the Registration Rights Agreement and the Security holders Agreement referred
to in Section 2, below, notwithstanding the retirement, termination, and/or
cancellation of this Warrant Certificate. To evidence such surviving rights,
privileges, obligations, and restrictions, upon the request of the Company or
any such holder of Units, the Company and such holder shall execute an
instrument or agreement confirming such rights, privileges, obligations and
restrictions.
2. Related Agreements. The Warrants evidenced by this Warrant
Certificate are a portion of a series of like amended and restated common
interest purchase warrants (collectively, the "Series B Warrants") that are
evidenced by certificates of like tenor (the "Series B Warrant Certificates")
that have been issued pursuant to that certain Purchase Agreement dated as of
March 3, 1998 (the "Securities Purchase Agreement"), among the Company,
Sleepmaster L.L.C. (the "Subsidiary"), and the initial Warrantholder. Pursuant
to the Securities Purchase Agreement, the Company has entered into that certain
Amended and Restated Registration Rights Agreement dated as of March 3, 1998
(the "Registration Rights Agreement"), among the Company, Sleep Investor L.L.C.
("Investor"), the initial Warrantholder, and certain of its members, and that
certain Amended and Restated Securityholders Agreement dated as of March 3, 1998
(the "Securityholders Agreement"), among the Company, Investor, the initial
Warrantholder, and its members, the terms and provisions of which shall be
binding upon and inure to the benefit of the holders of the Warrants and the
Units. The Company and its members have also entered into that certain Second
Amended and Restated Limited Liability
-2-
<PAGE> 3
Company Operating Agreement dated as of November 14, 1996 (the "Operating
Agreement"), specifying, among other things, the rights and obligations of the
membership interests in the Company. The Company shall maintain copies of the
Registration Rights Agreement, the Securityholders Agreement and the Operating
Agreement at the Company's principal offices, and shall make such copies
available for review by any holder of the Warrants and/or the Units upon request
of such holder.
3. Execution of Warrant Certificates.
3.1 This Warrant Certificate and all Warrant Certificates
issued upon exchange, transfer or replacement hereof have been or shall be
manually signed on behalf of the Company by its duly authorized Managing Member,
President or Vice President (collectively, the "Officers").
3.2 In case any Officer of the Company who shall have signed
this Warrant Certificate or any Warrant Certificates issued upon exchange,
transfer or replacement hereof shall cease to be such an Officer either before
or after delivery thereof by the Company, the signature of such person on such
Warrant Certificates, nevertheless, shall be valid and such Warrant Certificates
may be issued and delivered to those persons entitled to receive the Warrants
represented thereby with the same force and effect as though such person had not
ceased to be such an Officer of the Company. This Warrant Certificate and all
Warrant Certificates issued upon exchange, transfer or replacement hereof may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper Officer of the Company
to sign such Warrant Certificate, although at the date of the execution of this
Warrant Certificate any such person was not such an Officer. Each Warrant
Certificate shall be dated the date of its execution by the Company.
4. Registration.
4.1 The Series B Warrant Certificates shall be numbered and
registered as they are issued in a Warrant register (the "Warrant Register") in
the names of the record holders of the Series B Warrant Certificates to whom
they are to be distributed. Series B Warrant Certificates shall be numbered
"SH-W-B1" and following. Any Holder (as defined below) may change such Holder's
address and facsimile number as shown on the Warrant Register by written notice
to the Company requesting such change. Any notice or written communication
required or permitted to be given to the Holder may be delivered or given to
such Holder at the address or the facsimile number shown on the Warrant
Register.
4.2 For the purpose of any exercise thereof and any
distribution to the holder thereof and for all other purposes, the Company shall
(a) be entitled to treat the registered holder of a Series B Warrant Certificate
on the Warrant Register (the "Holder") as the absolute owner in fact of the
Series B Warrants evidenced by such Series B Warrant Certificate, (b) not be
bound to recognize any equitable or other claim to or interest in such Series B
Warrants on the part of any other person and (c) not be liable for any
registration of transfer of Series B Warrants that are registered or to be
registered in the name of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with actual knowledge of
such facts that its
-3-
<PAGE> 4
participation therein amounts to bad faith (notwithstanding any notation of
ownership or other writing thereon made by anyone), and the Company shall not be
affected by any notice to the contrary or have any duty to make inquiry into any
such matter. Upon execution and delivery by the Company, each Series B Warrant
Certificate shall be valid and binding on the Company and each Holder thereof
shall be entitled to all the benefits set forth therein.
5. Registration of Transfers and Exchanges.
5.1 The Company shall from time to time register the transfer
of any outstanding Series B Warrant Certificates on the Warrant Register, upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form reasonably satisfactory to the Company, duly executed by the registered
Holder or Holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. In all cases of transfer by an attorney, the
original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited and remain with the Company. In case of transfer
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited with the Company in its discretion. Upon any such registration
of transfer, a new Series B Warrant Certificate or Certificates of like tenor
and series and exercisable for the same aggregate number of Units shall be
issued to the transferee and the surrendered Series B Warrant Certificate shall
be cancelled and disposed of by the Company.
5.2 This Warrant Certificate and all Warrant Certificates
issued upon exchange, transfer or replacement hereof, when surrendered to the
Company by the registered holder hereof or thereof in person or by legal
representative or by attorney duly authorized in writing, may be exchanged,
without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor and series exercisable for the same aggregate
number of Units and the surrendered Warrant Certificate shall be cancelled and
disposed of by the Company.
5.3 Subject to Section 7 in connection with transfer taxes,
the Company shall pay all expenses, taxes and related charges in connection with
the preparation, issuance and delivery of the Series B Warrant Certificates.
5.4 Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrant Certificates to be transferred on its Warrant
Register to any person, unless (a) the Holder of such Warrant Certificates shall
furnish to the Company evidence of compliance with the Securities Act of 1933,
as amended (the "Securities Act"), in accordance with the provisions of Section
12 and Section 14 hereof, (b) the proposed transferee is an Institutional Lender
(as defined in the Securities Purchase Agreement), (c) such transfer is made in
accordance with the Securityholders Agreement, and (d) the transferee shall
execute and deliver a joinder of the Securityholders Agreement.
6. Term and Exercise of Warrants.
6.1 Subject to the terms of this Warrant Certificate, each
Holder shall have the right, which may be exercised on or after the date hereof
and until 5:00 p.m., Los Angeles time,
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<PAGE> 5
on the Termination Date, to purchase from the Company at the Exercise Price (and
the Company shall issue and sell to such Holder) the number of fully paid and
nonassessable Units which such Holder may at the time be entitled to purchase on
exercise of such Warrants as provided under this Section 6 and Section 10.
6.2 The Warrants evidenced by this Warrant Certificate shall
be exercisable prior to 5:00 p.m., Los Angeles time, on the Termination Date, at
the election of the registered Holder or Holders of a majority of the Series B
Warrants then outstanding, and upon such election the Series B Warrants shall be
exercised in their entirety.
6.3 Subject to Section 5.4 and Section 7 hereof, upon
surrender of this Warrant Certificate, payment of the aggregate Exercise Price
(or, in the event of an exercise of the Conversion Right pursuant to Section 15
hereof, upon surrender of this Warrant Certificate), and execution and deliver
to the Company of a written undertaking to be bound by the terms and conditions
of the Operating Agreement, the Company shall cause to be issued and delivered
to or upon the written order of the registered Holder of this Warrant
Certificate and in such name or names as such registered Holder may designate, a
certificate for the Unit or Units issuable upon the exercise of the Warrant or
Warrants evidenced by this Warrant Certificate. Such certificate shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become the holder of record of such Unit or Units and a member of
the Company for all purposes as of the date of the surrender of this Warrant
Certificate, payment of the Exercise Price and delivery of such undertaking.
6.4 The Holders shall exercise the Warrants (a) upon a sale of
the Company in a single transaction or a series of related transactions to an
unaffiliated third party pursuant to which such third party proposes to acquire
a majority of the outstanding Common Interests (whether by merger,
consolidation, recapitalization, reorganization, purchase of the outstanding
Common Interests or otherwise) or all or substantially all of the consolidated
assets of the Company or the Subsidiary (an "Approved Sale") or (b) in
connection with an underwritten public offering of units of Common Interests.
7. Payment of Taxes. The Company shall pay all transfer taxes,
if any, attributable to the initial issuance of Units upon the exercise of the
Warrants; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Series B Warrant Certificates or any certificates for Units in a
name other than that of the registered Holder of this Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of any transfer tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid or that no tax is
payable.
8. Mutilated or Missing Warrant Certificates. In case this
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company
shall upon cancellation of this Warrant Certificate, if mutilated, or in lieu of
and substitution for this Warrant Certificate, if lost, stolen or destroyed,
issue a new Warrant Certificate or Certificates of like tenor and series and
exercisable for the same aggregate number of Units, but only upon receipt of
evidence and affidavit reasonably satisfactory to the Company of such loss,
theft or destruction of this Warrant
-5-
<PAGE> 6
Certificate and indemnity or bond, if requested, also reasonably satisfactory to
the Company; provided, however, that if the Holder of this Warrant Certificate
is the original Holder of the Warrants or is any other institutional holder, the
written undertaking of such Holder indemnifying the Company against losses,
damages, costs and expenses (including reasonable attorneys' fees) arising from
such loss, theft or destruction shall be sufficient security and indemnity.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
9. Reservation of Units.
9.1 (a) There have been reserved, and the Company shall at
all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Interests, for the purpose of enabling it to
satisfy any obligation to issue Units upon exercise of the Warrants, the maximum
number of units of Common Interests deliverable upon the exercise of all
outstanding Series B Warrants. If, at any time, there is a transfer agent for
the Units ("Transfer Agent"), the Transfer Agent is hereby irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued units of Common Interests as shall be required for such purpose. The
Company shall keep a copy of the form of the Series B Warrant Certificate on
file with any Transfer Agent. All Series B Warrant Certificates surrendered upon
the exercise of the rights thereby evidenced shall be cancelled.
(b) Before taking any action that would cause an
adjustment pursuant to Section 10, the Company shall take any limited liability
company action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Units at the Exercise Price as so adjusted. Before making an adjustment pursuant
to Section 10, the Company shall obtain all such authorizations or exceptions
therefor or consents thereto as may be necessary from any applicable public
regulatory body or bodies having jurisdiction over the Company or any of the
Holders.
(c) The Company represents and warrants that all
Units issued upon exercise of
the Warrants shall, upon issuance in accordance with the terms of this Warrant
Certificate (including payment of the Exercise Price therefor), be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens, charges and security interests created by the Company.
10. Adjustment of Exercise Price and Number of Units
Purchasable or Number of Warrants. The Exercise Price and the number of Units
purchasable upon the exercise of each Warrant are subject to adjustment from
time to time upon the occurrence of the events enumerated in this Section 10.
10.1 In the event that the Company shall at any time after
March 3, 1998, (i) declare a dividend or make a distribution on the Common
Interests payable in units of Common Interests, (ii) subdivide the outstanding
Common Interests into a greater number of units, (iii) combine the outstanding
Common Interests into a smaller number of units, or (iv) issue any units of its
membership interests in a reclassification or reorganization of Common
Interests, the Exercise Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, shall be adjusted so that it
-6-
<PAGE> 7
shall equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction of which the numerator shall be the
number of units of Common Interests outstanding immediately before such event,
and of which the denominator shall be the number of units of Common Interests
outstanding immediately after such dividend, distribution, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
10.2 In the event that the Company shall issue rights, options
or warrants to any person or persons who are at the time of such issuance the
holders of membership interests in the Company, entitling them to subscribe for
or purchase units of Common Interests (or securities convertible or exchangeable
into Common Interests) at a price per unit of Common Interests (or having a
conversion or exchange price per unit of Common Interests if a security
convertible or exchangeable into Common Interests) less than the Current Market
Price (as defined in Section 10.5) per unit of Common Interests on the record
date for such issuance (or the date-of issuance, if there is no record date),
the Exercise Price to be in effect on and after such record date (or issuance
date, as the case may be) shall be determined by multiplying the Exercise Price
in effect immediately prior to such record date (or issuance date, as the case
may be) by a fraction, of which the numerator shall be the number of units of
Common Interests outstanding on such record date (or issuance date, as the case
may be) plus the number of units of Common Interests which the aggregate
offering price of the total number of units of such Common Interests so to be
offered (or the aggregate initial exchange or conversion price of the
exchangeable or convertible securities so to be offered) would purchase at such
Current Market Price on such record date (or issuance date, as the case may be)
and of which the denominator shall be the number of units of Common Interests
outstanding on such record date (or issuance date, as the case may be) plus the
number of additional units of Common Interests to be offered for subscription or
purchase (or into which the convertible securities to be offered are initially
exchangeable or convertible). In case such subscription price may be paid in
part or in whole in a form other than cash, the value of such consideration
shall be determined by the Board of Advisors of the Company in good faith as set
forth in a duly adopted committee resolution certified by the Company's
Secretary or Assistant Secretary. Such adjustment shall be made successively
whenever such an issuance occurs; and in the event that such rights, options,
warrants, or convertible or exchangeable securities are not so issued or expire
or cease to be convertible or exchangeable before they are exercised, converted,
or exchanged (as the case may be), then the Exercise Price shall again be
adjusted to be the Exercise Price that would then be in effect if such issuance
had not occurred, but such subsequent adjustment shall not affect the number of
Units issued upon any exercise of Warrants prior to the date such subsequent
adjustment is made. Notwithstanding the foregoing, no adjustment of the Exercise
Price shall be required under this Section 10.2 with regard to the issuance of
rights, options, warrants, or convertible or exchangeable securities pursuant to
the Option Agreements (as defined below) to employees of the Company or the
Subsidiary to the extent that the aggregate number of units of Common Interests
to which such rights, options, warrants, or convertible or exchangeable
securities relate, when added to the aggregate number of units of Common
Interests relating to rights, options, warrants, or convertible or exchangeable
securities issued pursuant to the Option Agreements to employees of the Company
or the Subsidiary in transactions described in Section 10.4, do not exceed Six
Hundred Thirty-Nine (639) units of Common Interests. The term "Option
Agreements" shall mean (i) those certain Option Agreements dated as of November
14, 1996 by and between the Company and each of Charles Schweitzer, James
Koscica, Michael
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<PAGE> 8
Reilly and Timothy DuPont and (ii) one or more Option Agreements entered into
from time to time by and between the Company and certain members of the
management of the Subsidiary.
10.3 In the event that the Company shall fix a record date for
the making of a distribution to all holders of units of Common Interests
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing entity) of evidences of
indebtedness or assets (other than dividends and distributions referred to in
Section 10.1 above and other than cash dividends) or of subscription rights,
options, warrants, or exchangeable or convertible securities containing the
right to subscribe for or purchase units of any class of membership interests in
the Company (excluding those referred to in Section 10.2), the Exercise Price to
be in effect on and after such record date shall be adjusted by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction, of
which the numerator shall be the Current Market Price per unit of Common
Interests on such record date, less the fair market value (as determined by the
Board of Advisors of the Company in good faith as set forth in a duly adopted
board resolution certified by an Officer or the Company's Secretary or Assistant
Secretary) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights, options, warrants, or exchangeable
or convertible securities applicable to one unit of the Common Interests
outstanding as of such record date, and of which the denominator shall be such
Current Market Price per unit of Common Interests. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Exercise Price shall again be adjusted to be
the Exercise Price which would then be in effect if such record date had not
been fixed, but such subsequent adjustment shall not affect the number of Units
issued upon any exercise of Warrants prior to the date such subsequent
adjustment was made.
10.4 In the event that the Company or any subsidiary shall
issue units of Common Interests, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase units
of Common Interests (excluding (A) units, rights, options, warrants, or
convertible or exchangeable securities outstanding or issued on the date of the
original issuance of the Old Warrants hereunder or issued in any of the
transactions described in Section 10.1, Section 10.2, or Section 10.3 above, (B)
units issued upon the exercise of such rights, options or warrants or upon
conversion or exchange of such convertible or exchangeable securities, (C) the
Series B Warrants and any units issued upon exercise thereof, (D) Four Hundred
Sixty-Six (466) Class A Common Units issued to Michael Bubis on March 3, 1998
pursuant to that certain Investor Subscription Agreement by and between the
Company and Michael Bubis dated March 3, 1998, and (F) the conversion of Class B
Common Units into Class A Common Units), at a price per unit of Common Interests
(determined in the case of such rights, options, warrants, or convertible or
exchangeable securities by dividing (X) the total amount receivable by the
Company in consideration of the sale and issuance of such rights, options,
warrants, or convertible or exchangeable securities, plus the total minimum
consideration payable to the Company upon exercise, conversion, or exchange
thereof by (Y) the total maximum number of units of Common Interests covered by
such rights, options, warrants, or convertible or exchangeable securities) lower
than the Current Market Price on the date the Company or such subsidiary fixes
the offering price of such units, rights, options, warrants, or convertible or
exchangeable securities, then the Exercise Price shall be adjusted so that it
shall equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, (i) the numerator of which shall be the
sum of (A) the number of units of Common
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<PAGE> 9
Interests outstanding immediately prior to such sale and issuance plus (B) the
number of units of Common Interests which the aggregate consideration received
(determined as provided below) for such sale or issuance would purchase at such
Current Market Price per unit, and (ii) the denominator of which shall be the
total number of units of Common Interests outstanding immediately after such
sale and issuance. Such adjustment shall be made successively whenever such an
issuance is made. For the purposes of such adjustment, the maximum number of
units of Common Interests which the holder of any such rights, options, warrants
or convertible or exchangeable securities shall be entitled to subscribe for or
purchase shall be deemed to be issued and outstanding as of the date of such
sale and issuance and the consideration received by the Company therefor shall
be deemed to be the consideration received by the Company for such rights,
options, warrants, or convertible or exchangeable securities, plus the minimum
consideration or premium stated in such rights, options, warrants, or
convertible or exchangeable securities to be paid for the units of Common
Interests covered thereby. In case the Company shall sell and issue units of
Common Interests, or rights, options, warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase units of Common
Interests for a consideration consisting, in whole or in part, of property other
than cash or its equivalent, then in determining the price per unit of Common
Interests and the consideration received by the Company for purposes of the
first sentence of this Section 10.4, the Board of Advisors of the Company shall
determine, in good faith, the fair value of said property, and such
determination shall be described in a duly adopted committee resolution
certified by an Officer or the Company's Secretary or Assistant Secretary. In
case the Company shall sell and issue rights, options, warrants, or convertible
or exchangeable securities containing the right to subscribe for or purchase
units of Common Interests together with one or more other securities as a part
of a unit at a price per unit, then in determining the price per unit of Common
Interests and the consideration received by the Company for purposes of the
first sentence of this Section 10.4, the Board of Advisors of the Company shall
determine, in good faith, which determination shall be described in a duly
adopted committee resolution certified by an Officer or the Company's Secretary
or Assistant Secretary, the fair value of the rights, options, warrants, or
convertible or exchangeable securities then being sold as pan of such unit. Such
adjustment shall be made successively whenever such an issuance occurs, and in
the event that such rights, options, warrants, or convertible or exchangeable
securities expire or cease to be convertible or exchangeable before they are
exercised, converted, or exchanged (as the case may be), then the Exercise Price
shall again be adjusted to the Exercise Price that would then be in effect if
such sale and issuance had not occurred, but such subsequent adjustment shall
not affect the number of Units issued upon any exercise of Warrants prior to the
date such subsequent adjustment is made. Notwithstanding the foregoing, no
adjustment of the Exercise Price shall be required under this Section 10.4 with
regard to the issuance of rights, options, warrants, or convertible or
exchangeable securities pursuant to the Option Agreements to employees of the
Company or the Subsidiary to the extent that the aggregate number of units of
Common Interests to which such rights, options, warrants, or convertible or
exchangeable securities relate, when added to the aggregate number of units of
Common Interests relating to rights, options, warrants, or convertible or
exchangeable securities issued pursuant to the Option Agreements to employees of
the Company or the Subsidiary in transactions described in Section 10.2, does
not exceed Six Hundred Thirty-Nine (639) units of Common Interests.
10.5 (a) In the event that the Company effects a private
placement of Common Interests, by and through an investment banking firm of
national reputation which is a
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<PAGE> 10
member of the National Association of Securities Dealers, Inc., and which has
not had a material relationship with the Company or any officer of the Company,
in an arms-length transaction with an investor that is not affiliated with the
Company or any officer of the Company, then the Current Market Price per unit of
Common Interests for the purpose of any computation under Section 10.4 in
connection with such placement shall be deemed to be equal to the price per unit
paid by such investor in such placement. Except as set forth in the preceding
sentence, for the purpose of any computation under Section 10.2, Section 10.3,
Section 10.4, Section 11, Section 15.1, or Section 18, the "Current Market
Price" per unit of the Common Interests on any date (the "Computation Date")
shall be deemed to be the average of the daily closing prices of the Common
Interests for the 20 consecutive trading days ending the tenth trading day
before such Computation Date; provided, however, that if there shall have
occurred prior to the Computation Date a combination or reclassification of the
outstanding units of Common Interests into a smaller number of units and such
action or transaction shall have become effective with respect to market
transactions at any time (the "Market-Effect Date") on or after the beginning of
such period of 20 consecutive trading days, then the closing price for each
trading day preceding the Market-Effect Date shall be adjusted, for purposes of
calculating the Current Market Price, by multiplying such closing price by a
fraction, the numerator of which is the Exercise Price in effect immediately
prior to the Computation Date and the denominator of which is the Exercise Price
in effect immediately prior to the Market-Effect Date. The closing price for
each day shall be (1) if the security is traded on a national securities
exchange (i) its last sale price or, (ii) if there was no sale on that day, the
last sale price on the next preceding business day on which there was a sale,
all as made available over the Consolidated Last Sale Reporting System of the
Consolidated Tape Association Plan, or (iii) if the security is not then
eligible for reporting over this system, its last sale price on such national
securities exchange or, if there was no sale on that day, on the next preceding
business day on which there was a sale on such exchange, or (2) if the security
is not traded on a national securities exchange but trades solely in the
over-the-counter market and the security is quoted on the Nasdaq National Market
System ("NASDAQ") (i) the last sale price reported on NASDAQ or (ii) if the
security is an issue for which last sale prices are not reported on NASDAQ, the
average of the closing bid and ask quotations on such day, but, in each of the
next preceding two cases, if the relevant NASDAQ price or quotation did not
exist on such day, then the price or quotation on the next preceding business
day on which there was such a price or quotation or, (iii) if the security is
not reported or quoted on NASDAQ, the highest average bid and ask quotations as
quoted in any of The Wall Street Journal, the National Quotation Bureau, Inc.
pink sheets, the Salomon Brothers quotation sheets, quotation sheets of
registered market makers and, if necessary, dealers' telephone quotations, or,
(3) if no price can be determined on the basis of the above methods of
valuation, then the judgment of valuation shall be made in good faith by the
Board of Advisors. If the Board of Advisors is unable to determine any Valuation
(as defined below), or if the Holders of at least fifty-one percent (51%) of the
Series B Warrants then outstanding (or the Holders of at least fifty-one percent
(51%) of any Securities subject to a "Call Notice" pursuant to Section 10.9,
below) (collectively, the "Requesting Holders") disagree with the Board of
Advisors' determination of any Valuation by written notice delivered to the
Company within five (5) business days after the Board of Advisors' determination
thereof is communicated to Holders of the Warrants affected thereby, which
notice specifies a majority-in-interest of the Requesting Holders' determination
of such Valuation, then the Company and a majority-in-interest of the Requesting
Holders shall select a mutually acceptable investment banking firm of national
reputation which has not had a material
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<PAGE> 11
relationship with the Company or any officer of the Company within the preceding
two years, which shall determine such Valuation. Such investment banking firm's
determination of such Valuation shall be final, binding and conclusive on the
Company and the Holders. If the Board of Advisors was unable to determine such
Valuation, all costs and fees of such investment banking firm shall be borne by
the Company. If the Holders disagreed with the Board's determination of such
Valuation, the party whose determination of such Valuation differed from the
Valuation determined by such investment banking firm by the greatest amount
shall bear all costs and fees of such investment banking firm. For purposes of
this Section 10.5, the term "Valuation" shall mean the determination, to be made
initially by the Board of Advisors of the Company, of (i) the value of non-cash
consideration in a subscription price, as set forth in the second sentence of
Section 10.2, (ii) the fair market value of assets or evidences of indebtedness,
as set forth in the first sentence of Section 10.3, (iii) the fair value of
property other than cash or its equivalent received as consideration, as set
forth in the fourth sentence of Section 10.4, (iv) the fair value of rights,
options, warrants, or convertible or exchangeable securities being sold as part
of a unit, as set forth in the fifth sentence of Section 10.4, (v) the Current
Market Price per unit of Common Interests pursuant to clause (3) above, or (vi)
the fair market value of units of membership interests or other securities,
property or cash to which a holder of Common Interests would be entitled upon a
merger, consolidation, or recapitalization for purposes of Section 10.9.
(b) For the purpose of any calculation under this
Section 10, units of Common Interests owned by or held for the account of the
Company or any majority-owned subsidiary of the Company on any date shall not be
deemed to be outstanding on such date, and the sale or other disposition of any
units of Common Interests or other securities issued by the Company and owned by
or held for the account of the Company or any majority-owned subsidiary of the
Company shall be deemed an issuance thereof. For the purposes of adjusting the
Exercise Price pursuant to this Section 10, Common Interests shall be deemed to
be outstanding at a particular time if it is outstanding at such time or if it
can be acquired upon the conversion of any then outstanding units of convertible
or exchangeable securities or can be purchased upon the exercise of any
outstanding rights, warrants, or options or acquired upon the conversion of any
convertible securities which can be purchased upon the exercise of any
outstanding rights, warrants or options.
10.6 No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this
Section 10.6 are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 10
shall be made to the nearest $.0005.
10.7 In the event that at any time, as a result of an
adjustment made pursuant to Section 10.1, the Holder of any Warrant thereafter
exercised shall become entitled to receive any unit of membership interests or
securities of the Company other than units of Common Interests, thereafter the
number of such other units or securities so receivable upon exercise of any
Warrant and the exercise price for such units or securities shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Units contained in Section
10.1 through Section 10.4, inclusive, and the provisions of this Warrant
Certificate with respect to the Units shall apply on like terms to any such
other units or securities.
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<PAGE> 12
10.8 Upon each adjustment of the Exercise Price as a result of
the calculations made in Section 10.1, Section 10.2, Section 10.3, or Section
10.4, each Warrant outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of Units (calculated to the nearest hundredth)
obtained by (i) multiplying the number of units of Common Interests purchasable
upon exercise of the Warrant immediately prior to adjustment by the Exercise
Price in effect immediately prior to adjustment of the Exercise Price and (ii)
dividing the product so obtained by the Exercise Price in effect immediately
after such adjustment of the Exercise Price. However, in the event that the
Company is unable or fails (notwithstanding the provisions of Section 9.1(b) and
Schedule 13) to take an action, or obtain an authorization, exception or
consent, necessary in order that the Company may validly and legally issue fully
paid and nonassessable Units at the Exercise Price as so adjusted, then the
adjustment to the number of Units evidenced by each Warrant provided for in the
immediately preceding sentence shall nevertheless take effect immediately at the
time provided in Section 10.1, Section 10.2, Section 10.3, or Section 10.4 for
such adjustment of the Exercise Price; provided, however, that nothing in this
sentence shall relieve the Company of its obligation to comply with Section
9.1(b) and with Section 13.
10.9 In the event of (a) any capital reorganization of the
Company, or any reclassification of the Common Interests (other than a
distribution referred to in Section 10.3 and, if applicable, other than a change
in par value, or from par value to no par value, or from no par value to par
value), (b) any consolidation of the Company with or the merger of the Company
with or into any entity or other corporation (other than a consolidation or
merger which does not result in any reclassification or change of the
outstanding units of Common Interests) or (c) any sale of the properties and
assets of the Company as, or substantially as, an entirety to any other entity
or corporation, (each such event in clauses (a), (b) or (c) being an "Exchange
Event") each Warrant shall after such Exchange Event be exercisable, upon the
terms and conditions specified in this Warrant Certificate, for the number of
units of membership interests or other securities, property, or cash to which a
holder of the number of Units purchasable (at the time of such Exchange Event)
upon exercise of such Warrant would have been entitled upon such Exchange Event;
and in any such case, if necessary, the provisions set forth in this Section 10
with respect to the rights and interests thereafter of the Holders of the
Warrants shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any units of membership interests or other securities,
property, or cash thereafter deliverable on the exercise of the Warrants. The
Holders shall exercise the Warrants, subject to the provisions of this Section
10.9, upon any Exchange Event that is an Approved Sale. The subdivision or
combination of units of Common Interests at any time outstanding into a greater
or lesser number of units shall not be deemed to be a reclassification of the
Common Interests for the purposes of this Section 10.9. The Company shall not
effect any such Exchange Event (other than an Exchange Event that is an Approved
Sale), unless prior to or simultaneously with the consummation thereof the
successor corporation or entity (if other than the Company) resulting from such
Exchange Event shall assume, by written instrument, the obligation to deliver to
the Holder of each Warrant such units of membership interests, securities,
assets, or cash as, in accordance with the foregoing provisions, such Holder may
be entitled to purchase and all the other obligations under this Warrant
Certificate. The Company shall not be a party to any Exchange Event pursuant to
which any Holder would be required to take (i) any voting securities which would
cause such Holder to violate any law, regulation, or other requirement of any
governmental body applicable to such Holder, or (ii) any securities convertible
into voting securities which if such conversion took
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<PAGE> 13
place would cause such Holder to violate any law, regulation, or other
requirement of any governmental body applicable to such Holder other than
securities which are specifically provided to be convertible only in the event
that such conversion may occur without any such violation. In the event of any
Exchange Event in which each Holder of a Warrant is required to take
consideration in form which would cause or could cause, if exercised or
converted, a Holder to violate any law, regulation or other requirement of any
governmental body applicable to such Holder, each Holder shall be required to
take in such Exchange Event, the maximum amount of consideration that could be
taken by such Holder in such Exchange Event without violating any law,
regulation or other requirement of any governmental body applicable to such
Holder and, subject to the Corporation's Call Notice set forth below, effective
provision shall be made in the certificate of incorporation, certificate of
organization, operating agreement or other similar organizational documents
(collectively, "charter documents"), as applicable, of the resulting or
surviving corporation or entity in the Exchange Event or otherwise to protect
each such Holder that could not participate in the Exchange Event from violating
such laws by receiving securities which are specifically provided to be
exercised or convertible without such violation. In the event the Company is
prevented from becoming a party to any Exchange Event solely pursuant to the
operation of clause (i) or clause (ii) of the second preceding sentence, or the
resulting or surviving corporation or entity in the Exchange Event would be
required to take action for the benefit of the Holder that would cause any of
such party's securities to be delisted on any national exchange or otherwise or
cause such party to violate any law, regulation or other requirement of any
national exchange or securities association of which it is a member or any law,
regulation or other requirement of any governmental body applicable to it, then
the Company may elect, by delivering notice to each Holder so affected (the
"Call Notice"), to purchase or to cause the purchase of all of the Series B
Warrants, and units of Common Interests acquired upon the exercise of Series B
Warrants or upon exchange, transfer or replacement of such units (collectively,
the "Securities"), held by such Holder upon the consummation of such Exchange
Event. The purchase price for Securities purchased pursuant to such a Call
Notice shall be payable upon the consummation of such Exchange Event and shall
equal the product of (a) the sum of the number of Units to be acquired plus the
number of units that would be obtained upon the exercise on such date of the
number of Warrants to be acquired, multiplied by (b) the fair market value (as
determined by the Board of Advisors of the Company in good faith as set forth in
a duly adopted committee resolution certified by an Officer or the Company's
Secretary or Assistant Secretary, subject to the valuation provisions of Section
10.5(a)) of the units of membership interests or other securities, property, or
cash to which a holder of a unit of Common Interests on such date would have
been entitled upon such Exchange Event, net of the Exercise Price for one Unit
if the Security purchased is a Warrant. In the event of a sale or conveyance or
other transfer of all or substantially all of the assets of the Company as a
part of a plan for liquidation of the Company, all rights to exercise any
Warrant shall terminate thirty (30) days after the Company gives written notice
to the registered Holder of such Warrant that such sale or conveyance or other
transfer has been consummated. In the event of a sale or conveyance or other
transfer by a Holder of any or all of such Holder's Units, such Holder shall
require the transferee of such Units to execute a written undertaking to the
Company that such Units will remain subject to the call provisions of this
Section 10.9.
11. Fractional Units. Notwithstanding any adjustment pursuant
to Section 10 in the number of Units purchasable upon the exercise of a Warrant
or any exercise of the Conversion Right pursuant to Section 15, the Company may,
but shall not be required to, issue
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<PAGE> 14
fractions of Units upon exercise of the Warrants or to distribute certificates
that evidence fractional Units. In lieu of fractional Units, there shall be paid
to the registered Holders of Warrant Certificates the time such Warrant
Certificates are exercised as herein provided an amount in cash equal to the
same fraction of the Current Market Price of a unit of Common Interests, such
amount to be rounded to the nearest cent. If more than one Warrant Certificate
shall be surrendered for exercise at one time by the same registered Holder, the
number of units of Common Interests which shall be issuable upon their exercise
shall be computed on the basis of the aggregate number of Units evidenced by the
Warrant Certificates so surrendered.
12. Restrictions on Transfer.
12.1 Each of the Holders, by acceptance of such Holder's
Series B Warrant Certificate, presents and warrants to the Company (a) that such
Holder is acquiring its Warrants for its own account, and not with a view to the
resale or distribution of its Warrants, the related Units, for any part thereof
(provided that the disposition of such Holder's property shall at all times be
and remain in the control of such Holder), (b) that such Holder is experienced
in evaluating and investing in securities such as the Warrants and the Units,
can bear the economic risk of its investment and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Warrants and the Units, (c) that
such Holder is an "accredited investor" as such term is defined in Rule 501(a)
of Regulation D under the Securities Act, (d) that it shall not dispose of any
Warrants except to one or more Institutional Lenders, and (e) that it shall not
dispose of any Warrants or Units (the "Restricted Securities") except pursuant
to this Section 12.
12.2 Except as otherwise permitted by this Section 12, each
Warrant Certificate including each Warrant Certificate issued upon the transfer
of any Warrant Certificate) shall be stamped or otherwise imprinted with a
legend in substantially the following form:
THESE WARRANTS AND THE UNITS OF COMMON INTERESTS PURCHASABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND
MUST BE HELD INDEFINITELY UNLESS SUBSEQUENTLY REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR DISPOSED
OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS. THESE WARRANTS AND THE UNITS OF COMMON INTERESTS
PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON TRANSFER
AS SET FORTH HEREIN AND THAT CERTAIN SECURITYHOLDERS AGREEMENT
AMONG THE ISSUER AND ITS MEMBERS.
12.3 Prior to any transfer of any Restricted Securities which
are not registered under an effective registration statement under the
Securities Act, the Holder thereof shall give written notice to the Company of
such Holder's intention to effect such transfer and to comply in all other
respects with this Section 12.3. Each such notice shall (a) describe the manner
and
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<PAGE> 15
circumstances of the proposed transfer in sufficient detail to enable counsel to
the Company to consider the opinions referred to below; and (b) designate
counsel for the Holder giving such notice (who may be house counsel for such
Holder). The Holder giving such notice shall submit a copy thereof to the
counsel designated in such notice and the Company shall promptly submit a copy
thereof to its counsel. The following provisions shall then apply:
(a) If, in the opinion of counsel to the
transferor, reasonably satisfactory to counsel for the Company, the proposed
transfer may be effected without registration of such Restricted Securities
under the Securities Act, such Holder shall thereupon be entitled to transfer
such Restricted Securities in accordance with the terms of the notice delivered
by such Holder to the Company. Each certificate representing such securities
issued upon or in connection with such transfer shall bear the restrictive
legends required by Section 12.2, unless the related restrictions on transfer
provided for herein shall have ceased and terminated as to such securities
pursuant to Section 12.4.
(b) If the Company does not receive the opinion
described in Section 12.3(a), such Holder shall not be entitled to transfer such
Restricted Securities until either (i) receipt by the Company of a further
notice from such Holder pursuant to the foregoing provisions of this Section
12.3 and fulfillment of the provisions of clause (a) above or (ii) such
Restricted Securities have been effectively registered under the Securities Act.
12.4 The restrictions imposed by this Section 12 upon the
transferability of Restricted Securities shall cease and terminate as to any
particular Restricted Securities (a) when such Restricted Securities shall have
been effectively registered under the Securities Act and any applicable
securities or "blue sky" law of any state, or (b) when, in the opinion of
counsel for the Holder thereof, reasonably satisfactory to counsel for the
Company, such restrictions are no longer required in order to ensure compliance
with the Securities Act and any applicable securities or "blue sky" law of any
state. Whenever such restrictions shall cease and terminate as to any Restricted
Securities, the Holder thereof shall be entitled to receive from the Company,
without expense (other than the payment of taxes as provided in Section 7), new
securities of like tenor not bearing the applicable legends required by Section
12.2.
13. Company Assurances. The Company will not, by amendment of
its charter documents or through any consolidation, merger, reorganization,
transfer of assets, dissolution, issue or sale of securities, or any other
voluntary action, seek to avoid the observance or performance of any of the
terms of this Warrant Certificate, but will at all times in good faith seek to
carry out all such terms and take all such action as may be necessary or
appropriate in order to protect the rights of the holders of Securities against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not permit the par value (if any) of any Units to exceed the Exercise
Price, (b) will take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue, free from preemptive rights,
fully paid and non-assessable Units upon the exercise (and payment of the
Exercise Price therefor) of all Warrants from time to time outstanding, and (c)
will not take any action which results in any adjustment of the Exercise Price
if the total number of Units issuable after the action upon the exercise of all
of the Warrants would exceed the total number of units of Common Interests then
authorized by the Company's charter documents and available for the purpose of
issue upon such exercise.
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<PAGE> 16
14. [Intentionally Omitted]
15. Right to Convert Warrants into Units: Net Issuance.
15.1 In addition to and without limiting the rights of the
Holders under the terms of the Series B Warrant Certificates, the Holders shall
have the right to convert all but not less than all of the Warrants (the
"Conversion Right") into Units as provided in this Section 15 at any time on or
after the date hereof and on or before 5:00 p.m., Los Angeles time, on the
Termination Date. Upon exercise of the Conversion Right with respect to the
Units subject to this Warrant Certificate (the "Converted Warrant Units"), the
Company shall deliver to the Holder (without payment by the Holder of any
Exercise Price or any cash or other consideration) that number of Units of fully
paid and nonassessable Class A Common Units equal to the quotient obtained by
dividing (x) the value of the Warrants as of the date of the Conversion Notice
(as defined in Section 15.2, below), which value shall be equal to (i) the
aggregate Current Market Price of the Converted Warrant Units issuable upon
exercise of the Warrants as of the date of the Conversion Notice less (ii) the
aggregate Exercise Price of the Converted Warrant Units immediately prior to the
exercise of the Conversion Right by (y) the Current Market Price of one Unit as
of the date of the Conversion Notice.
Expressed as a formula, such conversion shall be computed as
follows:
X = A - B
-----
Y
Where: X = the number of Units issued to the Holder
under this Conversion Right
Y = the Current Market Price of one Unit
A = the aggregate Current Market Price
(i.e., Current Market Price multiplied
by the number of Converted Warrant
Units)
B = the aggregate Exercise Price (i.e.,
Exercise Price multiplied by the
number of Converted Warrant Units)
15.2 The Conversion Right may be exercised by the Holder or
Holders of a majority of the Warrants then outstanding by the surrender of the
Series B Warrant Certificates of such Holders to the Company together with a
written statement (the "Conversion Notice") specifying that the Holders thereby
intend to exercise the Conversion Right and, upon such exercise, all other
Holders shall surrender the Series B Warrant Certificates of such Holders to the
Company. Such conversion shall be effective upon the fifth (5th) business day
following receipt by the Company of all Series B Warrant Certificates together
with the Conversion Notice, on such later date as is specified therein, or on
such other date as the Company and such Holders may agree.
16. Information to Warrantholders: No Right as Members.
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<PAGE> 17
(a) Upon any adjustment of the Exercise Price pursuant to
Section 10, the Company within twenty (20) calendar days thereafter shall cause
to be given to each of the Holders at its address appearing on the Warrant
Register a certificate of a firm of independent public accountants of recognized
standing selected by the Board of Advisors of the Company (who may be the
regular auditors of the Company) setting forth the Exercise Price after such
adjustment and setting forth in reasonable detail the method of calculation and
the facts upon which such calculations are based and setting forth the number of
Units purchasable upon exercise of a Warrant after such adjustment in the
Exercise Price, by first-class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 16.
(b) In case:
a. the Company shall declare a dividend or
authorize a distribution on the Common Interests payable in units of Common
Interests, authorize the subdivision or combination of the outstanding Common
Interests, authorize the issuance of any units of its membership interests in a
reclassification of the Common Interests, or authorize the issuance to all
holders of Common Interests of rights or warrants to subscribe for or purchase
membership interests of the Company or of any other subscription rights or
warrants; or
b. the Company shall authorize the distribution to
all holders of Common Interests of evidences of its indebtedness or assets; or
c. of any consolidation or merger to which the
Company is a party and for which approval of any members of the Company is
required, or of the conveyance or transfer of the properties and assets of the
Company as, or substantially as, an entirety, or of any capital reorganization
or any reclassification of the Common Interests (other than as a result of a
subdivision or combination and, if applicable, other than a change in par value,
or from par value to no par value, or from no par value to par value); or
d. of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or the Company proposes to take any
other action which would require an adjustment of the Exercise Price pursuant to
Section 10;
then the Company shall cause to be given to each of the Holders of five percent
(5%) or more of the Series B Warrants then outstanding, at his address appearing
on the Warrant Register, at least twenty (20) calendar days (or ten (10)
calendar days in any case specified in subclauses a. or b. of clause (b) above)
prior to the applicable record date hereinafter specified, by first-class mail,
postage pre-paid, a written notice stating (x) the date as of which the holders
of record of units of Common Interests to be entitled to receive any such
rights, warrants or distribution are to be determined or (y) the date on which
any such consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation, or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
units of Common Interests shall be entitled to exchange such units for
securities or other property, if any, deliverable upon such consolidation,
merger, conveyance, transfer, reorganization, reclassification, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 16 or any defect therein shall not affect the legality or validity of
any distribution,
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<PAGE> 18
right, warrant, consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation, or winding up or the vote upon any
action.
(c) Nothing contained in any of the Series B Warrant
Certificates shall be construed as conferring upon the Holders the right to vote
or to consent or to receive notice as members in respect of the meetings of
members or the election of managers of the Company or any other matter, or any
rights whatsoever as members of the Company.
17. Registration Rights. Registration rights with respect to
the Securities are set forth in the Registration Rights Agreement.
18. Put Option.
18.1 (a) As soon as practicable and in any event not later
than ninety (90) days after the end of each such fiscal year, the Company shall
deliver to each Holder copies of the audited consolidated financial statements
of the Company and its subsidiaries (the "Financial Statements") for the fiscal
years of the Company ending on or after December 31, 2002 and on or before
November 14, 2009. The Holder or Holders of a majority of the Aggregate Warrants
(as defined in Section 18.3) and Aggregate Units (as defined in Section 18.3)
then outstanding, during any Put Window (as defined below) in effect during the
period commencing November 14, 2003 and ending November 14, 2009, shall have the
right (the "Put Option"), upon delivery to the Company of an irrevocable notice
(the "Put Notice"), to require the Company to purchase, at the price determined
pursuant to Section 18.1(b), (i) all of the Aggregate Units, if any, then owned
by the Holders thereof, and (ii) all of the Aggregate Warrants, if any, then
owned by the Holders thereof (collectively, the "Equity Rights"); provided,
however, that the obligation of the Company to purchase such Equity Rights shall
be subject to (A) the availability of financing (on terms and conditions
reasonably satisfactory to the Company in its good faith business judgment) with
respect to such purchase price and (B) the approval of the Senior Lenders (as
defined in the Securities Purchase Agreement) if such approval is then required
under the Senior Lender Documents (as defined in the Securities Purchase
Agreement); provided further, that the Company shall use its commercially
reasonable efforts to obtain such financing and any such approval and, with
respect to such financing, commercially reasonable efforts shall not include the
issuance of equity and, with respect to any refinancing or extension of
financing, shall not be on terms more onerous than that which is being
refinanced or extended; provided further, that the Put Option shall terminate
upon (x) an Approved Sale or (y) the consummation of an underwritten public
offering of units of Common Interests. In the event that either clause (A) or
clause (B) above are not satisfied, the Company shall have no obligation to
purchase the Units and Warrants subject to the Put Notice. For purposes of this
Section 18, "Put Window" means, with respect to any fiscal year of the Company,
the period commencing on the earlier of (x) the date of delivery to the Holders
of the Financial Statements with respect to such fiscal year or (y) ninety (90)
days after the end of such fiscal year, and ending ninety (90) days after the
date of delivery to the Holders of the Financial Statements with respect to such
fiscal year.
(b) The Company shall pay for the Equity Rights, in cash,
on a per-Unit basis (net of the Exercise Price for each Unit purchasable on
exercise of the Warrants if Warrants are to be purchased), an amount equal to
(i) the value of the Company divided by
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<PAGE> 19
(ii) the number of outstanding units of Common Interests (on a fully diluted, as
converted basis), with the value of the Company being the greater of:
(A) 7.0 times Actual EBITDA (as the
term "Actual EBITDA" is defined in
those Option Agreements dated as of
November 14, 1996) of the Company
and its Subsidiaries for the twelve
(12)-month period ending on the
last day of the most recently ended
fiscal year prior to the date of
the Put Notice, to which product is
to be added cash and Cash
Equivalents (as defined in the
Securities Purchase Agreement) of
the Company and its Subsidiaries as
of the date of the Put Notice, from
which sum is to be subtracted
Funded Debt (as defined in Section
18.3) outstanding as of the date of
Put Notice; or
(B) the aggregate Current Market Price,
as of the date of Put Notice, of
the outstanding units of Common
Interests (on a fully-diluted, as
converted basis).
18.2 (a) The Put Notice shall expressly state: (i) the
election of the Holder or Holders of a majority of the Aggregate Warrants and
Aggregate Units then outstanding to exercise the Put Option and (ii) the date of
exercise of such Put Option (which date of exercise shall not be less than
ninety (90) days after the date of the Put Notice). Subject to Section 18.2(c),
the closing shall take place on or before the date of exercise set forth in the
Put Notice, and at the time and place set forth in a written notice of the
Company to such Holder and all other Holders not less than ten (10) days prior
to such date of exercise. Subject to Section 18.2(c), the Company shall use its
commercially reasonable efforts to effectuate the exercise of such Holder's Put
Option prior to, but in no event later than, the date of exercise specified by
such Holder for such exercise. Subject to Section 18.2(c), at such closing,
Company shall deliver to such Holder, in cash, the price for the Equity Rights
surrendered by such Holder.
(b) Upon receipt by the Company of such Put Notice,
the Company shall promptly provide all other Holders written notice of: (i) the
intent of the Holder or Holders of a majority of the Warrants and Units then
outstanding to exercise the Put Option; and (ii) the date of exercise set forth
in the Put Notice.
(c) In the event that the Company shall determine,
in its good faith business judgment, that the conditions set forth clauses (A)
and (B) of Section 18.1(a) will not be satisfied, as soon as practicable
thereafter, the Company shall give written notice of such determination to all
Holders.
18.3 For purposes of this Section 18, the following terms
shall have the respective meanings set forth below:
(a) "Aggregate Warrants" means the Series B
Warrants and those certain Amended and Restated Common Interest Purchase
Warrants for the purchase of an
-19-
<PAGE> 20
aggregate of Two Thousand (2,000) Class A Common Units originally issued on
November 14, 1996 and amended and restated as of March 3, 1998.
(b) "Aggregate Units" means all Common Interests
issued upon exercise or in respect of the Aggregate Warrants (together with any
units issued upon exchange, transfer or replacement thereof).
(c) "Cash Flow" means, for any period, Adjusted
Operating Profit (as the term "Adjusted Operating Profit" is defined in the
Secured Credit Agreement dated as of November 14, 1996, between First Source
Financial LLP and the Subsidiary) for such period less amortization expenses
included in Adjusted Operating Profit for such period.
(d) "Funded Debt" means, as of any date of
determination, the sum of (I) all outstanding Indebtedness (as the term
"Indebtedness" is defined in the Option Agreements as of the date of original
issuance of the Warrants) of the Company and its subsidiaries as of such date,
plus (II) the liquidation value of the Preferred Interests outstanding as of
such date.
19. Notices. All notices and other communications to the
Holder hereof provided for hereunder shall, unless otherwise provided herein, be
in writing and mailed or sent or delivered to its address set forth in the
Warrant Register or sent by facsimile to the facsimile number set forth in the
Warrant Register. All such notices and communications shall be effective as
follows: if sent by hand delivery, upon delivery; if sent by mail, upon the
earlier of the date of receipt or five business days after deposit in the mail,
postage prepaid; and if sent by courier service or by facsimile, upon receipt.
20. Governing Law. This Warrant Certificate shall be governed
by, and construed in accordance with, the internal laws (and not the laws of
conflicts) of the State of New York.
21. Consent to Amendments. The rights and privileges of the
Holders pursuant to the Series B Warrant Certificates may be amended and the
Company may take any action therein prohibited or omit to perform any act
therein required to be performed by it only if the Company shall have obtained
the written consent to such amendment, action, or omission to act, of the
Holders of at least fifty-one percent (51%) of the Series B Warrants at the time
outstanding (or, in the case of an amendment, action or omission to act
affecting the rights and privileges of the Holders of Units, the written consent
of the holders of fifty-one percent (51%) of the Securities at the time
outstanding), and each holder of any Security at the time or thereafter
outstanding shall be bound by any such consent; provided, however, that without
the written consent of the Holders of at least seventy-five percent (75%) of the
Series B Warrants at the time outstanding, no consent, amendment or waiver to or
under the Series B Warrant Certificates shall amend or modify the provisions of
Section 10; provided, further, that notwithstanding anything in this Section 21
to the contrary, without the written consent of the Holders of all Series B
Warrants at the time outstanding (or, in the case of a consent, amendment or
waiver affecting the rights and privileges of the holders of Units, the written
consent of the holders of all Securities at the time outstanding), no consent,
amendment or waiver to or under the Series B Warrant Certificates shall amend or
modify the Exercise Price or affect the date on which the Series B
-20-
<PAGE> 21
Warrants terminate; provided, further, that notwithstanding anything in this
Section 21 to the contrary, any consent, amendment or waiver which would
adversely affect a Holder in a manner disproportionate from the Holders
generally shall only be effective against such affected Holder upon its consent
thereto. The Company shall promptly send to each Holder copies of any amendment,
consent, or waiver, and copies of any request for any amendment, consent, or
waiver relating to the Series B Warrant Certificates to each holder of
Securities. No course of dealing between the Company and any holder of
Securities nor any delay in exercising rights shall operate as a waiver of any
rights of any such holder.
[Signature page follows.]
-21-
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer as of the date indicated below.
Dated: February 26, 1999 SLEEPMASTER HOLDINGS L.L.C.,
a New Jersey limited liability company
By:
-------------------------------------
Name: James Koscica
Title: Executive Vice President
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<PAGE> 23
[Form of Election to Purchase]
(To be executed upon exercise of Warrant prior to
5:00 p.m., Los Angeles time, on the Termination Date)
The undersigned hereby irrevocably elects to exercise, for the
purchase of __________ Units of Common Interests, __________ Warrants
represented by this Warrant Certificate and to purchase the Units of Common
Interests issuable upon the exercise of said Warrants and herewith tenders in
consideration for such Units the amount of $__________ in accordance with the
terms hereof. The undersigned requests that a certificate or certificates
representing such Units be registered in the name of ____________ whose address
is _______________________ and that such certificate(s) be delivered to
____________ whose address is ________________________. If said number of Units
is less than all the Units purchasable hereunder, the undersigned requests that
a new Warrant Certificate of like tenor and series representing the balance of
the Warrants remaining after exercise of this Warrant Certificate for the number
of Units specified above be registered in the name of _______________________
whose address is _______________________ and that such Warrant Certificate be
delivered to ______________________ whose address is ____________________. Any
cash payments to be paid in lieu of a fractional Unit should be made to
____________ whose address is _________________________ and the check or wire
transfer representing payment thereof should delivered to ____________ whose
address is________________.
Dated: _________________ ______
Name of holder of Warrant Certificate: ______________________
(Please print)
Social Security or other identifying number: ________________
Address: _______________________________
_______________________________
_______________________________
Signature: _______________________________
Note: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever and if the
certificate representing the Units or any Warrant Certificate
representing Warrants not exercised is to be registered in a name
other than that in which this Warrant Certificate is registered,
the signature of the holder hereof must be guaranteed.
Signature Guaranteed:
<PAGE> 24
[Form of Assignment]
For value received ____________ hereby sells, assigns and
transfers unto _________________ the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ____________________, its attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated: _________________, _______ ____________________________________
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever.
Signature Guaranteed:
<PAGE> 1
EXHIBIT 10.22
LOAN AGREEMENT
between
PALM BEACH COUNTY, FLORIDA
and
PALM BEACH BEDDING COMPANY
relating to
$7,650,000 PALM BEACH COUNTY, FLORIDA
VARIABLE RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BONDS
(PALM BEACH BEDDING COMPANY PROJECT),
SERIES 1996
NOTE: CERTAIN RIGHTS OF PALM BEACH COUNTY, FLORIDA UNDER THIS LOAN AGREEMENT
HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR
OF, FIRST UNION NATIONAL BANK OF FLORIDA, AS TRUSTEE, AND BRANCH
BANKING AND TRUST COMPANY, AS CREDIT FACILITY TRUSTEE, UNDER A TRUST
INDENTURE OF EVEN DATE HEREWITH, AS AMENDED OR SUPPLEMENTED FROM TIME
TO TIME. INFORMATION CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED
FROM THE TRUSTEE AT FIRST UNION NATIONAL BANK OF FLORIDA, MIAMI,
FLORIDA, ATTENTION: CORPORATE TRUST GROUP.
DATED AS OF APRIL 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION....................................................................2
Section 1.1 Definitions............................................................................2
Section 1.2 Rules of Construction..................................................................9
ARTICLE 2
REPRESENTATIONS.........................................................................................10
Section 2.1 Representations by the Issuer.........................................................10
Section 2.2 Representations, Warranties and Covenants by the Company..............................13
ARTICLE 3
PERMITS AND APPROVALS; COMPANY CONSENT TO ASSIGNMENT....................................................18
Section 3.1 Approvals Required for the Project....................................................18
Section 3.2 Company Consent to Assignment of Agreement and Execution
of Indenture..........................................................................18
ARTICLE 4
ISSUANCE OF THE BONDS...................................................................................18
Section 4.1 Agreement to Issue the Bonds..........................................................18
Section 4.2 Disbursements from the Project Fund...................................................19
Section 4.3 Closeout of the Project Fund..........................................................19
Section 4.4 Disposition of the Balance in the Project Fund........................................19
Section 4.5 Agreement to Complete the Project; Company Required to Pay in
Event Project Fund Insufficient......................................................19
Section 4.6 No Third Party Beneficiary............................................................19
Section 4.7 Issuer to Pursue Remedies Against Suppliers, Contractors and
Subcontractors and Their Sureties....................................................20
ARTICLE 5
LOAN BY THE ISSUER TO THE COMPANY; REPAYMENT............................................................20
Section 5.1 Loan by the Issuer: Repayment.........................................................20
Section 5.2 Payment Obligations of the Company....................................................20
Section 5.3 Security for Payments Under the Loan Agreement........................................21
Section 5.4 Company's Performance Under Indenture.................................................21
Section 5.5 No Set-Off............................................................................21
Section 5.6 Prepayments...........................................................................22
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Section 5.7 Letter of Credit and Reimbursement Agreement..........................................22
ARTICLE 6
MAINTENANCE AND MODIFICATIONS; TAXES AND UTILITY
CHARGES; INSURANCE AND EMINENT DOMAIN...................................................................22
Section 6.1 Maintenance and Modification of the Project by the Company............................22
Section 6.2 Taxes and Utility Charges.............................................................22
Section 6.3 Casualty and Liability Insurance Required.............................................23
Section 6.4 General Requirements Applicable to Insurance..........................................24
Section 6.5 Advances by the Issuer or the Trustee.................................................25
Section 6.6 Company to Make Up Deficiency in Insurance Coverage...................................25
Section 6.7 Eminent Domain........................................................................25
Section 6.8 Application of Net Proceeds of Insurance and Eminent Domain...........................25
Section 6.9 Parties to Give Notice................................................................26
Section 6.10 Credit Facility Issuer Requirements...................................................27
ARTICLE 7
SPECIAL COVENANTS.......................................................................................27
Section 7. 1 Access to the Project and Inspection..................................................27
Section 7.2 Further Assurances and Corrective Instruments.........................................27
Section 7.3 Recording and Filing: Other Instruments...............................................27
Section 7.4 Arbitrage Covenants; Notice of Event of Taxability....................................28
Section 7.5 No Prohibited Payments................................................................29
Section 7.6 Permitted Investments; Prohibited Payments............................................29
Section 7.7 Investment in Tax-Exempt Securities...................................................30
Section 7.8 Administrative Expenses...............................................................30
Section 7.9 Indemnity Against Claims..............................................................30
Section 7.10 Release and Indemnification...........................................................31
Section 7.11 Additional Information................................................................31
Section 7.12 Existence, Sale of Assets, Consolidation or Merger....................................31
Section 7.13 Default Certificates..................................................................32
Section 7.14 Observe Laws..........................................................................32
ARTICLE 8
ASSIGNMENT, LEASING AND SELLING.........................................................................32
Section 8.1 Assignment of this Loan Agreement or Lease or Sale of the Project
by the Company.................................................................................32
Section 8.2 Restrictions on Transfer of the Issuer's Rights.......................................33
Section 8.3 Assignment by the Issuer..............................................................33
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES..........................................................................33
Section 9.1 Events of Default Defined.............................................................33
Section 9.2 Remedies on Default...................................................................34
Section 9.3 Application of Amounts Realized in Enforcement of Remedies............................35
Section 9.4 No Remedy Exclusive...................................................................35
Section 9.5 Agreement to Pay Attorneys' Fees and Expenses.........................................35
Section 9.6 Correlative Waivers...................................................................35
ARTICLE 10
PREPAYMENTS.............................................................................................35
Section 10.1 Optional Payments.....................................................................35
Section 10.2 Mandatory Prepayments.................................................................36
Section 10.3 Other Mandatory Payments..............................................................36
ARTICLE 11
REBATE PROVISIONS.......................................................................................37
Section 11.1 Creation of the Rebate Fund...........................................................37
Section 11.2 Determinations, Notices and Records of Rebate Amount..................................37
Section 11.3 Investment Earnings on Bond Funds.....................................................37
Section 11.4 Filing of Required Rebate.............................................................38
ARTICLE 12
MISCELLANEOUS...........................................................................................38
Section 12.1 References to the Bonds Ineffective After Bonds Paid..................................38
Section 12.2 No Implied Waiver.....................................................................38
Section 12.3 Issuer Representative.................................................................38
Section 12.4 Company Representative................................................................38
Section 12.5 Notices...............................................................................38
Section 12.6 If Payment or Performance Date Is Other Than a Business Day...........................39
Section 12.7 Binding Effect........................................................................39
Section 12.8 Severability..........................................................................39
Section 12.9 Amendments, Changes and Modifications.................................................40
Section 12.10 Execution in Counterparts.............................................................40
Section 12.11 Applicable Law........................................................................40
Section 12.12 No Charge Against Credit of Issuer....................................................40
Section 12.13 Issuer Not Liable.....................................................................40
Section 12.14 Expenses..............................................................................40
Section 12.15 Amounts Remaining with the Trustee....................................................40
Section 12.16 References to the Credit Facility Issuer, Credit Facility and Credit
Facility Trustee.....................................................................41
</TABLE>
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<PAGE> 5
LOAN AGREEMENT
This LOAN AGREEMENT, dated as of April 1, 1996 between PALM
BEACH COUNTY, FLORIDA (the "Issuer"), a political subdivision under the laws of
the State of Florida (the "State"), and PALM BEACH BEDDING COMPANY (the
"Company"), a Florida corporation.
W I T N E S S E T H:
WHEREAS, the Issuer is authorized and empowered pursuant to
Part II, Chapter 159, Florida Statutes, and other applicable provisions of law
(the "Act"), to issue its bonds for such purposes as are as provided in the Act;
and
WHEREAS, the Issuer has heretofore indicated its willingness
to issue industrial development revenue bonds under the Act and to use the
proceeds of the sale of the Bonds (hereinafter defined) to finance the
construction of a 225,000 square foot manufacturing facility and appurtenances
in the unincorporated area of the Issuer (the "Project"); and
WHEREAS, to obtain funds for such purposes the Issuer will
issue and sell its Palm Beach County, Florida, Variable Rate Demand Industrial
Development Revenue Bonds (Palm Beach Bedding Project), Series 1996 in the
aggregate principal amount of $7,650,000 (the "Bonds"), under and pursuant to
the Act, to be secured by and contain such terms and provisions as are set forth
in that certain Trust Indenture (the "Indenture") dated as of April 1, 1996
among the Issuer, Branch Banking and Trust Company, as Credit Facility Trustee
(the "Credit Facility Trustee"), and First Union National Bank of Florida, as
Trustee (the "Trustee"), and the proceeds from the sale of the Bonds shall be
deposited with the Trustee and disbursed in the manner and for the purposes set
forth herein and in the Indenture, all as more fully provided herein and
therein; and
NOW, THEREFORE, in consideration of the respective
representations and agreements contained herein, the parties hereto, recognizing
that under the Act this Loan Agreement shall never constitute an indebtedness or
a charge against the general credit or taxing powers of the Issuer, the State of
Florida or any political subdivision thereof within the meaning of any
constitutional provision or statutory limitation nor give rise to any pecuniary
liability of the Issuer and the Issuer shall not pay or promise to pay any debt
or meet any financial obligation to any person at any time in relation to the
Project, except from moneys received or to be received under the provisions of
this Loan Agreement and from the Credit Facility Issuer under a Credit Facility
(each as hereinafter defined) or derived from the exercise of the rights of the
Issuer thereunder, agree as follows:
<PAGE> 6
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions. In addition to words and terms
elsewhere defined in this Loan Agreement and in the Indenture, the following
words and terms shall have the following meanings:
"Act" shall mean Part II, Chapter 159, Florida Statutes, and
other applicable provisions of law.
"Administrative Expenses" shall mean the amounts payable
pursuant to Section 7.8 hereof by the Company to or for the account of the
Issuer to provide for payment of the costs and expenses incurred by the Issuer.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person. For the purposes of this definition,
"control," when used with respect to a Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Bank" shall initially mean First Union National Bank of
Florida as issuer of the Letter of Credit, and thereafter any issuer of any
Alternate Credit Facility.
"Bond" or "Bonds" shall mean the Issuer's Variable Rate Demand
Industrial Development Revenue Bonds (Palm Beach Bedding Company Project),
Series 1996, authorized to be issued pursuant to the Bond Resolution in
accordance with the Indenture in the aggregate principal amount of $7,650,000,
including such Bonds issued in replacement for mutilated, destroyed, lost or
stolen Bonds pursuant to Section 2. 10 of the Indenture and any amendments and
supplements thereto, and any renewals and extensions thereof, permitted by the
Indenture.
"Bond Documents" shall mean collectively the Indenture, the
Bonds, this Loan Agreement, the Letter of Credit Documents, the Tender Agency
Agreement and the Remarketing Agreement.
"Bond Resolution" shall mean the resolution adopted by the
Issuer on December 19, 1995, authorizing, among other things, the execution and
delivery of the Issuer Documents to be signed by the Issuer and the issuance of
the Bonds by the Issuer.
"Bond Year" means a one-year period commencing on October 1 of
each year.
"Business Day" means a day on which (a) banks located in each
of the cities in which the principal office of the Trustee, the Credit Facility
Trustee, the Credit Facility Issuer and the Remarketing Agent is located are not
required or authorized by law or executive order
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to close for business, and (b) The New York Stock Exchange is not closed.
"Capital Expenditures" shall have the meaning as specified in
Section 2.2(ab) hereof.
"Chairman" shall mean the Chairman of the Board of County
Commissioners of the Issuer.
"Clerk" shall mean the Clerk of the Board of County
Commissioners of the Issuer.
"Closing Date" means the date of the issuance and delivery of
the Bonds.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company" shall mean Palm Beach Bedding Company, a Florida
corporation, and its successors or assigns and any surviving, resulting or
transferee partnership or other entity.
"Company Representative" shall mean any one of the persons at
the time designated to act on behalf of the Company by written certificate
furnished to the Issuer, the Trustee and the Credit Facility Trustee containing
the specimen signatures of such persons and signed on behalf of the Company by
the President.
"Completion Date" shall mean the date of completion of the
Project, as that date shall be certified as provided in Section 4.3 hereof.
"Consistent Basis" shall mean, in reference to the application
of Generally Accepted Accounting Principle, that the accounting principles
observed in the period referred to are comparable in all material aspects to
those applied in the preceding period, except as to any changes consented to by
the Trustee and the Credit Facility Issuer.
"Construction," when used in connection with the Project,
shall mean, without limitation, the construction, installation and equipping of
the Project.
"Costs of the Project" shall mean all costs and allowances for
the Construction of the Project which are permitted under the Act and which
include, but are not limited to, all capital costs of the Project, including the
following:
(i) the acquisition, construction and installation of
the Project;
(ii) preparation of the plans and specifications for
the Project (including any preliminary study or plan of the
Project or any aspect thereof), any labor, services, materials
and supplies used or furnished in the Construction of the
Project, the construction and installation necessary to
provide utility services or other services and all real and
tangible personal property deemed necessary by the Company in
connection with the Project;
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(iii) the fees for architectural, engineering,
supervisory and consulting services in connection with
Construction of the Project;
(iv) to the extent they shall not be paid by a
contractor, the premiums of all insurance and surety and
performance bonds required to be maintained in connection with
the construction of the Project;
(v) any fees and expenses incurred in connection with
construction, perfection and protection of title to the
Project;
(vi) interest prior to and during the period until
completion of Construction of the Project; and
(vii) any administrative or other fees charged by the
Issuer or reimbursement thereof of expenses, in connection
with the Project to the completion of Construction of the
Project.
"Counsel" shall mean an attorney or firm of attorneys
acceptable to the Trustee, and may, but need not, be counsel to the Issuer or
the Company.
"Credit Facility" shall mean the Letter of Credit or any
Alternate Credit Facility delivered to the Trustee pursuant to Article 6 of the
Indenture.
"Credit Facility Issuer" shall mean the Bank with respect to
the Letter of Credit and the institution issuing any Alternate Credit Facility.
"Determination of Taxability" shall be defined as and shall be
deemed to have occurred on the first to occur of the following:
(i) on the date when the Company files any statement,
supplemental statement or other tax schedule, return or document which
discloses that an Event of Taxability shall have in fact occurred;
(ii) on the date when any Bondholder or former Bondholder
notifies the Company or the Trustee that it has received a written
opinion of Bond Counsel to the effect that an Event of Taxability shall
have occurred unless, within one (1) year after receipt by the Company
of such notification from the Trustee, any Bondholder or any former
Bondholder, the Company shall obtain and deliver to the Trustee a
favorable ruling or determination letter issued to or on behalf of the
Company by the Commissioner or any District Director of Internal
Revenue (or any other government official exercising the same or a
substantially similar function from time to time) to the effect that,
after taking into consideration such facts as form the basis for the
opinion that an Event of Taxability has occurred, an Event of
Taxability shall not have occurred;
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<PAGE> 9
(iii) on the date when the Company shall be advised in writing
by the Commissioner or any District Director of Internal Revenue (or
any other government official or agent exercising the same or a
substantially similar function from time to time) that, based upon
filings of the Company, or upon any review or audit of the Company, or
upon any other ground whatsoever, an Event of Taxability shall have
occurred;
(iv) on the date when the Company shall receive notice in
writing from any Bondholder or former Bondholder, or from the Trustee,
that the Internal Revenue Service (or any other government agency
exercising the same or a substantially similar function from time to
time) has assessed as includable in the gross income of any Bondholder
or former Bondholder the interest on such Bondholder's or former
Bondholder's Bonds due to the occurrence of an Event of Taxability;
provided, however, no Determination of Taxability shall be deemed to have
occurred under (iii) or (iv) hereof unless the Company has been afforded the
opportunity, at its expense, to contest any such assessment or unfavorable
ruling and, further, no Determination of Taxability shall be deemed to have
occurred until such contest, if made, has been finally determined.
"Eminent Domain" shall mean the taking of title to, or the
temporary use of, the Project or any part thereof pursuant to eminent domain or
condemnation proceedings, or any voluntary conveyance of any part of the Project
during the pendency of, or as a result of a threat of, such proceedings.
"Event of Default" or "Default" shall have the meaning set
forth in Section 9.1 hereof.
"Event of Taxability" shall mean a change in law or fact or
the interpretation thereof, or the occurrence or existence of any fact, event or
circumstance (including, without limitation, the issuance of obligations or the
incurring of capital expenditures in excess of those permitted by Section
144(a)(4) of the Code, or the taking of any action by the Company, or the
failure to take any action by the Company, or the making by the Company of a
misrepresentation herein or in any certificate required to be given in
connection with the issuance, sale or delivery of the Bonds) which has the
effect of causing the interest paid or payable on any Bond to become includable
in the gross income of any Bondholder or former Bondholder of any Bond other
than a Bondholder or former Bondholder who is or was a Substantial User or
Related Person.
"Fair Market Value" means the price at which a willing buyer
would purchase an investment from a willing seller in a bona-fide, arm's length
transaction, as more specifically set forth in Section 1.148-5(d)(6) of the
Regulations.
"Financing Statements" means any and all financing statements
(including continuation statements) filed for record from time to time to
perfect the security interests created or assigned pursuant to the Bond
Documents.
"Generally Accepted Accounting Principles" shall mean those
principles of accounting set forth in pronouncements of the Financial Accounting
Standards Board and its
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<PAGE> 10
predecessors or pronouncements of the American Institute of Certified Public
Accountants or those principles of accounting which have other substantial
authoritative support and are applicable in the circumstances as of the date of
application, as such principles are from time to time supplemented and amended.
"Indenture" shall mean the Trust Indenture of even date
herewith by and among the Issuer, the Credit Facility Trustee and the Trustee,
together with any amendments or supplements thereof permitted thereby.
"Issuer" shall mean Palm Beach County, Florida and its
successors and assigns.
"Issuer Documents" shall mean collectively the Indenture, the
Placement Agent Agreement and this Loan Agreement.
"Issuer Representative" shall mean any one of the persons at
the time designated to act on behalf of the Issuer by written certificate
furnished to the Company, the Trustee and the Credit Facility Trustee containing
the specimen signatures of such persons and signed on behalf of the Issuer by
the Chairman.
"Letter of Credit" shall mean the irrevocable direct pay
letter of credit dated April 2, 1996 in the amount of $7,956,000 issued by the
Bank, with an initial term of three (3) years, subject to any extensions
thereof.
"Letter of Credit Documents" shall mean the Letter of Credit,
the Reimbursement Agreement, the Mortgage, the Pledge Agreement and any other
documents now or hereafter evidencing, securing or guaranteeing the Company's
obligations under the Credit Facility.
"Local Facilities" means "facilities" (as that term is used in
Section 144(a)(4) of the Code) of which the Company, any other Principal User of
the Project, or a Related Person of any of the foregoing, is or will be a
Principal User and which are located within the unincorporated area of the
Issuer. For the purposes of this definition, a "contiguous or integrated
facility" (as that term is used in Section 1.103-10(d)(2)(i) of the Regulations)
located partly within and partly without the unincorporated area of the Issuer,
shall be considered as being located entirely within the unincorporated area of
the Issuer.
"Loan Agreement" shall mean this Loan Agreement and any
amendments and supplements thereto permitted by the Indenture.
"Mortgage" shall mean the Mortgage and Security Agreement,
dated as of April 1, 1996, from the Company to the Bank, constituting a valid
first lien on the Mortgage Property (as defined in the Mortgage), together with
all improvements and appurtenances presently located or hereafter to be
constructed thereon.
"Net Proceeds," when used with respect to (i) any insurance
proceeds or (ii) any award resulting from, or other amount received in
connection with, Eminent Domain, means the
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<PAGE> 11
gross proceeds from such proceeds, award or other amount, less all expenses
(including attorneys' fees) incurred in the realization thereof.
"Non-Purpose Investment" means any investment property (other
than a tax exempt obligation under Section 103(a) of the Code) that is not
acquired to carry out the governmental purpose of the Bonds.
"Overdue Rate" shall mean the Prime Rate, plus five percent
per annum, or the maximum contract rate permitted by law, whichever is lower.
"Payment of the Bonds" shall mean payment of (i) the principal
of and interest on the Bonds in accordance with their terms whether through
payment at maturity, upon acceleration or prepayment, (ii) all amounts due as
Administrative Expenses or otherwise, and (iii) any and all other liabilities
and obligations arising under the Indenture and this Loan Agreement; in any
case, payment in such a manner that all such amounts due and owing with respect
to the Bonds shall have been paid.
"Permitted Encumbrances" shall mean, as of any particular
time, (i) liens for ad valorem taxes and special assessments, if any, which are
not then delinquent or which are being contested in good faith, (ii) the liens
created pursuant to the Indenture and the Mortgage, (iii) judgment liens which
remain undischarged and unstayed for not more than thirty (30) days, (iv)
mechanic's, materialmen's, warehousemen's, carrier's and other similar liens
incurred in the ordinary course of business remaining undischarged or unstayed
for not longer than sixty (60) days from the date of attachment thereof, and (v)
all liens and encumbrances listed as exceptions to the title insurance policy
required by Section 7.l(c) of the Reimbursement Agreement and which liens and
exceptions are in all respects satisfactory to the Bank.
"Person" shall mean an individual, partnership, corporation,
trust, unincorporated organization, association, joint venture, joint-stock
company, or a government or agency or political subdivision thereof.
"Placement Agent" shall mean the securities dealer, bank or
trust company which is designated by the Company with the consent of the Credit
Facility Issuer and which will agree to establish the Preliminary Fixed Rate and
to use its best efforts to arrange for the sale of Tendered Bonds on the
Conversion Date, all as more particularly described in Section 2.2(e) of the
Indenture.
"Placement Agent Agreement" shall mean that certain letter
agreement among the Issuer, the Company and the Placement Agent for the initial
placement of the Bonds.
"Pledge Agreement" shall mean the Pledge Agreement of even
date herewith by the Company to the Bank, and any amendments or supplements
thereof.
"Prime Rate," prior to the Conversion Date, shall mean that
rate of interest per annum announced by First Union National Bank of North
Carolina at its principal office in Charlotte, North Carolina, from time to time
to be its "prime rate," and after the Conversion Date shall mean the
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<PAGE> 12
interest rate published in the "Money Rate" table of The Wall Street Journal as
such rate (or if a range of rates is published, then the highest rate in such
range). In the event that The Wall Street Journal shall abolish or abandon the
practice of publishing a "prime rate," or should the same become
unascertainable, the Trustee shall designate a comparable reference rate which
shall be deemed to be the Prime Rate for purposes hereof.
"Principal User" shall have the meaning as specified in
Section 2.2(y) hereof.
"Project" shall mean the acquisition, construction and
installation of a manufacturing facility, and any other interests in real
property, leasehold interest, easements, licenses, and rights in real property
hereafter acquired by the Company with proceeds of the Bonds for use in
connection with the Project as more particularly described in Exhibit A attached
hereto.
"Project Fund" shall mean the trust fund so designated which
is established pursuant to Section 4.1 of the Indenture.
"Qualified Costs" means those Costs of the Project paid or
incurred subsequent to September 8, 1995 for the construction, rehabilitation,
construction or installation of land or property of a character subject to the
allowance for depreciation under Section 167 of the Code and shall include all
amounts which are chargeable to the capital account of the Project or would be
so chargeable either with a proper execution by the Company or but for a proper
election by the Company to deduct such amounts.
"Rebate Amount" means all interest income and profits earned
on investment of the proceeds of the Bonds which are required to be paid to the
United States under Section 148(f) of the Code, calculated and determined in
accordance with the Regulations, and any penalties in lieu of making payments of
rebate amounts if the Issuer has elected pursuant to Section 148(f)(4)(C)(vii)
of the Code to pay such penalties to the United States.
"Rebate Fund" means the fund of that name created pursuant to
Section 5.4 of the Indenture and described in Section 11.1 hereof.
"Regulations" shall mean the applicable Treasury Regulations
under Sections 103 and 141 through 150 of the Code whether at the time proposed,
temporary, final or otherwise, including, where applicable, Treasury Regulations
under Section 103 of the Internal Revenue Code of 1954, as amended and in effect
prior to adoption of the Code.
"Reimbursement Agreement" shall mean the Letter of Credit and
Reimbursement Agreement, of even date herewith, by and between the Company and
the Bank, and any supplements or amendments thereto.
"Related Person" means "related person" within the meaning of
Section 147(a)(2) of the Code, which in certain circumstances is determined by
reference to Section 267, 707(b) and 1563(a) of the Code, except that "more than
50 percent" is substituted for "at least 80 percent" in Section 1563(a).
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"Remarketing Agent" shall mean First Union National Bank of
North Carolina and its successors as provided in Section 12.1 of the Indenture.
"Remarketing Agreement" shall mean the Remarketing Agreement
of even date herewith between the Company and the Remarketing Agent.
"Security Interest" or "security interests" shall refer to the
security interests created in the Indenture and the Mortgage and shall have the
meaning set forth in the U.C.C.
"State" shall mean the State of Florida.
"Substantial User" shall have the meaning as specified in the
Code.
"Tender Agency Agreement" means the Tender Agency Agreement of
even date herewith among the Company, the Trustee and the Tender Agent, and any
amendments or supplements thereof.
"Trustee" shall mean the banking institution at the time
serving as Trustee under the Indenture.
"Yield" means, on a fixed yield issue, the discount rate that,
when used in computing the present value as of the issue date of all
unconditionally payable payments of principal, interest, and fees for qualified
guarantees on such issue and amounts reasonably expected to be paid as fees for
qualified guarantees on such issue, produces an amount equal to the present
value, using the same discount rate, of the same aggregate issue price of the
issue as of the issue date thereof. The "yield" on an investment allocated to an
issue of bonds is the discount rate that, when used in computing the present
value as of the date the investment is first allocated to such issue of all
unconditionally payable receipts from the investment, produces an amount equal
to the present value of all unconditionally payable payments for the investment.
The yield on an investment allocated to an issue is computed under the economic
accrual method, using the same compounding interval and financial conventions to
compute the yield on the issue, for example, if the yield on an investment
allocated to an issue is determined on the basis of semi-annual interest
compounding, then the yield on the issue shall also be expressed in terms of
semi-annual interest compounding.
Section 1.2 Rules of Construction.
(a) Words of masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter genders, and words of the
neuter gender shall be deemed and construed to include correlative words of the
masculine and feminine genders.
(b) The table of contents, captions and headings in this Loan
Agreement are for convenience only and in no way define, limit or describe the
scope or intent of any provisions or Sections of this Loan Agreement.
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(c) All references herein to particular Articles or Sections
are references to Articles or Sections of this Loan Agreement unless some other
reference is established.
(d) All accounting terms not specifically defined herein shall
be construed in accordance with Generally Accepted Accounting Principles applied
on a Consistent Basis.
(e) All references herein to the Company shall be deemed to
refer to each of the Persons if more than one are described by such term.
Obligation, duty or liability of the Company shall be a joint and several
agreement, obligation, duty or liability of each of the Persons so described by
such term.
(f) Any terms not defined herein but defined in any of the
other Bond Documents shall have the same meaning herein.
ARTICLE 2
REPRESENTATIONS
Section 2.1 Representations by the Issuer. The Issuer
represents, warrants and agrees as follows:
(a) The Issuer is a political subdivision under the laws of
the State of Florida.
(b) Under the provisions of the Act, the Issuer is duly
authorized to enter into, execute and deliver or, if appropriate, accept the
Issuer Documents, to issue and deliver the Bonds, to undertake the transactions
contemplated by the Issuer Documents and the Bonds and to carry out its
obligations hereunder and thereunder.
(c) The Issuer proposes to issue the Bonds in the aggregate
principal amount of $7,650,000 to construct and equip the Project.
(d) By the Bond Resolution, the Issuer has duly authorized the
execution, delivery and performance or, if appropriate, acceptance of the Issuer
Documents, including the borrowing under and the issuance and performance of the
Bonds.
(e) The Bonds will be issued under and pursuant to the
Indenture and will mature, bear interest, and have the other terms and
provisions set forth or provided for in the Indenture.
(f) The execution and delivery of and performance under or, if
appropriate, acceptance of, the Issuer Documents will not conflict with, or
constitute a breach of or default under, or require any consent pursuant to any
law or regulation presently applicable to the Issuer (except for such consents
and approvals as have heretofore been obtained), any order of any court,
regulatory body or arbitral tribunal or any agreement or instrument to which the
Issuer is a party or by which it is bound.
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(g) There are no judicial, regulatory or arbitral proceedings
pending or, to the knowledge of the Issuer, threatened against the Issuer which,
if decided adversely to the Issuer, would have a material effect on the issuance
and sale of the Bonds or any of the transactions of the Issuer in connection
therewith.
(h) Neither the nature of the Issuer nor any of its activities
or properties, nor any relationship between the Issuer and any other person, nor
any circumstance in connection with the offer, issue, sale or delivery of any of
the Bonds is such as to require the consent, approval or authorization of, or
the filing, registration or qualification with, any governmental authority on
the part of the Issuer in connection with the execution, delivery and
performance of this Loan Agreement and the Indenture or the offer, issue, sale
or delivery of the Bonds, other than those already obtained, including (i) the
public approval of the issuance of the Bonds and compliance with the information
reporting requirements contained in Section 147(f) and Section 149(e),
respectively, of the Code, (ii) the filing of an election by the Issuer with
respect to the Bonds under Section 144(a) of the Code, and (iii) the filing of
Financing Statements perfecting the security interests created under the
Indenture.
(i) When duly executed and delivered on behalf of the Issuer,
and assuming the due authorization, execution and delivery by the Company of
this Loan Agreement, and the due authorization, execution and delivery by the
Credit Facility Trustee and the Trustee of the Indenture, each of the Issuer
Documents to which the Issuer is a party shall constitute a valid and binding
obligation of the Issuer enforceable in accordance with its terms.
(j) No event has occurred and no condition exists with respect
to the Issuer which would constitute an "event of default" as defined in this
Loan Agreement or the Indenture or which, with the lapse of time or with the
giving of notice or both, would become an "event of default" under this Loan
Agreement or the Indenture. The Issuer is not in default under the Act or under
any other agreement or instrument to which it is a party or by which it is
bound.
(k) Neither this Loan Agreement nor any of the Pledged
Revenues have been pledged or hypothecated in any manner or for any purpose
other than as provided in the Indenture as security for the payment of the
Bonds. The Bonds constitute the only bonds or other obligations of the Issuer in
any manner payable from the revenues to be derived from this Loan Agreement, and
except for the Bonds, no bonds or other obligations have been or will be issued
on the basis of this Loan Agreement.
(l) Neither the representations of the Issuer contained in
this Loan Agreement or the Indenture nor any written statement relating to the
Issuer furnished to the original purchasers of the Bonds by or on behalf of the
Issuer in connection with the transactions contemplated hereby, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
(m) With respect to the Bonds, there are no other obligations
of the Issuer that have been, are being or will be sold (1) at substantially the
same time, (2) under a common plan of marketing and (3) at substantially the
same rate of interest.
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(n) There is pending or, to the knowledge of the undersigned
Chairman of the Issuer, threatened no action or proceeding before any court,
governmental agency or arbitrator (1) to restrain or enjoin the issuance or
delivery of the Bonds or the collection of any revenues pledged under the
Indenture, (2) in any way contesting or affecting the authority for the issuance
of the Bonds or the validity of any of the Bond Documents, or (3) in any way
contesting the existence or powers of the Issuer.
(o) To the knowledge of the undersigned Chairman of the
Issuer, except for the Bonds, no bonds, notes or other obligations of the Issuer
have been issued and are now outstanding, the proceeds of which have been used
or are to be used with respect to Local Facilities.
(p) In connection with the authorization, issuance and sale of
the Bonds, the Issuer has complied with all provisions of the Constitution and
laws of the State, including the Act and Section 286.011, Florida Statutes (the
"Public Meetings Act").
(q) On November 7, 1995, the Issuer adopted a resolution
preliminarily approving the issuance of the Bonds. Notice of the meeting at
which such resolution was adopted was published at least fourteen (14) days in
advance of the date of such meeting.
(r) No official or county commissioner of the Issuer has any
interest whatsoever in the Company or in the transactions contemplated by this
Loan Agreement.
(s) The Issuer will not enter into any agreement or instrument
which might in any way prevent or materially impair its ability to perform its
obligations under the Bond Documents.
(t) So long as any Bonds shall remain unpaid, the Issuer will,
upon request of the Trustee or the Credit Facility Trustee and provided it shall
be furnished with sufficient funds to pay all costs and expenses (including
attorney's fees) reasonably incurred by it as such costs and expenses accrue:
(1) take all action and do all things which it is
authorized by law to take and do in order to perform and
observe all covenants and agreements on its part to be
performed and observed under the Bond Documents; and
(2) execute, acknowledge, where appropriate, and
deliver from time to time promptly at the request of the
Trustee or the Credit Facility Trustee all such instruments
and documents as in the opinion of the Trustee or the Credit
Facility Trustee are necessary or desirable to carry out the
intent and purpose of the Bonds Documents or any of them.
(u) So long as any Bonds shall remain unpaid, the Issuer will
not, without the written consent of the Trustee and the Credit Facility Trustee:
(i) take any action which, directly or indirectly,
adversely affects its existence or status as a political
subdivision under the laws of the State;
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(ii) take any action which would adversely affect the
exclusion from gross income for federal income tax purposes of
interest on the Bonds; or
(iii) pledge any interest in this Loan Agreement, or
the amounts to be derived herefrom, other than as contemplated
by the Indenture.
Section 2.2 Representations, Warranties and Covenants by the
Company. The Company represents, warrants and covenants and agrees as follows:
(a) The Company is a corporation duly organized and validly
existing under the laws of the State. The Company is not in violation of any
provision of its Articles of Incorporation, as amended, has the corporate power
to enter into and perform this Loan Agreement, and has duly authorized by proper
corporate action the execution and delivery of this Loan Agreement, and is
qualified to do business and is in good standing under the laws of the State.
(b) The Company agrees that during the term of the Loan
Agreement it will not (i) dissolve or liquidate, or become a party to any merger
or consolidation, (ii) sell, assign, pledge or otherwise transfer more than 50%
of its outstanding stock or voting power in a single transaction or a series of
transactions, or substantially all of Company's property, assets or business, or
a material portion (10% or more) thereof if such a sale is outside the Company's
ordinary course of business, or (iii) acquire by purchase, lease or otherwise
substantially all, of the property, assets or business of or more than 50% of
the outstanding stock or voting power of any other entity; provided however,
that the foregoing shall not operate to prevent: (A) mergers or consolidations
of any subsidiary into the Company or a sale, transfer or lease of assets by any
subsidiary to the Company; or (B) a merger of any corporation or entity into the
Company. For any merger or consolidation transaction contemplated above the
Company shall be the surviving or continuing corporation or entity and, after
giving effect to such transaction, the Company shall be in full compliance with
the terms of the Loan Agreement.
(c) Neither the execution and delivery of this Loan Agreement,
the Mortgage, the Remarketing Agreement, the Tender Agency Agreement or the
Pledge Agreement, nor the consummation of the transactions contemplated hereby
and thereby, nor the fulfillment of or compliance with the terms and conditions
hereof or thereof conflicts with or results in a breach of the articles of
incorporation or the bylaws of the Company or the terms, conditions or
provisions of any agreement or instrument to which the Company is now a party or
by which the Company is bound, or constitutes a default under any of the
foregoing, or results in the certification or imposition of any lien, charge or
encumbrance whatsoever upon any of the property or assets of the Company under
the terms of any such instrument or agreement.
(d) There is no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public board or
body, known to be pending or threatened against or affecting the Company or any
of its officers, nor to the best knowledge of the Company is there any basis
therefor, wherein an unfavorable decision, ruling, or finding would materially
adversely affect the transactions contemplated by this Loan Agreement or which
would adversely affect, in any way, the validity or enforceability of the Bonds,
this Loan Agreement, the Pledge Agreement, the Tender
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Agency Agreement, the Remarketing Agreement, or any agreement or instrument to
which the Company is a party, used or contemplated for use in the consummation
of the transactions contemplated hereby.
(e) The Project is of the type authorized and permitted by the
Act, the description of the Project as forth in Exhibit A hereto is accurate in
all material respects and the budget for the Project as set forth in Exhibit A
is an accurate summary of the Company's best estimates of the total costs of the
Project.
(f) The net sale proceeds (as defined in Section 2.2(l) below)
of the Bonds will be used only for payment of Costs of the Project. None of the
net sale proceeds of the Bonds will be used as working capital or to finance
inventory.
(g) The Company will use due diligence to cause the Project to
be operated in accordance with the laws, rulings, regulations and ordinances of
the State and the departments, agencies and political subdivisions thereof. The
Company has obtained or will cause to be obtained all requisite approvals of the
State and of other federal, state, regional and local governmental bodies for
the construction and equipping of the Project.
(h) The Company will keep all taxes and assessments against
the Project fully paid before the same become delinquent, subject to the
Company's right to contest such taxes and assessments in good faith pursuant to
Section 6.2 hereof.
(i) The Company will fully and faithfully perform all the
duties and obligations which the Issuer has covenanted and agreed in the
Indenture to cause the Company to perform, any duties and obligations which the
Company is required in the Indenture to perform and any delegable or assignable
duties and obligations which the Issuer is required in the Indenture to perform.
The foregoing shall not apply to any duty or undertaking of the Issuer which by
its nature cannot be delegated or assigned.
(j) Except for any architectural, engineering, surveying, soil
testing, or similar preliminary activities occurring earlier, the commencement
of the construction of the Project, and each of the several components thereof,
occurred subsequent to September 8, 1995, which is sixty days prior to the date
of adoption by the Issuer of Resolution No. 95-1575. No proceeds of the Bonds
will be used to reimburse the Company for amounts paid prior to September 8,
1995, other than for "preliminary expenditures" as defined in Section 1.150-2(f)
of the Income Tax Regulations.
(k) The Project presently constitutes, and at the completion
thereof and until the expiration of the term of this Loan Agreement will
constitute, a "project" and a "manufacturing plant" within the meaning of
Section 159.27(5), Florida Statutes.
(l) The Company has entered into various contracts providing
for the construction and equipping of the Project that collectively create a
substantial binding commitment on the Company's part to expend at least five
percent (5%) of the net sale proceeds of the Bonds on the Project. For purposes
of the preceding sentence and subsection 2.2(m) below, the term "net sale
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proceeds" means the proceeds actually or constructively received by the Issuer
from the sale of the Bonds (including amounts used to pay any underwriters'
discount), less the portion of those sales proceeds deposited in any reasonably
required reserve or replacement fund directly or indirectly securing payment of
the Bonds.
(m) The Project consists of land and/or property subject to
the allowance for depreciation under the Code, and substantially all of the net
sale proceeds of the Bonds, including earnings from the investment thereof, will
be used to pay Qualified Costs.
(n) No changes shall be made in the Project and no actions
will be taken by the Company that shall in any way cause interest on the Bonds
to be included in gross income for federal income tax purposes.
(o) Based on current facts, estimates and circumstances, the
Company currently expects:
(1) that the construction and equipping of the
Project and the expenditure of all of the net sale proceeds of
the Bonds will be completed by April 2, 1999;
(2) to proceed with due diligence toward completion
of the Project (the work on which has already commenced) and
the expenditure of the net sale proceeds of the Bonds in
connection with the Project;
(3) the net sale proceeds of the Bonds are needed for
the purpose of paying all or a part of the Cost of the
Project; and
(4) the Project will not be sold or disposed of in a
manner producing sale proceeds which, together with
accumulated proceeds of the Bonds or earnings thereon, would
be sufficient to enable the Company to retire substantially
all of the Bonds prior to the maturity of the Bonds.
(p) As of the date of execution and delivery of this Loan
Agreement, there exists no Event of Default or any condition or event which
would constitute, or with the passage of time or the giving of notice, or both,
would constitute an Event of Default hereunder.
(q) The average maturity of the Bonds does not exceed one
hundred twenty percent (120%) of the average reasonably expected economic life
of the assets being financed with the proceeds of the Bonds, with the average
reasonably expected economic life of each asset being measured from the later of
the date of issuance of the Bonds or the date such asset is reasonably expected
to be placed in service and by taking into account the respective cost of each
asset being financed. The information furnished by the Company and used by the
Issuer to verify the average reasonably expected economic life of each asset of
the Project to be financed with the proceeds of the Bonds is true, accurate and
complete.
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(r) (i) The payment of principal or interest with respect to
the Bonds is not guaranteed (in whole or in part) by the United States (or any
agency or instrumentality thereof); (ii) five percent (5 %) or more of the
proceeds of the Bonds will not be (A) used in making loans the payment of
principal and interest with respect to which are to be guaranteed (in whole or
in part) by the United States (or any agency or instrumentality thereof), or (B)
invested (directly or indirectly) in federally insured deposits or accounts as
defined in Section 149(b) of the Code; and (iii) the payment of principal or
interest on the Bonds is not otherwise indirectly guaranteed (in whole or in
part) by the United States (or any agency or instrumentality thereof).
The foregoing provisions of this subsection shall not apply to
proceeds of the Bonds being (i) invested for an initial temporary period until
such proceeds are needed for the purpose for which such issue was issued; (ii)
held in a bona fide debt service fund; (iii) held in a reserve that meets the
requirements of Section 148(d) of the Code with respect to reasonably required
reserve or replacement funds; (iv) invested in obligations issued by the United
States Treasury; or (v) held in a refunding escrow (i.e., a fund containing
proceeds of a refunding bond issue established to provide for the payment of
principal or interest on one or more prior bond issues); or (vi) invested in
other investments permitted under regulations promulgated pursuant to Section
149(b)(3)(B) of the Code.
(s) Any information supplied by the Company that has been
relied upon by the Issuer and by Bond Counsel with respect to the eligibility of
the Project and the exclusion from gross income for federal income tax purposes
of interest on the Bonds is true and correct.
(t) All proceeds of the Bonds will be used to pay the "cost"
(within the meaning of Section 159.44(5), Florida Statutes) of the Project.
(u) The Company shall promptly provide written notice to the
Issuer and the Trustee and the Credit Facility Trustee if the Company becomes
aware of an Event of Default as such term is used in Section 9.1 hereof.
(v) All components of the Project are or will be located
wholly within the unincorporated boundaries of the Issuer.
(w) This Loan Agreement constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
(x) There is no other bond or issue of bonds, the interest on
which is tax exempt pursuant to Section 144(a) of the Code or Section 103(b)(6)
of the Internal Revenue Code of 1954, as amended, part or all of the net
proceeds of which are to be used with part or all of the net proceeds of the
Bonds with respect to a single building, an enclosed shopping mall, or a strip
of offices, stores or warehouses using substantial common facilities, as
contemplated by Section 144(a)(9) of the Code. There are no heating, cooling or
other facilities shared by the Project and by any other facility financed with
tax-exempt bonds. There are no common entrances to plaza , malls, lobbies,
parking, elevators or stairways shared by the Project and any other facility
financed with tax-exempt bonds used by employees or patrons of the Project and
such facility.
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(y) Neither the Company nor persons related (as such any term
is used in the Code) to the Company are owners or principal users (as such term
is used in the Code) of any facility (other than the Project) in the
unincorporated limits of the Issuer, or outside of, but contiguous with, the
unincorporated limits of the Issuer.
(z) The Project is not integrated with any facility located
outside of the unincorporated limits of the Issuer.
(aa) (i) The aggregate authorized face amount of the Bonds
allocated to any test-period beneficiary (as such term is used in the Code),
when increased by the outstanding tax-exempt facility-related bonds (within the
meaning of Section 144(a)(10) of the Code) of such beneficiary, does not exceed
$40,000,000. (ii) For purposes of applying subparagraph (i) above, with respect
to any issue, the outstanding tax-exempt facility-related bonds of any person
who is a test-period beneficiary, as such term is used in the Code, with respect
to such issue is the aggregate face amount of all tax-exempt bonds which, within
the meaning of Section 144(a)(10)(B)(ii) of the Code, are exempt facility bonds,
qualified small issue bonds and qualified redevelopment bonds or industrial
development bonds (as defined in Section 103(b)(2) of the Internal Revenue Code
of 1954, as in effect on the date before the date of enactment of the Tax Reform
Act of 1986) to which Section 141(a) of the Code does not apply: (A) which are
allocated to such beneficiary, and (B) which are outstanding on the date of
issuance of the Bonds (not including as outstanding any obligation which is to
be redeemed from the proceeds of the Bonds). (iii) The amount of any issue shall
be allocated so that: (1) except as may otherwise be provided in regulations
promulgated under Section 144(a)(10)(C) of the Code, the portion of the face
amount of any issue allocated to any test-period beneficiary of the facility
financed by the proceeds of such issue (other than an owner of such facility) is
an amount which bears the same relationship to the entire face amount of such
issue as the portion of such facility used by such beneficiary bears to the
entire facility; and (2) except as otherwise provided in regulations promulgated
under Section 144(a)(10)(C) of the Code, the portion of the face amount of an
issue allocated to any test period beneficiary who is an owner of a facility
financed by the proceeds of such issue is an amount which bears the same
relationship to the entire face amount of such issue as the portion of such
facility owned by such beneficiary bears to the entire facility.
(ab) The information furnished by the Company and used by the
Issuer in making its election to issue the Bonds pursuant to Section 144(a)(4)
of the Code was true and complete as of the date hereof. The aggregate principal
amount of all obligations assumed, expenditures made and obligations incurred
during the six year period beginning on the date three years prior to the
issuance of the Bonds and ending on the date three years after the issuance of
the Bonds with respect to Local Facilities (including, without limitation, the
leasing of equipment) which constitute "capital expenditures," as that term is
used in Section 144(a)(4) of the Code ("Capital Expenditures") (other than those
mentioned in Section 144(a)(4)(C) of the Code), by the Company, any other
Principal User of the Project, any Related Person of either, or otherwise with
respect to Local Facilities, but excluding such Capital Expenditures paid out of
the proceeds of the Bonds, did not at any time during the period referenced
above exceed $10,000,000.
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(ac) No customer of the Company is expected to purchase ten
percent (10%) or more of the Company's annual output from the Project during the
first three years of the term of the Loan Agreement on a basis different than
any other customer of the Company (i.e., pursuant to long term contract, take or
pay agreement or output contract).
(ad) The Project constitutes a "manufacturing facility" within
the meaning and contemplation of Section 144(a)(12) of the Code, and any office
space included as part of the Project will be (1) located at or within the
Project, (ii) directly related to the day-to-day manufacturing operations at the
Project, and (iii) de minimis in size and cost in relation to the size and cost
of the Project.
All of the above representations, warranties, covenants and
agreements shall survive the execution of this Loan Agreement.
ARTICLE 3
PERMITS AND APPROVALS; COMPANY CONSENT TO ASSIGNMENT
Section 3.1 Approvals Required for the Project. The Company
has obtained or caused to be obtained all necessary permits and approvals for
the operation and maintenance of the Project and has complied and will continue
to comply with all lawful requirements of any governmental body regarding the
use or condition of the Project. The Company may, however, contest any such
requirement by an appropriate proceeding diligently prosecuted.
Section 3.2 Company Consent to Assignment of Agreement and
Execution of Indenture. The Company understands that the Issuer, as security for
the payment of the principal of, and the interest on, the Bonds, will assign and
pledge to, and create a security interest in favor of, the Trustee and the
Credit Facility Trustee pursuant to the Indenture, certain of its rights, title
and interest in and to this Loan Agreement including all Pledged Revenues,
reserving, however, its rights (a) pursuant to this Loan Agreement providing
that notices, approvals, consents, requests and other communications be given to
the Issuer, (b) to reimbursement and payment of costs and expenses under this
Loan Agreement, and (c) to indemnification and to exemption from liability, both
individual [and corporate], under this Loan Agreement, and the Company hereby
agrees and consents to such assignment and pledge. The Company acknowledges that
it has received a copy of the Indenture and consents to the execution of the
same by the Issuer.
ARTICLE 4
ISSUANCE OF THE BONDS
Section 4.1 Agreement to Issue the Bonds. To provide funds to
construct and equip the Project, the Issuer agrees that it will authorize,
validate, sell, issue and deliver the Bonds in the aggregate principal amount of
$7,650,000 in the manner set forth in the Indenture and cause the proceeds of
the Bonds to be applied as provided in the Indenture.
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Section 4.2 Disbursements from the Project Fund. The Issuer
has, in the Indenture, authorized and directed the Trustee to make disbursements
from the Project Fund in accordance with the terms of this Loan Agreement.
Section 4.3 Closeout of the Project Fund. The Completion Date
for the Project shall be promptly established and evidenced to the Trustee and
shall be the date on which the Company Representative delivers to the Trustee a
certificate stating that, except for amounts retained by the Trustee at the
Company's direction for any Cost of the Project not then due and payable, the
Construction of the Project has been completed substantially in accordance with
the plans and specifications, if any, and all costs and expenses incurred in
connection therewith have been paid. Notwithstanding the foregoing, such
certificate may state that it is given without prejudice to any rights against
third parties that exist at the date of such certificate or that may
subsequently come into being.
Section 4.4 Disposition of the Balance in the Project Fund.
Pursuant to the Indenture, as soon as practicable after, and in any event within
sixty (60) days from, the Trustee's receipt of the certificate mentioned in
Section 4.3 hereof, all amounts remaining in the Project Fund, including any
unliquidated investments made with money theretofore deposited in the Project
Fund, except for amounts to be retained in the Project Fund for any Costs of the
Project not then due and payable as provided in Section 4.3 hereof, shall be
transferred by the Trustee to the Bond Fund and shall be applied to reimburse
the Credit Facility Issuer for moneys drawn under the Credit Facility to redeem
Bonds pursuant to Section 7.1(c)(3) of the Indenture.
Section 4.5 Agreement to Complete the Project; Company
Required to Pay in Event Project Fund Insufficient. The Company, as independent
contractor and not as agent of the Issuer, agrees to complete the acquisition,
construction and installation of the Project with all reasonable dispatch in
accordance with the plans and specifications for the Project, if any. In the
event the moneys in the Project Fund available for the Project are not
sufficient for the Project, the Company agrees to provide such funds and to pay
the amount in excess of the moneys available therefor in the Project Fund. The
Issuer does not make any warranty, either express or implied, that the moneys
paid into the Project Fund will be sufficient for such purpose. The Company
agrees that if after exhaustion of the moneys in the Project Fund, the Company
should pay any amount to finance the construction and equipping of the Project
pursuant to the provisions of this Section, the Company shall not be entitled to
any reimbursement therefor from the Issuer, the Trustee or the Bondholders, nor
shall the Company be entitled to any diminution of the amounts payable under
Section 5.2 hereof.
Section 4.6 No Third Party Beneficiary. It is specifically
agreed between the parties executing this Loan Agreement that it is not intended
by any of the provisions of any part of this Loan Agreement to create in the
public or any member thereof, other than as may be expressly provided herein or
as contemplated in the Indenture (which contemplates that the Credit Facility
Issuer may become an obligee of the Company by subrogation and/or assignment), a
third party beneficiary hereunder, or to authorize anyone not a party to this
Loan Agreement to maintain a suit for personal injuries or property damage
pursuant to the terms or provisions of this Loan Agreement.
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<PAGE> 24
The duties, obligations, and responsibilities of the parties to this Loan
Agreement with respect to third parties shall remain as imposed by law.
Section 4.7 Issuer to Pursue Remedies Against Suppliers,
Contractors and Subcontractors and Their Sureties. At the direction and sole
cost of the Company (to the extent that such cost is not payable and actually
paid from the Project Fund), the Issuer or the Trustee as its assignee will
promptly proceed, either separately or in conjunction with others, to exhaust
the remedies of the Issuer against any defaulting supplier, contractor or
subcontractor and against any surety therefor, for the performance of any
contract made in connection with the Project. If the Company shall so notify the
Issuer, the Company may, in its own name or in the name of the Issuer, prosecute
or defend any action or proceeding or take any other action involving any such
supplier, contractor, subcontractor or surety which the Company deems reasonably
necessary, and in such event the Issuer agrees to cooperate fully with the
Company and to take all action necessary, to the extent it might lawfully do so,
to effect the substitution of the Company for the Issuer in any such action or
proceeding. Any moneys recovered by way of damages, refunds, adjustments or
otherwise in connection with the foregoing prior to the Completion Date shall be
paid into the Project Fund and after the Completion Date shall be used to
reimburse the Company for any costs disbursed to pay Costs of the Project or in
the event the Company did not pay Costs of the Project, such amounts shall be
transferred to the Trustee and applied as provided in Section 4.4 hereof.
ARTICLE 5
LOAN BY THE ISSUER TO THE COMPANY; REPAYMENT
Section 5.1 Loan by the Issuer: Repayment.
(a) Upon the terms and conditions of this Loan Agreement, the
Issuer shall lend to the Company the proceeds from the sale of the Bonds. The
loan shall be evidenced by and repayable as set forth in this Loan Agreement.
The loan shall be made by depositing said proceeds in the Project Fund in
accordance with the terms of the Indenture.
(b) As consideration for the issuance of the Bonds and the
making of the loan to the Company by the Issuer, the Company will execute and
deliver this Loan Agreement, and the Issuer will assign this Loan Agreement to
the Credit Facility Trustee and the Trustee, as the assignee of the Issuer under
the Indenture, contemporaneously with the issuance of the Bonds. The Company
shall repay the loan in accordance with the provisions of this Loan Agreement.
Section 5.2 Payment Obligations of the Company.
(a) On the first Business Day of each January, April, July and
October beginning on the first Business Day of July, 1996, and in each year
thereafter until payment in full of the Bonds, the Company shall pay or cause to
be paid to the Trustee for the account of the Issuer as loan payments a sum
equal to the amount payable on each such date as principal of (whether at
maturity or upon redemption prior to maturity) and interest on the Bonds, as
provided in the Indenture. Each loan payment under this Section shall be
sufficient to pay the total amount of principal (whether at
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maturity or upon redemption prior to maturity) and interest payable on such
payment date, and if at any payment date the balance in the Bond Fund is
insufficient to make required payments of principal and interest on such date,
the Company shall forthwith pay any such deficiency. Such payments may be
applied by the Trustee to reimburse the Credit Facility Issuer if funds for such
payment or redemption are obtained pursuant to a draw under the Credit Facility.
Anything herein to the contrary notwithstanding, any amount at
any time held by the Trustee in the Bond Fund shall be credited against the next
succeeding loan payment and such credit shall reduce the payment to be then made
by the Company; and further, if the amount held by the Trustee in the Bond Fund
should be sufficient to pay at the times required the principal of and interest
on all Bonds then remaining unpaid, the Company shall not be obligated to make
any further loan payments under the provisions of this Section.
(b) The Company agrees to pay to the Trustee, until the Bonds
are paid in full, (i) an amount equal to the annual fee of the Trustee for the
ordinary services of the Trustee rendered and its ordinary expenses incurred
under the Indenture, (ii) the reasonable fees and charges of the Trustee and any
other paying agent for acting as Paying Agent and as Bond Registrar and the
reasonable fees of Trustee's Counsel as provided in the Indenture, as and when
the same become due, and (iii) the reasonable fees and charges of the Trustee
for extraordinary services rendered by it and extraordinary expenses incurred by
it under the Indenture, as and when the same become due.
If the Company should fail to make any of the payments
required in this paragraph, the item or installment so in default shall continue
as an obligation of the Company until the same shall have been fully paid, and
the Company agrees to pay the same with interest thereon, to the extent legally
enforceable, at the Overdue Rate until paid.
Section 5.3 Security for Payments Under the Loan Agreement. It
is understood and agreed that payments required to be made to the Issuer under
this Loan Agreement are assigned and pledged to the Credit Facility Trustee and
the Trustee under the Indenture. The Company hereby assents to such assignment
and pledge. The Company further agrees that (i) all payments under this Loan
Agreement shall be paid directly to the Trustee for the account of the Issuer
and shall be deposited in the Bond Fund and (ii) all payments required to be
made as provided in Section 5.2(b) hereof shall be paid directly to the Trustee
for its own use or for payment to any Paying Agents or Counsel.
Section 5.4 Company's Performance Under Indenture. The Company
agrees, for the benefit of the holders from time to time of the Bonds, to do and
perform all acts and things contemplated in the Indenture to be done or
performed by it.
Section 5.5 No Set-Off. The obligation of the Company to make
the payments required by this Loan Agreement shall be absolute and
unconditional. The Company will pay without abatement, diminution or deduction
(whether for taxes or otherwise) all such amounts regardless of any cause or
circumstance whatsoever including, without limitation, any defense, set-off,
recoupment or counterclaim that the Company may have or assert against the
Issuer, the Trustee,
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any Bondholder or any other person. The provisions of this Section 5.5, however,
are subject to the provisions of the last paragraph of Section 5.2.
Section 5.6 Prepayments. The Company may prepay all or any
part of the amounts it is obligated to pay as provided in Section 7.1 of the
Indenture with respect to prepayment of the Bonds. Except as provided in this
Section 5.6 and in Sections 10.1, 10.2 and 10.3 hereof, the Company shall not be
entitled to cause the Bonds to be prepaid. The Company shall prepay all of the
amounts it is required to prepay as provided in Sections 10.2 and 10.3 hereof.
Section 5.7 Letter of Credit and Reimbursement Agreement. As a
further condition to the Issuer's financing the Project hereunder, the Company
shall:
(a) cause the Letter of Credit to be issued and delivered to
the Credit Facility Trustee as security for the Bonds and until the Conversion
Date, cause a Credit Facility meeting the requirements of Section 6.3 of the
Indenture to be maintained with the Credit Facility Trustee; and
(b) enter into the Reimbursement Agreement with the Bank in
form and substance satisfactory to the Bank and execute and deliver the other
Letter of Credit Documents required by the Bank.
ARTICLE 6
MAINTENANCE AND MODIFICATIONS; TAXES AND UTILITY
CHARGES; INSURANCE AND EMINENT DOMAIN
Section 6.1 Maintenance and Modification of the Project by the
Company.
(a) The Company agrees that, until Payment of the Bonds shall
be made, it will at its own expense, (1) keep the Project or cause the Project
to be kept in as reasonably safe condition as its operations shall permit, (2)
make or cause to be made from time to time all necessary repairs thereto and
renewals and replacements thereof and otherwise keep the Project in good repair
and in good operating condition, and (3) not permit or suffer others to commit a
nuisance on or about the Project. The Company shall pay or cause to be paid all
costs and expenses of operation and maintenance of the Project.
(b) The Company may, at its own expense, make from time to
time any additions, modifications or improvements to the Project that it may
deem desirable for its business purposes and that do not materially impair the
effective use or decrease the value of the Project.
Section 6.2 Taxes and Utility Charges.
(a) The Company shall pay as the same respectively become due,
(1) all taxes, assessments, levies, claims and charges of any kind whatsoever
that may at any time be lawfully assessed or levied against or with respect to
the Project (including, without limiting the generality of the foregoing, any
tax upon or with respect to the income or profits of the Issuer from the Project
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and that, if not paid, would become a charge on the payments to be made under
this Loan Agreement prior to or on a parity with the charge thereon created by
the Indenture and including ad valorem, sales and excise taxes, assessments and
charges upon the Company's interest in the Project), (2) all utility and other
charges incurred in the operation, maintenance, use, occupancy and upkeep of the
Project and (3) all assessments and charges lawfully made by any governmental
body for public improvements that may be secured by a lien on any portion of the
Project.
(b) The Company may, at its expense, contest in good faith any
such levy, tax, assessment, claim or other charge, but the Company may permit
the items so contested to remain undischarged and unsatisfied during the period
of such contest and any appeal therefrom only if the Company shall notify the
Issuer and the Trustee that in the opinion of Counsel, by nonpayment of any such
items, the rights of the Trustee with respect to this Loan Agreement created by
the assignment under the Indenture, as to the rights assigned under this Loan
Agreement or any part of the payments to be made under this Loan Agreement will
not be materially endangered, nor will the Project or any part thereof be
subject to loss or forfeiture. If the Company is unable to deliver such an
opinion of Counsel, the Company shall promptly pay or bond and cause to be
satisfied or discharged all such unpaid items or furnish, at the expense of the
Company, indemnity satisfactory to the Trustee; but provided further, that any
tax, assessment, charge, levy or claim shall be paid forthwith upon the
commencement of proceedings to foreclose any lien securing the same. The Issuer,
the Credit Facility Trustee and the Trustee, at the expense of the Company, will
cooperate fully in any such permitted contest.
(c) If the Company shall fail to pay any of the items required
to be paid by it pursuant to Section 6.2(a) above, the Issuer or the Trustee may
(but shall be under no obligation to) pay the same, and any amounts so advanced
therefor by the Issuer or the Trustee shall become an additional obligation of
the Company to the one making the advancement which amounts, together with
interest thereon at the Overdue Rate, from the date of payment, the Company
agrees to pay on demand therefor.
(d) The Company shall furnish the Issuer and the Trustee, upon
request, with proof of payment of any taxes, governmental charges, utility
charges, insurance premiums or other charges required to be paid by the Company
under this Loan Agreement.
Section 6.3 Casualty and Liability Insurance Required. Until
Payment of the Bonds shall be made, the Company will keep the Project properly
and continuously insured against such risks as are customarily insured against
by businesses of like size and type engaged in the same or similar operations
including, without limiting the generality of the foregoing, all insurance
required under the Reimbursement Agreement or any of the Letter of Credit
Documents;
(a) prior to completion of the Project, an "all risk"
builder's risk insurance on the Project in the amount of not less than the full
insurable value thereof and with such other provisions as may be required by the
Trustee or the Bank;
(b) casualty insurance on the Project in an amount not less
than the full insurable value of all property located at, and all improvements
to, the Project, against loss or damage by fire
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and lightning and other hazards ordinarily included under uniform broad form of
extended coverage endorsement at the time in use in the State;
(c) general comprehensive liability insurance against claims
for bodily injury, death or property damage occurring on, in or about the
Project (such coverage to include provisions waiving subrogation against the
Issuer and the Trustee) in amounts not less than $1,000,000 with respect to
bodily injury to any one person, $1,000,000 with respect to bodily injury to two
or more persons in any one accident and $1,000,000 with respect to property
damage resulting from any one occurrence;
(d) liability insurance with respect to the Project under the
workers' compensation laws of the State; provided, however, that the insurance
so required may be provided by blanket policies or under a self insurance
program now or hereafter maintained by the Company; and
(e) if at any time any portion of the Project is in an area
that has been identified by the Secretary of Housing and Urban Development as
having special flood and mudslide hazards, a policy of flood insurance covering
improvements located on such portion of the Project with amounts and coverage
satisfactory to the Trustee and the Credit Facility Issuer.
Section 6.4 General Requirements Applicable to Insurance.
(a) Each insurance policy obtained in satisfaction of the
requirements of Section 6.3 hereof:
(1) shall be by such insurer (or insurers) as shall
be financially responsible, qualified to do business in the
State and of recognized standing;
(2) shall be in such form and have such provisions
(including, without limitation, the lenders long-form loss
payable clause, the waiver of subrogation clause, the
deductible amount, if any, and the standard mortgagee
endorsement clause), as are generally considered standard
provisions for the type of insurance involved and are
acceptable in all respects to the Trustee and the Credit
Facility Issuer;
(3) shall prohibit cancellation or substantial
modification, termination or lapse in coverage by the insurer
without at least thirty (30) days' prior written notice to the
Issuer, the Trustee and the Credit Facility Issuer;
(4) shall provide that losses thereunder, prior to
the occurrence of an Event of Default (or event which, with
notice or lapse of time or both, would constitute an Event of
Default), shall be adjusted with the insurer by the Company at
its expense on behalf of the insured parties and the decision
of the Company as to any adjustment shall be final and
conclusive; and
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(5) without limiting the generality of the foregoing,
all insurance policies carried on the Project shall name the
Company and the Credit Facility Issuer as parties insured
thereunder as the respective interests of each of such parties
may appear, and any loss thereunder shall be made payable and
shall be applied as provided in Section 6.8 hereof.
(b) Prior to expiration of any such policy, the Company shall
furnish the Issuer and the Trustee with evidence satisfactory to them that the
policy or certificate has been renewed or replaced in compliance with this Loan
Agreement or is no longer required by this Loan Agreement and the Trustee or
Credit Facility Trustee, as the case may be.
Section 6.5 Advances by the Issuer or the Trustee. In the
event the Company shall fail to maintain, or cause to be maintained, the full
insurance coverage required by this Loan Agreement or shall fail to keep or
cause to be kept the Project in good repair and good operating condition, the
Issuer or the Trustee may (but shall be under no obligation to), after ten (10)
days written notice to the Company, contract for the required policies of
insurance and pay the premiums on the same or make any required repairs,
renewals and replacements; and the Company agrees to reimburse the Issuer and
the Trustee to the extent of the amounts so advanced by them or any of them with
interest thereon at the Overdue Rate, from the date of advance to the date of
reimbursement. Any amounts so advanced by the Issuer or the Trustee shall become
an additional obligation of the Company, shall be payable on demand, and shall
be deemed a part of the obligation of the Company.
Section 6.6 Company to Make Up Deficiency in Insurance
Coverage. The Company agrees that to the extent that it shall not carry
insurance required by Sections 6.3 and 6.4 hereof, it shall pay promptly to the
Trustee for application in accordance with the provisions of Section 6.8 hereof,
such amount as would have been received as Net Proceeds by the Trustee under the
provisions of Section 6.8 hereof had such insurance been carried to the extent
required.
Section 6.7 Eminent Domain. Unless the Company shall have
prepaid its obligations pursuant to the provisions of Article 10 hereof, in the
event that title to, or the temporary use of, the Project or any part thereof
shall be taken by Eminent Domain, the Company shall be obligated to continue to
make the payments required to be made pursuant to this Loan Agreement and the
Net Proceeds received as a result of such Eminent Domain shall be applied as
provided in Section 6.8(b) hereof.
Section 6.8 Application of Net Proceeds of Insurance and
Eminent Domain.
(a) The Net Proceeds of the insurance carried pursuant to the
provisions of Sections 6.3(b) and 6.3(c) hereof shall be applied by the Company
toward extinguishment of the defect or claim or satisfaction of the liability
with respect to which such insurance proceeds may be paid.
(b) The Net Proceeds of the insurance carried with respect to
the Project pursuant to the provisions of Sections 6.3(a) and 6.3(d) hereof
(excluding the Net Proceeds of any business
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interruption insurance, which shall be paid to the Company), and the Net
Proceeds resulting from Eminent Domain shall be paid to the Trustee and applied
as follows:
(1) If the amount of the Net Proceeds does not exceed
$50,000, the Net Proceeds shall be paid to the Company and
shall be applied to the repair, replacement, renewal or
improvement of the Project as necessary.
(2) If the amount of the Net Proceeds exceeds
$50,000, the Net Proceeds shall be paid to and held by the
Trustee as a special trust fund and invested in accordance
with Section 6.2 of the Indenture and the provisions of
Article 11 hereof pending receipt of written instructions from
the Company. At the option of the Company, to be exercised
within the period of ninety (90) days from the receipt by the
Trustee of such Net Proceeds, the Company shall advise the
Trustee that (A) the Company will use the Net Proceeds for the
repair, replacement, renewal or improvement of the Project
(such funds to be delivered by the Trustee to the Company), or
(B) the Net Proceeds shall be applied to the prepayment of the
Bonds as provided in Article 10 hereof. If the Company does
not advise the Trustee within said period of ninety (90) days
that it elects to proceed under clause (A) to use such Net
Proceeds for the repair, replacement, renewal or improvement
of the Project, such Net Proceeds shall be applied to the
repayment of the Bonds pursuant to Article 10 hereof. Any
prepayment pursuant to the preceding sentence shall be
effected on the next Interest Payment Date not less than
thirty (30) days after the expiration of said period of ninety
(90) days without an election by the Company.
(c) The Company agrees that if it shall elect to use the
moneys paid to the Trustee pursuant to Section 6.8(b)(2) for the repair,
replacement, renewal or improvement of the Project, it will restore the Project,
or cause the same to be done, to a condition substantially equivalent to its
condition prior to the occurrence of the event to which the Net Proceeds were
attributable. To the extent that the Net Proceeds are not sufficient to restore
or replace the Project, the Company shall use its own funds to restore or
replace the Project. Prior to the commencement of such work, the Trustee may
require the Company to furnish a completion bond, escrow deposit or other
satisfactory evidence of the Company's ability to pay or provide for the payment
of any estimated costs in excess of the amount of the Net Proceeds. Any balance
remaining after any such application of such Net Proceeds shall be paid to the
Company. The Company shall be entitled to the Net Proceeds of any insurance or
resulting from Eminent Domain relating to property of the Company not included
in the Project and not providing security for this Loan Agreement.
Section 6.9 Parties to Give Notice. In case of any material
damage to or destruction of all or any part of the Project, the Company shall
give prompt notice thereof to the Issuer, the Credit Facility Issuer and the
Trustee. In case of a taking or proposed taking of all or any part of the
Project or any right therein by Eminent Domain, the Company shall give prompt
notice thereof to the Issuer, the Credit Facility Issuer and the Trustee. Each
such notice shall describe generally the nature and extent of such damage,
destruction, taking, loss, proceeding or negotiations.
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Section 6.10 Credit Facility Issuer Requirements. So long as a
Credit Facility is in effect and the Credit Facility Issuer is not is default
thereunder, the provisions in the Reimbursement Agreement relating to types,
amounts and other features of insurance and the application of Net Proceeds of
insurance and eminent domain proceedings shall govern and take priority over the
corresponding provisions herein.
ARTICLE 7
SPECIAL COVENANTS
Section 7.1 Access to the Project and Inspection. The Credit
Facility Issuer and the Trustee shall have the right at all reasonable times,
upon the furnishing of reasonable notice to the Company under the circumstances,
to enter upon the Project site and to examine and inspect the Project. The
Trustee and the Credit Facility Issuer and their duly authorized agents shall
also have such right of access to the Project as may be reasonably necessary for
its proper maintenance, in the event of failure by the Company to perform its
obligations relating to maintenance under this Loan Agreement. The Company
hereby covenants to execute, acknowledge and deliver all such further documents,
and do all such other acts and things as may be necessary to grant to the Credit
Facility Issuer and the Trustee such right of entry. The Credit Facility Issuer
and the Trustee shall also be permitted, at all reasonable times, to examine the
books and records of the Company with respect to obligations of the Company
hereunder, but neither shall be entitled to access to trade secrets or other
proprietary information (other than financial information) of the Company. All
information obtained in any such examination shall be kept confidential and
shall not be disclosed except in connection with any proceedings to enforce the
Company's obligations hereunder.
Section 7.2 Further Assurances and Corrective Instruments.
Subject to the provisions of the Indenture, the Issuer and the Company agree
that they will, from time to time, execute, acknowledge and deliver, or cause to
be executed, acknowledged and delivered, such supplements and amendments hereto
and such further instruments as may reasonably be required for correcting any
inadequate or incorrect description of the Project and for carrying out the
intention or facilitating the performance of this Loan Agreement.
Section 7.3 Recording and Filing: Other Instruments.
(a) The Company covenants that it will, upon the request of
the Credit Facility Trustee and at the Company's expense, cause Counsel in the
State to take all steps as are reasonably necessary to render an opinion to the
Issuer and the Credit Facility Trustee to the effect that all financing
statements, continuation statements, notices and other instruments required by
applicable law have been recorded or filed or re-recorded or re-filed in such
manner and in such places required by law in order fully to preserve and protect
the rights of the Trustee and the Credit Facility Trustee in the granting by the
Issuer of certain rights of the Issuer, pursuant to the Indenture, under this
Loan Agreement.
(b) The Company, the Issuer and the Trustee shall execute and
deliver all instruments and shall furnish all information and evidence deemed
necessary or advisable by such
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Counsel to enable such Counsel to render the opinion referred to in Section
7.3(a). The Company, at the request of the Credit Facility Trustee, shall file
and re-file and record and rerecord or cause to be filed and re-filed and
recorded and re-recorded all instruments required to be filed and re-filed and
recorded or re-recorded pursuant to the opinion of such Counsel and shall
continue or cause to be continued the liens of such instruments for so long as
the Bonds shall be outstanding, except as otherwise required by this Loan
Agreement.
Section 7.4 Arbitrage Covenants; Notice of Event of
Taxability.
(a) Neither the Company nor the Issuer shall take any action
or fail to take any action, and the Company covenants that it will not approve
the Trustee's taking any action or failure to take any action or making any
investment or use of the proceeds of the Bonds, if such action, use or failure
would adversely affect the tax-exempt status of the interest on the Bonds under
Section 103 of the Code or cause any of the Bonds to be an "arbitrage bond"
within the meaning of Section 148 of the Code and the Regulations as the same
may be applicable to the Bonds at the time of such action, investment or use.
(b) The Company shall give prompt written notice to the
Issuer, the Trustee and the Credit Facility Trustee of the filing by the Company
of any statement, tax schedule, return or document with the Internal Revenue
Service which discloses that an Event of Taxability shall have occurred and its
receipt of any oral or written advice from the Internal Revenue Service that an
Event of Taxability shall have occurred.
(c) The Company acknowledges that it has examined the
provisions of this Loan Agreement and the certificates executed by the Company
in connection with the issuance of the Bonds relating to compliance with the
Code and shall comply with the covenants, instructions and guidelines contained
herein and therein. The Company's obligation herein and/or therein to make any
rebate payments and to prepare and furnish to the Issuer and the Trustee the
statements and forms described herein and/or therein shall survive payment in
full of the Bonds notwithstanding any provision of this Loan Agreement to the
contrary.
(d) The Company and the Issuer also covenant and agree that
the Company and the Issuer will furnish accurate information necessary to enable
Bond Counsel to make any certifications which might be required under the
Regulations.
(e) Whenever the Issuer shall be required to file, deliver or
execute, or produce any reports, notices of other documents while the Bonds are
outstanding, the Company shall furnish or cause the proper person to furnish in
due time to the Issuer, through the attorney for the Issuer, the completed form
of such report, notice or other required document together with (1) a
certification by the Company or other proper person required to provide
information that such document is accurate, and (2) if requested by the Issuer
or if otherwise required herein or in the Indenture, an opinion of Bond Counsel
addressed to the Issuer that the report or other document is not in violation of
any provision of law or of the documents constituting the complete transcript of
proceedings relating to the issuance of the Bonds and that such report, notice
or other required document meets the legal requirements for such filing,
delivery or execution. In the event of the failure or refusal of
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the Company or other proper person to comply with this provision, the Company
agrees to pay the statement for attorney's fees and administrative time
presented by the Issuer for filing, delivering or executing such report or
documents, such statement to be paid within thirty (30) days after written
notice to the Company by the Issuer.
(f) In order to insure that interest on the Bonds is not and
will not become subject to federal income taxes as a result of failure of the
Bonds to satisfy the requirement of Section 149(e) of the Code, the Company
covenants with the Issuer and the Trustee that it will, on or before the date of
issuance of the Bonds supply to the Issuer and the Trustee all information
required under Internal Revenue Service Form 8038, Information Return for
Private Activity Bond Issues (the "Form 8038"), including without limitation the
following:
(1) the name and address of the Issuer;
(2) the date of issue, the amount of lendable
proceeds of the issue, and the stated interest rate, term and
face amount of each obligation which is part of the issue;
(3) where required, the name of the applicable
elected representative who approved the issue, or a
description of the voter referendum by which the issue was
approved; and
(4) a description of any property to be financed or
refinanced from the proceeds of the Issue.
The Company further covenants that on or before the due date
thereof, it will cause the Form 8038 to be completed, executed and filed with
the appropriate office of the Internal Revenue Service-
Section 7.5 No Prohibited Payments. The Company covenants and
agrees that it will not purchase, nor will it direct the Trustee to purchase,
any Non-Purpose Investment for a price in excess of the Fair Market Value of
such investment. This Section shall apply to all investments made by the Company
and the Trustee under the Indenture, except for investments of moneys in the
Bond Fund in any Bond Year in which earnings on investments in the Bond Fund do
not exceed $100,000.00.
Section 7.6 Permitted Investments; Prohibited Payments.
Reference is made to Section 6.2 of the Indenture, wherein the investments
permitted to be made by the Trustee are set forth. For the purpose of
determining the Fair Market Value of an investment, the following rules shall
apply:
(a) The Fair Market Value of a United States Treasury
obligation purchased directly from the United States Treasury is its purchase
price.
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(b) The purchase price of a certificate of deposit is treated
as its Fair Market Value if the yield on such certificate of deposit is not less
than (i) the yield on reasonably comparable direct obligations of the United
States and (ii) the highest yield that is published or posted by the provider to
be currently available from the provider on reasonably comparable certificates
of deposit offered to the public.
(c) The purchase price of a guaranteed investment contract is
treated as its Fair Market Value on the purchase date if the requirements of
Section 1.148-5(d)(6)(iii) of the Regulations are satisfied.
Any investment not described in Sections 7.6(a), 7.6(b), or
7.6(c) of this Section 7.6 or not of a type traded on an established securities
market, within the meaning of Section 1273 of the Code, shall not be permitted
unless the Trustee receives an opinion of Bond Counsel that such investment will
not adversely affect the tax-exempt status of the Bonds. The Company agrees that
it shall bear the cost of obtaining such opinion and shall not require the
Trustee to make any such investment without said opinion of Bond Counsel.
Section 7.7 Investment in Tax-Exempt Securities.
Notwithstanding anything to the contrary in Section 7.5 or 7.6, the Trustee may
invest moneys under the terms of the Indenture in tax-exempt obligations
described in Section 103(a) of the Code (except for "specified private activity
bonds," as defined Section 57(a)(5)(C) of the Code) without obtaining any
opinion of Bond Counsel, if and to the extent permitted by the Indenture, but
all such investments shall be directed and authorized by the Company.
Section 7.8 Administrative Expenses. The Company shall pay to
or for the account of the Issuer within thirty (30) days after notice thereof
all reasonable costs and expenses incurred by the Issuer in connection with the
financing and administration of the Project, except such as may be paid out of
the proceeds of the Bonds, including, without limitation, the costs of
administering this Loan Agreement and the fees and expenses of the Trustee, the
Credit Facility Trustee, attorneys, consultants and others.
Section 7.9 Indemnity Against Claims.
(a) The Company will pay and discharge and will indemnify and
hold harmless the Issuer and the Trustee from (1) any lien or charge upon
amounts payable hereunder by the Company to the Issuer, and (2) any taxes,
assessments, impositions and other charges in respect of the Project.
(b) If any claim of any such lien or charge upon payments, or
any such taxes, assessments, impositions or other charges, are sought to be
imposed, the Issuer or the Trustee, as the case may be, will give prompt notice
to the Company, and the Company shall have the right and duty to assume, and
shall assume, the defense thereof, with full power to litigate, compromise or
settle the same in its sole discretion.
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Section 7.10 Release and Indemnification. The Company shall at
all times protect and hold the Issuer and its members, officers, employees,
attorneys and agents harmless against any claims or liability resulting from any
loss or damage to property or any injury to or death of any person that may be
occasioned by any cause whatsoever pertaining to the Project or the use thereof,
including without limitation any lease thereof or assignment of its interest in
this Loan Agreement, such indemnification to include reasonable expenses and
attorneys' fees incurred by the Issuer and its members, officers, employees,
attorneys and agents in connection therewith, provided that such indemnity shall
be effective only to the extent of any loss that may be sustained by the Issuer,
its members, officers, employees and agents in excess of the Net Proceeds
received by it or them from any insurance carrier with respect to such loss and
provided further that the benefits of this Section 7. 10 shall not inure to any
person other than the Issuer and its members, officers, employees, attorneys and
agents.
Section 7.11 Additional Information. Until Payment of the
Bonds shall have occurred, the Company shall promptly from time to time deliver
to the Trustee such information regarding the operations, business affairs and
financial condition of the Company as the Trustee may reasonably request. The
Trustee is hereby authorized to deliver a copy of any such financial information
delivered hereunder to any regulatory authority having jurisdiction over the
Trustee and to any other Person as may be required by law. The Issuer and the
Trustee are authorized to provide information concerning the outstanding
principal amount and payment history of, and other information pertaining to,
the Bonds to any agency or regulatory authority of the State requesting such
information.
Section 7.12 Existence, Sale of Assets, Consolidation or
Merger. Unless the Trustee, the Credit Facility Trustee and the Issuer otherwise
consent in writing, until Payment of the Bonds shall have occurred, the Company
will not sell, transfer or otherwise dispose of all or substantially all of its
assets and will not enter into any transaction of merger or consolidation;
provided that the Company may, without violating the agreement contained in this
Section, consolidate with or merge into another legal entity, or permit one or
more legal entities to consolidate with or merge into it, or sell or otherwise
transfer to another legal entity or an individual all or substantially all of
its assets as an entirety and thereafter dissolve, provided (i) that if a Credit
Facility is then in effect, such transaction must be permitted under the
Reimbursement Agreement or the prior written consent of the Credit Facility
Issuer, must be obtained; (ii) that such acquisition, consolidation, merger or
transfer will not affect the tax-exempt status of the interest on the Bonds (and
the Company shall provide the Trustee with an opinion of Bond Counsel to such
effect); (iii) that if the surviving or resulting legal entity or the
transferee, as the case may be, is not the Company or an individual, then such
legal entity shall be a legal entity organized and existing under the laws of
one of the States of the United States of America and shall be qualified to do
business in the State; and (iv) such surviving or resulting entity or
transferee, as the case may be, shall assume all of the obligations of the
Company under the Bond Documents to which the Company is a party, in which event
the Issuer shall release the Company in writing, concurrently with and
contingent upon such acquisition, consolidation, merger or transfer; and
provided further that, prior to such acquisition, consolidation, merger, or
transfer, the Trustee and the Credit Facility Trustee shall be furnished with a
certificate from the chief financial officer of the Company stating that none of
the
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covenants contained in this Agreement will be violated as a result of such
acquisition, consolidation, merger, or transfer.
Section 7.13 Default Certificates. The Company shall deliver
to the Trustee and the Credit Facility Trustee forthwith, upon obtaining
knowledge of any Event of Default hereunder, under the Indenture or the
Reimbursement Agreement, or an event which would constitute such an Event of
Default but for the requirement that notice be given or time elapse or both, a
certificate of the Company specifying the nature and period of existence thereof
and what action the Company proposes to take with respect thereto.
Section 7.14 Observe Laws. The Company shall observe all
applicable laws, regulations and other valid requirements of any regulatory
authority with respect to its operations at the Project.
ARTICLE 8
ASSIGNMENT, LEASING AND SELLING
Section 8.1 Assignment of this Loan Agreement or Lease or Sale
of the Project by the Company. The rights of the Company under this Loan
Agreement may be assigned, and the Project may be leased or sold as a whole or
in part, without the necessity of obtaining the consent of the Issuer, the
Trustee or the Credit Facility Trustee, subject to the following conditions:
(a) no assignment, transfer, sale or lease shall relieve the
Company from primary liability for any of its obligations hereunder, and if any
such assignment, transfer, sale or lease occurs, the Company shall continue to
remain primarily liable for the payments specified herein and for performance
and observance of the other agreements on its part herein provided to be
performed and observed by it, subject to the provisions of the last paragraph of
Section 5.2;
(b) the assignee, lessee or purchaser shall assume the
obligations of the Company hereunder to the extent of the interest assigned,
leased or sold;
(c) the Company shall, within thirty (30) days after the
delivery thereof, furnish or cause to be furnished to the Issuer, to the Trustee
and to the Credit Facility Trustee a true and complete copy of each such
assignment, instrument of transfer, lease or sale agreement, as the case may be,
together with any instrument of assumption;
(d) the Company shall, prior to such assignment, transfer,
sale or lease, deliver to the Trustee and the Credit Facility Trustee an opinion
of Bond Counsel to the effect that such assignment, transfer, sale or lease does
not adversely affect the legality of the Bonds or the exclusion of interest on
the Bonds from gross income for federal income tax purposes; and
(e) if a Credit Facility is in effect, such assignment,
transfer, sale or lease must be permitted under the Reimbursement Agreement or
the Credit Facility Issuer must have given its prior written consent to such
assignment, transfer, sale or lease.
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Section 8.2 Restrictions on Transfer of the Issuer's Rights.
Except for the assignment made pursuant to the Indenture of certain of its
rights under this Loan Agreement, the Issuer will not during the term of this
Loan Agreement sell, assign, transfer or convey any of its interests in this
Loan Agreement except as hereinafter provided in Section 8.3 hereof.
Section 8.3 Assignment by the Issuer. It is understood, agreed
and acknowledged that the Issuer, as security for payment of the principal of
and interest on the Bonds, will grant to the Trustee pursuant to the Indenture,
inter alia, certain of its right, title and interest in and to this Loan
Agreement (reserving certain of its rights, as more particularly described in
the Indenture).
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES
Section 9.1 Events of Default Defined. The term "Event of
Default" shall mean any one or more of the following events:
(a) the failure by the Company to pay when due any payment of
principal of or interest on or other amount payable under Section 5.2(a) of this
Loan Agreement;
(b) the failure of the Issuer to pay when due any payment of
principal of or interest on or other amount payable under the Bonds;
(c) the failure of the Company to perform any of its
obligations under Sections 7.4 hereof;
(d) the occurrence of an "Event of Default" or "event of
default" under any of the other Bond Documents and the expiration of any
applicable notice or cure period;
(e) any representation or warranty of the Company contained in
Section 2.2 hereof, in Article 11 hereof or in any document, instrument or
certificate delivered pursuant hereto or to the Indenture or in connection with
the issuance and sale of the Bonds shall be false, misleading or incomplete in
any material respect on the date as of which made;
(f) failure by the Company to observe and perform any
covenant, condition or agreement on the part of the Company under this Loan
Agreement, other than as referred to in the preceding paragraphs of this Section
9.1, for a period of thirty (30) days after written notice, specifying such
failure and requesting that it be remedied, is given to the Company by the
Issuer, the Credit Facility Trustee or the Trustee, unless the Issuer, the
Credit Facility Trustee and the Trustee shall agree in writing to an extension
of such time prior to its expiration; provided, however, if such default shall
be such that it cannot be corrected within the applicable period, it shall not
constitute an Event of Default if corrective action is instituted by the Company
within the applicable period and diligently pursued until the default is
corrected;
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(g) the commencement against the Company of an involuntary
case under the federal bankruptcy laws, as now constituted or hereafter amended,
or any other applicable federal or state bankruptcy, insolvency or other similar
law, or of any action or proceeding for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Company or for any substantial part of its property, or for the winding-up
or liquidation of its affairs and the continuance of any such case, action, or
proceeding unstayed and in effect for a period of ninety (90) consecutive days;
or
(h) the commencement by the Company of a voluntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or the consent by it to, or its acquiescence in the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of the Company or of any substantial part of its
property, or the making by it of or the consent by it to any assignment for the
benefit of creditors, or the failure of the Company generally to pay its debts
as such debts become due, or the taking of any action by the Company in
furtherance of any of the foregoing.
Section 9.2 Remedies on Default.
(a) If Payment of the Bonds shall not have been made, whenever
any Event of Default referred to in Section 9.1 hereof shall have happened and
shall not have been waived:
(1) The Issuer may, by written notice, declare all
installments of principal repayable pursuant to this Loan
Agreement for the remainder of the term hereof to be
immediately due and payable, whereupon the same, together with
accrued interest thereon as provided for in this Loan
Agreement, shall become immediately due and payable without
presentment, demand, protest or any other notice whatsoever,
all of which are hereby expressly waived by the Company;
provided, however, all such amounts shall automatically be and
become immediately due and payable without notice upon the
occurrence of any event described in Section 9.1(g) or 9.1(h)
hereof, which notice the Company hereby expressly waives.
(2) The Issuer may take whatever other action at law
or in equity may appear necessary or desirable to collect the
amounts payable pursuant to this Loan Agreement then due and
thereafter to become due, or to enforce the performance and
observance of any obligation, agreement or covenant of the
Company under this Loan Agreement or under any of the other
Bond Documents.
(b) In the enforcement of the remedies provided in this
Section 9.2, the Issuer may treat all reasonable expenses of enforcement
including, without limitation, legal, accounting and advertising fees and
expenses, as additional amounts payable by the Company then due and owing, and
the Company agrees to pay such additional amounts upon demand, the amount of
such legal fees to be without regard to any statutory presumption.
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Section 9.3 Application of Amounts Realized in Enforcement of
Remedies. Any amounts collected pursuant to action taken under Section 9.2
hereof shall be paid to the Credit Facility Trustee and applied as set forth in
Article 9 of the Indenture.
Section 9.4 No Remedy Exclusive. No remedy herein conferred
upon or reserved to the Issuer is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Loan Agreement
or now or hereafter existing at law or in equity or by statute. No delay or
omission to exercise any right or power accruing upon the occurrence of an Event
of Default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed expedient.
Section 9.5 Agreement to Pay Attorneys' Fees and Expenses. In
any Event of Default, if the Issuer, the Trustee, the Credit Facility Trustee,
the Credit Facility Issuer or any Bondholder employs attorneys or incurs other
expenses for the collection of amounts payable hereunder or for the enforcement
of the performance or observance of any covenants or agreements on the part of
the Company herein contained, the Company agrees that it will on demand therefor
pay to the Issuer, the Trustee, the Credit Facility Trustee, the Credit Facility
Issuer or such Bondholder the reasonable fees of such attorneys and such other
reasonable expenses so incurred by the Issuer, the Trustee, the Credit Facility
Trustee, the Credit Facility Issuer or such Bondholder, the amount of such fees
of attorneys to be without regard to any statutory presumption.
Section 9.6 Correlative Waivers. If an "Event of Default"
under Section 9. 1 of the Indenture shall be cured or waived and any remedial
action by the Credit Facility Trustee or the Trustee rescinded, any correlative
default under this Loan Agreement shall be deemed to have been cured or waived.
ARTICLE 10
PREPAYMENTS
Section 10.1 Optional Payments.
(a) The Company is hereby granted, and shall have, the option
to prepay the unpaid principal of the Bonds in whole or in part in accordance
with and as set forth in Section 7.1 of the Indenture with respect to the
prepayment of the Bonds; provided, all prepayments shall be made in immediately
available funds and with interest accrued to the date of prepayment and that any
prepayment of the Bonds in part shall be applied to unpaid installments of
principal in inverse order of maturity. Any prepayment pursuant to this
subsection (a) shall be made by the Company taking, or causing the Issuer to
take, the actions required (1) for Payment of the Bonds, in the case of
prepayment of the Bonds in whole, or (2) to effect prepayment of less than all
of the Bonds according to their terms in the case of a partial prepayment of the
Bonds.
(b) In the event of damage, destruction or condemnation of the
Project or any part thereof, the Company may, at its option, pursuant to Section
6.8 hereof and without penalty or
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premium, prepay the Bonds in whole or in part; provided that any such prepayment
shall be made in immediately available funds with the interest accrued to the
date of whole or partial prepayment. Any prepayment pursuant to this subsection
(b) shall be made by the Company taking, or causing the Issuer to take, the
actions required for the full or partial prepayment of the Bond as provided for
in subsection (a) hereof.
(c) To exercise the option granted in subsection (a) or (b) of
this Section 10.1, the Company shall give written notice to the Issuer and the
Trustee which shall specify therein (1) the date of the intended prepayment of
the Bonds, which shall not be less than thirty (30) nor more than sixty (60)
days from the date the notice is mailed and (2) the principal amount of the
Bonds to be prepaid. When given, such notice shall be irrevocable by the Company
unless the Company in such notice states that it is revocable and requests that
the notice of the Trustee to the Bondholders pursuant to Section 7.4 of the
Indenture be conditioned on the deposit of Available Moneys with the Trustee no
later than the redemption date of the Bonds.
Section 10.2 Mandatory Prepayments.
(a) In the event of a Determination of Taxability, the Company
shall, (1) on a date selected by the Company not more than one hundred eighty
(180) days following the receipt by the Trustee of written notice of a
Determination of Taxability, prepay the entire unpaid principal balance of the
Bonds in full. Immediately upon the occurrence of a Determination of Taxability,
the Company shall notify the Issuer, the Credit Facility Trustee and the Trustee
of the date selected for payment pursuant to this Section 10.2
(b) During the Variable Rate Period, in the event any Credit
Facility is not renewed and an Alternate Credit Facility has not been provided
in accordance with Section 6.3 of the Indenture, the Company shall on or before
the Interest Payment Date occurring closest to but not after fifteen (15) days
prior to the expiration date of the then current Credit Facility, prepay the
entire unpaid principal balance of the Bonds in full. The Company shall promptly
notify the Issuer, the Credit Facility Trustee and the Trustee of the date
selected for such payment.
Section 10.3 Other Mandatory Payments. The amounts required to
be applied to the repayment of the Bonds by Section 6.8 hereof shall be applied
by the Company to prepay, together with accrued interest, all or a portion of
the unpaid principal of the Bonds. Such prepayment shall be made by the Company
taking, or causing the Issuer to take, the actions required (a) for Payment of
the Bonds, in the case of prepayment of the Bonds in whole, or (b) to effect the
prepayment of less than all of the Bonds in inverse order of their maturities.
-36-
<PAGE> 41
ARTICLE 11
REBATE PROVISIONS
Section 11.1 Creation of the Rebate Fund.
(a) The Issuer shall create and establish with the Trustee a
special trust fund in the name of the Issuer to be designated by the Trustee and
which is referred to herein as the Rebate Fund (the "Rebate Fund"), which shall
be held, invested, expended and accounted for in accordance with this Loan
Agreement and the Indenture.
(b) Moneys in the Rebate Fund shall be held in trust by the
Trustee and, subject to Section 7.4 hereof, shall be held for the benefit of the
United States as contemplated under the provisions of this Loan Agreement and
shall not be considered to be held for the benefit of the Issuer, the Company,
the Trustee or the owners of the Bonds.
Section 11.2 Determinations, Notices and Records of Rebate
Amount.
(a) The Company shall determine the Rebate Amount or cause the
same to be determined in the manner provided in Section 148(f) of the Code and
the Regulations. The Company shall provide the Trustee and the Issuer with a
written copy of each such determination when made; this covenant shall survive
the defeasance of any Bonds pursuant to Article 14 of the Indenture. The Company
shall retain records of each such determination until a date six (6) years after
the retirement of the last Bond. The Company shall make such records available
for review by the Issuer and the Trustee upon reasonable notice.
(b) The Company shall make payments to the Trustee for deposit
in the Rebate Fund in such amounts and at such times as are required by the
Code, the Regulations and this Loan Agreement so that the Trustee will have
sufficient amounts in the Rebate Fund to pay the Rebate Amount to the United
States when required by the Code and the Regulations. In the event that the
amount in the Rebate Fund shall be insufficient to make the necessary payment to
the United States of the Rebate Amount when required by the Code and the
Regulations, the Company shall immediately pay to the Trustee for deposit into
the Rebate Fund such insufficiency. The Issuer and the Trustee have no
responsibility for calculating, receiving, holding or paying the Rebate Amount
nor for compelling the Company to calculate or pay the Rebate Amount.
(c) The Company shall furnish the Trustee with all information
and forms necessary to cause the Rebate Amount to be properly and timely paid to
the United States in accordance with the Code and the Regulations.
Section 11.3 Investment Earnings on Bond Funds. For the
purpose of determining the amount to be paid into the Rebate Fund hereunder, the
Company shall not take into account amounts earned on the investment of moneys
in the Bond Fund during a Bond Year (or earnings attributable to the
reinvestment of such amounts) if such earnings during the Bond Year in question
do not exceed One Hundred Thousand Dollars ($100,000). Pursuant to Section
148-3(k) of the
-37-
<PAGE> 42
Regulations, an issue with an average annual debt service that is not in excess
of $2,500,000 may be treated as satisfying this $100,000 limitation.
Section 11.4 Filing of Required Rebate. Each payment of the
Rebate Amount shall be filed by the Company with the Internal Revenue Service
Center, Philadelphia, Pennsylvania 19255 and shall be accompanied by (i) a copy
of Form 8038-T, and (ii) a statement summarizing the Company's determination of
the amount of the Rebate Amount so paid. The Company shall provide the Issuer
and the Trustee with copies of all documents and reports required by this
Section and filed with the Internal Revenue Service.
ARTICLE 12
MISCELLANEOUS
Section 12.1 References to the Bonds Ineffective After Bonds
Paid. Upon Payment of the Bonds, all references in this Loan Agreement to the
Bonds shall be ineffective and the Issuer and any owner of the Bonds shall not
thereafter have any rights hereunder, excepting reporting and payment of rebate
payments under Sections 7.4, 11.2 and 11.4 hereof and rights of the Issuer to
indemnification and payment of expenses contained, without limitation, in
Sections 7.8, 7.9 and 7.10 hereof.
Section 12.2 No Implied Waiver. In the event any agreement
contained in this Loan Agreement should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder. Neither any failure nor any delay on the part of the Trustee to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof, or the exercise of any
other right, power or privilege.
Section 12.3 Issuer Representative. Whenever under the
provisions of this Loan Agreement the approval of the Issuer is required or the
Issuer is required to take some action at the request of the Company, such
approval shall be made or such action shall be taken by the Issuer
Representative; and the Company, the Trustee and the Bondholders shall be
authorized to rely on any such approval or action.
Section 12.4 Company Representative. Whenever under the
provisions of this Loan Agreement the approval of the Company is required or the
Company is required to take some action at the request of the Issuer, such
approval shall be made or such action shall be taken by the Company
Representative; and the Issuer, the Trustee and the Bondholders shall be
authorized to act on any such approval or action.
Section 12.5 Notices.
(a) All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed given when delivered
by hand delivery, sent via overnight
-38-
<PAGE> 43
courier service or mailed by first class, postage prepaid, registered or
certified mail, addressed as follows:
(1) if to the Issuer, to Board of County
Commissioners; Palm Beach County; 301 N. Olive Avenue, West
Palm Beach, Florida 33401 (Attention:
Chairman);
(2) if to the Company, to Palm Beach Bedding Company;
1016 Clare Avenue, West Palm Beach, Florida 33401 (Attention:
Max C. Harper, Vice President and Chief Financial Officer);
(3) if to the Trustee, to First Union National Bank
of Florida; 200 S. Biscayne Boulevard, 14th Floor; Miami,
Florida 33131, Attention: Corporate Trust Group;
(4) if to the Credit Facility Trustee, to Branch
Banking and Trust Company; 223 West Nash Street; Wilson, North
Carolina 27893 (Attention: Corporate Trust Department); and
(5) if to the Bank, to First Union National Bank of
Florida; 200 S. Biscayne Boulevard, 14th Floor; Miami, Florida
33131, Attention: International Operations; and
(6) if to any successor Trustee, successor Credit
Facility Trustee, successor Credit Facility Issuer or
Co-Trustee, addressed to it at its principal corporate trust
office (Attention: Corporate Trust Department).
(b) The Issuer, the Company, the Credit Facility Trustee, the
Credit Facility Issuer or the Trustee may, by notice given hereunder, designate
from time to time any further or different addresses to which subsequent
notices, certificates or other communications shall be sent.
Section 12.6 If Payment or Performance Date Is Other Than a
Business Day. If the specified or last date for the making of any payment, the
performance of any act or the exercising of any right, as provided in this Loan
Agreement, shall be a day other than a Business Day, such payment may be made or
act performed or right exercised on the next succeeding Business Day; provided
that interest shall accrue during any such period during which payment shall not
occur.
Section 12.7 Binding Effect. This Loan Agreement shall inure
to the benefit of and shall be binding upon the Issuer, the Company and their
respective successors and assigns, subject to the provisions of Sections 7.12,
8.1, 8.2 and 8.3 hereof.
Section 12.8 Severability. In the event any provision of this
Loan Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof or thereof.
-39-
<PAGE> 44
Section 12.9 Amendments, Changes and Modifications. Subsequent
to the issuance of the Bonds and prior to Payment of the Bonds, this Loan
Agreement and the Indenture may not be effectively amended, changed, modified,
altered or terminated except in accordance with the Indenture.
Section 12.10 Execution in Counterparts. This Loan Agreement
may be executed in several counterparts, each of which shall be an original and
all of which shall constitute but one and the same instrument, and no one
counterpart of which need be executed by all parties.
Section 12.11 Applicable Law. This Loan Agreement shall be
governed by and construed in accordance with the laws of the State.
Section 12.12 No Charge Against Credit of Issuer. No provision
hereof shall be construed to impose a charge against the general credit or
taxing power of the Issuer or any personal or pecuniary liability upon any
member, official, employee or agent of the Issuer.
Section 12.13 Issuer Not Liable. Notwithstanding any other
provision of this Loan Agreement (a) the Issuer shall not be liable to the
Company, the Trustee, the Credit Facility Trustee, any Bondholder or any other
Person for any failure of the Issuer to take action under this Loan Agreement,
and (b) neither the Issuer nor any officer or member of the Issuer nor any other
official, employee, attorney or agent of the Issuer shall be liable to the
Company, the Trustee, the Credit Facility Trustee, any Bondholder or any other
Person for any action taken by the Issuer or by any of its officers, attorney,
servants, agents or employees or for any failure to take action under this Loan
Agreement or the Indenture. In acting under this Loan Agreement, or in
refraining from acting under this Loan Agreement, the Issuer may conclusively
rely on the advice of its counsel.
Section 12.14 Expenses. The Company agrees to pay all
reasonable fees and expenses incurred in connection with the preparation,
execution, delivery, modification, waiver, and amendment of this Loan Agreement,
the other Bond Documents and related documents, and the fees and expenses of
Bond Counsel, counsel for the Issuer, counsel for the Trustee and any counsel
for any Bondholder. The Company also agrees to pay to the Trustee, as and when
the same become due, its reasonable fees for services rendered and its expenses
incurred as Trustee, including the reasonable fees of its counsel, and such
other amounts as the Company herein assumes or agrees to pay, including any
costs or expenses necessary to cancel and discharge the Indenture. The Company
also agrees to pay all expenses incurred by the Trustee or the Issuer in
collection of any indebtedness incurred hereunder in the event of default by the
Company, including reasonable attorneys fees, provided that the amount of any
legal fees so incurred shall be without regard to any statutory presumption.
Section 12.15 Amounts Remaining with the Trustee. Any amounts
remaining in the Bond Fund, the Project Fund or otherwise in trust with the
Trustee under the Indenture or this Loan Agreement shall, after Payment of the
Bonds and all Administrative Expenses in accordance with this Loan Agreement, be
disbursed by the Trustee in accordance with the provisions of the Indenture or
otherwise as may be required by law.
-40-
<PAGE> 45
Section 12.16 References to the Credit Facility Issuer, Credit
Facility and Credit Facility Trustee. If the Credit Facility is not in effect at
any time, all references herein to the Credit Facility Issuer, the Credit
Facility and the Credit Facility Trustee shall be deemed ineffective during such
time.
IN WITNESS WHEREOF, the Issuer and the Company have caused
this Loan Agreement to be executed in their respective legal names by their duly
authorized representatives as of the date first above written.
PALM BEACH COUNTY, FLORIDA
[OFFICIAL SEAL]
[PALM BEACH FLORIDA]
By: /s/
-------------------------------------
Chair of its Board of County
Commissioners
ATTEST:
By: /s/
-----------------------------
Clerk of its Board of County
Commissioners
JOHN W. DAME
CHIEF DEPUTY CLERK
PALM BEACH BEDDING COMPANY
(Corporate Seal)
By: /s/
-------------------------------------
President
ATTEST:
By /s/
-----------------------------
Secretary APPROVED AS TO FORM
AND LEGAL SUFFICIENCY
By: /s/
-------------------------------------
County Attorney
-41-
<PAGE> 46
EXHIBIT A
Description of Project: Project Budget
A. Project Purpose
The Project consists of the acquisition, construction and
installation of a manufacturing facility, consisting of the demolition of two
existing buildings, the construction of a building containing approximately
225,000 square feet on a site containing approximately 15.68 acres of land, and
the acquisition and installation of related machinery, furniture, fixtures and
equipment, to be located in the unincorporated area of Palm Beach County,
Florida, at 3774 Interstate Park Road North, Riviera Beach, Florida 33404, and
to be owned and operated by the Company and used by the Company to manufacture
mattresses and boxsprings.
B. Components of Project
The components of the Project and the Company budget therefor
are as follows:
<TABLE>
<CAPTION>
Description of Capital
Project Components Cost (Est'd.)
------------------ -------------
<S> <C>
Land $1,051,000
Equipment Purchased Prior to 9/8/095 804,669
----------
Other Costs of Project $1,855,669
Project Equipment Purchased 9/8-12/31/95 59,192
Project Equipment Purchased 1/1-4/1/96 106,442
Building 5,775,537
Projected Equipment Purchases 4/1/96 to 4/1/99 1,227,696
Company Legal Expenses 20,000
Office Furniture 125,000
Impact Fees 80,989
Consulting 20,000
Capitalized Interest 191,250
----------
Qualified Costs of Project $7,606,106
TOTAL CAPITAL COSTS $9,461,775
OF PROJECT ==========
</TABLE>
A-1-
<PAGE> 47
C. Computation of Loan Amount
<TABLE>
<CAPTION>
<S> <C> <C>
Portion of Total Capital Costs of Project to
be Financed with Bond Proceeds $7,606,106
Estimated Qualified Bond Issuance Costs 144,822
Estimated Letter of Credit Fees 30,250
Estimated Investment Earnings on
Project Fund (131,178)
---------
LOAN AMOUNT $7,650,000
==========
</TABLE>
A-2-
<PAGE> 1
EXHIBIT 10.23
TRUST INDENTURE
--------------------------------------------
PALM BEACH COUNTY, FLORIDA
FIRST UNION NATIONAL BANK OF FLORIDA,
as Trustee
and
BRANCH BANKING AND TRUST COMPANY,
as Credit Facility Trustee
--------------------------------------------
securing the
$7,650,000
PALM BEACH COUNTY, FLORIDA
VARIABLE RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BONDS
(PALM BEACH BEDDING COMPANY PROJECT),
SERIES 1996
--------------------------------------------
DATED AS OF APRIL 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION.................................................... 5
Section 1.1 Definitions............................................................ 5
Section 1.2 Rules of Construction.................................................. 16
ARTICLE 2
THE BONDS................................................................................ 16
Section 2.1 Amount, Terms, and Issuance of the Bonds............................... 16
Section 2.2 Designation. Denominations, Maturity Date and Interest Rates of the
Bonds.................................................................. 17
Section 2.3 Optional Tender Provisions of the Bonds................................ 21
Section 2.4 Registered Bonds Required: Bond Registrar and Bond Register............ 22
Section 2.5 Transfer and Exchange.................................................. 22
Section 2.6 Execution.............................................................. 23
Section 2.7 Authentication; Authenticating Agent................................... 23
Section 2.8 Payment of Principal and Interest; Interest Rights Preserved........... 24
Section 2.9 Persons Deemed Owners.................................................. 25
Section 2.10 Mutilated, Destroyed, Lost, Stolen or Undelivered Bonds................ 25
Section 2.11 Temporary Bonds........................................................ 26
Section 2.12 Cancellation of Surrendered Bonds...................................... 26
Section 2.13 Conditions of Issuance................................................. 26
Section 2.14 Book Entry............................................................. 28
ARTICLE 3
PURCHASE AND REMARKETING OF TENDERED BONDS............................................... 29
Section 3.1 Remarketing of Tendered Bonds.......................................... 29
Section 3.2 Purchase of Bonds Delivered to the Tender Agent........................ 30
Section 3.3 Delivery of Purchased Bonds............................................ 32
Section 3.4 Delivery of the Proceeds of the Sale of Remarketed Bonds............... 32
Section 3.5 No Remarketing After Certain Events.................................... 33
ARTICLE 4
APPLICATION OF BOND PROCEEDS; PROJECT FUND............................................... 33
Section 4.1 Application of Bond Proceeds........................................... 33
Section 4.2 Creation of and Deposits to the Project Fund........................... 33
Section 4.3 Payments from the Project Fund......................................... 34
Section 4.4 Trustee May Rely on Requisitions....................................... 34
Section 4.5 Completion Date........................................................ 34
Section 4.6 Transfers to the Bond Fund............................................. 34
Section 4.7 Trustee's Records...................................................... 35
Section 4.8 Disposition of Balance in Project Fund................................. 35
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5
REVENUES AND APPLICATION THEREOF......................................................... 35
Section 5.1 Revenues to be Paid Over to Trustee.................................... 35
Section 5.2 The Bond Fund.......................................................... 35
Section 5.3 Revenues to Be Held for All Bondholders; Certain Exceptions............ 37
Section 5.4 Rebate Fund............................................................ 37
ARTICLE 6
DEPOSITARIES OF MONEYS; SECURITY FOR DEPOSITS AND INVESTMENT
OF FUNDS................................................................................. 38
Section 6.1 Security for Deposits.................................................. 38
Section 6.2 Investment of Moneys................................................... 38
Section 6.3 The Credit Facility.................................................... 39
ARTICLE 7
REDEMPTION OR PURCHASE OF THE BONDS...................................................... 42
Section 7.1 Redemption or Purchase Dates and Prices................................ 42
Section 7.2 Company to Direct Optional Redemption.................................. 44
Section 7.3 Selection of Bonds to be Called for Redemption......................... 44
Section 7.4 Notice of Redemption or Purchase....................................... 44
Section 7.5 Bonds Redeemed or Purchased in Part.................................... 45
ARTICLE 8
PARTICULAR COVENANTS AND PROVISIONS...................................................... 45
Section 8.1 Covenant to Pay the Bonds; Bonds Limited Obligations of the
Issuer................................................................. 45
Section 8.2 Covenants to Perform Obligations Under this Indenture.................. 46
Section 8.3 Covenant to Perform Obligations Under the Loan Agreement............... 46
Section 8.4 Trustee May Enforce the Issuer's Rights Under the Loan
Agreement.............................................................. 46
Section 8.5 Covenant Against Arbitrage............................................. 47
Section 8.6 Inspection of the Bond Register........................................ 47
Section 8.7 Priority of Pledge and Security Interest............................... 47
Section 8.8 Maintenance of Insurance; Payment of Taxes, Charges etc................ 47
Section 8.9 Maintenance and Repair................................................. 47
Section 8.10 Insurance and Condemnation Proceeds.................................... 48
ARTICLE 9
DEFAULT AND REMEDIES..................................................................... 48
Section 9.1 Defaults............................................................... 48
Section 9.2 Acceleration and Annulment Thereof..................................... 49
Section 9.3 Other Remedies......................................................... 50
Section 9.4 Legal Proceedings by the Credit Facility Trustee....................... 50
Section 9.5 Discontinuance of Proceedings by the Credit Facility Trustee........... 50
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 9.6 Credit Facility Issuer or Bondholders May Direct Proceedings........... 50
Section 9.7 Limitations on Actions by the Bondholders.............................. 51
Section 9.8 Credit Facility Trustee May Enforce Rights Without Possession of the
Bonds.................................................................. 51
Section 9.9 Remedies Not Exclusive................................................. 52
Section 9.10 Delays and Omissions Not to Impair Rights.............................. 52
Section 9.11 Application of Moneys in the Event of Default.......................... 52
Section 9.12 Credit Facility Trustee and Bondholders Entitled to All Remedies
Under the Act.......................................................... 52
Section 9.13 Credit Facility Trustee May File Claim in Bankruptcy................... 53
Section 9.14 Receiver............................................................... 53
ARTICLE 10
CONCERNING THE TRUSTEE................................................................... 54
Section 10.1 Acceptance of the Trusts............................................... 54
Section 10.2 Acceptance of Trusts by Credit Facility Trustee........................ 55
Section 10.3 Trustee or Credit Facility Trustee to Give Notice...................... 56
Section 10.4 Trustee and The Credit Facility Trustee Entitled to Indemnity.......... 57
Section 10.5 Trustee nor Credit Facility Trustee Responsible for Insurance, Taxes,
Execution of Indenture, Acts of Issuer or Application of Moneys
Applied in Accordance with Indenture................................... 58
Section 10.6 Compensation........................................................... 59
Section 10.7 Trustee to Preserve Records............................................ 59
Section 10.8 Trustee or Credit Facility Trustee May Be a Bondholder................. 59
Section 10.9 Trustee and Credit Facility Trustee Not Responsible for Recitals....... 59
Section 10.10 No Responsibility for Recording or Filing.............................. 59
Section 10.11 Trustee and Credit Facility Trustee May Require Information............ 60
Section 10.12 Trustee and Credit Facility Trustee May Rely on Certificates........... 60
Section 10.13 Trustee or Credit Facility Trustee Bond................................ 60
Section 10.14 Segregation of Funds; Interests........................................ 60
Section 10.15 Qualification of the Trustee and the Credit Facility Trustee........... 60
Section 10.16 Resignation and Removal of the Trustee or Credit Facility Trustee...... 61
Section 10.17 Successor Trustee or Credit Facility Trust............................. 62
Section 10.18 Co-Trustee............................................................. 63
Section 10.19 Notice to Moody's or S&P............................................... 64
ARTICLE 11
EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS
AND PROOF OF OWNERSHIP OF THE BONDS...................................................... 64
Section 11.1 Execution of Instruments by the Bondholders and Proof of Ownership
of the Bonds........................................................... 64
Section 11.2 Preservation of Information............................................ 65
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 12
THE REMARKETING AGENT; THE
TENDER AGENT; THE PLACEMENT AGENT........................................................ 65
Section 12.1 The Remarketing Agent.................................................. 65
Section 12.2 The Tender Agent....................................................... 66
Section 12.3 The Placement Agent.................................................... 66
Section 12.4 Notices................................................................ 67
ARTICLE 13
AMENDMENTS AND SUPPLEMENTS............................................................... 67
Section 13.1 Amendments and Supplements Without the Bondholders' Consent............ 67
Section 13.2 Amendments With the Bondholders' and the Credit Facility Issuer's
Consent................................................................ 68
Section 13.3 Supplemental Indentures Affecting the Rights of the Credit Facility
Issuer................................................................. 69
Section 13.4 Amendment of the Loan Agreement........................................ 69
Section 13.5 Amendment of the Loan Agreement Requiring the Consent of the
Credit Facility Issue.................................................. 70
Section 13.6 Amendment of the Credit Facility....................................... 70
Section 13.7 Trustee and the Credit Facility Trustee Authorized to Join in
Amendments and Supplements: Reliance on Counsel........................ 70
ARTICLE 14
DEFEASANCE; OTHER PAYMENTS............................................................... 71
Section 14.1 Defeasance............................................................. 71
Section 14.2 Deposit of Funds for Payment of the Bonds.............................. 72
Section 14.3 Effect of Purchase of the Bonds........................................ 73
ARTICLE 15
MISCELLANEOUS PROVISIONS................................................................. 73
Section 15.1 Covenants of the Issuer to Bind its Successors......................... 73
Section 15.2 Notices................................................................ 73
Section 15.3 Trustee as the Paying Agent and the Bond Registrar..................... 74
Section 15.4 Rights Under this Indenture............................................ 74
Section 15.5 Form of Certificates and Opinions...................................... 74
Section 15.6 Severability........................................................... 75
Section 15.7 Covenants of Issuer Not Covenants of Officials Individually............ 75
Section 15.8 State Law Governs...................................................... 75
Section 15.9 Payments Due on Days Other Than Business Days.......................... 75
Section 15.10 Execution in Counterparts.............................................. 75
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
EXHIBIT A Notice of Conversion........................................................... A-1
EXHIBIT B Book Entry Agreement .......................................................... B-1
EXHIBIT C Form of Bond................................................................... C-1
Attachment C-1 Form of Bondholder's Optional Retention Notice C-16
Attachment C-2 Form of Bondholder's Optional Tender Notice C-18
EXHIBIT D Requisition and Certificate ................................................... D-1
</TABLE>
v
<PAGE> 7
- -------------------------------------------------------------------------------
TRUST INDENTURE
- -------------------------------------------------------------------------------
This TRUST INDENTURE, dated as of April 1, 1996, among PALM
BEACH COUNTY, FLORIDA, a political subdivision under the laws of the State of
Florida (the "Issuer"), FIRST UNION NATIONAL BANK OF FLORIDA, a national banking
association, having a corporate trust office in Miami, Florida, as Trustee (the
"Trustee"), and BRANCH BANKING AND TRUST COMPANY, a North Carolina banking
institution, having its principal office in Wilson, North Carolina, as Credit
Facility Trustee (in its capacity as Credit Facility Trustee to be hereinafter
referred to as the "Credit Facility Trustee").
W I T N E S S E T H:
WHEREAS, the Issuer is a political subdivision of the State of
Florida (the "State"), authorized under Chapter 159, Part H, Florida Statutes,
as amended (the "Act"), to finance the acquisition, construction,
reconstruction, improvement, rehabilitation, renovation, expansion and
enlargement, or additions to, furnishing and equipping of any capital project
for any "manufacturing plant" (as defined in the Act), including land, rights in
land, buildings and other structures, machinery, equipment, appurtenances and
facilities incidental thereto, and other improvements necessary or convenient
therefor, and to obtain funds to finance the cost thereof by the issuance of its
revenue bonds, for the purposes of enhancing and expanding the agriculture,
tourism, urban development, historic preservation, education and health care
industries, among others, enhancing other economic activity in the State by
attracting manufacturing development, business enterprise management and other
activities conducive to economic promotion, providing a stronger, more balanced
and stable economy in the State, improving the prosperity and welfare of the
State and its inhabitants, promoting and fostering the economic growth and
development of the Issuer and the State, increasing purchasing power and
opportunities for gainful employment, advancing and improving the economic
prosperity of the State and its inhabitants, fostering the industrial and
business development of the Issuer, improving education, living conditions and
health care, promoting the preservation of historic structures, the
rehabilitation of enterprise zones, improved transportation, effective and
efficient pollution control and the advancement of education and science and
research in the State, and otherwise providing for and contributing to the
health, safety and welfare of the people of the State, and the Issuer is further
authorized by the Act to pledge and assign as security for the payment of the
principal of and interest on such bonds any revenues derived by the Issuer
pursuant to financing agreements with respect to such projects; and
WHEREAS, Palm Beach Bedding Company, a Florida corporation
(the "Company"), has requested that the Issuer finance, pursuant to such
authority and in accordance with the Act, the construction of a 225,000 square
foot manufacturing facility and appurtenances in the unincorporated area of the
Issuer (the "Project"), to be owned and operated by the Company; and
WHEREAS, the Issuer and the Company will enter into a Loan
Agreement, dated as of April 1, 1996 (the "Loan Agreement"), pursuant to which
the Company will agree to make payments sufficient to pay the principal and
purchase price of, and redemption premium (if any) and
<PAGE> 8
interest on, the Bonds as the same become due and payable and to pay
administrative expenses in connection with the Bonds; and
WHEREAS, it has been determined that the estimated amount
necessary to finance the cost of the construction and equipping of the Project,
including necessary expenses incidental to the issuance of the Bonds, will
require the issuance, sale and delivery of Bonds in the aggregate principal
amount of $7,650,000 as hereinafter provided; and
WHEREAS, the Company and First Union National Bank of Florida,
a national banking association (the "Bank"), have entered into a letter of
Credit and Reimbursement Agreement, dated as of April 1, 1996 (the
"Reimbursement Agreement"), pursuant to which the Bank has agreed to issue its
irrevocable direct pay letter of credit, dated the date of the delivery of the
Bonds (the "Letter of Credit"), in favor of the Credit Facility Trustee, for the
account of the Company obligating the Bank to pay the Credit Facility Trustee
upon draws made by the Credit Facility Trustee in accordance with the terms
thereof, up to (i) an amount equal to the aggregate principal amount of the
Bonds then Outstanding (hereinafter defined) to be used by the Credit Facility
Trustee (a) to pay the principal of such Bonds whether at maturity, upon
redemption, acceleration or otherwise, and (b) to pay the portion of the
purchase price equal to the principal amount of any such Bonds delivered to the
Tender Agent (hereinafter defined) for purchase plus (ii) an amount equal to up
to one hundred twenty (120) days accrued interest on the Bonds at an assumed
interest rate of twelve percent (12%) per annum, to be used by the Credit
Facility Trustee to pay accrued interest on the Bonds and to pay the portion of
the purchase price of tendered Bonds equal to the accrued interest, if any, on
any such Bonds, and pursuant to which the Company has agreed to reimburse the
Bank for all amounts drawn by the Credit Facility Trustee under the Letter of
Credit, together with interest on all such amounts and to pay to the Bank
certain fees and expenses for issuing the Letter of Credit; and
WHEREAS, for the purpose of providing security for the
obligations of the Company to the Bank under the Reimbursement Agreement, the
Company has entered into a Mortgage and Security Agreement, dated as of April 1,
1996 (the "Mortgage") constituting a valid first lien on the Mortgaged Property
(as defined in the Mortgage), together with all improvements and appurtenances
presently located or hereafter to be constructed thereon; and
WHEREAS, as security for the payment of the Bonds, the Issuer
has agreed to assign and pledge to the Trustee and the Credit Facility Trustee,
as their interests may appear, all right, title and interest of the Issuer in
(a) the Loan Agreement (except certain rights reserved by the Issuer under the
terms of this Indenture), (b) all money and securities at any time on deposit
in, in transit to or credited to any account or Fund created hereunder,
including without limitation the Project Fund and the Bond Fund, but excluding
the Rebate Fund; and (c) the Revenues (as hereinafter defined); and
WHEREAS, all things necessary to make the Bonds, when
authenticated by the Trustee and issued and delivered as provided in this
Indenture, the legal, valid, binding and enforceable limited obligations of the
Issuer, according to the import thereof, and to create a valid assignment and
pledge of the Pledged Revenues (as hereinafter defined) to the payment of the
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principal of, and the redemption premium (if any) and the interest on, the Bonds
and a valid assignment of certain of the rights, title and interest of the
Issuer in the Loan Agreement, have been done and performed, and the execution,
issuance and delivery of the Bonds, subject to the terms hereof, have in all
respects been authorized; and
WHEREAS, the Trustee and the Credit Facility Trustee, as their
interests may appear, have accepted the trusts created by this Indenture and in
evidence thereof have joined in the execution hereof, and
WHEREAS, the Issuer has determined that the Bonds to be issued
hereunder shall be substantially in the form contained in Exhibit C, with such
variations, omissions and insertions as are required or permitted by this
Indenture; and
NOW, THEREFORE, in consideration of the premises, of the
acceptance by the Trustee and the Credit Facility Trustee of the trusts hereby
created, and of the purchase and acceptance of the Bonds by the Bondholders, and
also for and in consideration of the sum of one dollar to the Issuer in hand
paid by the Trustee and the Credit Facility Trustee at or before the execution
and delivery of this Indenture, the receipt of which is hereby acknowledged, and
for the purpose of fixing and declaring the terms and conditions upon which the
Bonds are to be issued, delivered, secured and accepted by the Bondholders and
any and all other persons who shall from time to time be or become owners
thereof, and in order to secure the payment of the Bonds at any time issued and
outstanding hereunder and the interest thereon according to their tenor, purport
and effect, and in order to secure the performance and observance of all the
covenants, agreements and conditions therein and herein contained;
THE ISSUER DOES HEREBY PLEDGE AND ASSIGN, and grant a security
interest unto the Trustee and its successors and assigns and unto the Credit
Facility Trustee and its successors and assigns, as their interests may appear,
forever, to have and to hold, for the benefit of the owners of the Bonds all
right, title and interest of the Issuer presently owned or hereafter acquired in
and to the following (collectively, the "Trust Estate"):
(a) The Loan Agreement (as the same may from time to time be
supplemented or amended), including, but not limited to, all payments of
principal and interest due and to become due under the Loan Agreement whether
made at their respective due dates or as prepayments permitted or required by
the Loan Agreement together with full power and authority, in the name of the
Issuer or otherwise, to demand, receive, enforce, collect or receipt for any or
all of the foregoing, to endorse or execute any checks or other instruments or
orders, to file any claims and to take any action which the Trustee or the
Credit Facility Trustee may deem necessary or advisable in connection therewith,
and the Issuer hereby irrevocably appoints the Trustee and the Credit Facility
Trustee as attorneys-in-fact of the Issuer for such purposes, which appointment
is coupled with an interest and is irrevocable; provided, however, that the
Issuer shall continue to have all the rights, together with the Trustee,
contained in the following sections of the Loan Agreement:
(1) Section 6.5 (pertaining to the Issuer's non-exclusive
right to receive payment for certain advances);
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(2) Section 7.1 (pertaining to the Issuer's right of access to
the Project and certain records);
(3) Section 7.3 (pertaining to the Issuer's right to receive
certain information);
(4) Section 7.8 (pertaining to the Issuer's right to receive
payment for certain costs and expenses);
(5) Section 7.9 (pertaining to the Issuer's right to certain
indemnities);
(6) Section 7.10 (pertaining to the Issuer's right to release
and indemnification);
(7) Section 7.11 (pertaining to the Issuer's right to provide
certain information);
(8) Sections 7.12 and 8.1 (pertaining to the Issuer's right to
consent or withhold consent to assignment of rights of the Company
under the Loan Agreement or lease or sale of the Project);
(9) Sections 9.3 and 9.5 (pertaining to the Issuer's right to
reimbursement of expenses incurred upon a default);
(10) Sections 10.1(c), 10.2 and 10.3 (pertaining to the
Issuer's right to notice of prepayments and rights upon the occurrence
of certain events);
(11) Section 12.5 (pertaining to the Issuer's right to receive
notices);
(12) Section 12.13 (pertaining to the limitations on the
liability of the Issuer); and
(13) Section 12.14 (pertaining to the Issuer's right to
receive payment for certain costs and expenses).
(b) All money and securities at any time on deposit in, in
transit to or credited to any account or Fund created hereunder, including
without limitation the Project Fund and the Bond Fund, but excluding the Rebate
Fund; and
(c) the Revenues (as hereinafter defined);
and it is so mutually agreed and covenanted by and between the parties hereto
for the equal and proportionate benefit and security of the Bondholders without
preference, priority or distinction as to lien or otherwise, except as
hereinafter provided, of any one Bond over any other Bond, by reason of priority
in the issue, sale or negotiation thereof or otherwise, for the benefit of the
Bondholders and as security for the fulfillment of the obligations of the Issuer
hereunder;
TO HAVE AND TO HOLD the same forever, subject, however, to the
exceptions, reservations and matters therein and herein recited but IN TRUST,
nevertheless, for the benefit and
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security of the owners from time to time of the Bonds delivered hereunder and
issued by the Issuer and outstanding or, to the extent set forth herein, for the
benefit of the Credit Facility Issuer, so long as a Credit Facility is in place
in respect of the Bonds;
PROVIDED, HOWEVER, that if, after the right, title and
interest of the Trustee and the Credit Facility Trustee in and to the Trust
Estate pledged and assigned to them under this Indenture shall have ceased,
terminated and become void in accordance with Article 14 hereof, the principal
of and interest on the Bonds and any other obligations arising hereunder shall
have been paid to the Bondholders or shall have been paid by the Company
pursuant to Article 14 hereof, then, this Indenture and all covenants,
agreements and other obligations of the Issuer hereunder shall cease, terminate
and be void, and thereupon the Trustee and the Credit Facility Trustee shall
cancel and discharge this Indenture and execute and deliver to the Issuer and
the Company such instruments in writing as shall be required to evidence the
discharge hereof, otherwise, this Indenture shall be and remain in full force
and effect.
THIS INDENTURE FURTHER WITNESSETH, and it is expressly
declared, that the Bonds issued and secured hereunder are to be issued and
delivered and the Trust Estate and other revenues and funds herein pledged and
assigned are to be dealt with and disposed of under, upon and subject to the
terms, conditions, stipulations, covenants, agreements, trusts, uses and
purposes as hereinafter expressed, and the Issuer has agreed and covenanted, and
does hereby agree and covenant, with the Trustee, the Credit Facility Trustee
and with the owners of said Bonds, as follows, that is to say:
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions. All words and terms defined in
Article 1 of the Loan Agreement shall have the same meanings in this Indenture,
unless otherwise specifically defined herein. In addition, the following words
and terms as used in this Indenture shall have the following meanings unless
some other meaning is plainly intended:
"Act" shall mean Part II, Chapter 159, Florida Statutes, and
other applicable provisions of law.
"Alternate Credit Facility" shall mean an irrevocable direct
pay letter of credit, insurance policy or similar credit enhancement or support
facility for the benefit of the Credit Facility Trustee, the terms of which
Alternate Credit Facility shall, in all respects material to the Bondholders, be
the same (except for the term of such Alternate Credit Facility) as the Credit
Facility that is replaced by such Alternate Credit Facility as set forth in
Section 6.3 hereof.
"Authenticating Agent" shall mean the Trustee and any agent,
designated and appointed pursuant to Section 2.7 hereof.
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"Authorized Denominations" shall mean (i) during such time as
the Bonds bear interest at a Variable Rate, $100,000 or any integral multiple of
$5,000 in excess thereof, and (ii) during such time as the Bonds bear interest
at the Fixed Rate, $5,000 or any integral multiple thereof.
"Available Moneys" shall mean:
(a) with respect to any payment date occurring during any
period that the Bonds are entitled to the benefit of a Credit Facility,
(1) any moneys which have been paid to the Trustee by
the Company (including moneys transferred from the Project
Fund pursuant to Section 4.2 hereof and which have been on
deposit with the Trustee for at least three hundred
sixty-seven (367) days during and prior to which no Event of
Bankruptcy shall have occurred) and the proceeds from the
investment of such moneys after such moneys have become
Available Moneys, and
(2) moneys on deposit with the Trustee representing
proceeds from the resale by the Remarketing Agent of Bonds to
persons other than the Issuer, the Company or any guarantor of
the Company's obligations under the Loan Agreement as
described in Article 3 hereof, which, in each case, were at
all times since their deposit with the Trustee held in a
separate and segregated account or accounts or sub-account or
sub-accounts in which no moneys which were not Available
Moneys were at any time held, and the proceeds from the
investment thereof, and
(3) moneys drawn under a Credit Facility which in
each case were at all times since their deposit with the
Trustee held in a separate and segregated account or accounts
or sub-account or sub-accounts in which no moneys (other than
those drawn under a Credit Facility) were at any time held;
and
(b) with respect to any payment date not occurring during a
period that the Bonds are entitled to the benefit of a Credit Facility, any
moneys furnished to the Trustee and the proceeds from the investment thereof.
The Trustee may presume that no Event of Bankruptcy has occurred unless notified
in writing to the contrary by the Company, the Credit Facility Issuer or the
owners of not less than twenty-five percent (25%) in aggregate principal amount
of Bonds Outstanding.
"Bank" shall mean (1) First Union National Bank of Florida, a
national banking association, as the issuer of the Letter of Credit, and its
successors and assigns; and (2) any Substitute Bank.
"Bank Account" shall mean the account of that name established
in the Bond Purchase Fund pursuant to Section 3.2 hereof.
"Bond" or "Bonds" shall mean the Palm Beach County, Florida,
Variable Rate Demand Industrial Development Revenue Bonds (Palm Beach Bedding
Company Project), Series 1996, issued by the Issuer under this Indenture.
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"Bond Counsel" shall mean the firm of bond attorneys whose
opinion is set forth in the Bonds, or their successors appointed by the Issuer.
If the Trustee determines, at its sole discretion, that the Issuer has failed to
appoint a successor, "Bond Counsel" shall mean a firm of attorneys of nationally
recognized standing in matters pertaining to the tax-exempt nature of interest
on bonds issued by states and their political subdivisions, duly admitted to the
practice of law before the highest court of any state of the United States of
America.
"Bond Fund" shall mean the trust fund so designated which is
established pursuant to Section 5.2 hereof.
"Bond Purchase Fund" shall mean the trust fund so designated
which is established pursuant to Section 3.2 hereof.
"Bond Register" shall have the meaning provided in Section 2.4
hereof.
"Bond Registrar" shall mean the Bond Registrar as designated
in Section 2.4 hereof.
"Bondholder" or "Bondholders" or "owner" or "owners" shall
mean the initial owner or owners and any future owner or owners of the Bond or
Bonds as registered on the books and records of the Bond Registrar pursuant to
Section 2.4 hereof.
"Book Entry Agreement" shall have the meaning provided in
Section 2.14 hereof.
"Business Day" means a day on which (a) banks located in each
of the cities in which the principal office of the Trustee, the Credit Facility
Trustee, the Credit Facility Issuer and the Remarketing Agent is located are not
required or authorized by law or executive order to close for business, and (b)
The New York Stock Exchange is not closed.
"Calculation Period" shall mean the period from and including
the day following the Determination Date of each week (even if not a Business
Day) to and including the following Determination Date; provided, that if the
Determination Date at the end of a Calculation Period is a Regular Record Date,
such Calculation Period will extend until the Business Day following such
Determination Date.
"Code" shall mean the Internal Revenue Code of 1986, as
amended. Reference herein to any specific provision of the Code shall be deemed
to include a reference to any successor provision to such provision and to any
Regulations issued or proposed under or with respect to such provision.
"Company" shall mean Palm Beach Bedding Company, a Florida
corporation, and its successor or assigns and any surviving, resulting or
transferee corporation or other entity.
"Conversion Date" shall mean that Business Day elected by the
Company in accordance with Section 2.2(e) hereof as the effective date of
conversion of the interest rate on the Bonds from the Variable Rate to the Fixed
Rate, which date shall be an Interest Payment Date.
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"Cost of Issuance Account" shall mean the account of that name
established pursuant to Section 4.1 hereof.
"Counsel" shall mean an attorney or firm of attorneys
acceptable to the Trustee (who may, but need not be, counsel to the Issuer or
the Company).
"Credit Facility" shall mean the Letter of Credit or any
Alternate Credit Facility delivered to the Trustee pursuant to Article 6 hereof.
"Credit Facility Account" shall mean the account of that name
established in the Bond Fund pursuant to Section 5.2 hereof.
"Credit Facility Issuer" shall mean the Bank with respect to
the Letter of Credit and the institution issuing any Alternate Credit Facility.
"Credit Facility Trustee" shall mean Branch Banking and Trust
Company, a North Carolina banking corporation, and any successor Credit Facility
Trustee appointed hereunder. In addition, if the interest rate on the Bonds is
converted to a Fixed Rate, there will no longer be a Credit Facility in effect,
and thereafter all references to Credit Facility Trustee shall mean the Trustee.
"Defaulted Interest" has the meaning provided in Section 2.8
hereof.
"Determination Date" shall mean Wednesday of each week or if
Wednesday is not a Business Day then the next succeeding Business Day.
"DTC" means The Depository Trust Company, or any successor
thereto.
"Event of Bankruptcy" shall mean a petition by or against the
Company or the Issuer under any bankruptcy act or under any similar act which
may be enacted which shall have been filed (other than bankruptcy proceedings
instituted by the Company or the Issuer against third parties) unless such
petition shall have been dismissed and such dismissal shall be final and not
subject to appeal.
"Event of Default" shall mean any of the events specified in
Section 9.1 hereof to be an Event of Default.
"Fixed Rate" shall mean the fixed annual rate of interest on
the Bonds determined by the Placement Agent pursuant to Section 2.2(e) hereof.
If, for any reason, the Fixed Rate is held to be invalid or unenforceable by a
court of competent jurisdiction, the Fixed Rate shall be equal to eight percent
(8%) per annum.
"Fixed Rate Period" shall mean the period during which the
Fixed Rate is in effect, which shall be the period beginning on the Conversion
Date and ending on the Maturity Date.
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"Governmental Obligations" shall mean:
(a) direct obligations of the United States of America for the
full and timely payment of which the full faith and credit of the United States
of America is pledged,
(b) obligations issued by a Person controlled or supervised by
and acting as an instrumentality of the United States of America, the full and
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation of the United States of America, and
(c) securities or receipts evidencing ownership interests in
obligations or specified portions (such as principal or interest) of obligations
described in clause (a) or (b) above the full and timely payment of which
securities, receipts or obligations is unconditionally guaranteed by the United
States of America, which obligations, securities or receipts are not subject to
redemption prior to maturity at less than par at the option of anyone other than
the holder thereof.
"Indenture" shall mean this Trust Indenture as amended or
supplemented at the time in question.
"Initial Interest Rate" shall mean the initial rate of
interest of three and six tenths percent (3.6%) per annum on the Bonds.
"Initial Rate Period" shall mean from and including the
Original Delivery Date to and including April 3, 1996.
"Interest Payment Date" shall mean the first Business Day of
each January, April, July and October commencing on July 1, 1996 and ending on
the Conversion Date and the Maturity Date.
"Investment Obligations" shall mean:
(a) any Government Obligations;
(b) any bonds or other obligations of the United States of
America which as to principal and interest constitute direct obligations of the
United States of America, or any obligations of subsidiary corporations of the
United States of America fully guaranteed as to payment by the United States of
America;
(c) obligations of the Federal Land Bank;
(d) obligations of the Federal Home Loan Bank;
(e) obligations of the Federal Intermediate Credit Bank;
(f) bonds or obligations issued by any public housing agency
or municipal corporation in the United States, which such bonds or obligations
are fully secured as to the payment
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of both principal and interest by a pledge of annual contributions under an
annual contributions contract or contracts with the United States government, or
project notes issued by any public housing agency, urban renewal agency, or
municipal corporation in the United States which are fully secured as to payment
of both principal and interest by a requisition, loan, or payment agreement with
the United States government;
(g) certificates of deposit of national or state banks located
within the State which have deposits insured by the Federal Deposit Insurance
Corporation and certificates of deposit of Federal savings and loan associations
and state building and loan associations located within the State which have
deposits insured by the Federal Deposit Insurance Corporation (including the
certificates of deposit of any bank, savings and loan association or building
and loan association acting as depository, custodian or trustee for any proceeds
of the Bonds); provided however, that the portion of such certificates of
deposit in excess of the amount insured by the Federal Deposit Insurance
Corporation, if any, shall be secured by deposit with the Federal Reserve Bank
of Miami, Florida, or with any national or state bank located within the State,
of any of the obligations included in (a), (b), (c), (d), (e) or (f) above;
(h) interest-bearing savings accounts (including those of the
Trustee), interest bearing certificates of deposit or interest-bearing time
deposits or any other investments constituting direct obligations of any bank
which has deposits insured by the Federal Deposit Insurance Corporation;
provided that such accounts, certificates of deposits, time deposits, or
investments are either (1) insured by the Federal Deposit Insurance Corporation,
or (2) secured by the deposit with any national or state bank located within the
State of any Government Obligations;
(i) short term obligations of corporations organized under the
laws of any state with assets exceeding $500,000,000 if (1) such obligations are
rated within the two (2) highest categories established by Moody's and S&P and
which mature no later than one hundred eighty (180) days from the date of
purchase and (2) the purchases do not exceed ten percent (10%) of such
corporation's outstanding obligations;
(j) money market mutual funds registered under the Investment
Company Act of 1940, as amended, provided that the portfolio of any such money
market fund is limited to Government Obligations and to agreements to purchase
Government Obligations; and
(k) repurchase agreements with respect to obligations included
in subsections (a) through (f) above and any other investments to the extent at
the time permitted by then applicable law for the investment of public funds.
"Issuer" shall mean Palm Beach County, Florida, a political
subdivision of the State organized and existing pursuant to the laws of the
State.
"Letter of Credit" shall mean the irrevocable direct pay
letter of credit, dated the date of delivery of the Bonds in the amount of
$7,956,000 issued by the Bank in favor of the Credit Facility Trustee, as
beneficiary, with an initial term of three (3) years, subject to any extensions
thereof.
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"Loan Agreement" shall mean the Loan Agreement of even date
herewith between the Issuer and the Company and any amendments or supplements
thereof permitted by this Indenture.
"Majority of the Bondholders" shall mean the owners of a
majority of the aggregate principal amount of the Outstanding Bonds.
"Maturity Date" shall mean the first Business Day of April,
2016, unless the maturity of the Bonds shall be accelerated by the Credit
Facility Trustee pursuant to Section 9.2 hereof, in which case the "Maturity
Date" of the Bonds shall be the date set forth in the notice of acceleration
from the Credit Facility Trustee to the Issuer pursuant to Section 9.2 of
hereof.
"Maximum Rate" shall mean (i) during such time as the Bonds
bear interest at a Variable Rate, the lesser of the maximum rate permitted by
applicable law or 12% per annum, and (ii) during such time as the Bonds bear
interest at the Fixed Rate, the maximum rate permitted by applicable law.
"Moody's" shall mean Moody's Investors Service, Inc., a
Delaware corporation, its successors and assigns, and, if such corporation shall
be dissolved or liquidated or shall no longer perform the functions of a
securities rating agency, "Moody's" shall be deemed to refer to any other
nationally recognized securities rating agency designated by the Trustee, with
the consent of the Company and the Credit Facility Issuer.
"Mortgage" shall mean the Mortgage and Security Agreement,
dated as of April 1, 1996, by and between the Company and the Bank and any
amendments or supplements thereof permitted by this Indenture.
"Optional Retention Notice" shall mean a notice of the owner
of a Bond to the Trustee in the form attached to the Bond as Attachment C-1.
"Optional Tender Notice" shall mean a notice from the owner of
a Bond to the Tender Agent in the form attached to the Bond as Attachment C-2.
"Original Delivery Date" shall mean April 2, 1996.
"Outstanding" in connection with Bonds shall mean, as of the
time in question, all Bonds authenticated and delivered under the Indenture,
except:
(a) Bonds theretofore canceled or required to be canceled
under Section 2.12 hereof,
(b) Bonds which are deemed to have been paid in accordance
with Article 14 hereof, and
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(c) Bonds in substitution for which other Bonds have been
authenticated and delivered pursuant to Article 2 hereof,
In determining whether the owners of a requisite aggregate principal amount of
Bonds Outstanding have concurred in any request, demand, authorization,
direction, notice, consent or waiver under the provisions hereof, Bonds which
are held by or on behalf of the Company (unless all of the outstanding Bonds are
then owned by the Company) or an Affiliate of the Company (as defined below)
shall be disregarded for the purpose of any such determination. For the purpose
of this paragraph, an "Affiliate" of any specified entity shall mean any other
entity directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified entity and "control", when used with
respect to any specific entity, shall mean the power to direct the management
and policies of such entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms to
controlling" and "controlled" have meanings correlative to the foregoing.
"Paying Agent" shall mean the Trustee and its successors as
provided in Section 15.3 hereof.
"Payment Date" shall have the meaning set forth in Section
5.2(d) hereof.
"Placement Agent" shall mean the securities dealer, bank or
trust company which is designated by the Company with the consent of the Credit
Facility Issuer and which will agree to establish the Preliminary Fixed Rate and
to use its best efforts to arrange for the sale of Tendered Bonds on the
Conversion Date, all as more particularly described in Section 2.2(e) hereof.
"Pledge Agreement" shall mean the Pledge Agreement of even
date herewith by the Company to the Bank, and any amendments or supplements
thereof.
"Pledged Revenues" means and shall include the payments
required to be made by the Company under the Loan Agreement except payments to
be made to the Trustee for services rendered as Trustee under the Indenture and
as Bond Registrar and Paying Agent for the Bonds and except for expenses,
indemnification and other payments required to be made pursuant to Sections 7.8
and 7.9 of the Loan Agreement.
"Preliminary Fixed Rate" shall mean the rate of interest
determined by the Placement Agent prior to the Conversion Date to be that rate
which, in the sole judgment of the Placement Agent based on prevailing market
conditions, is the minimum rate necessary for the Placement Agent to arrange for
the sale at par of all of the Bonds for which the Placement Agent would be so
required to arrange for the sale on the Conversion Date pursuant to Section
2.2(e) hereof.
"Principal Office" of the Trustee or Bond Registrar shall mean
the office at which, at the time in question, its corporate trust business with
respect to the Bonds is principally conducted.
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"Project" shall mean the construction of a 225,000 square foot
manufacturing facility and appurtenances located in the unincorporated area of
the Issuer, as more particularly described in Exhibit A to the Loan Agreement,
and any other interests in real property, leasehold interest, easements,
licenses, and rights in real property hereafter acquired by the Company with
proceeds of the Bonds for use in connection with the Project.
"Project Fund" shall mean the trust fund so designated which
is established pursuant to Section 4.2 hereof
"Rebate Fund" shall mean the trust fund so designated which is
established pursuant to Section 5.4 hereof.
"Regular Record Date" shall mean:
(a) in respect of any Interest Payment Date during the
Variable Rate Period, the close of business on the Business Day immediately
preceding each such Interest Payment Date, and
(b) in respect of any Interest Payment Date during the Fixed
Rate Period, the fifteenth (15th) day (whether or not a Business Day) of the
calendar month immediately preceding each such Interest Payment Date.
"Reimbursement Agreement" shall mean the Letter of Credit and
Reimbursement Agreement of even date herewith by and between the Company and the
Bank, as the same may be amended from time to time and filed with the Trustee,
and any agreement of the Company with a Credit Facility Issuer setting forth the
obligations of the Company to such Credit Facility Issuer arising out of any
payments under a Credit Facility and which provides that it shall be deemed to
be a Reimbursement Agreement for the purpose of this Indenture.
"Remarketing Account" shall mean the account of that name
established in the Bond Purchase Fund pursuant to Section 3.2 hereof.
"Remarketing Agent" shall mean First Union National Bank of
North Carolina and its successors as provided in Section 12.1 hereof.
"Remarketing Agreement" shall mean the Remarketing Agreement
of even date herewith between the Company and the Remarketing Agent and any
amendments and supplements thereof.
"Repayments Account" shall mean the account of that name
established in the Bond Fund pursuant to Section 5.2 hereof.
"Requisite Bondholders" shall mean the owners of more than
two-thirds (2/3) in aggregate principal amount of the Outstanding Bonds.
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"Responsible Officer" when used with respect to the Trustee
shall mean the chairman or vice-chairman of the board of directors, the chairman
or vice-chairman of the executive committee of the board of directors, the
president, any vice president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
trust officer, any assistant trust officer, the controller, any assistant
controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers of banking
institutions with trust powers and also shall mean, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Revenues" shall mean:
(a) all amounts payable to the Trustee with respect to the
principal or redemption price of, or interest on the Bonds (1) by the Company
under the Loan Agreement, (2) by the Credit Facility Issuer under a Credit
Facility, and (3) by transfer from the Project Fund pursuant to Section 4.2
hereof, and
(b) investment income with respect to any moneys held by the
Trustee in the Bond Fund.
" Security interest" or "security interests" refers to the
security interests created herein and in the Mortgage and shall have the meaning
set forth in the U.C.C.
"S&P" shall mean Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., a New York corporation, its
successors and assigns, and, if such corporation shall be dissolved or
liquidated or shall no longer perform the functions of a securities rating
agency, "S&P" shall be deemed to refer to any other nationally recognized
securities rating agency designated by the Trustee, with the consent of the
Company and the Credit Facility Issuer.
"Special Record Date" shall mean for purpose of payment of
Defaulted Interest on the Bonds, the date fixed by the Trustee pursuant to
Section 2.8 hereof.
"State" shall mean the State of Florida.
"Substitute Bank" shall mean a commercial bank or savings and
loan association which has issued an Alternate Credit Facility.
"Tender Agent" shall mean First Union National Bank of Florida
and its successors as provided in Section 12.2 hereof.
"Tender Agency Agreement" shall mean the Tender Agency
Agreement of even date herewith among the Company, the Trustee and the Tender
Agent and any amendments and supplements thereof.
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"Tendered Bonds" shall mean those Bonds tendered or deemed
tendered by the owners for purchase pursuant to an Optional Tender Notice or on
the Conversion Date.
"Trustee" shall mean First Union National Bank of Florida, a
national banking association, and its successor in the trust hereunder.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing hereunder, the Credit Facility Trustee shall perform all of the
duties of the Trustee under this Indenture and all references to the Trustee
shall mean the Credit Facility Trustee.
"U.C.C." means the Uniform Commercial Code of the State of
Florida.
"Undelivered Bond" shall mean:
(a) any Bond for which an Optional Tender Notice has been
given pursuant to Section 2.3 hereof and which has not been delivered to the
Tender Agent on the date specified for purchase, and
(b) any Bond which has not been delivered to the Trustee for
redemption or purchase on any mandatory redemption or purchase date or the
Conversion Date if, with respect to Bonds to be delivered on the Conversion
Date, the owner thereof has not provided the Trustee with the Optional Retention
Notice; provided that in either case the Trustee has on hand and available on
such date funds sufficient to purchase or redeem said Bond.
"Variable Rate" shall mean a variable interest rate
established after the Initial Rate Period as the rate of interest determined by
the Remarketing Agent on and as of each Determination Date as the minimum rate
of interest necessary, in the judgment of the Remarketing Agent, taking into
account market conditions prevailing on the Determination Date, to enable the
Remarketing Agent to arrange for the sale of all of the Bonds on the
Determination Date in the secondary market at a price equal to the principal
amount thereof (plus interest accrued to the date of settlement). If the
Remarketing Agent fails to certify such rate, the Variable Rate for the next
succeeding Calculation Period or Periods until thereafter certified by the
Remarketing Agent shall remain the same as that most recently established and
certified by the Remarketing Agent until thereafter certified by the Remarketing
Agent or adjusted as set forth in the next succeeding sentence. In the event the
Remarketing Agent fails to certify such rate for four (4) consecutive
Calculation Periods, such rate for each Calculation Period thereafter (if none
is certified by the Remarketing Agent) shall be ninety percent (90%) of the
yield for United States Treasury bills maturing approximately thirty (30) days
after the Determination Date for such Calculation Period as published by The
Wall Street Journal on such Determination Date (or the next preceding Business
Day on which The Wall Street Journal is published if The Wall Street Journal is
not published on the Determination Date) (or, if The Wall Street Journal is no
longer published, then any reasonably equivalent financial publication selected
by the Remarketing Agent) (or the next Business Day on which The Wall Street
Journal or such other publication is published if not published on the
Determination Date). If, for any reason, the Variable Rate is not determined as
described above or is held to be invalid or unenforceable by a court of
competent jurisdiction for any period, the interest rate for each such period
shall be equal to eight percent (8%) per annum.
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"Variable Rate Period" shall mean that period during which a
Variable Rate is in effect on the Bonds.
"Variable Rate Purchase Date" shall mean while the Bonds bear
interest at the Variable Rate, any Business Day (prior to and upon the effective
date of the Fixed Interest Rate) on which the Bonds may be tendered for purchase
at the option of the owner thereof in accordance with Section 2.3 hereof.
Section 1.2 Rules of Construction.
(a) Words of the masculine gender shall be deemed and
construed to include correlative words of the feminine and neuter genders.
Unless the context shall otherwise indicate, the words "Bond," "owner,"
"Bondholder," "Bondholder of Record" and "person" shall include the plural as
well as the singular number; the word "person" shall include any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof, and the word "Bondholder" when used herein with respect to
the Bonds shall mean the registered owner of any of the Bonds.
(b) Words importing the redemption or calling for redemption
of the Bonds shall not be deemed to refer to or connote payment of Bonds at
their stated maturity.
(c) The Table of Contents, captions and headings in this
Indenture are for convenience only and in no way limit the scope or intent of
any provision or section of this Indenture.
(d) All references herein to particular articles or sections
are references to articles or sections of this Indenture unless some other
reference is indicated.
(e) All references herein to the Code or any particular
provision or section thereof shall be deemed to refer to any successor, or
successor provision or section, thereof, as the case maybe.
(f) All references herein to time shall be Charlotte, North
Carolina time.
ARTICLE 2
THE BONDS
Section 2.1 Amount, Terms, and Issuance of the Bonds.
(a) The Bonds shall be limited to $7,650,000 in aggregate
principal amount and shall contain substantially the terms recited in the form
of Bond in Exhibit C and as set forth in this Indenture. No Bonds may be issued
under this Indenture except in accordance with this Article 2. No additional
bonds shall be issued under this Indenture.
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(b) The Issuer may cause a copy of the text of the opinion of
Bond Counsel delivered in connection with the issuance of the Bonds to be
printed on any of the Bonds. The Bonds may bear such endorsement or legend
satisfactory to the Trustee as may be required to conform to usage or law with
respect thereto, including the imposition of CUSIP or other identifying numbers.
(c) Upon satisfaction of the conditions set forth in Section
2.13 hereof, the Issuer shall issue the Bonds, and the Trustee shall, at the
Issuer's request, authenticate the Bonds and deliver them as specified in the
request.
Section 2.2 Designation. Denominations, Maturity Date and
Interest Rates of the Bonds.
(a) Designation, Denominations, Maturity Date. The Bonds shall
be designated "$7,650,000 Palm Beach County, Florida, Variable Rate Demand
Industrial Development Revenue Bonds (Palm Beach Bedding Company Project),
Series 1996." The Bonds shall be issuable as fully registered Bonds in
Authorized Denominations. All Bonds shall bear the date of their authentication,
shall bear interest from the most recent date to which interest has been paid or
duly provided for, or, if authenticated on an Interest Payment Date, from that
date, or, if no interest has been paid or duly provided for, from the date of
authentication, and shall mature, subject to prior redemption as provided in
Article 7 hereof, on the first Business Day of April, 2016. The Bonds shall be
numbered from "1" consecutively upwards prefixed by the letter "R."
(b) Interest Rates. The Bonds shall bear interest at the
applicable rate provided below; provided, however, that the Bonds shall never
bear interest at a rate in excess of the Maximum Rate. On each Interest Payment
Date, interest accrued through the day immediately preceding such Interest
Payment Date shall be payable by the Company. While the Bonds bear interest at a
Variable Rate interest on the Bonds shall be computed on the basis of a year of
three hundred sixty-five (365) or three hundred sixty-six (366) days, as
applicable, for the number of days actually elapsed. From and including the
Conversion Date, and thereafter, interest on the Bonds shall be computed on the
basis of a three hundred sixty (360) day year for the number of days actually
elapsed.
(c) Initial Interest Rate. For the Initial Rate Period, the
Bonds shall bear interest at the Initial Interest Rate.
(d) Variable Rate. Following the Initial Rate Period and until
the Conversion Date, the Bonds shall bear interest at the Variable Rate. During
the Variable Rate Period, the Remarketing Agent shall determine the interest
rate for the Bonds on each Determination Date. The Remarketing Agent shall give
telephonic notice on the Determination Date to the Trustee and the Company of
the interest rate to be in effect for the following Calculation Period. The
determination of the Variable Rate by the Remarketing Agent shall be conclusive
and binding upon the Bondholders, the Issuer, the Company, the Trustee, the
Tender Agent and the Remarketing Agent. Any owner may request the Variable Rate
in effect from time to time with respect to the Bonds from the Trustee or the
Remarketing Agent.
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(e) Fixed Rate: Conversion to Fixed Rate.
(1) The Company has a one-time option to convert the
interest rate payable on the Bonds from the Variable Rate to
the Fixed Rate effective on an Interest Payment Date following
compliance by the Company with the provisions of this Section
2.2(e). The Fixed Rate shall be established after delivery by
the Company to the Issuer, the Credit Facility Trustee, the
Trustee, the Credit Facility Issuer, the Tender Agent and the
Remarketing Agent of:
(i) a notice to the effect that the interest
rate on the Bonds shall become fixed on the
Conversion Date specified in such notice, which
notice shall designate the Placement Agent and shall
state that a Credit Facility will not be in effect
after the Conversion Date, and
(ii) an opinion of Bond Counsel addressed to
the Credit Facility Trustee, the Trustee and the
Issuer that the establishment of a Fixed Rate is
authorized and permitted under this Indenture and
will not, in and of itself, cause interest on the
Bonds to be includable in the gross income of the
owners thereof for federal income tax purposes. Such
notice and opinion must be delivered not less than
thirty (30) nor more than sixty (60) days prior to
the Conversion Date.
(2) At least twenty-five (25) days prior to the
proposed Conversion Date, the Placement Agent shall determine
the Preliminary Fixed Rate as of such date and shall notify
the Credit Facility Trustee, the Trustee and the Company of
the Preliminary Fixed Rate by telephone, telecopier, telex,
telegram or other telecommunication device and upon request,
shall confirm such notice in writing.
(3) Upon receipt of notice of the Preliminary Fixed
Rate, the Trustee shall, as soon as practicable (but in no
event more than two (2) Business Days thereafter), mail, in
the name of the Issuer, a notice to the owners of the Bonds
which shall be in the form of the Notice of Conversion
attached hereto as Exhibit A and which shall:
(i) state that the interest rate on the
Bonds is being converted to the Fixed Rate effective
on the Conversion Date and specify the Conversion
Date,
(ii) state that after the tenth (10th) day
preceding the Conversion Date, the owners shall not
be entitled to deliver Bonds for purchase pursuant to
Section 2.3 hereof,
(iii) state the Preliminary Fixed Rate,
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(iv) state that depending on market
conditions, the Fixed Rate may be higher but in no
event lower than the Preliminary Fixed Rate,
(v) state that payment of the Bonds will not
be supported by a Credit Facility after the
Conversion Date,
(vi) state that the rating on the Bonds (if
any) may be reduced or withdrawn on the Conversion
Date,
(vii) state that all owners who desire to
retain such Bonds must deliver an Optional Retention
Notice to the Trustee by the tenth (10th) day
preceding the Conversion Date (or the next succeeding
Business Day if such date is not a Business Day) or
be deemed to have tendered their Bonds for purchase
and must deliver the Bonds to the Trustee on or
before the Conversion Date to be stamped with the
legend contained in Section 2.2(e)(8) hereof,
(viii) state that the delivery by the
Company to the Trustee of a letter from Bond Counsel
dated as of the Conversion Date confirming the
opinion received pursuant to the notice is a
condition precedent to a conversion to a Fixed Rate,
and
(ix) state that in order to receive payment
of the purchase price of any Bond which is deemed to
have been tendered, the owner of such Bond must
deliver such Bond to a specified office of the Tender
Agent before 10:00 a.m. (Charlotte, North Carolina
time) on the Conversion Date.
(4) The delivery by the Company to the Trustee of a
letter from Bond Counsel confirming the opinion required prior
to the notification described above on such Conversion Date is
a condition precedent to any such conversion. In the event
that the Company fails to deliver to the Trustee the letter of
Bond Counsel referred to in the preceding sentence, such
conversion shall not take effect, and the Bonds shall continue
to bear interest at the Variable Rate.
(5) Any owner of Bonds to be converted to a Fixed
Rate not providing the Trustee with the Optional Retention
Notice shall be deemed to have tendered its Bonds to the
Tender Agent. Said owner shall not be entitled to any payment
(including any interest to accrue subsequently to the
Conversion Date) other than the purchase price for such Bonds
which shall be equal to the unpaid principal amount of such
Bonds, and any such Bonds shall no longer be entitled to the
benefits of this Indenture, except for the purpose of payment
of the purchase price therefor and interest payable on the
Conversion Date. Payment of the purchase price of any such
Bonds shall be made only upon the presentment and surrender of
such Bonds to the Tender Agent. Upon request, the Trustee
shall provide the Tender Agent with the address set forth on
the Bond Register for such owner. The Trustee shall notify the
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Bond Registrar of all Bonds with respect to which the Trustee
has not received Optional Retention Notices, which Bonds shall
be deemed to be tendered for purchase on the Conversion Date.
In the case of any Bond deemed tendered, the Issuer shall
cause to be executed, and the Trustee shall authenticate and
deliver to the new owner as provided in Section 3.1 hereof, a
new Bond of like date and tenor in lieu of and in substitution
for such Bond deemed to be tendered.
(6) On the Conversion Date, the Fixed Rate shall be
established as follows:
(i) if any of the Bonds have been tendered
or deemed tendered for purchase, then:
a) if the Placement Agent shall have
arranged for the sale of any or all Tendered
Bonds at a price equal to the principal
amount thereof, the Fixed Rate shall be
equal to the interest rate or rates at which
such Bonds were sold by the Placement Agent,
provided that all Tendered Bonds shall be
sold at par and at a rate greater than or
equal to the Preliminary Fixed Rate; or
b) if the Placement Agent shall have
arranged for the sale of none of the
Tendered Bonds, the Fixed Rate shall be
equal to the Preliminary Fixed Rate; or
(ii) if all owners of the Bonds elect to
retain such Bonds, the Fixed Rate shall be equal to
the Preliminary Fixed Rate.
(7) On the Conversion Date, the Placement Agent shall
give written notice to the Trustee of the Fixed Rate and the
Trustee shall give notice of the same as soon as practicable
(but in no event more than two (2) Business Days thereafter)
to the owners of Bonds being converted to bear the Fixed Rate.
(8) On or before the Conversion Date, all Bonds shall
be presented to the Trustee for stamping thereon of the
legend:
"The interest rate on this Bond has been fixed at
____% per annum in accordance with the provisions of
this Bond and Section 2.2(e) of the Indenture. There
is not a Credit Facility in effect."
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Section 2.3 Optional Tender Provisions of the Bonds.
(a) While the Bonds bear interest at the Variable Rate, any
Bond or portion thereof in an Authorized Denomination (other than a Bond
registered in the name of the Company) shall be purchased on the demand of the
owner thereof, on any Business Day at a purchase price equal to one hundred
percent (100%) of the principal amount thereof plus interest accrued to the date
of purchase, if the owner of such Bond delivers to the Tender Agent at its
address filed with the Trustee an Optional Tender Notice at least seven (7) days
prior to the Variable Rate Purchase Date specified in such Optional Tender
Notice.
(b) Any Optional Tender Notice delivered pursuant to the
preceding subsection shall automatically constitute: (1) an irrevocable offer to
sell such Bond on the Variable Rate Purchase Date at a price equal to one
hundred percent (100%) of the principal amount of such Bond plus interest
accrued to the Variable Rate Purchase Date; and (2) an irrevocable authorization
and instruction to the Bond Registrar to effect transfer of such Bond to the
purchaser thereof on the Variable Rate Purchase Date. No purchase of Bonds
pursuant to the provisions of this Section 2.3 shall be deemed a redemption
thereof.
(c) Any owner who delivers an Optional Tender Notice pursuant
to this Section 2.3 shall deliver such Bond to the Tender Agent, at its address
filed with the Trustee, not less than five (5) days prior to the Variable Rate
Purchase Date specified in the aforesaid Optional Tender Notice; provided,
however, that any Bond owner which is an investment company registered under the
Investment Company Act of 1940 may deliver Bonds owned by it to the Tender Agent
at its address filed with the Trustee, at or prior to 10:00 a.m. on the Variable
Rate Purchase Date. All Bonds delivered to the Tender Agent pursuant to this
Section 2.3 must be duly endorsed for transfer in blank in form satisfactory to
the Trustee.
(d) If a Bondholder who gives the Optional Tender Notice shall
fail to deliver the Bond or Bonds identified in the Optional Tender Notice to
the Tender Agent at or prior to 10:00 a.m. on the Variable Rate Purchase Date,
such Undelivered Bond shall be purchased and shall cease to accrue interest on
such Variable Rate Purchase Date and the owner thereof shall thereafter be
entitled only to payment of the purchase price therefor and not to the benefits
of this Indenture, and the Issuer, to the extent permitted by law, shall execute
and the Trustee or the Authenticating Agent shall authenticate and deliver a
substitute Bond or Bonds in lieu of the Undelivered Bond and the Bond Registrar
shall register such Bond in the name of the purchaser or purchasers thereof
pursuant to Section 2.5 hereof. The Tender Agent shall notify the Trustee and
the Bond Registrar of any Undelivered Bonds. The Trustee shall (1) notify the
Remarketing Agent of such Undelivered Bonds and (2) place a stop transfer
against such Undelivered Bonds until the Undelivered Bonds are properly
delivered to the Tender Agent. Payment of the purchase price of any such
Undelivered Bonds shall be made only upon the presentment and surrender of such
Bonds to the Tender Agent. Upon notice of such delivery, the Bond Registrar
shall make any necessary adjustment to the Bond Register.
(e) Notwithstanding anything to the contrary contained herein,
the rights of the owners to tender Bonds pursuant to this Section 2.3 shall
cease immediately and without further
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notice from and including the date payment of the Bonds is accelerated following
an Event of Default pursuant to Article 9 hereof.
Section 2.4 Registered Bonds Required: Bond Registrar and Bond
Register.
(a) All Bonds shall be issued in fully registered form. The
Bonds shall be registered upon original issuance and upon subsequent transfer or
exchange as provided in this Indenture.
(b) The Issuer shall designate one or more persons to act as
"Bond Registrar" for the Bonds, provided that the Bond Registrar appointed for
the Bonds shall be either the Trustee or a person which would meet the
requirements for qualification as a successor trustee imposed by Section 10.15
hereof. The Issuer hereby appoints First Union National Bank of Florida as its
Bond Registrar in respect of the Bonds. Any person other than the Trustee
undertaking to act as Bond Registrar shall first execute a written agreement, in
form satisfactory to the Trustee, to perform the duties of a Bond Registrar
under this Indenture, which agreement shall be Filed with the Trustee and the
Tender Agent.
(c) The Bond Registrar shall act as registrar and transfer
agent for the Bonds. There shall be kept at an office of the Bond Registrar a
register (herein sometimes referred to as the "Bond Register") in which, subject
to such reasonable regulations as the Issuer, the Trustee or the Bond Registrar
may prescribe, there shall be provisions for the registration of the Bonds and
for the registration of transfers of the Bonds. The Issuer shall cause the Bond
Registrar to designate, by a written notification to the Trustee, a specific
office location (which may be changed from time to time, upon similar
notification) at which the Bond Register is kept. In the absence of a specific
designation by the Bond Registrar, the corporate trust office of the Trustee in
Miami, Florida shall be deemed such office in respect of the Bonds for which the
Trustee is acting as Bond Registrar.
Section 2.5 Transfer and Exchange.
(a) Upon surrender for transfer of any Bond at the office of
the Bond Registrar, the Issuer shall execute and the Trustee or its
Authenticating Agent shall authenticate and deliver in the name of the
transferee or transferees, one or more new fully registered Bonds of authorized
denomination for the aggregate principal amount which the new owner is entitled
to receive; provided that if moneys for the purchase of such Bond have been
provided pursuant to a draw under the Credit Facility, such Bond shall not be
transferable to any one other than the Company or its assignee or pledgee.
Except for transfers in connection with the purchase of Bonds pursuant to
Section 2.3 hereof and the remarketing thereof pursuant to Article 3, which
shall be effected at the corporate trust office of the Tender Agent in Miami,
Florida, Bonds shall be surrendered for transfer at the corporate trust office
of the Trustee in Miami, Florida. Also, the Issuer shall execute and the Trustee
or its Authenticating Agent shall authenticate and deliver Bonds in lieu of
Undelivered Bonds.
(b) Bonds may be exchanged for other Bonds of any other
authorized denomination, of a like aggregate principal amount, upon surrender of
the Bonds to be exchanged
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at the principal corporate trust office of the Bond Registrar or Trustee;
provided, however, that in connection with the purchase of Bonds tendered for
purchase and the remarketing thereof pursuant to Article 3 hereof, Bonds may be
exchanged at the principal office of the Tender Agent, or any office of any
agent designated by the Trustee. Whenever any Bonds are so surrendered for
exchange, the Issuer shall execute, and the Trustee or its Authenticating Agent
shall authenticate and deliver, the Bonds which the Bondholder making the
exchange is entitled to receive.
(c) All Bonds presented for transfer, exchange, redemption or
payment (if so required by the Issuer, the Bond Registrar or the Trustee) shall
be accompanied by a written instrument or instruments of transfer or
authorization for exchange, in form satisfactory to the Bond Registrar, which
may include a signature guarantee, duly executed by the owner or by his attorney
duly authorized in writing.
(d) No service charge shall be made to a Bondholder for any
exchange or transfer of Bonds, but the Issuer or the Bond Registrar may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto.
(e) Except in connection with the purchase of Bonds pursuant
to Section 2.3 hereof and the remarketing thereof pursuant to Article 3 hereof,
neither the Issuer nor any Bond Registrar on behalf of the Issuer shall be
required to issue, transfer or exchange any Bond selected for redemption in
whole or in part.
(f) New Bonds delivered upon transfer or exchange shall be
valid obligations of the Issuer, evidencing the same debt as the Bond
surrendered, shall be secured by this Indenture and shall be entitled to all of
the security and benefits hereof to the same extent as the Bonds surrendered.
Section 2.6 Execution.
(a) The Bonds shall be executed by the manual or facsimile
signature of the Chairman or Vice Chair-man of the Issuer, the seal of the
Issuer shall be affixed, imprinted, lithographed or reproduced thereon and the
same shall be attested by the manual or facsimile signature of the Clerk of the
Issuer.
(b) Bonds executed as above provided may be issued and shall,
upon request of the Issuer, be authenticated by the Trustee or the
Authenticating Agent, notwithstanding that any officer signing, such Bonds or
whose facsimile signature appears thereon shall have ceased to hold office at
the time of issuance or authentication or shall not have held office at the date
of the Bond.
Section 2.7 Authentication; Authenticating Agent.
(a) No Bond shall be valid for any purpose until the Trustee's
Certificate of Authentication thereon shall have been duly executed as provided
in this Indenture, and such authentication shall be conclusive proof that such
Bond has been duly authenticated and delivered under this Indenture and that the
owner thereof is entitled to the benefit of the trust hereby created subject to
the provisions of Section 2.3(d) and Article 14 hereof.
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(b) If the Bond Registrar is other than the Trustee, the
Trustee may appoint the Bond Registrar as an Authenticating Agent with the power
to act on the Trustee's behalf and subject to its direction in the
authentication and delivery of Bonds in connection with transfers and exchanges
under Section 2.5 hereof, and the authentication and delivery of Bonds by an
Authenticating Agent pursuant to this Section shall, for all purposes of this
Indenture, be deemed to be the authentication and delivery "by the Trustee. "
The Trustee shall, however, itself authenticate all Bonds upon their initial
issuance. The Authenticating Agent may authenticate Bonds in substitution for
Undelivered Bonds. The Authenticating Agent shall be entitled to reasonable
compensation from the Company for its services.
(c) Any corporation into which any Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, consolidation or conversion to which any
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate trust business of any Authenticating Agent shall be the successor of
the Authenticating Agent hereunder, if such successor corporation is otherwise
eligible as a Bond Registrar under Section 2.4 hereof, without the execution or
filing of any further document on the part of the parties hereto or the
Authenticating Agent or such successor corporation.
(d) Any Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee, the Issuer, the Remarketing Agent
and the Company. The Trustee may at any time terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent, the Issuer and the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time any
Authenticating Agent shall cease to be eligible under this Section, the Trustee
may promptly appoint a successor Authenticating Agent, shall give written notice
of any such appointment to the Issuer and the Company, and shall mail notice of
any such appointment to all owners of Bonds as the names and addresses of such
owners appear on the Bond Register.
Section 2.8 Payment of Principal and Interest; Interest Rights
Preserved.
(a) The principal and redemption price of any Bond shall be
payable, upon surrender of such Bond, at the office of the Trustee or other
paying agent appointed pursuant to this Indenture. Interest on each Interest
Payment Date shall be payable by check, mailed on the Interest Payment Date to
the address of the person entitled thereto on the Regular Record Date or, if
applicable, the Special Record Date, as such address shall appear in the Bond
Register. While the Bonds bear interest at a Variable Rate, interest shall also
be payable by wire transfer to the account of a member bank of the Federal
Reserve System of any owner of Bonds in the aggregate principal amount of
$1,000,000 or more at the written request (identifying such account by number)
of such owner received by the Trustee at least ten (10) days prior to the
Regular Record Date or Special Record Date.
(b) Interest on any Bond which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
person in whose name that Bond is registered at the close of business on the
Regular Record Date for such interest.
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(c) Any interest on any Bond which is payable, and is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the owner of
such Bonds on the relevant Regular Record Date solely by virtue of such
registered owner having been such record owner on the Regular Record Date, and
such Defaulted Interest shall be paid, pursuant to Section 9.11 hereof, to the
person in whose name the Bond is registered at the close of business on a
Special Record Date to be fixed by the Trustee, such date to be not more than
fifteen (15) nor less than ten (10) days prior to the date of proposed payment.
The Trustee shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first class postage
prepaid, to each Bondholder, at its address as it appears in the Bond Register,
not less than ten (10) days prior to such Special Record Date.
(d) Subject to the foregoing provisions of this Section 2.8,
each Bond delivered under this Indenture, upon transfer of or exchange for or in
lieu of any other Bond shall carry the rights to interest accrued and unpaid,
and to accrue, as such other Bond.
All payments of principal and redemption price of and interest
on the Bonds, whether upon redemption, acceleration, maturity or otherwise,
shall be made first, pursuant to draws under the Credit Facility in accordance
with its terms on the dates when due; second, from Available Moneys on deposit
with the Trustee and not held in trust for the benefit of the owners of the
Bonds pursuant to the provisions of Article 14 hereof, and then from other
collected funds available to the Trustee hereunder for such payments.
Section 2.9 Persons Deemed Owners. The Issuer, the Trustee,
the Credit Facility Trustee, the Bond Registrar and the Authenticating Agent may
deem and treat the person in whose name any Bond is registered as the absolute
owner thereof (whether or not such Bond shall be overdue and notwithstanding any
notation of ownership or other writing thereon made by anyone other than the
Issuer, the Trustee, the Credit Facility Trustee, the Bond Registrar or the
Authenticating Agent) for the purpose of receiving payment of or on account of
the principal of (and premium, if any, on), and (subject to Section 2.8 hereof)
interest on such Bond, and for all other purposes, and neither the Issuer, the
Trustee, the Credit Facility Trustee, the Bond Registrar, nor the Authenticating
Agent shall be affected by any notice to the contrary. All such payments so made
to any such registered owner, or upon his order, shall be valid and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Bond.
Section 2.10 Mutilated, Destroyed, Lost, Stolen or Undelivered
Bonds.
(a) If any Bond shall become mutilated, the Issuer shall
execute, and the Trustee or its Authenticating Agent shall thereupon
authenticate and deliver, a new Bond of like tenor and denomination in exchange
and substitution for the Bond so mutilated, but only upon surrender to the
Trustee of such mutilated Bond for cancellation, and the Issuer and the Trustee
may require reasonable indemnity therefor. If any Bond shall be reported lost,
stolen or destroyed, evidence as to the loss, theft or destruction thereof shall
be submitted to the Issuer and the Trustee, and if such evidence shall be
satisfactory to both and indemnity satisfactory to both shall be given, the
Issuer shall execute, and thereupon the Trustee or its Authenticating Agent
shall authenticate and deliver,
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a new Bond of like tenor and denomination. The cost of providing any substitute
Bond under the provisions of this Section shall be borne by the Bondholder for
whose benefit such substitute Bond is provided. If any such mutilated, lost,
stolen or destroyed Bond shall have matured or be about to mature, the Issuer
may, with the consent of the Trustee, pay to the owner the principal amount of
such Bond upon the maturity thereof and the compliance with the aforesaid
conditions by such owner, without the issuance of a substitute Bond therefor.
(b) The Issuer shall execute and the Trustee or its
Authenticating Agent shall authenticate and deliver a substitute Bond in lieu of
each Undelivered Bond.
(c) Every substituted Bond issued pursuant to this Section
2.10 shall constitute an additional contractual obligation of the Issuer,
whether or not the Bond alleged to have been destroyed, lost or stolen shall be
at any time enforceable by anyone, and shall be entitled to all of the benefits
of this Indenture equally and proportionately with any and all other Bonds duly
issued hereunder.
(d) All Bonds shall be held and owned upon the express
condition that the foregoing provisions are, to the extent permitted by law,
exclusive with respect to the replacement or payment of mutilated, destroyed,
lost, stolen or Undelivered Bonds and shall preclude any and all other rights or
remedies.
Section 2.11 Temporary Bonds. Pending preparation of
definitive Bonds, or by agreement with the purchasers of all Bonds, the Issuer
may issue, and, upon its request, the Trustee shall authenticate, in lieu of
definitive Bonds one or more temporary printed or typewritten Bonds of
substantially the tenor recited above in any denomination authorized under
Section 2.2 hereof. Upon request of the Issuer, the Trustee shall authenticate
definitive Bonds in exchange for and upon surrender of an equal principal amount
of temporary Bonds. Until so exchanged, temporary Bonds shall have the same
rights, remedies and security hereunder as definitive Bonds.
Section 2.12 Cancellation of Surrendered Bonds. Bonds
surrendered for payment, redemption, transfer or exchange and Bonds surrendered
to the Trustee by the Issuer or by the Company for cancellation shall be
canceled by the Trustee and a certificate evidencing such cancellation shall be
furnished by the Trustee to the Issuer and the Company. Bonds purchased pursuant
to Section 2.3 hereof shall not be surrendered Bonds and, unless otherwise
specially provided this Indenture, shall be Outstanding Bonds.
Section 2.13 Conditions of Issuance.
(a) Prior to or simultaneously with the authentication and
delivery of the Bonds by the Trustee, the Trustee shall have received notice
that the conditions for the issuance of the Letter of Credit as set forth in
Article 7 of the Reimbursement Agreement have been satisfied and there shall be
filled with the Trustee such documents, certificates and opinions as the Trustee
(or in the case of the Letter of Credit, the Credit Facility Trustee) may
require, including, the following:
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(1) A copy, certified by the Clerk of the Issuer, of
the resolution of the Issuer authorizing the issuance of the
Bonds, awarding the Bonds and directing the authentication and
delivery of the Bonds to or upon the order of the purchaser(s)
therein named upon payment of the purchase price therein set
forth.
(2) Executed counterparts of this Indenture, the Loan
Agreement, the Letter of Credit, the Reimbursement Agreement,
the Tender Agency Agreement and the Remarketing Agreement.
(3) An opinion of Counsel for the Issuer, to the
effect that the execution and delivery of the Loan Agreement
and this Indenture have been duly authorized by the Issuer,
that the Loan Agreement and this Indenture are in
substantially the forms so authorized and have been duly
executed by the Issuer and that, assuming proper authorization
and execution of this Indenture by the Trustee and the Credit
Facility Trustee and of the Loan Agreement by the Company, the
Loan Agreement and this Indenture are the valid and binding
agreements of the Issuer enforceable in accordance with their
respective terms, subject to the qualification that
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally and by
the exercise of judicial discretion in accordance with general
equitable principles.
(4) An opinion of Counsel to the Company to the
effect that the execution and delivery of the Loan Agreement,
the Reimbursement Agreement, the Remarketing Agreement and the
Tender Agency Agreement have been duly authorized by the
Company, that the Loan Agreement, the Reimbursement Agreement,
the Remarketing Agreement and the Tender Agency Agreement have
been duly executed and delivered by the Company, and that the
Loan Agreement, the Reimbursement Agreement, the Remarketing
Agreement and the Tender Agency Agreement, assuming due
authorization, execution and delivery thereof by the other
parties thereto, if any, are valid, binding and enforceable
against the Company in accordance with their terms, subject to
the qualification that enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting enforcement of creditors' rights
generally and by the exercise of judicial discretion in
accordance with general equitable principles.
(5) An opinion of Counsel to the Company to the
effect that copies of such instruments and financing
statements (described in such opinion) as are necessary have
been recorded and filed in the manner and places required by
State law with the effect that the lien on this Indenture has
been perfected and creates, as to the rights of the Issuer
under the Loan Agreement assigned under this Indenture, a
valid security interest.
(6) An opinion of Bond Counsel to the Issuer, to the
effect that the issuance of the Bonds has been duly and
validly authorized by the Issuer, that all conditions
precedent to the delivery of the Bonds have been fulfilled and
that the
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Bonds are valid and binding agreements of the Issuer
enforceable in accordance with their terms, subject to the
qualification that enforceability thereof may be Limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and
by the exercise of judicial discretion in accordance with
general equitable principles.
(7) Evidence satisfactory to the Trustee of
compliance by the Company with the insurance requirements of
Section 6.3 of the Loan Agreement.
(8) A written request and authorization of the Issuer
addressed to the Trustee directing the Trustee to authenticate
and deliver the Bonds.
(9) Such other documents as the Trustee may
reasonably require.
(10) A favorable opinion of Bond Counsel as to the
tax-exempt status of interest on the Bonds.
(b) When the documents mentioned in paragraphs (1) through
(10) of subsection (a) of this Section shall have been filed with the Trustee
and/or the Credit Facility Trustee and when the Bonds shall have been executed
as required by this Indenture, the Trustee shall authenticate the Bonds and
deliver them to or upon the order of the purchaser(s) named in the resolution
mentioned in paragraph (1) thereof, but only upon payment to the Trustee for the
account of the Issuer of the purchase price of the Bonds. The Trustee and the
Credit Facility Trustee shall be entitled to rely conclusively upon such
resolution or resolutions, or document approved thereby, as to the name of the
purchasers and the amount of such purchase price.
(c) Simultaneously with the delivery of the Bonds, the Trustee
shall apply the proceeds of the Bonds in accordance with Article 4 of this
Indenture.
Section 2.14 Book Entry. The Issuer shall enter into an
agreement in substantially the form attached hereto as Exhibit B (the "Book
Entry Agreement") with DTC, or any successor thereto, or other securities
depository, and make such other provision and perform such further acts as are
necessary or appropriate to provide for the distribution of the Bonds in
book-entry form.
Neither the Issuer, the Company, the Trustee, the Credit
Facility Trustee, nor the Paying Agent will have any responsibility or
obligations to the DTC Participants, DTC Indirect Participants (as each is
defined in the Book Entry Agreement contained as Exhibit B hereto) or the
beneficial owners with respect to (1) the accuracy of any records maintained by
DTC or any DTC Participant or DTC Indirect Participant; (2) the payment by DTC
or any DTC Participant or DTC Indirect Participant of any amount due to any
beneficial owner in respect of the principal amount or redemption price of or
interest on the Bonds; (3) the delivery by DTC or any DTC Participant or DTC
Indirect Participant of any notice to any beneficial owner that is required or
permitted to be given to bondholders under the terms of the Indenture; (4) the
selection of the beneficial owners to receive payment in the event of any
partial redemption of the Bonds; or (5) any consent given or other action taken
by DTC as registered owner.
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The Trustee shall issue Bonds directly to beneficial owners of
Bonds other than DTC, or its nominee, in the event that:
(a) DTC determines not to continue to act as securities
depository for the Bonds; or
(b) The Trustee has advised DTC at the request of the Company
of the Company's determination that DTC is incapable of discharging its duties;
or
(c) The Issuer determines that it is in the best interest of
the Company not to continue the book-entry system (and the Company provides
written approval of such determination) or that the interests of the beneficial
owners of the Bonds might be adversely affected if the book-entry system is
continued.
Upon occurrence of the events described in (a) or (b) above,
the Company shall attempt to locate another qualified securities depository.
In the event the Issuer makes the determination noted in (c)
above, or if the Company fails to locate another qualified securities depository
to replace DTC upon occurrence of the events described in (a) or (b) above, the
Trustee shall mail a notice to DTC for distribution to the beneficial owners of
the Bonds stating that DTC will no longer serve as securities depository,
whether a new securities depository will or can be appointed, the procedures for
obtaining such Bonds and the provisions of this Indenture which govern the Bonds
including, but not limited to, provisions regarding authorized denominations,
transfer and exchange, principal and interest payment and other related matters.
The Trustee reserves the right to initially issue the Bonds
directly to the beneficial owners of the Bonds if the Trustee receives an
opinion of Bond Counsel that determines that use of the book-entry system would
cause the interest on the Bonds to be included in gross income of the
bondholders for federal income tax purposes pursuant to Section 103 of the Code.
ARTICLE 3
PURCHASE AND REMARKETING OF TENDERED BONDS
Section 3.1 Remarketing of Tendered Bonds.
(a) Not later than the close of business on the date the
Tender Agent receives an Optional Tender Notice, the Tender Agent shall notify
the Remarketing Agent, the Trustee and the Company by telephone, telex or
telecopier, confirmed in writing if requested, specifying the Variable Rate
Purchase Date and the aggregate principal amount of Bonds to be purchased on
such Variable Rate Purchase Date.
(b) Not later than the close of business on the ninth (9th)
day prior to the Conversion Date, the Trustee shall notify the Placement Agent
and the Company by telephone, telex
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or telecopier, confirmed in writing if requested, specifying the aggregate
principal amount of Bonds tendered or deemed tendered for mandatory purchase on
the Conversion Date.
(c) Except as provided in subsection (d) below and Section 3.5
hereof, upon receipt by the Remarketing Agent of notice from the Tender Agent
pursuant to Section 3.1(a) hereof and by the Placement Agent of notice from the
Trustee pursuant to Section 3.1(b) hereof, the Remarketing Agent or the
Placement Agent, as the case may be, shall use its best efforts to arrange for
the sale, at par plus accrued interest, if any, of such Bonds tendered or deemed
tendered for settlement on the Variable Rate Purchase Date or the Conversion
Date, respectively. At or before 3:00 p.m. on the Business Day immediately
preceding the Variable Rate Purchase Date or the Conversion Date, the
Remarketing Agent or the Placement Agent, respectively, shall give notice by
telephone, telecopier or telex, promptly confirmed in writing if requested, to
the Trustee and the Tender Agent specifying the principal amount of such Bonds,
if any, to be placed by it and to the Trustee the names, addresses and social
security numbers or other tax identification numbers of the proposed purchasers
thereof.
(d) Notwithstanding the provisions of subsection (c) above,
any Bond purchased pursuant to the terms of this Indenture from the date notice
of redemption or conversion is given shall not be remarketed except to a buyer
who agrees at the time of such purchase to tender such Bond for redemption or
purchase on the redemption or purchase date.
(e) During the Variable Rate Period, the Remarketing Agent
shall continue to use its best efforts to arrange for the sale, at the best
price available, but not less than the principal amount thereof plus accrued
interest, of any Bonds purchased with moneys advanced under the Credit Facility
pursuant to Section 3.2(a)(2) hereof; provided that Bonds purchased with moneys
advanced under the Credit Facility shall not be released for delivery to the
purchasers unless the Credit Facility has been reinstated by the amount drawn
thereunder to pay the purchase price for such Bonds and the Credit Facility
Trustee has received the executed reinstatement certificate required to be
delivered by such Credit Facility Issuer. The Credit Facility Trustee agrees to
advise the Trustee and the Tender Agent immediately upon receipt of such
reinstatement certificate.
Section 3.2 Purchase of Bonds Delivered to the Tender Agent.
(a) There is hereby established with the Tender Agent a "Bond
Purchase Fund" out of which the purchase price for Bonds tendered for purchase
on a Variable Rate Purchase Date, the Conversion Date or on such other date on
which Bonds are remarketed shall be paid. There are hereby established in the
Bond Purchase Fund two separate and segregated accounts, to be designated the
"Remarketing Account" and the "Bank Account." Funds received from purchasers of
Tendered Bonds (other than the Company, the Issuer or any guarantor of the
Company's obligations under the Loan Agreement) shall be deposited by the
Remarketing Agent or the Placement Agent, as the case may be, in the Remarketing
Account. At or prior to 9:00 a.m. on each Variable Rate Purchase Date or the
Conversion Date, the Remarketing Agent or the Placement Agent, as the case may
be, shall deliver to the Tender Agent for deposit in the Remarketing Account of
the Bond Purchase Fund immediately available funds, payable to the order of the
Tender Agent, in an amount equal to the purchase price of the Bonds to be
delivered to the Tender Agent that have
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been remarketed by the Remarketing Agent or placed by the Placement Agent as
specified in the notice delivered pursuant to Section 3.1(c) hereof. Funds, if
any, drawn by the Credit Facility Trustee under the Credit Facility pursuant to
Section 3.2(b) below in an amount equal to the aggregate purchase price of Bonds
tendered for purchase less the amount available in the Remarketing Account shall
be delivered by the Credit Facility Trustee to the Tender Agent for deposit in
the Bank Account of the Bond Purchase Fund. On each Variable Rate Purchase Date
and on the Conversion Date, the Tender Agent shall effect the purchase, but only
from the funds listed below, of such Bonds from the owners thereof at a purchase
price equal to the principal amount thereof, plus interest accrued, if any, to
the date of purchase and such payment shall be made in immediately available
funds. Funds from the payment of such purchase price shall be derived from the
following sources in the order of priority indicated:
(1) proceeds of the remarketing of such Bonds
pursuant to Section 3.1(c) hereof which constitute Available
Moneys;
(2) moneys furnished by the Trustee or the Credit
Facility Trustee to the Tender Agent representing proceeds of
a drawing by the Credit Facility Trustee under the Credit
Facility;
(3) any other Available Moneys; and
(4) any other moneys available for such purposes.
(b) The Tender Agent shall advise the Trustee and the Credit
Facility Trustee by telex or telecopier and shall advise the Credit Facility
Issuer and the Company by telephone, in each case, no later than 9:30 a.m. on
each Variable Rate Purchase Date or the Conversion Date, as the case may be, of
the amount of any drawing under the Credit Facility necessary to make full and
timely payments hereunder. The Credit Facility Trustee shall promptly (and in no
event later than 10:00 a.m.) take all action necessary to draw on the Credit
Facility the specified amount. All amounts received by the Credit Facility
Trustee from a drawing under the Credit Facility shall be transferred to the
Tender Agent and held by the Tender Agent in the Bank Account pending
application of such moneys as provided in this Article 3. The Trustee and the
Credit Facility Trustee shall provide to the Tender Agent the funds referred to
in paragraph (2) of Section 3.2(a) prior to the time the Tender Agent is
required to apply such funds to effect the purchase of Bonds. The Remarketing
Agent shall deliver funds from the sale of Bonds held by the Credit Facility
Issuer as pledgee of the Company pursuant to Section 3.1(e) hereof to the Tender
Agent for deposit in the Remarketing Account, which funds shall be promptly paid
by the Tender Agent on behalf of the Company to the Credit Facility Issuer as
reimbursement under the Reimbursement Agreement. The Tender Agent shall notify
the Trustee and the Credit Facility Trustee of any such reimbursement, and the
Credit Facility Trustee shall promptly deliver to the Credit Facility Issuer any
reinstatement certificate and the form of transfer certificate required by the
Credit Facility. The Trustee and Credit Facility Trustee shall notify the Tender
Agent promptly after receipt of notice from the Credit Facility Issuer
reinstating the Credit Facility.
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Section 3.3 Delivery of Purchased Bonds.
(a) Bonds purchased shall be delivered as follows:
(1) Bonds placed by the Remarketing Agent or the
Placement Agent pursuant to Section 3.1 hereof shall be
delivered by the Tender Agent to the Remarketing Agent or the
Placement Agent, as the case may be, on behalf of the
purchasers thereof.
(2) Bonds purchased with moneys described in Section
3.2(a)(2) shall be delivered to the Credit Facility Issuer or
the Credit Facility Issuer designee as pledgee of the Company
pursuant to the terms of the Reimbursement Agreement and the
Pledge Agreement.
(3) Bonds purchased with draws under the Credit
Facility for which the Credit Facility Issuer has been
reimbursed from excess moneys transferred from the Project
Fund to the Bond Fund pursuant to Section 4.8 hereof shall be
canceled by the Trustee.
(b) Except as otherwise set forth herein, Bonds delivered as
provided in this Section 3.3 shall be registered by the Bond Registrar in the
manner directed by the recipient thereof.
(c) In the event that any Bond to be delivered to the Tender
Agent is not delivered by the owner thereof properly endorsed for transfer on or
prior to the Variable Rate Purchase Date or the Conversion Date, as the case may
be, and there has been irrevocably deposited with the Tender Agent an amount
sufficient to pay the purchase price thereof, which amount may be held by the
Tender Agent in a non-interest bearing account, the Issuer shall execute and the
Trustee or its Authenticating Agent shall authenticate and deliver a substitute
Bond in lieu of the Undelivered Bond and the Bond Registrar shall register such
Bond in the name of the purchaser thereof. Thereafter, interest on such
Undelivered Bond shall cease to accrue, and the holder thereof shall be entitled
only to payment of the purchase price therefor and not to the benefits of the
Indenture.
(d) Notwithstanding the foregoing, Bonds purchased with funds
identified in Section 3.2(a)(2) hereof shall be held by the Credit Facility
Issuer or the Tender Agent and shall not be delivered to subsequent purchasers
thereof or any other person until (i) the Credit Facility Trustee has received
notice in writing from the Credit Facility Issuer that the Credit Facility has
been reinstated to the extent of the purchase price of such Bonds and interest
thereon and (ii) the Credit Facility Trustee has notified the Trustee and the
Tender Agent of such reinstatement.
Section 3.4 Delivery of the Proceeds of the Sale of Remarketed
Bonds. The proceeds of the placement of the Bonds by the Remarketing Agent of
any Bonds delivered to the Tender Agent or by the Placement Agent of Bonds on
the Conversion Date shall be paid first, to the tendering Bondholders of such
Bonds; second, to the Credit Facility Issuer, to the extent of any amounts drawn
under the Credit Facility in connection with the payment of the purchase price
for
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such Bonds and not reimbursed to the Credit Facility Issuer as of the time of
sale of such Bonds; and third, to the Company.
Section 3.5 No Remarketing After Certain Events. Anything in
this Indenture to the contrary notwithstanding, there shall be no remarketing of
Bonds pursuant to this Article 3 after the Conversion Date or the date on which
principal of the Bonds shall have been accelerated pursuant to Section 9.2
hereof unless such acceleration has been rescinded as provided in Section 9.2
hereof.
ARTICLE 4
APPLICATION OF BOND PROCEEDS; PROJECT FUND
Section 4.1 Application of Bond Proceeds. The proceeds derived
from the sale of the Bonds shall, simultaneously with the delivery of the Bonds
to the purchaser or purchasers thereof, be applied by the Trustee as follows:
(a) A special account is hereby created and designated "Palm
Beach County, Florida, Variable Rate Demand Industrial Development Revenue Bonds
(Palm Beach Bedding Company Project), Series 1996 Cost of Issuance Account" (the
"Cost of Issuance Account"), which shall be used only for the payment of costs
and expenses described in this subsection. The sum of $175,072 shall be
deposited to the credit of the Costs of Issuance Account to pay (i) Letter of
Credit fees in the amount of $30,250 and (ii) costs and expenses in connection
with the preparation, issuance and sale of the Bonds, including fees of
financial advisors, engineering and other consulting fees, legal fees, printing
fees, rating agency fees and other similar costs, and all such costs and
expenses shall be promptly paid by the Trustee, at the written direction of the
Company, to the persons respectively entitled to receive the same. When all
moneys on deposit to the credit of the Costs of Issuance Account shall have been
disbursed by the Trustee for the payment of such costs and expenses, the Costs
of Issuance Account shall be closed; provided, however, that if any balance
shall remain in the Costs of Issuance Account six months after issuance of the
Bonds, such moneys shall be transferred by the Issuer to the Project Fund and
the Costs of Issuance Account shall be closed.
(b) The balance of the Bond proceeds shall be deposited in the
Project Fund.
Section 4.2 Creation of and Deposits to the Project Fund.
(a) A special fund is hereby created and designated "Palm
Beach County, Florida, Variable Rate Demand Industrial Development Revenue Bonds
(Palm Beach Bedding Company Project), Series 1996 Project Fund" (the "Project
Fund") to the credit of which such deposits shall be made as are required by the
provisions of this Indenture. Any moneys received by the Issuer or by the
Trustee as trustee under this Indenture from any source for payment of the Costs
of the Project, including all proceeds of the sale of the Bonds and insurance
and condemnation proceeds as provided in the Loan Agreement, shall be deposited
to the credit of the Project Fund.
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(b) The moneys in the Project Fund shall be held by the
Trustee in trust and, subject to the provisions of Section 4.6 and 9.2 of this
Indenture, shall be applied to the payment of the Costs of the Project and,
pending such application, shall be and are hereby made subject to a lien and
charge in favor of the owners of the Bonds issued and outstanding under this
Indenture and for the further security of such owners until paid out or
transferred as herein provided.
Section 4.3 Payments from the Project Fund.
(a) Payment of the Costs of the Project shall be made from the
Project Fund. All payments from the Project Fund shall be subject to the
provisions and restrictions set forth in this Article, and the Issuer covenants
that it will not cause to be paid from the Project Fund any sums except in
accordance with such provisions and restrictions. Such payments shall be made by
the Trustee upon receipt of an appropriately completed requisition and
certificate, signed by the Company Representative (substantially in the form of
the Requisition and Certificate attached hereto as Exhibit D and hereby deemed
incorporated herein) stating to whom the payment described is to be made and the
purpose, in reasonable detail, for which the obligation to make such payment was
incurred and including, if such requisition and certificate comprises an item
for payment for labor or to contractors, buildings or materialmen, a paragraph
in the form of the last paragraph of the attached form of requisition and
certificate.
(b) The Trustee is authorized and directed to apply the moneys
in the Project Fund in accordance herewith but only upon receipt of the
requisitions required by this Section 4.3, duly executed by the Company
Representative and in the manner provided for herein.
(c) The representations in the Requisition and Certificate
attached as Exhibit D may be deleted or modified with the written approval of
the Credit Facility Issuer (as evidenced by its signature on such Requisition
and Certificate); provided however that no material deviation form the language
in clauses (a), (d), (e), (f) or (h) of the Requisition and Certificate shall be
made without an approving opinion of Bond Counsel acceptable to the Trustee.
Section 4.4 Trustee May Rely on Requisitions. All requisitions
in the form provided by Section 4.3 hereof and all other statements, orders,
certifications and approvals received by the Trustee, as required by this
Article as conditions of payment from the Project Fund, may be conclusively
relied upon by the Trustee, and shall be retained by the Trustee as provided in
Section 4.7, subject at all reasonable times to examination by the Company (so
long as the Mortgage shall remain in force and effect), the Issuer, any
Bondholder and the agents and representatives thereof.
Section 4.5 Completion Date. The establishment of the
Completion Date and the disposition of moneys then held for the credit of the
Project Fund shall be in accordance with Sections 4.3 and 4.4 of the Loan
Agreement, respectively.
Section 4.6 Transfers to the Bond Fund. In the event that the
Company should elect or be required to prepay the loan payments pursuant to
Section 10.1, Section 10.2 or Section 10.3 of the Loan Agreement or that the
Trustee shall declare the Bonds to be due and payable
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pursuant to Section 9.2 hereof, the Trustee shall, without further
authorization, forthwith transfer any balance remaining in the Project Fund to
the Repayments Account in the Bond Fund.
Section 4.7 Trustee's Records. The Trustee shall maintain
adequate records for a period of at least three (3) years after the Completion
Date pertaining to all disbursements from the Project Fund. After the Completion
Date, the Trustee shall deliver to the Issuer and the Company a final
accounting.
Section 4.8 Disposition of Balance in Project Fund. When the
Project shall have been completed and the Trustee shall have received a
certificate of the Company Representative, approved in writing by the Credit
Facility Issuer, stating the Completion Date and what items of the Costs of the
Project, if any, have not been paid, and for the payment of which money should
be reserved, any funds remaining after the Trustee has reserved funds for unpaid
items shall be deposited in the Bond Fund and applied by the Trustee at the
written direction of the Company as soon thereafter as practicable, (a) to the
purchase of Bonds, to the extent such funds constitute Available Moneys, at such
price and upon such terms and conditions as the Company may direct or to the
reimbursement of the Credit Facility Issuer for draws under the Credit Facility
to purchase Bonds, or (b) to the redemption of the Bonds, to the extent such
funds constitute Available Moneys, on the first redemption date occurring after
the Completion Date at the applicable optional or mandatory redemption price or
to reimburse the Credit Facility Issuer for draws under the Credit Facility to
redeem bonds, or (c) provided that the Trustee shall have received an opinion of
Bond Counsel that such deposit shall not cause interest on the Bonds to be
includable in gross income for Federal income tax purposes under Section 103 of
the Code, such amounts may be transferred to the Bond Fund and, to the extent
such funds constitute Available Moneys, used for payment of maturing principal
of or interest on any of the Bonds or to reimburse the Credit Facility Issuer
for draws under the Credit Facility for such payment.
ARTICLE 5
REVENUES AND APPLICATION THEREOF
Section 5.1 Revenues to be Paid Over to Trustee. The Issuer
has caused the Revenues to be paid directly to the Trustee. If, notwithstanding
these arrangements, the Issuer receives any payments under the Loan Agreement or
on account of a Credit Facility with respect to the principal or redemption
price of or interest on the Bonds, the Issuer shall immediately pay over the
same to the Trustee to be held as Revenues.
Section 5.2 The Bond Fund.
(a) There is hereby established with the Trustee a special
fund to be designated "Palm Beach County, Florida, Variable Rate Demand
Industrial Development Revenue Bonds (Palm Beach Bedding Company Project),
Series 1996 Bond Fund" (the "Bond Fund"), the moneys in which, in accordance
with Section 5.2(c) hereof, the Trustee shall apply to (1) the principal or
redemption price of Bonds as they mature or become due, upon surrender thereof,
and (2) the interest on Bonds as it becomes payable. There are hereby
established with the Trustee within the Bond
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Fund two separate and segregated accounts, to be designated the "Repayments
Account" and the "Credit Facility Account".
(b) There shall be deposited into the various accounts of the
Bond Fund from time to time the following:
(1) into the Repayments Account, moneys received by
the Trustee under and pursuant to the provisions of this
Indenture or any of the provisions of the Loan Agreement, when
accompanied by written directions from the person depositing
such moneys that such moneys are to be paid into such account
of the Bond Fund. All amounts deposited in the Repayments
Account shall be segregated and held, with the earnings
thereon, separate and apart from other funds 'in the Bond Fund
until such amounts become Available Moneys. At such time as
funds deposited in the Repayments Account become Available
Moneys, they may be commingled with other Available Moneys in
the Repayments Account; and
(2) into the Credit Facility Account, all moneys
drawn by the Credit Facility Trustee under the Credit Facility
to pay principal or redemption price (excluding any premium)
of the Bonds and interest on the Bonds.
(c) Except as provided in Section 9.11 hereof, moneys in the
Bond Fund shall be used solely for the payment of the principal or redemption
price of the Bonds and interest on the Bonds from the following source or
sources but only in the following order of priority;
(1) moneys held in the Credit Facility Account,
provided that in no event shall moneys held in the Credit
Facility Account be used to pay any amounts due on Bonds which
are held by or for the Company, including without limitation,
Bonds pledged to the Credit Facility Issuer, or to pay any
portion of the redemption premium required pursuant to Section
7.1(a)(2) hereof, and
(2) moneys held in the Repayments Account to the
extent such amounts qualify as Available Moneys (except with
respect to moneys paid on Bonds that are held by or for the
Company, including without limitation, Bonds pledged to the
Credit Facility Issuer, which moneys need not qualify as
Available Moneys).
(d) Not later than 10:00 a.m. on the third (3rd) Business Day
preceding the date on which principal or redemption price of or interest on the
Bonds is due and payable (the "Payment Date"), the Trustee shall have notified
the Company and the Credit Facility Issuer and the Credit Facility Trustee of
the amounts of principal and interest due on the Bonds on the Payment Date;
provided, however, that in the event the Determination Date shall fall between
the third (3rd) Business Day preceding the Payment Date and the Payment Date,
the Trustee shall provide such notification on the Business Day preceding the
Payment Date. Not later than 10:00 a.m. on each Payment Date, the Credit
Facility Trustee shall present a draft or drafts under the Credit Facility in
the amounts due and payable on the Bonds. Such funds shall be wired by the
Credit Facility Issuer to the Credit Facility Trustee and immediately
transferred by the Credit Facility Trustee to the
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Trustee to be credited to the Credit Facility Account and payments due under the
Bonds shall be made by the Trustee in accordance with Section 2.8 and Section
5.2(c) hereof. Following such payment to the Bondholders, the Trustee shall, on
behalf of the Company, promptly pay moneys on deposit in the Repayments Account
in an amount equal to the amounts of such drawing or drawings to the Bank as
reimbursement to the Credit Facility Issuer under the terms of the Reimbursement
Agreement. If no amounts are owed by the Company to the Credit Facility Issuer
under the Reimbursement Agreement, any amounts remaining in the Repayments
Account on the Business Day immediately following a Payment Date shall be paid
to the Company upon request with the written consent of the Credit Facility
Issuer.
(e) Except as provided in the following sentence, the Bond
Fund shall be depleted at least once each year, except for a reasonable
carryover amount (not to exceed the greater of one year's earnings on the Bond
Fund or one-twelfth (1/12th) of annual debt service). Any money deposited in the
Bond Fund shall be spent within a thirteen (13) month period beginning on the
date of deposit, and any amount received from investment of money held in the
Bond Fund shall be spent within a one (1) year period beginning on the date of
receipt. Any amounts remaining in the Bond Fund after payment in full of the
principal or redemption price of and interest on the Bonds (or provisions for
payment thereof) shall be paid to the Company at the written request of the
Company therefor or as otherwise required by law; provided, that if any payments
have been received by the Credit Facility Trustee from the Credit Facility in
connection with such payment of the Bonds, any remaining amounts shall be paid
to the Credit Facility Issuer to the extent of such payments.
Section 5.3 Revenues to Be Held for All Bondholders; Certain
Exceptions. Revenues shall, until applied as provided in this Indenture, be held
by the Trustee in trust for the benefit of the owners of all Outstanding Bonds,
except that any portion of the Revenues representing principal or redemption
price of any Bonds, and interest on any Bonds previously matured or called for
redemption in accordance with Article 7 of this Indenture, shall be held for the
benefit of the owners of such Bonds only.
Section 5.4 Rebate Fund. In the event that the Company
provides for the deposit of amounts from time to time for rebate to the United
States pursuant to the Loan Agreement, the Trustee is hereby authorized to
create a special fund to be designated as the "Rebate Fund." The Rebate Fund
shall be held separate and apart from all other funds under this Indenture and
shall not be subject to the lien and pledge granted hereunder for the benefit of
Bondholders. The Trustee shall remit money deposited in the Rebate Fund to the
United States or otherwise as directed in writing by the Company. All moneys
deposited in the Rebate Fund shall be held and invested at the sole direction of
the Company. In making investments hereunder, or in selling or disposing of
investments as required hereby, the Trustee shall have no duty or responsibility
to independently verify compliance with Sections 148 and 148(f) of the Code and
the regulations promulgated thereunder and the Trustee and the Issuer shall be
fully protected in relying solely upon the written directions of the Company as
aforesaid. Under no circumstances whatsoever shall the Trustee be liable to the
Issuer, the Company or any holder for any loss of tax-exempt status of the
Bonds, or any claims, demands, damages, liabilities, losses, costs or expenses
resulting therefrom or in any way connected therewith, so long as the Trustee
acts only in accordance with the written directions of the
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<PAGE> 44
Company as provided hereunder. Neither the Trustee nor the Issuer shall be
responsible for any losses in the investment of money in the Rebate Fund made at
the direction of the Company.
ARTICLE 6
DEPOSITARIES OF MONEYS; SECURITY FOR DEPOSITS AND INVESTMENT OF
FUNDS
Section 6.1 Security for Deposits. All moneys deposited with
the Trustee under the provisions of this Indenture or the Loan Agreement shall
be held in trust and applied only in accordance with the provisions of this
Indenture and the Loan Agreement and shall not be subject to lien (other than
the lien created hereby) or attachment by any creditor of the Trustee, the
Issuer, the Credit Facility Trustee or the Company.
Section 6.2 Investment of Moneys.
(a) At the request and the direction of the Company
Representative (confirmed in writing), moneys held for the credit of the Cost of
Issuance Account, the Project Fund and the Bond Fund (including any amount
therein) shall be invested and reinvested by the Trustee in Investment
Obligations which shall mature not later than the respective dates when the
moneys held for the credit of said funds will be required for the purposes
intended, provided that moneys held in the Credit Facility Account of the Bond
Fund shall be invested and reinvested by the Trustee only in Governmental
Obligations which shall mature not later than the date on which such moneys will
be required to be paid; provided further that such investment shall only be made
at the direction of the Company Representative. The Trustee shall be entitled to
rely on instruction from the Company Representative. In making investments
hereunder, or in selling or disposing of investments as required hereby, the
Trustee shall have no duty or responsibility to independently verify compliance
with Sections 148(d) and 148(f) of the Code and the regulations promulgated
thereunder and the Trustee shall be fully protected in relying solely upon the
written directions of the Company as aforesaid. Under no circumstances
whatsoever shall the Trustee be liable to the Issuer, the Company or any holder
for any loss of tax-exempt status of the Bonds, or any claims, demands, damages,
liabilities, losses, costs or expenses resulting therefrom or in any way
connected therewith, so long as the Trustee acts only in accordance with the
written directions of the Company as provided hereunder.
(b) Obligations so purchased as an investment of moneys in any
such fund or account shall be deemed at all times to be a part of such fund or
account, and the interest accruing thereon and any profit realized from such
investment shall be credited to such fund or account, and any loss resulting
from such investment shall be charged to such fund or account. The Trustee shall
sell at market price or present for redemption any obligation so purchased
whenever it shall be necessary so to do in order to provide cash to meet any
payment or transfer from any such fund or account. Neither the Trustee nor the
Issuer shall be liable or responsible for loss resulting from any such
investment or the sale of any such investment made pursuant to the terms of this
Section.
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(c) For the purpose of the Trustee's determination of the
amount on deposit to the credit of any such fund or account, obligations in
which moneys in such fund or account have been invested shall be valued at the
lower of cost or market.
(d) The Trustee may make any and all investments permitted by
this Section through its own bond or investment department, unless otherwise
directed in writing by the Company Representative.
Section 6.3 The Credit Facility.
(a) Initial Letter of Credit.
(1) The Letter of Credit shall be a direct pay letter
of credit and shall provide for direct payments to or upon the
order of the Credit Facility Trustee as hereinafter set forth
and shall be the irrevocable obligation of the Bank to pay to
or upon the order of the Credit Facility Trustee, upon request
and in accordance with the terms thereof, an amount of up to
$7,956,000 of which (A) $7,650,000 shall support the payment
of principal of the Bonds when due and that portion of the
purchase price corresponding to principal of Tendered Bonds
not remarketed on any Variable Rate Purchase Date or sold on
the Conversion Date, and (B) $306,000 shall support the
payment of up to one hundred twenty (120) days interest at an
assumed rate of twelve percent (12%) per annum on the Bonds
when due and that portion of the purchase price corresponding
to interest on Tendered Bonds not remarketed on any Variable
Rate Purchase Date or sold on the Conversion Date.
(2) The Letter of Credit shall terminate
automatically on the earliest of (A) the date on which a
drawing under the Letter of Credit has been honored upon the
maturity or acceleration of the Bonds or redemption of all the
Bonds, (B) the day on which the Credit Facility Issuer
receives the notice of the conversion following the Conversion
Date, (C) the date on which the Bank receives notice from the
Credit Facility Trustee that an Alternate Credit Facility is
substituted for the Letter of Credit and is in effect, (D) the
date on which the Bank receives notice from the Credit
Facility Trustee that there are no longer any Bonds
Outstanding and (E) the "Stated Termination Date" stated in
the Letter of Credit as it may be extended pursuant to the
terms thereof.
(3) The Bank's obligation under the Letter of Credit
may be reduced to the extent of any drawing thereunder,
subject to reinstatement as provided therein. The Letter of
Credit shall provide that, with respect to a drawing by the
Credit Facility Trustee solely to pay interest on the Bonds on
any Interest Payment Date, if the Credit Facility Trustee
shall not have received from the Bank within ten (10) days
from the date of such drawing a notice by telecopier, by telex
or in writing that the Bank has not been reimbursed, the
Credit Facility Trustee's right to draw under the Letter of
Credit with respect to the payment of interest shall be
reinstated on or before the eleventh (11th) calendar day
following such drawing in an amount equal
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<PAGE> 46
to such drawing. With respect to any other drawing by the
Credit Facility Trustee, the amount available under the Letter
of Credit for payment of the purchase price of the Bonds and
the principal and interest on the Bonds shall be reinstated in
an amount equal to any such drawing but only to the extent
that the Bank is reimbursed in accordance with the terms of
the Reimbursement Agreement for the amounts so drawn and the
Bank delivers a notice to the Credit Facility Trustee
reinstating the Letter of Credit in such amount.
(4) The Letter of Credit shall provide that if, in
accordance with the terms of the Indenture, the Bonds shall
become or be declared immediately due and payable pursuant to
any provision of the Indenture, the Credit Facility Trustee
shall be entitled to draw on the Letter of Credit to the
extent that the amounts are available thereunder to pay the
aggregate principal amount of the Bonds then Outstanding plus
an amount of interest not to exceed one hundred twenty (120)
days.
(5) Upon the termination of the Letter of Credit, the
Credit Facility Trustee shall return the Letter of Credit to
the Bank, marked "CANCELED" on its face.
(b) Expiration. Unless an Alternate Credit Facility has been
provided in accordance with Section 6.3(c) hereof at least thirty (30) days
before the Interest Payment Date immediately preceding the fifteenth (15th) day
prior to the expiration date of a Credit Facility or unless the interest rate
payable on the Bonds has been converted from the Variable Rate to the Fixed Rate
pursuant to Section 2.2 hereof, the Credit Facility Trustee shall call the Bonds
for redemption in accordance with the Section 7.1(c)(2) hereof. If at any time
there shall cease to be any Bonds Outstanding hereunder, the Credit Facility
Trustee shall promptly surrender the then current Credit Facility to the Credit
Facility Issuer for cancellation. The Credit Facility Trustee shall comply with
the procedures set forth in the Credit Facility relating to the termination
thereof.
(c) Alternate Credit Facilities. While the Bonds bear interest
at the Variable Rate, the Company may, at its option, provide for the delivery
to the Credit Facility Trustee of an Alternate Credit Facility. The Alternate
Credit Facility shall have terms in all respects material to the owners of the
Bonds the same as the Credit Facility being replaced and shall be in form
acceptable to the Credit Facility Trustee and the Tender Agent. On or prior to
the date of delivery of an Alternate Credit Facility to the Credit Facility
Trustee, the Company shall furnish to the Credit Facility Trustee and the
Trustee:
(1) an opinion of Counsel stating that the delivery
of such Alternate Credit Facility to the Credit Facility
Trustee is authorized under this Indenture and complies with
the terms hereof and that such Alternate Credit Facility is
enforceable against the Credit Facility Issuer thereof in
accordance with its terms, and
(2) if the Bonds are rated by Moody's or S&P, written
evidence from Moody's, if the Bonds are rated by Moody's, and
from S&P, if the Bonds are rated by S&P, in each case to the
effect that such rating agency has reviewed the proposed
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<PAGE> 47
Alternate Credit Facility and that the substitution of the
proposed Alternate Credit Facility for the then current Credit
Facility will not, by itself, result in:
(i) a permanent withdrawal of its rating of
the Bonds, or
(ii) a reduction of the then current rating
of the Bonds,
or if the Bonds are not rated by Moody's or S&P, written
evidence (or such other evidence satisfactory to the Credit
Facility Trustee in its sole discretion) that the obligations
of the bank or institution issuing the proposed Alternate
Credit Facility substantially equivalent in term to the
remaining term of the Bonds are rated by Moody's or S&P in the
same category as the obligations of substantially equivalent
term of the bank or institution which issued the Credit
Facility being replaced; provided, however, if the Company
provides the Credit Facility Trustee with an opinion of Bond
Counsel that a change in the then current rating on the Bonds
or a change in the Credit Facility Issuer to a bank or
institution the obligations of which are rated in a different
category than those obligations of equivalent term of the
issuer of the Credit Facility being replaced will not
adversely affect the exclusion of the interest on the Bonds
from gross income from federal tax purposes, then such
evidence need not be provided, but the Company shall instead
provide the Credit Facility Trustee with written evidence (or
such other evidence as shall be satisfactory to the Credit
Facility Trustee) that the commercial paper of the bank or
institution issuing the proposed Alternate Credit Facility is
rated P-3 or higher by Moody's or A-3 or higher by S&P.
The Credit Facility Trustee shall then accept such Alternate Credit Facility and
surrender the previously held Credit Facility to the previous Credit Facility
Issuer for cancellation promptly on or before the fifteenth (15th) day after the
Alternate Credit Facility becomes effective, but not later than the fifteenth
(15th) day following the last Interest Payment Date covered by the Credit
Facility to be canceled.
(d) Notices of Substitution or Replacement of Credit Facility.
(1) The Trustee shall, at least twenty (20) days
prior to the proposed replacement of a Credit Facility with an
Alternate Credit Facility, give notice thereof by mail to the
owners of the Bonds, which notice shall include the identity
of the issuer thereof and the rating, if any, to be assigned
to the Bonds by Moody's or S&P following the effective date of
such Alternate Credit Facility or, if the Bonds are not then
rated by Moody's or S&P, then the rating assigned by Moody's
or S&P to the obligations of the issuer of such Alternate
Credit Facility substantially equivalent in term to the
remaining term of the Bonds.
(2) The Credit Facility Trustee shall promptly give
notice of any replacement of the Credit Facility to the
Issuer, the Tender Agent and the Remarketing Agent.
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ARTICLE 7
REDEMPTION OR PURCHASE OF THE BONDS
Section 7.1 Redemption or Purchase Dates and Prices. The Bonds
shall be subject to redemption, and, in certain instances, to purchase, prior to
maturity in the amounts, at the times and in the manner provided in this Article
7. Payments of the redemption price or the purchase price of any Bond shall be
made only upon the surrender to the Trustee or its agent, as directed, of any
Bond so redeemed or purchased.
(a) Optional Redemption.
(1) Optional Redemption During Variable Rate Period.
While the Bonds bear interest at the Variable Rate, the Bonds
shall be subject to redemption, upon the written direction of
the Issuer, given at the request of the Company, with the
consent of the Credit Facility Issuer, on any Interest Payment
Date and on the Conversion Date in whole or in part, at a
redemption price of one hundred percent (100%) of the
principal amount thereof, without premium, plus interest
accrued to the redemption date.
(2) Optional Redemption With Premium During Fixed
Rate Period. While the Bonds bear interest at the Fixed Rate,
the Bonds shall be subject to redemption upon the written
direction of the Issuer, given at the request of the Company,
in whole on any date, or in part on any Interest Payment Date,
occurring on or after the dates set forth below, at the
redemption prices (expressed as percentages of principal
amount to be redeemed) set forth below plus interest accrued
to the redemption date as follows:
<TABLE>
<CAPTION>
Commencement of
Redemption Period Redemption Period
----------------- -----------------
<S> <C>
The Business Day four (4) years 103% declining by 1/2% on each succeeding
from the Conversion Date anniversary date of the first day of the
redemption period until reaching 100% and
thereafter at 100%
</TABLE>
(b) Extraordinary Optional Redemption Due to Casualty or
Eminent Domain.
(1) The Bonds may be redeemed as a whole or in part
by the Issuer at any time at the written direction of the
Company, at a redemption price equal to one hundred percent
(100%) of the principal amount thereof plus interest accrued
thereon to the redemption date, without premium, under any of
the following conditions, the existence of which shall be
certified to the Trustee by the Company Representative:
(i) The Project shall have been damaged or
destroyed to such extent that the amount of Net
Proceeds of insurance exceeds $50,000 and the
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Company elects not to rebuild the Project or fails to
so elect within ninety (90) days of receipt by the
Trustee of such Net Proceeds; or
(ii) Title to, or the temporary use of, all
of the Project or any substantial portion thereof
shall have been taken by Eminent Domain and the
amount of Net Proceeds from such taking exceeds
$50,000 and the Company elects not to replace the
property so taken or fails so to elect within ninety
(90) days of receipt by the Trustee of such Net
Proceeds.
(2) Such redemption shall occur on the next Interest
Payment Date occurring not less than thirty (30) days
following the expiration of such 90-day period referred to in
paragraph (1) of this Section 7.1(b).
(c) Mandatory Redemption.
(1) Determination of Taxability. The Bonds shall be
subject to mandatory redemption in whole on any date at a
redemption price equal to one hundred percent (100%) of the
principal amount thereof plus accrued interest to the
redemption date which shall not be more than one hundred
eighty (180) days following the receipt by the Trustee of a
written notice of a Determination of Taxability.
(2) Failure to Provide Alternate Credit Facility. The
Bonds shall be subject to mandatory redemption during the
Variable Rate Period at one hundred percent (100%) of the
principal amount thereof, without premium, plus interest
accrued, if any, thereon to the date of redemption, on the
Interest Payment Date occurring closest to but not after
fifteen (15) days prior to the date of expiration of the then
current Credit Facility, unless an Alternate Credit Facility
has been provided in accordance with Article 6 hereof.
(3) Excess Moneys in Project Fund. The Bonds shall be
subject to mandatory redemption in whole or in part from
moneys drawn under the Credit Facility for which the Credit
Facility Issuer has been reimbursed from excess moneys in the
Project Fund in accordance with the provisions of Section 4.4
of the Loan Agreement, which redemption date shall be no more
am sixty (60) days following the date of transfer of moneys to
the Bond Fund from the Project Fund.
(d) Mandatory Purchase on Conversion Date. The Bonds shall be
subject to mandatory purchase in whole on the Conversion Date at a purchase
price equal to one hundred percent (100%) of the principal amount thereof,
without premium, plus interest accrued, if any, thereon to the date of purchase,
on the Conversion Date; provided that there shall not be so purchased (1) Bonds
or portions thereof in authorized denominations with respect to which the
Trustee shall have received Optional Retention Notices from the owners thereof,
and (2) Bonds issued in exchange for or upon the registration of transfer of
Bonds or portions thereof in authorized denominations referred to in (1) above.
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Section 7.2 Company to Direct Optional Redemption. The Issuer
shall direct the Trustee in writing to call Bonds for optional redemption when
and only when it shall have been notified by the Company to do so and the
Company has notified the Trustee in writing that the Company has made or intends
to make a corresponding prepayment under the Loan Agreement. Such direction from
the Issuer to the Trustee shall be given at least forty-five (45) days but not
more than sixty (60) days prior to the redemption date or such shorter period as
shall be acceptable to the Trustee. So long as a Credit Facility is then held by
the Credit Facility Trustee, the Trustee shall only call Bonds for optional
redemption if it has Available Moneys in the Repayments Account of the Bond Fund
or has been notified by the Credit Facility Issuer that it will receive moneys
pursuant to the Credit Facility, in the aggregate, sufficient to pay the
redemption price of the Bonds to be called for redemption, plus accrued interest
thereon. No optional redemptions shall be effected at the option of the Company
during the Variable Rate Period under this Article 7 without the prior written
consent of the Credit Facility Issuer.
Section 7.3 Selection of Bonds to be Called for Redemption.
Except as otherwise provided herein or in the Bonds, if less than all the Bonds
are to be redeemed, the particular Bonds to be called for redemption shall be
selected in the following order of priority: first, Bonds pledged to the Bank
pursuant to the Pledge Agreement, second, Bonds owned by the Company and third,
Bonds selected by any random or other method determined by the Trustee in its
sole discretion to be fair and reasonable. The Trustee shall treat any Bond of a
denomination greater than One Hundred Thousand Dollars ($100,000) as
representing that number of separate Bonds each of the denomination of the
minimum denomination of One Hundred Thousand Dollars ($100,000) or any integral
multiple of Five Thousand Dollars ($5,000) in excess thereof as the Trustee
shall so determine.
Section 7.4 Notice of Redemption or Purchase.
(a) When required to redeem or purchase Bonds under any
provision of this Article 7, or when directed to do so by the Issuer, the
Trustee shall cause notice of the redemption or purchase to be given not more
than sixty (60) days and not less than twenty (20) days prior to the redemption
or purchase date by mailing a copy of all notices of redemption or purchase by
first class mail, postage prepaid, to all registered owners of Bonds to be
redeemed or purchased at their addresses shown on the Bond Register. Failure to
mail any such notice or defect in the mailing thereof in respect of any Bond
shall not affect the validity of the redemption or purchase of any other Bond.
Notices of redemption or purchases shall also be mailed to the Remarketing Agent
and the Credit Facility Issuer, if any. Any such notice shall be given in the
name of the Issuer, shall identify the Bonds to be redeemed or purchased (and,
in the case of partial redemption or purchase of any Bonds, the respective
principal amounts thereof to be redeemed or purchased), shall specify the
redemption or purchase date, and shall state that on the redemption or purchase
date, the redemption or purchase price of the Bonds called for redemption or
purchase will be payable at the principal corporate trust office of the Trustee,
or in the case of mandatory redemptions or purchases pursuant to Section
7.1(c)(2) or 7.1(d) hereof, respectively, at the office of the Trustee or the
Tender Agent, respectively, and that from that date interest will cease to
accrue. The Trustee may use "CUSIP" numbers in notices of redemption or purchase
as a convenience to Bondholders, provided that any such notice shall state that
no representation is made as to the correctness of such numbers either as
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<PAGE> 51
printed on the Bonds or as contained in any notice of redemption or purchase and
that reliance may be placed only on the identification numbers containing the
prefix established under the Indenture.
(b) With respect to any notice of redemption or purchase of
Bonds in accordance with Section 7.1(c)(2) hereof, such notice shall also
specify the date of the expiration of the term of the Credit Facility.
(c) If at the time of mailing of notice of any optional
redemption the Issuer shall not have deposited with the Trustee moneys
sufficient to redeem all the Bonds called for redemption, such notice may state
that it is conditional on the deposit of Available Moneys with the Trustee not
later than the redemption date, and such notice shall be of no effect unless
such moneys are so deposited.
(d) Upon redemption of less than all of the Bonds, the Credit
Facility Trustee shall furnish to the Credit Facility Issuer a notice in the
form specified by the Credit Facility Issuer to reduce the coverage provided by
the Credit Facility and upon redemption of all of the Bonds, the Credit Facility
Trustee shall surrender the Credit Facility to the Credit Facility Issuer for
cancellation.
(e) Purchases under Section 7. l(d) hereof shall be in
accordance with Section 2.2(e) hereof.
Section 7.5 Bonds Redeemed or Purchased in Part. Any Bond
which is to be redeemed or purchased only in part shall be surrendered at a
place stated in the notice provided for in Section 7.4 hereof (with due
endorsement by, or a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the owner thereof or his attorney duly authorized in
writing), and the Issuer shall execute and the Trustee or its Authenticating
Agent shall authenticate and deliver to the owner of such Bond without service
charge, a new Bond or Bonds, of any Authorized Denomination as requested by such
owner in an aggregate principal amount equal to and in exchange for the
unredeemed and unpurchased portion of the principal of the Bond so surrendered.
ARTICLE 8
PARTICULAR COVENANTS AND PROVISIONS
Section 8.1 Covenant to Pay the Bonds; Bonds Limited
Obligations of the Issuer.
(a) The Issuer covenants that it will promptly pay the
principal of and interest on and other amounts payable under the Bonds at the
places, on the dates and in the manner provided herein and in the Bonds
according to the true intent and meaning thereof. Such principal and interest
and other amounts are payable solely from the payments made by the Company under
the Loan Agreement and other Revenues.
(b) The Issuer shall not in any event be liable for the
payment of the principal of or interest on the Bonds, or for the performance of
any pledge, mortgage, obligation or agreement
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<PAGE> 52
of any kind whatsoever which may be undertaken by the Issuer, and neither the
Bonds nor any of the agreements or obligations of the Issuer shall be construed
to constitute an indebtedness of the Issuer within the meaning of any
constitutional or statutory provision whatsoever. The Bonds and the interest
thereon shall never constitute an indebtedness or a charge against the general
credit of the Issuer within the meaning of any constitutional provision or
statutory limitation and shall never constitute nor give rise to any pecuniary
liability of the Issuer, but shall be limited obligations of the Issuer payable
solely from the revenues and other funds pledged therefor and shall not be
payable from any other assets or funds of the Issuer, and neither the faith and
credit nor the taxing power of the State or any political subdivision or any
agency thereof is pledged to the payment of the principal of or the interest on
the Bonds.
Section 8.2 Covenants to Perform Obligations Under this
Indenture. The Issuer covenants that it will faithfully perform at all times any
and all covenants, undertaking, stipulations and provisions contained in this
Indenture, in the Bonds executed and delivered hereunder and in all proceedings
of the Issuer pertaining thereto and will faithfully observe and perform at all
times any and all covenants, undertakings, stipulations and provisions of the
Loan Agreement on its part to be observed or performed. The Issuer covenants
that it is duly authorized under the Constitution and laws of the State,
including particularly and without limitation the Act, to issue the Bonds
authorized hereby and to enter into this Indenture, to pledge the payments under
the Loan Agreement and other Revenues in the manner and to the extent herein set
forth, and to assign its interest in the Loan Agreement to the Trustee; and that
all action on its part for the issuance of the Bonds issued hereunder and the
execution and delivery of this Indenture has been duly and effectively taken;
and that the Bonds in the hands of the owners thereof are and will be the valid
and binding obligations of the Issuer according to the tenor and import thereof.
Section 8.3 Covenant to Perform Obligations Under the Loan
Agreement. Subject to the provisions of Section 8.4 of this Article, the Issuer
covenants and agrees that it will not suffer, permit or take any action or do
anything or fail to take any action or fail to do anything which may result in
the termination or cancellation of the Loan Agreement so long as any Bond is
Outstanding; that it will punctually fulfill its obligations and will require
the Company to perform punctually its duties and obligations under the Loan
Agreement; that it will not execute or agree to any change, amendment or
modification of or supplement to the Loan Agreement or this Indenture except by
a supplement or an amendment duly executed by the Issuer and the Company with
the approval of the Trustee and the Credit Facility Trustee and upon the further
terms and conditions set forth in Article 8 of this Indenture; that it will not
agree to any abatement, reduction, abrogation, waiver, diminution or other
modification in any manner or to any extent whatsoever of the obligation of the
Company to pay the loan payments and to meet its other obligations as provided
in the Loan Agreement; and that it will promptly notify the Trustee and the
Credit Facility Trustee in writing of any actual or alleged Event of Default
under the Loan Agreement, whether by the Company or the Issuer, and will further
notify the Trustee and the Credit Facility Trustee at least thirty (30) days
before the proposed date of effectiveness of any proposed termination or
cancellation of the Loan Agreement.
Section 8.4 Trustee May Enforce the Issuer's Rights Under the
Loan Agreement. The Loan Agreement, a duly executed counterpart of which has
been filed with the Trustee, sets forth the covenants and obligations of the
Issuer and the Company, including a provision in Section
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12.9 thereof that subsequent to the issuance of the Bonds and prior to Payment
of the Bonds (as defined in the Loan Agreement) the Loan Agreement may not be
effectively amended, changed, modified, altered or terminated except as provided
in Article 8 of this Indenture, and reference is hereby made to the Loan
Agreement for a detailed statement of said covenants and obligations of the
Company under the Loan Agreement, and the Issuer agrees that the Trustee,
subject to the provisions of the Loan Agreement and this Indenture reserving
certain rights to the Issuer and respecting actions by the Trustee in its name
or in the name of the Issuer, may enforce all rights of the Issuer and all
obligations of the Company under and pursuant to the Loan Agreement for and on
behalf of the Bondholders whether or not the Issuer is in default hereunder.
Section 8.5 Covenant Against Arbitrage. The Issuer covenants
and agrees that it will not make or authorize any use, and directs the Trustee
not to make or permit any use, of the proceeds of the Bonds which would cause
any Bond to be an "arbitrage bond" within the meaning of Section 148 of the Code
and the applicable regulations promulgated from time to time thereunder, and
further covenants that it will observe and not violate the requirements of
Section 148 of the Code and any such applicable regulations to the extent
necessary so that the interest on the Bonds will not cease to be excluded from
the gross income of the recipients thereof for federal income tax purposes by
reason of such use of proceeds; provided that neither the Issuer, the Credit
Facility Trustee, nor the Trustee shall be liable for any investment of moneys
under this Indenture made at the direction of the Company Representative.
Section 8.6 Inspection of the Bond Register. At reasonable
times and upon reasonable regulations established by the Bond Registrar, the
Bond Register may be inspected and copied by and at the expense of the Company.
Section 8.7 Priority of Pledge and Security Interest. The
pledge herein made of the Trust Estate and the security interest created herein
with respect thereto constitutes a first and prior pledge of, and a security
interest in, the Trust Estate. Said pledge and security interest shall at no
time be impaired directly or indirectly by the Issuer or the Trustee, and the
Trust Estate shall not otherwise be pledged and, except as provided herein and
in the Loan Agreement, no persons shall have any rights with respect thereto.
Section 8.8 Maintenance of Insurance; Payment of Taxes,
Charges etc. Pursuant to the provisions of Sections 6.3 and 6.4 of the Loan
Agreement and Sections 1.4, 1.5 and 1.8 of the Mortgage, the Company has agreed
to maintain certain insurance and to pay all lawful taxes, assessments and
charges at any time levied or assessed upon or against the Project, or any part
thereof, which might impair or prejudice the lien afforded by this Indenture as
to the Trust Estate; provided, however, that nothing contained in this Section
shall require the maintenance of such insurance or the payment of any such
taxes, assessments or charges if the same are not required to be maintained or
paid under the provisions of the Loan Agreement or the Mortgage.
Section 8.9 Maintenance and Repair. Pursuant to the provisions
of Section 6.1 of the Loan Agreement, the Company has agreed at its own expense
to cause the Project to be maintained, preserved and kept in good condition,
repair and working order, and that it will, from time to time, cause to be made
all needed repairs so that the Project shall at all times be kept in good
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condition and repair, and that the Company may, at its own expense, make, from
time to time, additions, modifications and improvements to the Project under the
terms and conditions set forth in the Loan Agreement.
Section 8.10 Insurance and Condemnation Proceeds. Reference is
hereby made to Section 6.8 of the Loan Agreement whereunder it is provided that
under certain circumstances the respective Net Proceeds of insurance and
condemnation awards (or Net Proceeds from a sale in lieu of condemnation) are to
be paid to the Trustee and deposited in separate trust accounts (but not in the
Bond Fund) and to be disbursed and paid out as therein provided. The Trustee
hereby accepts and agrees to perform the duties and obligations as therein
specified.
ARTICLE 9
DEFAULT AND REMEDIES
Section 9.1 Defaults. Each of the following events is hereby
declared to be an "Event of Default:"
(a) Payment of interest on any of the Bonds shall not be made
when the same shall become due; or
(b) Payment of the principal or redemption price of any of the
Bonds shall not be made when the same shall become due, whether at maturity or
upon call for redemption or otherwise; or
(c) An "Event of Default" under the Loan Agreement shall have
occurred and not have been waived; or
(d) The Credit Facility Trustee receives written notice from
the Credit Facility Issuer that an Event of Default under the Reimbursement
Agreement has occurred and has not been waived; or
(e) The Credit Facility Trustee receives notice by telecopier,
by telex or in writing from the Credit Facility Issuer that the Credit Facility
Issuer has not been reimbursed for a drawing on or before the close of business
on the tenth (10th) calendar day following a drawing under such Credit Facility
to pay interest on the Bonds and that the interest portion of the Credit
Facility will not be reinstated for the amount so drawn; or
(f) Payment of the purchase price of any Bond tendered
pursuant to Section 2.3 hereof is not made when payment is due; or
(g) The Issuer shall fail to duly and punctually perform any
of the covenants, conditions, agreements and provisions contained in the Bonds
or in this Indenture on the part of the Issuer to be performed other than as
referred to in the preceding subsections of this Section; provided, however,
that no failure specified in this subsection (g) of this Section 9.1 shall
constitute an Event of Default until written notice specifying such failure and
requiring the same to be
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remedied shall have been given to the Company, the Issuer and the Credit
Facility Trustee by the Trustee, which may give notice in its discretion and
shall give such notice at the written direction of the owners of not less than
twenty-five percent (25%) in aggregate principal amount of Bonds Outstanding,
and the Company and the Issuer shall have had thirty (30) days after receipt of
such notice to correct said failure and shall not have corrected said failure
within the applicable period.
Section 9.2 Acceleration and Annulment Thereof.
(a) Subject to the requirement that, so long as the Credit
Facility Issuer is performing under the Credit Facility, the consent of the
Credit Facility Issuer to any acceleration must be obtained in the case of an
Event of Default described in subsections (c), (d) or (g) of Section 9.1 hereof,
upon the occurrence of an Event of Default, the Credit Facility Trustee may, and
upon (1) the written request of the Credit Facility Issuer, or (2) the
occurrence of an Event of Default described in subsection (a), (b), (e) or (f)
of Section 9.1 hereof, the Credit Facility Trustee shall, by notice to the
Issuer, declare the entire unpaid principal of and interest on the Bonds due and
payable; and upon such declaration, the said principal, together with interest
accrued thereon, shall become payable immediately at the place of payment
provided therein, anything in the Indenture or in the Bonds to the contrary
notwithstanding. The Credit Facility Trustee shall not be permitted to request
receipt of indemnity to its satisfaction prior to such declaration of
acceleration. Upon the occurrence of any acceleration hereunder, the Credit
Facility Trustee, to the extent it has not already done so, shall immediately
draw upon the Credit Facility to the extent permitted by the terms thereof.
Interest on the Bonds shall cease to accrue upon receipt by the Credit Facility
Trustee of funds drawn under the Credit Facility.
(b) Immediately after any acceleration because of the
occurrence of an Event of Default under Sections 9.1(a), 9.1(b), 9.1(c), 9.1(d),
9.1(e), 9.1(f) or 9.1(g), the Credit Facility Trustee shall (immediately, and in
no event later than two Business Days thereafter) notify in writing the Issuer,
the Company and the Credit Facility Issuer of the occurrence of such
acceleration. Within five (5) days of the occurrence of any acceleration
hereunder, the Credit Facility Trustee shall notify by first class mail, postage
prepaid, the owners of all Bonds Outstanding of the occurrence of such
acceleration.
(c) If, after the principal of the Bonds has become due and
payable, all arrears of interest upon the Bonds are paid by the Company, and the
Company also performs all other things in respect to which it may have been in
default under the Loan Agreement and pays the reasonable charges of the Credit
Facility Trustee and the Bondholders, including reasonable attorneys' fees,
then, and in every such case, the Credit Facility Issuer or a Majority of the
Bondholders by written notice to the Issuer and to the Credit Facility Trustee,
may annul such acceleration and its consequences, and such annulment shall be
binding upon the Credit Facility Trustee and upon all owners of Bonds issued
hereunder; provided, however, that the Credit Facility Trustee shall not annul
any declaration without the written consent of the Credit Facility Issuer unless
such acceleration has resulted from the failure of the Credit Facility Issuer to
honor a proper draw for payment under the Credit Facility. Notwithstanding the
foregoing, the Credit Facility Trustee shall not annul any acceleration which
has resulted from an Event of Default under Section 9. l(e) hereof unless the
Credit Facility has been reinstated in accordance with its terms to an amount
equal to the
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principal amount of the Bonds Outstanding plus one hundred twenty (120) days'
interest accrued thereon, and the Credit Facility Trustee has received written
notice of such reinstatement from the Credit Facility Issuer. The Trustee and
the Credit Facility Trustee shall forward a copy of any notice from Bondholders
received by it pursuant to this paragraph to the Company.
Section 9.3 Other Remedies. If any Event of Default occurs and
is continuing, the Credit Facility Trustee, before or after the principal of the
Bonds becomes immediately due and payable, may enforce each and every right
granted to it under the Loan Agreement and any supplements or amendments
thereto. In exercising such rights and the rights given the Credit Facility
Trustee under this Article 9, the Credit Facility Trustee shall take such action
as, in the judgment of the Credit Facility Trustee applying the standards
described in Section 10.1 hereof, would best serve the interests of the
Bondholders.
Section 9.4 Legal Proceedings by the Credit Facility Trustee.
(a) If any Event of Default has occurred and is continuing,
the Credit Facility Trustee in its direction may, and upon the written request
of the Credit Facility Issuer or the owners of not less than twenty-five percent
(25%) in aggregate principal amount of the Outstanding Bonds and receipt of
indemnity to its satisfaction shall, in its own name:
(1) By mandamus, or other suit, action or proceeding
at law or in equity, enforce all rights of the Bondholders
hereunder;
(2) Bring suit upon the Bonds, the Credit Facility
(but only to the extent the Credit Facility Issuer shall have
wrongfully dishonored drawings made in strict conformity with
the terms hereof); and
(3) By action or suit in equity seek to enjoin any
acts or things which may be unlawful or in violation of the
rights of the Bondholders.
(b) If an Event of Default under Section 9.1(c) occurs and is
continuing, the Credit Facility Trustee in its discretion may, and upon the
written request of the owners of not less than twenty-five percent (25 %) in
aggregate principal amount of the Outstanding Bonds and receipt of indemnity to
its satisfaction shall, enforce each and every right granted to it under the
Loan Agreement.
Section 9.5 Discontinuance of Proceedings by the Credit
Facility Trustee. If any proceeding commenced by the Credit Facility Trustee on
account of any Event of Default is discontinued or is determined adversely to
the Credit Facility Trustee, then the Company, the Credit Facility Issuer, the
Issuer, the Credit Facility Trustee, the Trustee and the Bondholders shall be
restored to their former positions and rights hereunder as though no proceedings
had been commenced.
Section 9.6 Credit Facility Issuer or Bondholders May Direct
Proceedings. Anything to the contrary in this Indenture notwithstanding, either
the Credit Facility Issuer if a
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Credit Facility is in effect (and no default has occurred and is continuing
under the Credit Facility), or a Majority of the Bondholders, if there is no
Credit Facility in effect, shall have the right, after furnishing indemnity
satisfactory to the Credit Facility Trustee, to direct the method and place of
conducting all remedial proceedings by the Credit Facility Trustee hereunder,
provided that such direction shall not be in conflict with any rule of law or
with this Indenture or unduly prejudice the rights of minority Bondholders.
Section 9.7 Limitations on Actions by the Bondholders.
(a) No Bondholder shall have any right to bring suit on the
Credit Facility. No Bondholder shall have any right to pursue any other remedy
hereunder unless:
(1) the Trustee and the Credit Facility Trustee shall
have been given written notice of an Event of Default;
(2) the owners of not less than twenty-five percent
(25 %) in aggregate principal amount of the Outstanding Bonds
shall have requested the Credit Facility Trustee, in writing,
to exercise the powers hereinabove granted or to pursue such
remedy in its or their name or names;
(3) the Credit Facility Trustee shall have been
offered indemnity satisfactory to it against costs, expenses
and liabilities, except that no offer of indemnification shall
be required for a declaration of acceleration under Section
9.2 hereof or for a drawing under the Credit Facility;
(4) the Credit Facility Trustee shall have failed to
comply with such request within a reasonable time; and
(5) prior to the Conversion Date, the Credit Facility
Issuer has failed to honor a proper draw request under the
Credit Facility.
(b) Notwithstanding the foregoing provisions of subsection (a)
of this Section 9.7 or any other provision of this Indenture, the obligation of
the Issuer shall be absolute and unconditional to pay hereunder, but solely from
the Revenues and other funds pledged under this Indenture, the principal or
redemption price of, and interest on, the Bonds to the respective owners thereof
on the respective due dates thereof, and nothing herein shall affect or impair
the right of action, which is absolute and unconditional, of such owners to
enforce such payment.
Section 9.8 Credit Facility Trustee May Enforce Rights Without
Possession of the Bonds. All rights under this Indenture and the Bonds may be
enforced by the Credit Facility Trustee without the possession of any Bonds or
the production thereof at the trial or other proceedings relative thereto, and
any proceedings instituted by the Credit Facility Trustee shall be brought in
its name for the ratable benefit of the owners of the Bonds.
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Section 9.9 Remedies Not Exclusive. No remedy herein conferred
is intended to be exclusive of any other remedy or remedies, and each remedy is
in addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute.
Section 9.10 Delays and Omissions Not to Impair Rights. No
delays or omission in respect of exercising any right or power accruing upon any
default shall impair such right or power or be a waiver of such default, and
every remedy given by this Article 9 may be exercised from time to time and as
often as may be deemed expedient.
Section 9.11 Application of Moneys in the Event of Default.
(a) Any moneys received by the Trustee or the Credit Facility
Trustee under this Article 9 shall be applied in the following order; provided
that any moneys received by the Trustee or the Credit Facility Trustee from a
drawing under the Credit Facility shall be applied to the extent permitted by
the terms thereof only as provided in paragraph (3) below with respect to the
principal of, and interest accrued on, Bonds other than Bonds held by or for the
Company:
(1) To the payment of the reasonable costs of the
Trustee and the Credit Facility Trustee, including counsel
fees and any disbursements of the Trustee and the Credit
Facility Trustee, with interest thereon from the date of
payment at the Overdue Rate, and their reasonable
compensation; and
(2) To the payment of reasonable costs and expenses
of the Issuer, including counsel fees, incurred in connection
with the Event of Default; and
(3) To the payment of principal or redemption price
(as the case may be) and interest on the Bonds, and in case
such moneys shall be insufficient to pay the same in full,
then to payment of principal or redemption price and interest
ratably, without preference or priority of one over another or
of any installment of interest over any other installment of
interest.
(b) The surplus, if any, shall be paid to the Company or the
person lawfully entitled to receive the same as a court of competent
jurisdiction may direct; provided that, if the Credit Facility Trustee has
received payments on the Credit Facility following the Event of Default, the
surplus shall be paid to the Credit Facility Issuer to the extent of such
payments.
Section 9.12 Credit Facility Trustee and Bondholders Entitled
to All Remedies Under the Act. It is the purpose of this Article 9 to provide
such remedies to the Credit Facility Trustee and the Bondholders as may be
lawfully granted under the provisions of the Act, but should any remedy herein
granted be held unlawful, the Credit Facility Trustee and the Bondholders shall
nevertheless be entitled to every remedy provided by the Act. It is further
intended that, insofar as lawfully possible, the provisions of this Article
shall apply to and be binding upon any trustee or receiver appointed under
applicable law.
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Section 9.13 Credit Facility Trustee May File Claim in
Bankruptcy.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other similar judicial proceeding relating to the Issuer, the Company or any
other obligor upon the Loan Agreement or the Bonds or to property of the Issuer,
the Company, or such other obligor or the creditors of any of them, the Credit
Facility Trustee (irrespective of whether the principal of the Bonds shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Credit Facility Trustee shall have made any demand
on the Company for the payment of an amount equal to overdue principal or
interest or additional interest) shall be entitled and empowered, by
intervention in such proceedings or otherwise:
(1) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the
Bonds and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the
Credit Facility Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances
of the Credit Facility Trustee, its agents and counsel) and of
the Bondholders allowed in such judicial proceeding; and
(2) to collect and receive any moneys or other
property payable or deliverable on any such claims and to
distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by the
Bondholders to make such payments to the Credit Facility Trustee, and in the
event that the Credit Facility Trustee shall consent to the making of such
payments directly to the Bondholders, to pay to the Credit Facility Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Credit Facility Trustee, its agents and counsel, and any other
amounts due the Credit Facility Trustee under Section 9.11 hereof.
(b) Nothing herein contained shall be deemed to authorize the
Credit Facility Trustee to authorize or consent to or accept, or adopt on behalf
of the Bondholders, any plan of reorganization, arrangement, adjustment or
composition affecting the Bonds or the rights of any Bondholder thereof, or to
authorize the Credit Facility Trustee to vote in respect of the claim of the
Bondholders in any such proceeding.
(c) All amounts received by the Credit Facility Trustee
pursuant to any right given or action taken under this Indenture shall, after
payment of the costs and expenses of the proceedings resulting in the collection
of such moneys and the fees and expenses of the Credit Facility Trustee, be
deposited in the Bond Fund and applied to the payment of the principal of,
redemption premium, if any, and interest then due and unpaid on the Bonds in
accordance with the provisions of this Indenture.
Section 9.14 Receiver. Upon the occurrence of an Event of
Default and upon the filing of a suit or other commencement of judicial
proceedings to enforce the rights of the Credit
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Facility Trustee and of the Bondholders under this Indenture, the Credit
Facility Trustee shall be entitled, as a matter of right, to the appointment of
a receiver or receivers of the amounts payable under the Loan Agreement and
assigned to the Credit Facility Trustee under this Indenture pending such
proceedings, with such powers as the court making such appointment shall confer,
whether or not any such amounts payable shall be deemed sufficient ultimately to
satisfy the Bonds.
ARTICLE 10
CONCERNING THE TRUSTEE
Section 10.1 Acceptance of the Trusts. The Trustee hereby
represents and warrants to the Issuer (for the benefit of the Company and the
Bondholders as well as the Issuer) that it is a national banking association and
that it is duly authorized under the laws of the United States of America to
accept and execute trusts of the character herein set out.
The Trustee accepts and agrees to execute the trusts imposed
upon it by this Indenture, but only upon the terms and conditions set forth in
this Article and subject to the provisions of this Indenture including the
following express terms and conditions, to all of which the parties hereto and
the Bondholders agree:
(a) Except during the continuance of an Event of Default, the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(c) The Trustee may execute any of the trusts or powers hereof
and perform any of its duties by or through attorneys, agents, receivers or
employees but shall be answerable for the conduct of the same in accordance with
the standard specified above, and shall be entitled to act upon the opinion or
advice of its Counsel concerning all matters of trust hereof and the duties
hereunder, and may in all cases be reimbursed hereunder for reasonable
compensation paid to all such attorneys, agents, receivers and employees as may
reasonably be employed in connection with the trust hereof. The Trustee may
conclusively rely upon an opinion of Counsel and shall not be responsible for
any loss or damage resulting from any action or non-action by it taken or
omitted to be taken in good faith in reliance upon such opinion of Counsel.
(d) The Trustee shall not be responsible for any recital
herein, or in the Bonds (except in respect to the authentication certificate of
the Trustee endorsed on the Bonds), or for insuring the Trust Estate or any part
of the Project or collecting any insurance moneys, or for the validity of the
execution hereof by the Issuer or of any supplements hereto or instruments of
further assurance, or for the sufficiency of the security for the Bonds; and the
Trustee shall not be bound to ascertain or inquire as to the performance or
observance of any agreements or conditions on the part of the Issuer or on the
part of the Company under the Loan Agreement, except as hereinafter set
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forth; but the Trustee may require of the Issuer or the Company full information
and advice as to the performance of the agreements and conditions aforesaid and
as to the condition of the Trust Estate.
(e) The Trustee shall not be liable in connection with the
performance or nonperformance of its duties under this Indenture except for its
own grossly negligent action, its own grossly negligent failure to act, or its
own willful misconduct, except that:
(1) This subsection shall not be construed to limit
the effect of subsection (a) of this Section 10.1;
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or
Officers of the Trustee unless it shall be proved that the
Trustee was grossly negligent in ascertaining the pertinent
facts; and
(3) The Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of a Majority of the Bondholders
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under
this Indenture.
(f) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee, including
without limitation Sections 10.3 and 10.4 hereof, shall be subject to the
provisions of this Section 10.1.
Section 10.2 Acceptance of Trusts by Credit Facility Trustee.
The Credit Facility Trustee hereby represents and warrants to the Issuer (for
the benefit of the Company and the Bondholders as well as the Issuer) that it is
a North Carolina banking corporation and that it is authorized under such laws
to accept and execute trusts of the character herein set out.
The Credit Facility Trustee accepts and agrees to execute the
trusts imposed upon it by this Indenture and the Loan Agreement, but only upon
the terms and conditions set forth in this Article and subject to the provisions
of this Indenture and the Loan Agreement including the following express terms
and conditions, to all of which the parties hereto and the Bondholders agree:
(a) Except during the continuance of an Event of Default, the
Credit Facility Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Credit Facility
Trustee.
(b) In case an Event of Default has occurred and is
continuing, the Credit Facility Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
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(c) The Credit Facility Trustee may execute any of the trusts
or powers hereof and perform any of its duties by or through attorneys, agents,
receivers or employees but shall be answerable for the conduct of the same in
accordance with the standard specified above, and shall be entitled to act upon
the opinion or advice of its counsel concerning all matters of trust hereof and
the duties hereunder, and may in all cases be reimbursed hereunder for
reasonable compensation paid to all such attorneys, agents, receivers and
employees as may reasonably be employed in connection with the trust hereof. The
Credit Facility Trustee may conclusively rely upon an opinion of counsel and
shall not be responsible for any loss or damage resulting from any action or
non-action by it taken or omitted to be taken in good faith in reliance upon
such opinion of counsel.
(d) The Credit Facility Trustee shall not be liable in
connection with the performance or nonperformance of its duties under this
Indenture except for its own grossly negligent action, its own grossly negligent
failure to act, or its own willful misconduct, except that:
(1) This subsection shall not be construed to limit
the effect of subsection (a) of this Section 10.2;
(2) The Credit Facility Trustee shall not be liable
for any error of judgment made in good faith by a responsible
officer or officers of the Credit Facility Trustee unless it
shall be proved that the Credit Facility Trustee was grossly
negligent in ascertaining the pertinent facts; and
(3) The Credit Facility Trustee shall not be liable
with respect to any action taken or omitted to be taken by it
in good faith in accordance with the direction of the Majority
of the Bondholders relating to the time, method and place of
conducting any proceeding for any remedy available to the
Credit Facility Trustee, or exercising any trust or power
conferred upon the Credit Facility Trustee under this
Indenture.
(e) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Credit Facility
Trustee, including without limitation Sections 10.3 and 10.4 hereof, shall be
subject to the provisions of this Section 10.2.
Section 10.3 Trustee or Credit Facility Trustee to Give
Notice.
(a) Neither the Credit Facility Trustee nor the Trustee shall
be required to take notice or be deemed to have notice of any default hereunder,
except failure by the Issuer to cause to be made any of the payments to the
Trustee required to be made by Article 5 or failure by the Issuer or the Company
to file with the Trustee any document required by this Indenture or the Loan
Agreement to be so filed, unless the Trustee or Credit Facility Trustee shall be
notified of such default by the Issuer or by the holders of 25% in aggregate
principal amount of Bonds then Outstanding or unless a responsible corporate
trust officer of the Credit Facility Trustee charged with the responsibility for
the management of the trusts conferred by this Indenture shall have actual
knowledge of such default.
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(b) If a responsible trust officer of the Credit Facility
Trustee charged with the responsibility for the management of the trusts
conferred by this Indenture shall have actual knowledge of any Event of Default
continuing hereunder, the Credit Facility Trustee shall give to the Trustee, all
Bondholders and to the Credit Facility Issuer written notice of all such
defaults within thirty (30) days after receipt of such information.
(c) Promptly upon receipt of notice of the occurrence of a
Determination of Taxability, the Credit Facility Trustee shall give notice
thereof to the Company, the Issuer, the Trustee, the Bondholders and former
Bondholders and to the Credit Facility Issuer.
Section 10.4 Trustee and The Credit Facility Trustee Entitled
to Indemnity.
(a) The Company shall indemnify the Trustee and the Credit
Facility Trustee and their officers, directors and employees against any loss,
liability or expense incurred by any thereof arising out of or in connection
with the acceptance or administration of their duties under this Indenture,
except as set forth in subsection (b) below. The Trustee and the Credit Facility
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Except where the Company is the claimant, the Company shall defend
the claim, and the Trustee and the Credit Facility Trustee shall cooperate in
the defense. The Trustee and the Credit Facility Trustee may have separate
counsel, and the Company shall pay the reasonable fees and expenses of such
counsel.
(b) The Company shall not be obligated to reimburse any
expense or to indemnify against any loss or liability incurred by the Trustee
and the Credit Facility Trustee through gross negligence or bad faith.
(c) To secure the Company's payment obligations in this
Section, the Trustee and the Credit Facility Trustee shall have a lien prior to
the lien of the Trustee for the benefit of the owners of the Bonds on all money
or property held or collected by the Trustee, except for amounts drawn under the
Credit Facility as to which the Trustee shall have no such lien. Such
obligations shall survive the satisfaction and discharge of this Indenture.
(d) When the Trustee or the Credit Facility Trustee incurs
expenses or renders services after an Event of Default, the expenses and
compensation for the services are intended to constitute expenses of
administration under any applicable bankruptcy law.
(e) The Trustee or the Credit Facility Trustee may,
nevertheless, begin suit, or appear in and defend suit, or do anything else in
its judgment proper to be done by it as such Trustee or the Credit Facility
Trustee, without indemnity, and in such case the Issuer shall reimburse the
Trustee or the Credit Facility Trustee from funds available therefor under the
Loan Agreement for all costs and expenses, outlays and counsel fees and other
reasonable disbursements properly incurred in connection therewith; provided,
however, that the Trustee or the Credit Facility Trustee, as the case may be,
shall:
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(1) make all payments hereunder of principal and
redemption price of and interest on the Bonds and of the
purchase price of Bonds tendered at the option of the owners
thereof or purchased by the Company in lieu of redemption,
(2) accelerate the Bonds when required to do so
hereunder other than at the direction of the Bondholders, and
(3) draw on the Credit Facility when required to do
so hereunder,
each without the necessity of the Bondholders providing security or indemnity to
the Trustee or the Credit Facility Trustee, as the case may be. If the Issuer
shall fail to make reimbursement, the Trustee and the Credit Facility Trustee
may reimburse itself from any moneys in its possession under the provisions of
this Indenture (other than amounts drawn under the Credit Facility) and shall be
entitled with respect thereto to a preference over the Bonds.
Section 10.5 Trustee nor Credit Facility Trustee Responsible
for Insurance, Taxes, Execution of Indenture, Acts of Issuer or Application of
Moneys Applied in Accordance with Indenture.
(a) Neither the Trustee nor the Credit Facility Trustee shall
be under any obligation to effect or maintain insurance or to renew any policies
of insurance or to inquire as to the sufficiency of any policies of insurance
carried by the Company, or to report, or make or file claims or proof of loss
for, any loss or damage insured against or which may occur, or to keep itself
informed or advised as to the payment of any taxes or assessments, or to require
any such payment to be made. Neither the Trustee nor the Credit Facility Trustee
shall have responsibility in respect of the validity, sufficiency, due execution
or acknowledgment of this Indenture or any supplements thereto or instruments of
further assurance or the validity or sufficiency of the security provided
hereunder or in respect of the validity of the Bonds or the due execution or
issuance thereof. Neither the Trustee nor the Credit Facility Trustee shall be
under any obligation to see that any duties herein imposed upon any party other
than itself, or any covenants herein contained on the part of any party other
than itself to be performed, shall be done or performed, and the Trustee and the
Credit Facility Trustee shall be under no liability for failure to see that any
such duties or covenants are so done or performed.
(b) The Trustee and the Credit Facility Trustee shall not be
liable or responsible because of the failure of the Issuer or of any of its
employees or agents to make any collections or deposits or to perform any act
herein required of the Issuer or because of the loss of any moneys arising
through the insolvency or the act or default or omission of any other depositary
in which such moneys shall have been deposited under the provisions of this
Indenture. The Trustee and the Credit Facility Trustee shall not be responsible
for the application of any of the proceeds of the Bonds or any other moneys
deposited with it and paid out, withdrawn or transferred hereunder if such
application, payment, withdrawal or transfer shall be made in accordance with
the provisions of this Indenture. The Trustee shall not be responsible or liable
for any loss suffered in connection with any investment of funds made by it in
accordance with Section 6.2 hereof.
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(c) The permissive right of the Trustee and the Credit
Facility Trustee to do things enumerated in this Indenture shall not be
construed as a duty, and the Trustee and the Credit Facility Trustee shall not
be answerable for other than its gross negligence or willful misconduct. The
immunities and exemptions from liability of the Trustee and the Credit Facility
Trustee hereunder shall extend to the directors, officers, employees and agents
of the Trustee and the Credit Facility Trustee.
Section 10.6 Compensation. Subject to the provisions of any
contracts relating to the compensation of the Trustee and the Credit Facility
Trustee, the Issuer shall cause the Company to pay to the Trustee and the Credit
Facility Trustee as administrative expenses its reasonable fees, charges and
out-of-pocket expenses in accordance with Section 7.8 of the Loan Agreement. In
computing such compensation, the parties shall not be limited by any law on the
compensation of an express trust. If the Company shall fail to make any payment
required by this Section 10.6, the Trustee may, but shall be under no obligation
to, make such payment from any moneys in its possession under the provisions of
this Indenture and shall be entitled to a preference therefor over the Bonds
hereunder; provided that no payments under this Section 10.6 shall be made with
moneys drawn under the Credit Facility. When the Trustee or the Credit Facility
Trustee incurs expenses or renders services after an Event of Default, the
expenses and compensation for the services are intended to and shall constitute
expenses of administration under any applicable bankruptcy law.
Section 10.7 Trustee to Preserve Records. All records and
files pertaining to the Project in the custody of the Trustee shall be open at
all reasonable times to the inspection of the Issuer, the Credit Facility
Issuer, the Credit Facility Trustee and the Company and their agents and
representatives.
Section 10.8 Trustee or Credit Facility Trustee May Be a
Bondholder. The institution acting as Trustee and Credit Facility Trustee under
this Indenture, and directors, officers, employees or agents of the Trustee and
the Credit Facility Trustee, may in good faith buy, sell, own, hold and deal in
the Bonds issued under and secured by this Indenture, and may join in the
capacity of a Bondholder in any action which any Bondholder may be entitled to
take with like effect as if such institution were not the Trustee nor the Credit
Facility Trustee under this Indenture. To the extent permitted by law, such
institution may also receive tenders and purchase in good faith Bonds from
itself, including any department, affiliate or subsidiary, with like effect as
if it were not the Trustee or the Credit Facility Trustee, as the case may be.
Section 10.9 Trustee and Credit Facility Trustee Not
Responsible for Recitals. Except for the authentication of the Bonds by the
Trustee, the recitals, statements and representations contained herein and in
the Bonds shall be taken and construed as made by and on the part of the Issuer
and not by the Trustee or the Credit Facility Trustee, and, except for the
authentication of the Bonds by the Trustee, neither the Trustee nor the Credit
Facility Trustee shall be under any responsibility for the correctness of the
same.
Section 10.10 No Responsibility for Recording or Filing.
Neither the Trustee nor the Credit Facility Trustee shall be under any
obligation to see to the recording or filing of this
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Indenture, the Loan Agreement, any financing statements or any other instrument
or otherwise to the giving to any person of notice of the provisions hereof or
thereof.
Section 10.11 Trustee and Credit Facility Trustee May Require
Information. Except for the obligations of the Credit Facility Trustee under
Section 9.2 hereof, the obligations of the Trustee to make payments on the Bonds
when due, and the obligations of the Credit Facility Trustee to draw under the
Credit Facility as required hereunder, anything contained in this Indenture to
the contrary notwithstanding, the Trustee and the Credit Facility Trustee shall
have the right, but shall not be required, to demand, as a condition of any
action by the Trustee or the Credit Facility Trustee, as applicable, in respect
of the authentication of any Bonds, the withdrawal of any cash, the release of
any property, or any action whatsoever within the purview of this Indenture, any
showings, certificates, opinions, appraisals or other information, or corporate
action or evidence thereof, in addition to that required by the terms hereof.
Section 10.12 Trustee and Credit Facility Trustee May Rely on
Certificates. The Trustee and the Credit Facility Trustee shall be protected and
shall incur no liability in acting or proceeding, or in not acting or not
proceeding, in good faith and in accordance with the terms of this Indenture,
upon any ordinance, resolution, order, notice, request, consent, waiver,
certificate, statement, instrument, opinion, affidavit, requisition, bond or
other paper or document which it shall in good faith believe to be genuine and
to have been adopted or signed by the proper board or person or to have been
prepared and furnished pursuant to any of the provisions of the Loan Agreement
or this Indenture, or upon the written opinion of any attorney, engineer,
accountant or other expert believed by it to be qualified in relation to the
subject matter, and neither the Trustee nor the Credit Facility Trustee shall be
under any duty to make any investigation or inquiry as to any statements
contained or matters referred to in any such instrument. Any action taken by the
Trustee or the Credit Facility Trustee pursuant to this Indenture upon the
request or authority or consent of any person who at the time of making such
request or giving such authority or consent is the owner of any Bond shall be
conclusive and binding upon all future owners of the same Bond and upon Bonds
issued in exchange therefor or in place thereof.
Section 10.13 Trustee or Credit Facility Trustee Bond. Neither
the Trustee nor the Credit Facility Trustee shall be required to give any bond
or surety in respect to the execution of its rights and obligations hereunder.
Section 10.14 Segregation of Funds; Interests. All moneys
received by the Trustee and the Credit Facility Trustee shall, until used or
applied or invested as herein provided, be held in trust in the manner and for
the purposes for which they were received but need not be segregated from other
funds except to the extent required by this Indenture or law. Neither the
Trustee nor the Credit Facility Trustee shall be under any liability for
interest on any moneys received hereunder.
Section 10.15 Qualification of the Trustee and the Credit
Facility Trustee. There shall at all times be a Trustee and, until the
Conversion Date, a Credit Facility Trustee hereunder which shall be an
association or a corporation organized and doing business under the laws of the
United States of America or of any state, authorized under such laws and the
applicable laws of the State to exercise corporate trust powers and act as Bond
Registrar hereunder, having a combined
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capital and surplus of at least Fifty Million Dollars ($50,000,000) for the
Trustee or Twenty-Five Million Dollars ($25,000,000) for the Credit Facility
Trustee, and subject to supervision or examination by federal or state
authority. If such association or corporation is not a commercial bank or trust
company, it shall also have a rating by Moody's (if the Bonds are then rated by
Moody's) of BAA 3/P3 or higher, or by S&P (if the Bonds are then rated by S&P)
of Baa/A3 or higher or shall otherwise be approved in writing by Moody's or S&P,
as the case may be. If such association or corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 10.15, the combined capital and surplus of such association or
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In addition, under no
circumstances shall the Credit Facility Trustee and the Credit Facility Issuer
be the same person or be Affiliates of one another. If at any time the Trustee
or the Credit Facility Trustee shall cease to be eligible in accordance with the
provisions of this Section 10.15, it shall resign immediately in the manner and
with the effect specified in Section 10.16 hereof.
Section 10.16 Resignation and Removal of the Trustee or Credit
Facility Trustee.
(a) No resignation or removal of the Trustee or the Credit
Facility Trustee and no appointment of a successor Trustee or successor Credit
Facility Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee or the successor Credit
Facility Trustee under Section 10.17 hereof.
(b) The Trustee or the Credit Facility Trustee may resign at
any time by giving written notice thereof to the Issuer and the Company. If an
instrument of acceptance by a successor Trustee or successor Credit Facility
Trustee shall not have been delivered to the Trustee or Credit Facility Trustee
within thirty (30) days after the giving of such notice of resignation, the
resigning Trustee or Credit Facility Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee or successor Credit
Facility Trustee.
(c) The Trustee and the Credit Facility Trustee may be removed
at any time by an instrument or instruments in writing to the Trustee or Credit
Facility Trustee, as the case may be, with copies to the Issuer and the Company,
signed by a Majority of the Bondholders or by their attorneys, legal
representatives or agents and delivered to the Trustee, the Credit Facility
Trustee, the Issuer and the Company (such instruments to be effective only when
received by the Trustee or Credit Facility Trustee as the case may be).
(d) If at any time:
(1) the Trustee or Credit Facility Trustee shall
cease to be eligible under Section 10.15 hereof and shall fail
to resign after written request therefor by the Company or by
a Majority of the Bondholders, or
(2) the Trustee or Credit Facility Trustee shall
become incapable of acting or shall be adjudged a bankrupt or
insolvent or a receiver of the Trustee or Credit Facility
Trustee or of the property of the Trustee or the Credit
Facility Trustee shall
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be appointed or any public officer shall take charge or
control of the Trustee or Credit Facility Trustee or of the
property or affairs for the purpose of rehabilitation,
conservation or liquidation of the Trustee or the Credit
Facility Trustee,
then, in any such case, the Issuer or the Company may remove the Trustee or the
Credit Facility Trustee, or any Bondholder may petition any court of competent
jurisdiction for the removal of the Trustee or Credit Facility Trustee, and the
appointment of a successor.
(e) If the Trustee or Credit Facility Trustee shall resign, be
removed or become incapable of acting, or if a vacancy shall occur in the office
of Trustee or the Credit Facility Trustee for any cause, the Issuer with the
approval of the Company shall promptly appoint a successor. If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee or successor Credit Facility Trustee shall be
appointed by act of the Majority of the Bondholders delivered to the Company and
the resigning or removed Trustee or Credit Facility Trustee, the successor
Trustee or successor Credit Facility Trustee so appointed shall forthwith upon
its acceptance of such appointment, become the successor Trustee or successor
Credit Facility Trustee, as the case may be, and supersede the successor Trustee
or successor Credit Facility Trustee appointed by the Issuer and approved by the
Company. If no successor Trustee or successor Credit Facility Trustee shall have
been so appointed by the Issuer and approved by the Company or a Majority of the
Bondholders and accepted appointment in the manner hereinafter provided, any
Bondholder, if he has been a bona fide owner of a Bond for at least six (6)
months, may petition any court of competent jurisdiction for the appointment of
a successor Trustee or successor Credit Facility Trustee, as the case may be.
(f) The Issuer shall cause the successor Trustee to give
notice of each resignation and each removal of the Trustee or the Credit
Facility Trustee and each appointment of a successor Trustee or successor Credit
Facility Trustee by mailing written notice of such event by first class mail,
postage prepaid, to each Bondholder. Each notice shall include the name and
address of the principal corporate trust office of the successor Trustee or
successor Credit Facility Trustee, as applicable.
Section 10.17 Successor Trustee or Credit Facility Trust.
(a) Every successor Trustee appointed hereunder and any
successor Credit Facility Trustee appointed hereunder shall execute, acknowledge
and deliver to its predecessor, and also to the Issuer and the Company, an
instrument in writing accepting such appointment hereunder, and thereupon and
upon transfer of the Credit Facility to the successor Credit Facility Trustee,
such successor Trustee or successor Credit Facility Trustee without any further
act, shall become fully vested with all the rights, immunities, powers and
trusts, and subject to all the duties and obligations, of its predecessor; but
such predecessor shall, nevertheless, on the written request of its successor or
of the Issuer and upon payment of the expenses, charges and other disbursements
of such predecessor which are payable pursuant to the provisions of Section 10.6
hereof, execute and deliver an instrument transferring to such successor Trustee
or such successor Credit Facility Trustee all the rights, immunities, powers and
trusts of such predecessor hereunder; and every predecessor Trustee or
predecessor Credit Facility Trustee, as the case may be, shall deliver all
property and moneys held
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by it hereunder to its successor, subject, nevertheless, to its preference, if
any, provided for in Sections 10.4 and 10.6 hereof. Should any instrument in
writing from the Issuer be required by any successor Trustee or successor Credit
Facility Trustee for more fully and certainly vesting in such Trustee or such
Credit Facility Trustee the rights, immunities, powers and trusts hereby vested
or intended to be vested in the predecessor Trustee or predecessor Credit
Facility Trustee, any such instrument in writing shall and will, on request, be
executed, acknowledged and delivered by the Issuer. The resignation of any
Trustee or Credit Facility Trustee and the instrument or instruments removing
any Trustee or Credit Facility Trustee and appointing a successor hereunder,
together with all other instruments provided for in this Article, shall be filed
and/or recorded by the successor Trustee or successor Credit Facility Trustee in
each recording office where this indenture and the Financing Statements have
been filed and/or recorded.
(b) Notwithstanding any of the foregoing provisions of this
Article, any bank or trust company having power to perform the duties and
execute the trusts of this Indenture and otherwise qualified to act as Trustee
or Credit Facility Trustee hereunder with or into which the bank or trust
company acting as Trustee or Credit Facility Trustee may be merged or
consolidated, or to which the assets and business of such bank or trust company
may be sold, shall be deemed the successor of the Trustee or Credit Facility
Trustee, as applicable; provided, however, that any sale of trust assets, if
any, other than as part of all other assets of the bank or trust company being
sold shall be deemed a resignation pursuant to Section 10.16 hereof.
Section 10.18 Co-Trustee. It is the purpose of this Indenture
that there shall be no violation of any law of any jurisdiction denying or
restricting the right of certain banking corporations or associations to
transact business as trustee as contemplated herein in such jurisdiction. It is
recognized that in case of litigation under this Indenture and in particular in
case of the enforcement of the security interest contained in this Indenture
upon the occurrence of an Event of Default, it may be necessary that the Trustee
appoint an additional individual or institution as a separate Trustee or
Co-Trustee, which shall be satisfactory to the Company. The following provisions
of this Section 10.18 are adapted to these ends:
(a) In the event of the incapacity or lack of authority of the
Trustee by reason of any present or future law of any jurisdiction to exercise
any of the rights, powers and trusts herein granted to the Trustee or to hold
title to or a security interest in the Trust Estate or to take any other action
which may be necessary or desirable in connection therewith, each and every
remedy, power, right, claim, demand, cause of action, immunity, estate, title,
interest and lien expressed or intended by this Indenture to be exercised by or
vested in or conveyed to the Trustee with respect thereto shall be exercisable
by and vest in such separate Trustee or Co-Trustee but only to the extent
necessary to enable the separate Trustee or Co-Trustee to exercise such rights,
powers and trusts, and every covenant and obligation necessary to the exercise
thereof shall run to and be enforceable by such separate Trustee or Co-Trustee.
(b) Should any deed, conveyance or instrument in writing from
the Issuer be required by the separate Trustee or Co-Trustee so appointed by the
Trustee in order to more fully and certainly vest in and confirm to it such
properties, rights, powers, trusts, duties and obligations any and all such
deeds, conveyances and instruments shall, on request, be executed, acknowledged
and
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delivered by the Issuer. In case any separate Trustee or Co-Trustee or a
successor to either, shall die, be dissolved, become incapable of action, resign
or be removed, all the estates, properties, rights, powers, trusts, duties and
obligations of such separate Trustee or Co-Trustee, so far as permitted by are,
shall vest in and be exercised by the Trustee until the appointment of a new
Trustee or successor to such separate Trustee or Co-Trustee.
Section 10.19 Notice to Moody's or S&P. At any time during
which the Bonds are rated by Moody's or S&P, the Trustee, to the extent it has
knowledge of the following, shall notify Moody's or S&P, as applicable, promptly
of:
(a) any change in the Trustee,
(b) the expiration or termination of the Credit Facility
during the Variable Rate Period or the provision of an Alternate Credit Facility
in accordance with the terms of this Indenture,
(c) a change in the interest rate borne by the Bonds from a
Variable Rate to a Fixed Rate,
(d) the payment of all of the Bonds, or
(e) any material change to this Indenture, the Loan Agreement,
or the Credit Facility Agreement.
ARTICLE 11
EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS
AND PROOF OF OWNERSHIP OF THE BONDS
Section 11.1 Execution of Instruments by the Bondholders and
Proof of Ownership of the Bonds.
(a) Any request, direction, consent or other instrument in
writing required or permitted by this Indenture to be signed or executed by a
Bondholder may be signed or executed by the Bondholder or its attorneys or legal
representatives. Proof of the execution of any such instrument and of the
ownership of the Bonds shall be sufficient for any purpose of this Indenture and
shall be conclusive in favor of the Trustee and the Credit Facility Trustee with
regard to any action taken by the Trustee or the Credit Facility Trustee under
such instrument if made in the following manner:
The fact and date of the execution by any person of
any such instrument may be proved by the verification of any
officer in any jurisdiction who, by the laws thereof, has
power to take affidavits within such jurisdiction, to the
effect that such instrument was subscribed and sworn to before
him, or by an affidavit of a witness to such execution, and
where such execution is by an officer of a corporation or
association or a member of a partnership on behalf of
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such corporation, association or partnership, such
verification or affidavit shall also constitute sufficient
proof of his authority.
(b) Nothing contained in this Section 11.1 shall be construed
as limiting the Trustee or the Credit Facility Trustee to such proof, it being
intended that the Trustee or the Credit Facility Trustee may accept any other
evidence of the matters herein stated which may be sufficient. Any request or
consent of a Bondholder shall bind every future owner of the Bond(s) to which
such request or consent pertains or any Bond(s) issued in lieu thereof in
respect of anything done by the Trustee or the Credit Facility Trustee pursuant
to such request or consent.
(c) Notwithstanding any of the foregoing provisions of this
Section 11.1 the Trustee and the Credit Facility Trustee shall not be required
to recognize any person as an owner of Bonds or to take any action at such
owner's request unless the Bonds shall be deposited with the Trustee or the
Credit Facility Trustee, as applicable.
Section 11.2 Preservation of Information. The Trustee shall
preserve in the Bond Register, in as current a form as is reasonably
practicable, the name and address of each Bondholder received by the Trustee in
its capacity as Bond Registrar.
ARTICLE 12
THE REMARKETING AGENT; THE
TENDER AGENT; THE PLACEMENT AGENT
Section 12.1 The Remarketing Agent.
(a) The Issuer hereby appoints First Union National Bank of
North Carolina, with its corporate office in Charlotte, North Carolina, as
Remarketing Agent under this Indenture. The Remarketing Agent and any successor
Remarketing Agent, by written instrument delivered to the Issuer, the Trustee
and the Company, shall accept the duties and obligations imposed on it under
this Indenture and the Remarketing Agreement.
(b) In addition to the other obligations imposed on the
Remarketing Agent hereunder, the Remarketing Agent shall agree to keep such
books and records in connection with its activities as Remarketing Agent
hereunder as shall be consistent with prudent industry practice and make such
books and records available for inspection by the Issuer, the Trustee, the
Credit Facility Issuer and the Company at all reasonable times.
(c) The Remarketing Agent shall at all times be a member of
the National Association of Securities Dealers, Inc. and registered as a
Municipal Securities Dealer under the Securities Exchange Act of 1934, as
amended, or a national banking association or a bank or a trust company, in each
case authorized by law to perform its obligations hereunder.
(d) If at any time the Remarketing Agent is unable or
unwilling to act as Remarketing Agent, the Remarketing Agent, upon thirty (30)
Business Days' prior written notice to the Issuer, the Trustee, the Credit
Facility Trustee, the Credit Facility Issuer, the Tender Agent and
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the Company, may resign. The Remarketing Agent may be removed at any time by the
Company with the consent of the Issuer, by written notice signed by the Company
delivered to the Trustee, the Remarketing Agent, the Credit Facility Issuer and
the Tender Agent. Upon resignation or removal of the Remarketing Agent, the
Company, with the consent of the Issuer, shall appoint a substitute Remarketing
Agent meeting the qualifications of Section 12.1(c) above.
(e) In the event that the Company shall fail to appoint a
successor Remarketing Agent, upon the resignation or removal of the Remarketing
Agent or upon its dissolution, insolvency or bankruptcy, the Trustee may, but is
not required to, appoint a Remarketing Agent or may itself act as Remarketing
Agent until the appointment of a successor Remarketing Agent in accordance with
this Section 12.1; provided, however, that the Trustee, in its capacity as
Remarketing Agent, shall not be required to sell Bonds or determine the interest
rate on the Bonds pursuant to Section 2.2 hereof.
Section 12.2 The Tender Agent.
(a) The Issuer hereby appoints as Tender Agent under this
Indenture First Union National Bank of Florida, which agent has a corporate
trust office in Miami, Florida. The Tender Agent and any successor Tender Agent,
by written instrument delivered to the Issuer, the Trustee and the Company,
shall accept the duties and obligations imposed on it under this Indenture.
(b) The Tender Agent shall at all times be a member of the
National Association of Securities Dealers, Inc. having a capitalization of at
least Fifteen Million Dollars ($15,000,000) and a rating by Moody's (if the
Bonds are then rated by Moody's) of BAA 3/P3 or higher or a national banking
association or a bank or a trust company having capital and surplus of at least
$50,000,000, in each case authorized by law to perform its obligations
hereunder.
(c) If at any time the Tender Agent is unable or unwilling to
act as Tender Agent, the Tender Agent, upon sixty (60) days' prior written
notice to the Issuer, the Trustee, the Remarketing Agent and the Company, may
resign; provided, however, that in no case shall such resignation become
effective until the appointment of a successor Tender Agent. The Tender Agent
may be removed at any time by the Company with the consent of the Issuer, by
written notice signed by the Company delivered to the Trustee, the Remarketing
Agent, the Credit Facility Issuer and the Tender Agent; provided, however, that
in no case shall such removal become effective until the appointment of a
successor Tender Agent. Upon resignation or removal of the Tender Agent, the
Company, with the consent of the Issuer, shall appoint a substitute Tender Agent
meeting the qualifications of Section 12.2(b) above.
(d) In the event that the Company shall fail to appoint a
successor Tender Agent, upon the resignation or removal of the Tender Agent or
upon its dissolution, insolvency or bankruptcy, the Trustee may at its
discretion, but is not required to, act as Tender Agent until the appointment of
a successor Tender Agent in accordance with this Section 12.2.
Section 12.3 The Placement Agent. The Placement Agent shall be
a member of the National Association of Securities Dealers, Inc. and registered
as a Municipal Securities Dealers
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under the Securities Exchange Act of 1934, as amended, or a national banking
association or a bank or trust company, in each case authorized by law to
perform its obligations described in Section 2.2(e) hereof.
Section 12.4 Notices. The Trustee shall, within thirty (30)
days of the resignation or removal of the Remarketing Agent or the Tender Agent
or the appointment of the Placement Agent or a successor Remarketing Agent or a
successor Tender Agent, give notice thereof by first class mail, postage
prepaid, to the owners of the Bonds.
ARTICLE 13
AMENDMENTS AND SUPPLEMENTS
Section 13.1 Amendments and Supplements Without the
Bondholders' Consent. This Indenture may be amended or supplemented at any time
and from time to time, without the consent of the Bondholders, but with the
consent of the Company and the Credit Facility Issuer, if a Credit Facility is
in effect (and no default has occurred and is continuing under the Credit
Facility), by a supplemental indenture authorized by a resolution of the Issuer
filed with the Trustee, for one or more of the following purposes:
(a) to add additional covenants of the Issuer or to surrender
any right or power herein conferred upon the Issuer;
(b) for any purpose not inconsistent with the terms of this
Indenture or to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this Indenture which shall not adversely affect the interests of
the owners of the Bonds;
(c) to permit the Bonds to be converted during the Variable
Rate Period to certificateless securities or securities represented by a master
certificate held in trust, ownership of which, in either case, is evidenced by
book entries on the books of the Bond Registrar, for any period of time;
(d) to permit the appointment of a Co-Trustee under this
Indenture;
(e) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualification of
this Indenture under the Trust Indenture Act of 1939, as amended, or under any
similar federal statute hereafter enacted, and to add to this Indenture such
other provisions as may be expressly permitted by the Trust Indenture Act of
1939, as amended;
(f) except as otherwise provided in Section 13.2 hereof, to
modify, eliminate or add to the provisions of this Indenture to such extent as
shall be necessary to obtain a rating of the Bonds from Moody's or S&P; and
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(g) to amend the administrative provisions hereof to
accommodate the provisions of an Alternate Credit Facility.
Notwithstanding the foregoing, prior to the making of any
amendment or supplement as described in the preceding paragraph, the Company
shall provide the Trustee and the Credit Facility Trustee and during the
Variable Rate Period (if no default has occurred and is continuing under the
Credit Facility) the Credit Facility Issuer with:
(1) a copy of the proposed amendment or supplement,
and
(2) an opinion of Bond Counsel to the effect that
such amendment or supplement will not adversely affect the
exclusion of the interest on the Bonds from the gross income
of the recipients thereof for federal income tax purposes,
and, unless the Trustee shall have otherwise given its consent
to such amendment or supplement, to the further effect that
such amendment or supplement will not otherwise adversely
affect the interests of the Bondholders.
Notwithstanding the foregoing, the Indenture may be amended or supplemented as
provided in this Section 13.1 to such extent as may be necessary to obtain a
rating of the Bonds from Moody's or S&P without providing the opinion of Bond
Counsel specified in paragraph (2) above.
Section 13.2 Amendments With the Bondholders' and the Credit
Facility Issuer's Consent.
(a) This Indenture may be amended from time to time, except
with respect to:
(1) the principal, redemption price, purchase price,
or interest payable upon any Bonds,
(2) the Interest Payment Dates, the dates of maturity
or the redemption or purchase provisions of any Bonds, and
(3) this Article 13,
by a supplemental indenture authorized by a resolution of the Issuer filed with
the Trustee and consented to by the Credit Facility Issuer if a Credit Facility
is in effect (and no default has occurred and is continuing under the Credit
Facility) and by the Company and approved by a Majority of the Bondholders which
would be affected by the action proposed to be taken.
(b) This Indenture may be amended with respect to the matters
enumerated in paragraphs (1) through (3) of subsection (a) of this Section with
the unanimous consent of all Bondholders, the Credit Facility Issuer if a Credit
Facility is in effect (and no default has occurred and is continuing under the
Credit Facility), the Company and the Issuer.
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<PAGE> 75
(c) Notwithstanding the foregoing provisions of this Section
13.2, prior to the making of any amendment or supplement as described in this
Section 13.2, the Company shall provide the Trustee and the Credit Facility
Trustee and during the Variable Rate Period (if no default has occurred and is
continuing under the Credit Facility) the Credit Facility Issuer with:
(1) a copy of the proposed amendment or
supplement, and
(2) an opinion of Bond Counsel to the effect
that such amendment or supplement will not adversely affect
the exclusion of the interest on the Bonds from the gross
income of the recipients thereof for federal income tax
purposes, and, unless the Trustee shall have otherwise given
its consent to such amendment or supplement, to the further
effect that such amendment or supplement will not otherwise
adversely affect the interests of the Bondholders.
Notwithstanding the foregoing, the Indenture may be amended or supplemented as
provided in this Section 13.2 to such extent as may be necessary to obtain a
rating of the Bonds from Moody's or S&P without providing the opinion of Bond
Counsel specified in paragraph (2) above.
Section 13.3 Supplemental Indentures Affecting the Rights of
the Credit Facility Issuer. Anything herein to the contrary notwithstanding, a
supplemental indenture under this Article 13 which in the judgment of the Credit
Facility Issuer if a Credit Facility is in effect (and no default has occurred
and is continuing under the Credit Facility) adversely affects the rights of the
Credit Facility Issuer shall not become effective unless or until the Credit
Facility Issuer shall have consented to the execution and delivery thereof.
Section 13.4 Amendment of the Loan Agreement.
(a) The Company and the Issuer may amend the Loan Agreement,
but as to any amendment to the Loan Agreement during the Variable Rate Period
with the consent of the Credit Facility Issuer (if no default has occurred and
is continuing under the Credit Facility); provided that prior to making any
amendment, the Company shall provide the Trustee and the Credit Facility Trustee
and during the Variable Rate Period (if no default has occurred and is
continuing under the Credit Facility) the Credit Facility Issuer with:
(1) copy of the proposed amendment, and
(2) an opinion of Bond Counsel to the effect that
such amendment will not adversely affect the exclusion of the
interest on the Bonds from the gross income of the recipients
thereof for federal income tax purposes, and, unless the
Trustee shall have otherwise given its consent to such
amendment, to the further effect that such amendment will not
otherwise adversely affect the interests of the Bondholders.
Notwithstanding the foregoing, the Issuer and the Company may amend the Loan
Agreement to such extent as may be necessary to obtain a rating of the Bonds
from Moody's or S&P without providing the opinion of Bond Counsel specified in
paragraph (2) above.
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(b) If the Company proposes to amend the Loan Agreement in
such a manner as would adversely affect the interests of the Bondholders, the
Trustee shall notify Bondholders of the proposed amendment and may consent
thereto with the consent of at least a Majority of the Bondholders which would
be affected by the action proposed to be taken; provided, that the Trustee shall
not, without the unanimous consent of the owners of all Bonds then Outstanding,
consent to any amendment which would:
(1) decrease the amounts payable under the Loan
Agreement,
(2) change the due date of loan payments
corresponding with payment of principal of or interest on the
Bonds or change any of the prepayment provisions of the Loan
Agreement, or
(3) change Section 5.6 of the Loan Agreement.
Section 13.5 Amendment of the Loan Agreement Requiring the
Consent of the Credit Facility Issue. Anything herein to the contrary
notwithstanding, any amendment, change or modification of the Loan Agreement
which in the judgment of the Credit Facility Issuer (if a Credit Facility is in
effect and no default has occurred and is continuing under the Credit Facility)
adversely affects the rights of the Credit Facility Issuer shall not become
effective unless or until the Credit Facility Issuer shall have consented to the
execution and deliver of such amendment, change or modification.
Section 13.6 Amendment of the Credit Facility. The initial
Credit Facility may be amended to such extent as shall be necessary to obtain a
rating of the Bonds from Moody's or S&P provided that such amendment or
supplement will not adversely affect the interests of the Bondholders. The
Trustee shall notify the Bondholders and the Issuer of any proposed amendment of
the Credit Facility which would adversely affect the interests of the
Bondholders and may consent thereto with the consent of the Issuer, which
consent shall not be unreasonably withheld, and at least a Majority of the
Bondholders which would be affected by the action proposed to be taken;
provided, that the Trustee shall not, without the unanimous consent of the
owners of all Bonds then Outstanding, consent to any amendment which would
decrease the amount payable under the Credit Facility or reduce the term of the
Credit Facility.
Section 13.7 Trustee and the Credit Facility Trustee
Authorized to Join in Amendments and Supplements: Reliance on Counsel. The
Trustee and the Credit Facility Trustee are authorized to join with the Issuer
in the execution and delivery of any supplemental indenture or amendment
permitted by this Article 13 and in so doing shall be fully protected by an
opinion of Counsel that such supplemental indenture or amendment is so permitted
and has been duly authorized by the Issuer and that all things necessary to make
it a valid and binding agreement have been done; provided that certain
amendments may, by agreement between the Trustee and the Credit Facility Issuer,
require the prior consent of the Credit Facility Issuer.
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ARTICLE 14
DEFEASANCE; OTHER PAYMENTS
Section 14.1 Defeasance.
(a) When the principal or redemption price (as the case may
be) of, and interest on all Bonds issued hereunder have been paid, including
without limitation the purchase price for Bonds tendered under Section 2.3
hereof, or provision has been made for payment of the same, together with the
compensation of the Trustee and all other sums payable hereunder by the Issuer,
the right, title and interest of the Trustee and the Credit Facility Trustee in
and to the Trust Estate and the security interests shall thereupon cease, and
the Trustee and the Credit Facility Trustee, on written demand of the Issuer,
shall release this Indenture and the security interests and shall execute such
documents to evidence such release as may be reasonably required by the Issuer
and shall turn over to the Company or to such person, body or authority as may
be entitled to receive the same all balances then held by the Trustee or the
Credit Facility Trustee hereunder; provided, that, if any payments have been
received by the Trustee or the Credit Facility Trustee derived from draws by the
Credit Facility Trustee under the Credit Facility in connection with such
release, such balances shall be paid to the Credit Facility Issuer to the extent
of such payments. If payment or provision therefor is made with respect to less
than all of the Bonds, the particular Bonds (or portion thereof) for which
provision for payment shall have been considered made shall be selected by lot
by the Trustee and thereupon the Trustee shall take similar action for the
release of this Indenture with respect to such Bonds. Notwithstanding anything
to the contrary contained herein, Bonds purchased at the option of the owners
thereof with moneys held by the Trustee pursuant to this Article 14 shall not be
remarketed but shall be canceled by the Trustee.
(b) Provision for the payment of Bonds shall be deemed to have
been made when the Trustee holds in the Bond Fund, in trust and irrevocably set
aside exclusively for such payment, (1) moneys sufficient to make such payment
provided that if a Credit Facility is then held by the Trustee or the Credit
Facility Trustee, such moneys shall constitute Available Moneys or (2)
noncallable Governmental Obligations maturing as to principal and interest in
such amounts and at such times as will provide sufficient moneys without
reinvestment to make such payment; provided that the Trustee shall have received
an opinion of Bond Counsel to the effect that such deposit will not affect the
exclusion of the interest on any of the Bonds from the gross income of the
recipients thereof for federal income tax purposes (e.g. by causing any of the
Bonds to be classified as an "arbitrage bond" within the meaning of Section 148
of the Code); and provided further, that if a Credit Facility is then held by
the Credit Facility Trustee, such Governmental Obligations shall have been on
deposit with the Trustee in a separate and segregated account for a period of
three hundred sixty-six (366) days during and prior to which no Event of
Bankruptcy has occurred or which Governmental Obligations were purchased with
Available Moneys; and provided further, that in the case of Bonds bearing a
Variable Rate, the Trustee has received written evidence from each rating agency
then rating such Bonds that the rating currently assigned to such Bonds will not
be withdrawn or reduced as the result of a deposit under this subsection.
(c) No Bonds in respect of which a deposit under subsection
(b) above has been made shall be deemed paid within the meaning of this Article
unless the Trustee is satisfied that the
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amounts deposited are sufficient to make all payments that might become due on
the Bonds, including purchase price payments for Bonds tendered at the option of
the owners or purchased by the Company in lieu of redemption, if any.
Notwithstanding the foregoing, no delivery to the Trustee under this subsection
(c) shall be deemed a payment of any Bonds which are to be redeemed prior to
their stated maturity until such Bonds shall have been irrevocably called or
designated for redemption on a date thereafter on which such Bonds may be
redeemed in accordance with the provisions of this Indenture or the Issuer shall
have given the Trustee, in form satisfactory to the Trustee, irrevocable
instructions to give notice of redemption. Neither the obligations nor moneys
deposited with the Trustee pursuant to this Section shall be withdrawn or used
for any purpose other than, and shall be segregated and held in trust for, the
payment of the principal of, redemption price of, purchase price if applicable
of, and interest on the Bonds with respect to which such deposit has been made.
In the event that such moneys or obligations are to be applied to the payment of
principal or redemption price of any Bonds more than sixty (60) days following
the deposit thereof with the Trustee, the Trustee shall mail a notice stating
that such moneys or obligations have been deposited and identifying the Bonds
for the payment of which such moneys or obligations are being held to all owners
of such Bonds at their addresses shown on the Bond Register.
(d) Anything in Article 14 to the contrary notwithstanding, if
moneys or Governmental Obligations have been deposited or set aside with the
Trustee pursuant to this Article for the payment of the principal or redemption
price, including purchase price if applicable, of the Bonds and the interest
thereon and such moneys or Governmental Obligations do not constitute Available
Moneys, no amendment to the provisions of this Article shall be made without the
consent of the owner of each of the Bonds affected thereby.
(e) Notwithstanding the foregoing, those provisions relating
to the purchase of Bonds upon the demand of any Bondholders, the maturity of
Bonds, interest payments and dates thereof, and the dates, premiums and notice
requirements for optional and mandatory redemption or purchase and the Trustee's
remedies with respect thereto, and provisions relating to exchange, transfer and
registration of Bonds, replacement of mutilated, destroyed, lost or stolen
Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, the
holding of moneys in trust and repayments to the Company or the Credit Facility
Issuer from the Bond Fund and the duties of the Trustee in connection with all
of the foregoing and the fees, expenses and indemnities of the Trustee and the
Credit Facility Trustee, shall remain in effect and shall be binding upon the
Trustee, the Credit Facility Trustee, the Issuer, the Company and the
Bondholders notwithstanding the release and discharge of the lien of this
Indenture.
Section 14.2 Deposit of Funds for Payment of the Bonds. If the
principal or redemption price of any Bonds to become due, either at maturity or
by call for redemption or otherwise, together with all interest accruing thereon
to the due date, has been paid or provision therefor made in accordance with
Article 14 hereof, all interest on such Bonds shall cease to accrue on the due
date and all liability of the Issuer with respect to such Bonds shall likewise
cease, except as hereinafter provided. Thereafter the owners of such Bonds shall
be restricted exclusively to the funds so deposited for any claim of whatsoever
nature with respect to such Bonds, and the Trustee shall hold such funds in
trust for such owners.
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Section 14.3 Effect of Purchase of the Bonds. No purchase of
Bonds pursuant to Section 3.2 hereof shall be deemed to be a payment or
redemption of such Bonds or any portion thereof and such purchase will not
operate to extinguish or discharge the indebtedness evidenced by such Bonds.
ARTICLE 15
MISCELLANEOUS PROVISIONS
Section 15.1 Covenants of the Issuer to Bind its Successors.
In the event of the dissolution of the Issuer, all of the covenants,
stipulations, obligations and agreements contained in this Indenture by or in
behalf of or for the benefit of the Issuer shall bind or inure to the benefit of
the successor or successors of the Issuer from time to time and any officer,
board, commission, authority, agency or instrumentality to whom or to which any
power or duty affecting such covenants, stipulations, obligations and agreements
shall be transferred by or in accordance with law, and the term "Issuer" as used
in this Indenture shall include such successor or successors.
Section 15.2 Notices.
(a) Any notice, demand, direction, request or other instrument
authorized or required by this Indenture to be given or filed with the Issuer,
the Trustee, the Credit Facility Trustee, the Company or the Credit Facility
Issuer shall be in writing and shall be deemed given or filed for all purposes
of this Indenture when delivered by hand delivery, sent via overnight courier
service or mailed by first class mail, postage prepaid, registered or certified
mail, addressed as follows:
(1) if to the Issuer, to Board of County
Commissioners; Palm Beach County; 301 N. Olive Avenue, West
Palm Beach, Florida 33401, Attention: Chairman;
(2) if to the Trustee, to First Union
National Bank of Florida; 200 S. Biscayne Boulevard, 14th
Floor; Miami, Florida 33131, Attention: Corporate Trust Group;
(3) if to the Credit Facility Trustee, to
Branch Banking and Trust Company; 223 West Nash Street;
Wilson, North Carolina 27893, Attention: Corporate Trust
Department;
(4) if to any successor Trustee, successor
Credit Facility Trustee or Co- Trustee, addressed to it at its
principal corporate trust office, Attention: Corporate Trust
Department;
(5) if to the Company, to Palm Beach Bedding
Company; 1016 Clare Avenue; West Palm Beach, Florida 33401,
Attention: Max C. Harper, Vice President and Chief Financial
Officer;
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(6) if to the Bank, to First Union National
Bank of Florida; 200 S. Biscayne Boulevard, 14th Floor; Miami,
Florida 33131, Attention: International Operations; and
(7) if to any Credit Facility Issuer (other
than the Bank), addressed to it at its principal office,
and if sent by telegraph, telegram report of delivery requested, or telecopy,
addressed as above, at the time and date appearing on the report of delivery.
Notwithstanding the foregoing, the delivery of Bonds, Optional Tender Notices,
or Optional Retention Notices to the Trustee or Tender Agent if made by
telegraph, telegram or telecopy, must be made by delivery of the hard copy by
overnight delivery on the date of delivery of such telegraph, telegram or
telecopy and shall not be effective until actual receipt thereof by the Trustee
or the Tender Agent, as the case maybe.
(b) A duplicate copy of each notice or other communication
given hereunder by either the Issuer, the Trustee or the Credit Facility Trustee
to the other shall also be given to the Company.
(c) All documents received by the Trustee or Credit Facility
Trustee under the provisions of this Indenture, or photographic copies thereof,
shall be retained in its possession until this Indenture shall be released in
accordance with the provisions of the Indenture, subject at all reasonable times
to the inspection of the Issuer and the Company and the agents and
representatives thereof.
(d) The Issuer, the Trustee, the Credit Facility Trustee, the
Company and the Credit Facility Issuer may, by notice given hereunder, designate
any further or different addresses to which subsequent notices, certificates or
other communications shall be sent.
Section 15.3 Trustee as the Paying Agent and the Bond
Registrar. The Trustee is hereby designated and agrees to act as payment agent
and Bond Registrar for and in respect of the Bonds and any amounts received
under the Credit Facility or the Loan Agreement.
Section 15.4 Rights Under this Indenture. Except as herein
otherwise expressly provided, nothing in this Indenture expressed or implied is
intended or shall be construed to confer upon any person, firm or corporation
other than the parties hereto, the Company and the owners of the Bonds issued
under and secured by this Indenture, any benefit of this Indenture or any
provisions hereof, this Indenture and all its provisions being intended to be
and being for the sole and exclusive benefit of the parties hereto, the Company
and the owners from time to time of the Bonds issued hereunder.
Section 15.5 Form of Certificates and Opinions. Except as
otherwise provided in this Indenture, any request, notice, certificate or other
instrument from the Issuer or the Company to the Trustee shall be deemed to have
been signed by the proper party or parties if signed by the Issuer
Representative or the Company Representative, respectively, and the Trustee may
accept and
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rely upon a certificate signed by the Issuer Representative as to any action
taken by the Issuer and by the Company Representative as to any action taken by
the Company.
Section 15.6 Severability. In case any one or more of the
provisions of this Indenture or of the Bonds issued hereunder shall for any
reason be held to be illegal or invalid, such illegality or invalidity shall not
affect any other provisions of this Indenture or of the Bonds, but this
Indenture and the Bonds shall be construed and enforced as if such illegal or
invalid provision had not been contained therein. In case any covenant,
stipulation, obligation or agreement of the Issuer contained in this Indenture
or in the Bonds shall for any reason be held to be in violation of law, then
such covenant, stipulation, obligation or agreement of the Issuer shall be given
effect to the full extent permitted by law.
Section 15.7 Covenants of Issuer Not Covenants of Officials
Individually. All covenants, stipulations, obligations and agreements of the
Issuer contained in this Indenture shall be deemed to be covenants,
stipulations, obligations and agreements of the Issuer to the full extent
permitted by the Constitution and laws of the State. No covenant, stipulation,
obligation or agreement contained herein shall be deemed to be a covenant,
stipulation, obligation or agreement of any present or future officer, member,
agent or employee of the Issuer in his individual capacity, and no officer of
the Issuer executing the Bonds shall be liable personally on the Bonds or be
subject to any personal liability or accountability by reason of the issuance
thereof. No officer, agent or employee of the Issuer shall incur any personal
liability in acting or proceeding or in not acting or not proceeding in
accordance with the terms of this Indenture.
Section 15.8 State Law Governs. This Indenture shall be
governed by and construed in accordance with the laws of the State.
Section 15.9 Payments Due on Days Other Than Business Days. In
any case where the date of maturity of interest on or principal of the Bonds or
the date fixed for redemption of the Bonds shall be in the city of payment a day
other than a Business Day, then payment of interest or principal need not be
made on such date but may be made on the next succeeding Business Day with the
same force and effect as if made on the date of maturity or the date fixed for
redemption, provided that interest shall accrue for the period of any such
extension.
Section 15.10 Execution in Counterparts. This Indenture may be
executed in multiple counterparts, each of which shall be regarded for all
purposes as an original, and such counterparts shall constitute but one and the
same instrument, and no one counterpart of which need be executed by all
parties.
IN WITNESS WHEREOF, the Issuer has caused this Indenture to be
executed in its name and on its behalf by the Chairman of the Issuer, the
official seal of the Issuer to be impressed hereon and the same to be attested
by the Clerk of the Issuer; the Trustee has caused this Indenture to be executed
in its name and on its behalf by a vice president or trust officer; and the
Credit Facility Trustee has caused this Indenture to be executed in its name and
on its behalf by a vice president or trust officer, all as of the date and year
first above written.
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PALM BEACH COUNTY, FLORIDA
By: /s/ Ken Foster
----------------------
Chairman of its Board of County
Commissioners
ATTEST:
By /s/ John W. Dame
----------------------
Clerk of its Board of County
Commissioners
FIRST UNION NATIONAL BANK OF FLORIDA,
as Trustee
By: /s/ Holly Lee [illegible]
----------------------
Title: Asst Vice President
APPROVED AS TO FORM
AND LEGAL SUFFICIENCY
Paul F. King
----------------------
COUNTY ATTORNEY
BRANCH BANKING AND TRUST COMPANY, as
Credit Facility Trustee
By: /s/ Margaret D. Smith
----------------------
Title: Vice President
----------------------
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EXHIBIT A
NOTICE OF CONVERSION
[Name and Address of Owner]
Re: $7,650,000 Palm Beach County, Florida, Variable
Rate Demand Industrial Development Revenue Bonds
(Palm Beach Bedding Company Project), Series 1996
The undersigned officer of First Union National Bank of
Florida, as Trustee with respect to the captioned Bonds, pursuant to the
provisions of Section 2.2(e) of that certain Trust Indenture (the "Indenture"),
dated as of April 1, 1996, among Palm Beach County, Florida, the Trustee and
Branch Banking and Trust Company, as Credit Facility Trustee, hereby notifies
you that the interest rate borne by the captioned Bonds shall be converted from
the Variable Rate to the Fixed Rate, as follows (capitalized terms used herein
shall have the meanings provided in the Indenture):
1. The Conversion Date is _____________________________
2. The Placement Agent is _____________________________
_____________________________
_____________________________
3. All Owners of Bonds are required to tender their
Bonds on the Conversion Date to the Tender Agent, at
the address set forth below, for purchase on the
Conversion Date. In the event any owner of Bonds
shall fail to tender such owner's Bonds for purchase
on the Conversion Date, such Bonds shall be deemed to
have been tendered for purchase on the Conversion
Date.
4. The address of the Tender Agent is as follows:
First Union National Bank of Florida
200 S. Biscayne Boulevard, 14th Floor
Miami, Florida 33131
Attention: Corporate Trust Group
5. After the tenth (10th) day preceding the Conversion
Date, you will not be entitled to tender any Bond for
purchase.
6. In order to receive payment of the purchase price of
any Bond which is deemed to have been tendered, you
must deliver such Bond to the office of the Tender
Agent shown above before 10:00 a.m. (Charlotte, North
Carolina time) on the Conversion Date.
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7. Interest on any Bond will be payable only to (but not
including) the Conversion Date.
8. The delivery by the Company to the Trustee of a
letter from Bond Counsel confirming the opinion
received pursuant to this notification is a condition
precedent to a conversion to a Fixed Rate. In the
event that the Company fails to deliver to the
Trustee the letter of Bond Counsel herein referred
to, the conversion of interest on the Bonds to the
Fixed Rate shall not take effect and the Bonds shall
continue to bear interest at the Variable Rate.
9. The Preliminary Fixed Rate is _____________.
10. Depending on market conditions, the Fixed Rate may be
higher but in no event lower than the Preliminary
Fixed Rate.
11. After the Conversion Date, payment on the Bonds will
not be supported by a Credit Facility.
12. The rating on the Bonds (if any) may be reduced or
withdrawn on the Conversion Date.
13. All owners of Bonds who desire to retain such Bonds
must deliver an Optional Retention Notice (the form
of which is attached as Attachment C-1 to the Bond)
to the Trustee by the tenth (10th) day preceding the
Conversion Date (or the next succeeding Business Day
if such date is not a Business Day) or be deemed to
have tendered their Bonds for purchase and must
deliver the Bonds to the Trustee on or before the
Conversion Date to be stamped with the legend
contained in Section 2.2(e)(8) of the Indenture.
This _____ day of ______________, 199_.
FIRST UNION NATIONAL BANK OF FLORIDA,
as Trustee
By:_______________________________________
Title:______________________________________
A copy of this Notice has been delivered to the Tender Agent
at the address above.
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<PAGE> 85
EXHIBIT B
BOOK ENTRY AGREEMENT
B-1
<PAGE> 86
Blanket Issuer Letter of Representations
[To be Completed by Issuer]
Palm Beach County Florida
-------------------------
[Name of Issuer]
May 11, 1995
[Date]
Attention: Underwriting Department -- Eligibility
THE DEPOSITORY TRUST COMPANY
55 Water Street; 50th Floor
New York, NY 10041-0099
Ladies and Gentlemen:
This letter sets forth our understanding with respect to all issues
(the "Securities") that Issuer shall request be made eligible for deposit by The
Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with DTC's Rules with respect to the Securities, Issuer
represents to DTC that Issuer will comply with the requirements stated in DTC's
Operational Arrangements, as they may be amended from time to time.
Note:
Schedule A contains statements that DTC believes accurately describe DTC, the
method of effecting book-entry transfers of securities distribution through DTC,
and certain related matters.
Very truly yours,
Palm Beach County Florida
- -------------------------
(Issuer)
By: /s/ Ken Foster
------------------
(Authorized Officer's Signature)
APPROVED AS TO FORM
AND LEGAL SUFFICIENCY
/s/ Paul F. King
- --------------------
COUNTY ATTORNEY
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: /s/ James McGreeney
----------------------
Palm Beach County, Florida
301 North Olive Avenue, Suite 601
West Palm Beach, Florida 33401
Executed by Ken Foster, Chairman of the
Board of County Commissioners,
Palm Beach County, Florida and
Paul F. King, Esq., Assistant County Attorney
(407) 355-6337
B-2
<PAGE> 87
EXHIBIT C
FORM OF BOND
CUSIP _____
[The legend in the two paragraphs immediately following shall
appear so long as the Book-Entry System described in Section
2.14 of the Indenture has not been discontinued.]
THE ISSUER HAS ESTABLISHED A BOOK ENTRY SYSTEM OF REGISTRATION FOR THIS BOND.
EXCEPT AS SPECIFICALLY PROVIDED OTHERWISE IN THE INDENTURE, CEDE & CO., AS
NOMINEE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), WILL BE
THE REGISTERED OWNER AND WILL HOLD THIS BOND ON BEHALF OF EACH BENEFICIAL OWNER
HEREOF. BY ACCEPTANCE OF A CONFIRMATION OF PURCHASE, DELIVERY OR TRANSFER, EACH
BENEFICIAL OWNER OF THIS BOND SHALL BE DEEMED TO HAVE AGREED TO SUCH
ARRANGEMENT. CEDE & CO., AS REGISTERED OWNER OF THIS BOND, MAY BE TREATED AS THE
OWNER OF IT FOR ALL PURPOSES.
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE
TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON THIS BOND ARE
LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE SOURCES AND SPECIAL
FUNDS PLEDGED FOR THEIR BENEFIT PURSUANT TO THE INDENTURE. THIS BOND SHALL NOT
CONSTITUTE A DEBT OF THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF
OR THE ISSUER WITHIN THE MEANING OF ANY PROVISION OF THE CONSTITUTION OR LAWS OF
THE STATE AND SHALL NOT CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE
STATE OR ANY POLITICAL SUBDIVISION THEREOF OR THE ISSUER OR A CHARGE AGAINST THE
GENERAL CREDIT OR TAXING POWERS OF ANY OF THEM.
THIS BOND MAY BE TENDERED FOR PURCHASE AS DESCRIBED HEREIN. DELIVERY
OF AN OPTIONAL TENDER NOTICE WITH RESPECT TO THIS BOND CONSTITUTES AN
IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED THEREIN AND
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<PAGE> 88
IS BINDING ON SUBSEQUENT OWNERS OF THIS BOND. IN THE EVENT THE OWNER OF THIS
BOND FAILS TO DELIVER THIS BOND TO THE TENDER AGENT ON THE SPECIFIED DATE, THE
OWNER HEREOF SHALL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE
AND NOT TO THE BENEFITS OF THE INDENTURE. THIS BOND ALSO IS SUBJECT TO MANDATORY
TENDER AND PURCHASE AS DESCRIBED HEREIN.
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PALM BEACH COUNTY, FLORIDA
VARIABLE RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BOND
(PALM BEACH BEDDING COMPANY PROJECT),
SERIES 1996
No. R_____
Registered Owner: ______________________________
Principal Amount: ______________________________
Maturity Date: First Business Day of April, 2016
Initial Interest Rate: _____________%
Interest Payment Dates: The first Business Day of each January, April, July
and October, commencing the first Business Day of
July, 1996, and ending on the Conversion Date
(hereinafter defined) and the Maturity Date.
Original Delivery Date: April 2, 1996
Palm Beach County, Florida (herein called the "Issuer"), a
political subdivision of the State of Florida (herein called the "State"), for
value received, hereby promises to pay (but only from the sources hereinafter
mentioned) to the Registered Owner set forth above, or registered assigns, the
Principal Amount set forth above on the Maturity Date set forth above and to pay
(but only from the sources hereinafter mentioned) interest thereon from the
Interest Payment Date immediately preceding the Date of Authentication endorsed
hereon, unless this Bond is authenticated on an Interest Payment Date in which
event it will bear interest from such date or unless it is authenticated prior
to the first Business Day of April, 1996, in which event it will bear interest
from the Date of Authentication, payable on each Interest Payment Date, until
payment of said principal sum has been made or provided for, at the rate or
rates per annum set forth below. Principal and interest and premium, if any,
will be paid in any coin or currency of the United States of America which, at
the time of payment, is legal tender for the payment of public and private
debts. Interest will be paid by check mailed on the Interest Payment Date to the
person in whose name this Bond is registered at the close of business on the
Regular Record Date (as hereinafter defined) immediately preceding such Interest
Payment Date; provided, however, that while the Bonds (as hereinafter defined)
bear interest at the Variable Rate (as hereinafter defined) interest will also
be payable by wire transfer to the account at a member bank of the Federal
Reserve System of any registered owner of Bonds in the aggregate principal
amount of One Million Dollars ($1,000,000) or more at the written request
(identifying such account by number) of such owner received by the Trustee (as
hereinafter defined) on or before the Regular Record Date. While the Bonds bear
interest at the Variable Rate (as hereinafter defined), the Regular Record Date
will be the close of business on the Business Day immediately preceding each
Interest Payment Date. While the Bonds bear interest at the Fixed Rate (as
hereinafter defined), the Regular Record Date will be the fifteenth (15th) day
of the calendar month immediately preceding each Interest Payment Date. Any such
interest not so
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punctually paid or duly provided for will forthwith cease to be payable to the
owner on such Regular Record Date, and may be paid to the person in whose name
this Bond is registered at the close of business on a Special Record Date (as
defined in the Indenture (hereinafter defined)) for the payment of such
defaulted interest to be fixed by the Trustee, or may be paid at any time in any
other lawful manner, all as more fully provided in the Indenture. Principal and
redemption price will be paid upon surrender of this Bond at the corporate trust
office of First Union National Bank of Florida, as trustee (said banking
institution and any successor trustee or co-trustee under the Indenture being
herein called the "Trustee"), in the City of Miami, Florida. Payment of the
purchase price of Bonds purchased as described herein will be paid, upon
surrender of such Bonds, at the office of First Union National Bank of Florida
in the City of Miami, Florida (in such capacity, herein called the "Tender
Agent"). This Bond is issued under and pursuant to the Constitution and laws of
the State of Florida (the "State"), particularly Part II, Chapter 159, Florida
Statutes, as supplemented and amended (the "Act"), and under and pursuant to a
resolution duly adopted by the Issuer on December 19, 1995.
This Bond and the issue of which it is a part and the purchase
price thereof, the premium, if any, and interest thereon are limited obligations
of the Issuer payable by the Issuer solely from the revenues and receipts
derived from the Loan Agreement (as hereinafter defined), which revenues and
receipts have been pledged and assigned to the Trustee to secure payment thereof
and from amounts received pursuant to the Credit Facility (as hereinafter
defined). THIS BOND AND THE INTEREST HEREON WILL NOT CONSTITUTE AN INDEBTEDNESS
OR CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWER OF THE ISSUER WITHIN THE
MEANING OF ANY CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION AND SHALL NEVER
CONSTITUTE NOR GIVE RISE TO ANY PECUNIARY LIABILITY OF THE ISSUER, BUT WILL BE A
LIMITED OBLIGATION OF THE ISSUER PAYABLE SOLELY FROM THE REVENUES AND OTHER
FUNDS PLEDGED THEREFOR AND WILL NOT BE PAYABLE FROM ANY ASSETS OR FUNDS OF THE
ISSUER OTHER THAN THE REVENUES AND OTHER FUNDS PLEDGED THEREFOR, AND NEITHER THE
FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION
OR ANY AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST
ON THIS BOND.
This Bond is one of the Bonds of a duly authorized issue of
variable rate industrial revenue bonds of the Issuer in the aggregate principal
amount of $7,650,000 and designated Palm Beach County, Florida, Variable Rate
Demand Industrial Development Revenue Bonds (Palm Beach Bedding Company
Project), Series 1996 (the "Bonds").
The Bonds have been issued for the purpose of financing the
acquisition, construction and installation of a certain facilities (herein
called the "Project").
The Bonds are issued under and pursuant to a Trust Indenture,
dated as of April 1, 1996 (said Trust Indenture, together with all such
supplements and amendments thereto as therein permitted, being herein called the
"Indenture"), among the Issuer, the Trustee and Branch Banking and Trust
Company, as Credit Facility trustee (said banking institution and any successor
Credit Facility trustee under the Indenture being herein called the "Credit
Facility Trustee"). An executed
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counterpart of the Indenture is on file at the principal corporate trust office
of the Trustee and the Credit Facility Trustee. Reference is hereby made to the
Indenture for the provisions, among others, with respect to the custody and
application of the proceeds of the Bonds; the collection and disposition of
revenues; a description of the funds charged with and pledged to the payment of
the principal of and interest on and any other amounts payable under the Bonds;
the nature and extent of the security; the terms and conditions under which the
Bonds are or may be issued; and the rights, duties and obligations of the Issuer
and of the Trustee and the rights of the owners of the Bonds, and, by the
acceptance of this Bond, the owner hereof assents to all of the provisions of
the Indenture.
The Issuer has entered into a Loan Agreement, dated as of
April 1, 1996 (herein called the "Loan Agreement"), with the Company, under
which the Issuer has agreed to use the proceeds of the Bonds to construct and
equip certain facilities and in consideration therefor, the Company has agreed
to make loan payments in installments, bearing interest at a rate or rates and
payable at times corresponding to the principal amount of, installments of
principal of, interest rates on and due dates of the Bonds. The Loan Agreement
also provides for the payment by the Company of certain fees and expenses of the
Issuer and the Trustee, and the Loan Agreement further obligates the Company (a)
to pay the cost of maintaining the Project in good repair in all material
respects and keeping the same properly insured and (b) to maintain a Credit
Facility (as hereinafter defined) during the period of time the Bonds bear
interest at the Variable Rate (herein called the "Variable Rate Period"). As
security for the payment of the Bonds, all right, title and interest of the
Issuer in (a) the Loan Agreement (except certain rights reserved by the Issuer
under the terms of the Indenture), (b) all money and securities at any time on
deposit in, in transit to or credited to any account or Fund created under the
Indenture, including without limitation the Project Fund and the Bond Fund (as
defined in the Indenture), but excluding the Rebate Fund (as defined in the
Indenture); and (c) Revenues (as defined in the Indenture); have been assigned
to the Trustee under the Indenture and pledged to the payment of the principal
of, and the redemption premium (if any) and the interest on, the Bonds. The
Issuer shall not be vested with any interest in the Project by virtue of the
issuance of the Bonds to finance the construction and installation of the
Project, and the Project shall not otherwise constitute any part of the security
for the payment of the Bonds.
Reference to the Indenture is hereby made for a description of
the aforesaid Bond Fund which is charged with, and pledged to, the payment of
the principal of, and the redemption premium (if any) and the interest on, the
Bonds, the nature and extent of the security, the rights, duties and obligations
of the Issuer, the Company and the Trustee, the rights of the owners of the
Bonds, the terms and conditions under and upon the occurrence of which the
Indenture and the Loan Agreement may be modified and the terms and conditions
under and upon the occurrence of which the lien of the Indenture may be defeased
as to this Bond prior to the maturity or redemption date hereof, to all of the
provisions of which the owner hereof, by the acceptance of this Bond, assents.
Credit Facility. The Company has entered into a Letter of
Credit and Reimbursement Agreement dated as of April 1, 1996 (herein called the
"Reimbursement Agreement"), by and between the Company and First Union National
Bank of Florida (in such capacity, herein called the "Bank").
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Pursuant to the Reimbursement Agreement, the Company has
caused a Letter of Credit issued by the Bank (herein called the "Letter of
Credit"; such Letter of Credit and any extensions or renewals thereof or any
amendment thereto and any Alternate Credit Facility (as hereinafter defined)
referred to herein as the "Credit Facility") to be delivered to the Credit
Facility Trustee. The Credit Facility Trustee will be entitled under the Letter
of Credit to draw up to an amount of $7,956,000 of which (a) $7,650,000 will be
available for the payment of principal or that portion of the purchase price
corresponding to principal of the Bonds and (b) $306,000 will support the
payment of up to one hundred twenty (120) days' interest or that portion of the
purchase price corresponding to interest on the Bonds at an assumed rate of
twelve percent (12%) per annum. Subject to the provisions of the Indenture, the
Company is required during the Variable Rate Period to provide an alternate
credit facility with terms and provisions substantially the same as those of the
Letter of Credit (an "Alternate Credit Facility") prior to the termination of
Letter of Credit. During the Variable Rate Period unless the Letter of Credit or
the then current Alternate Credit Facility is replaced prior to its expiration
in accordance with the terms of the Indenture, this Bond will become subject to
mandatory redemption as provided in the Indenture.
For the purpose of providing security for the obligations of
the Company to the Bank under the Reimbursement Agreement the Company has
entered into a Mortgage and Security Agreement, dated as of April 1, 1996 (the
"Mortgage"), pursuant to the terms of which the Company has conveyed to the Bank
all of the Company's right, title and interest in and to the Project.
Source of Funds. The principal of, premium (if any) and
interest on the Bonds are payable solely from loan payments under the Loan
Agreement and from any other moneys held by the Trustee under the Indenture for
such purpose, including, with respect to principal and interest only, moneys
drawn by the Credit Facility Trustee under the Letter of Credit or Alternate
Credit Facility for the benefit of the Bondholders (the Bank as the issuer of
the Letter of Credit and the institution issuing any Alternate Credit Facility
are herein called the "Credit Facility Issuer"). Except as otherwise specified
in the Indenture, this Bond is entitled to the benefits of the Indenture equally
and ratably both as to principal (and redemption and purchase price) and
interest with all other Bonds issued under the Indenture.
INTEREST RATES
Initial Interest Rate.
The Bonds will bear interest from the Original Delivery Date
specified above to (and including) April 3, 1996 at the Initial Interest Rate.
Variable Rate.
After April 3, 1996, and prior to (and including) the
Conversion Date (hereinafter defined), the Bonds will bear interest at a rate
equal to a floating rate established as hereinafter provided (herein called the
"Variable Rate"). The Variable Rate will be equal to the rate of interest
certified in writing to the Trustee by First Union National Bank of North
Carolina as remarketing agent for the Bonds (herein, with its successors in such
capacity, called the "Remarketing Agent")
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on and as of each Wednesday (or the next succeeding Business Day (as defined in
the Indenture) if such Wednesday is not a Business Day) (herein called the
"Determination Date") as the minimum rate of interest necessary, in the judgment
of the Remarketing Agent taking into account market conditions prevailing on the
Determination Date, to enable the Remarketing Agent to arrange for the sale of
all of the Bonds on the Determination Date in the secondary market at a price
equal to the principal amount thereof (plus interest accrued to the date of
settlement). If the Remarketing Agent fails to certify such rate, the Variable
Rate for the next Calculation Period or Periods (hereinafter defined) until
thereafter certified by the Remarketing Agent will remain the same as that most
recently established and certified by the Remarketing Agent. In the event the
Remarketing Agent fails to certify the rate for four (4) consecutive Calculation
Periods, the rate for each Calculation Period thereafter (if none is certified
by the Remarketing Agent) will be ninety percent (90%) of the yield for United
States Treasury bills maturing approximately thirty (30) days after the
Determination Date as published by The Wall Street Journal on such Determination
Date (or, if The Wall Street Journal is no longer published, then any reasonably
equivalent financial publication selected by the Remarketing Agent) (or the next
Business Day on which The Wall Street Journal or such other publication is
published if not published on the Determination Date). For purposes hereof,
"Calculation Period" shall mean the period from and including the day following
the Determination Date of each week (even if not a Business Day) to and
including the following Determination Date; provided that if during the Variable
Rate Period the Determination Date at the end of such Calculation Period is a
Regular Record Date, such Calculation Period will extend until the Business Day
following such Determination Date. If, for any reason, the Variable Rate is not
determined as described above or is held to be invalid or unenforceable by a
court of competent jurisdiction for any period, the interest rate for each such
period will be equal to eight percent (8%) per annum. Interest prior to the
Conversion Date (hereinafter defined) will be computed on the basis of a three
hundred sixty-five (365) or three hundred sixty-six (366) day year, as
applicable, for the number of days actually elapsed, and will be payable on each
Interest Payment Date.
Fixed Rate.
(a) The interest rate on this Bond will be converted to the
Fixed Rate upon an election by the Company pursuant to the Indenture to convert
the rate of interest on all Bonds then outstanding from the Variable Rate to the
Fixed Rate (herein called the "Fixed Rate Election"), on any Interest Payment
Date by giving written notice, accompanied by the items described in Section
2.2(e) of the Indenture, to the Issuer, the Trustee, the Credit Facility Issuer,
the Tender Agent and the Remarketing Agent, which notice will specify, among
other things, the name and address of the Placement Agent which has agreed to
use its best efforts to arrange for the sale of any Bonds to be tendered or
deemed tendered for purchase on the Conversion Date (herein called the
"Placement Agent"). At least twenty-five (25) days prior to the Conversion Date,
the Placement Agent will determine a rate (the "Preliminary Fixed Rate") which
will be the minimum rate of interest on the Bonds determined by the Placement
Agent to be the fixed annual rate of interest (for the period beginning on the
Conversion Date and ending on the Maturity Date) necessary, in the judgment of
the Placement Agent taking into account market conditions prevailing on the date
such rate is determined, to enable the Placement Agent to arrange for the sale
of all of the Bonds in the secondary market at a price equal to the principal
amount thereof if the Bonds were tendered for
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purchase on the Conversion Date. The Placement Agent will promptly notify the
Trustee of the Preliminary Fixed Rate.
(b) As soon after the receipt of notice from the Placement
Agent of the Preliminary Fixed Rate as practicable (but in no event more than
two (2) Business Days thereafter) a notice will be mailed by the Trustee to each
registered owner of Bonds stating, among other things, (1) the Preliminary Fixed
Rate, (2) that, depending on market conditions, the Fixed Rate may be higher but
in no event will be lower than the Preliminary Fixed Rate, (3) the Conversion
Date, (4) that after the tenth (10th) day preceding the Conversion Date, the
owner will not be entitled to tender this Bond for purchase as described below,
(5) that payment of this Bond will not be supported by an Alternate Credit
Facility after the Conversion Date, (6) that the rating on the Bonds (if at such
time there is a rating in effect on the Bonds) may be reduced or withdrawn on
the Conversion Date, (7) that unless such registered owner delivers to the
Trustee a notice (an "Optional Retention Notice") in the form attached hereto as
Attachment C-1 at least ten days prior to the Conversion Date, this Bond will be
deemed tendered for purchase on the Conversion Date, (8) that in order to
receive payment of the purchase price of any Bond which is deemed to have been
tendered, the registered owner of such Bond must deliver such Bond to the office
of the Tender Agent before 10:00 a.m. on the Conversion Date specifying such
address, and (9) that interest on any Bond deemed to have been tendered will be
payable only to (but not including) the Conversion Date.
(c) Upon the Conversion Date stated in such notice, the Fixed
Rate to be borne by the Bonds for the period beginning on the Conversion Date
until the Maturity Date or prior redemption of the Bonds (the "Fixed Rate"),
will be determined as follows:
(1) if any of the Bonds have been tendered or deemed
tendered for purchase (herein called the "Tendered Bonds"),
then:
(A) if the Placement Agent shall have
arranged for the sale of any or all of the Tendered
Bonds, at a price equal to the principal amount
thereof, the Fixed Rate will be equal to the interest
rate at which all such Bonds were sold by the
Placement Agent, provided that all such Bonds will be
sold at a rate greater than or equal to the
Preliminary Fixed Rate; and
(B) if the Placement Agent shall have
arranged for the sale of none of the Tendered Bonds,
the Fixed Rate will be equal to the Preliminary Fixed
Rate; or
(2) if all owners of the outstanding Bonds elect to
retain such Bonds, the Fixed Rate will be equal to the
Preliminary Fixed Rate.
(d) If, for any reason, the Fixed Rate is held to be invalid
or unenforceable by a court of competent jurisdiction, the Fixed Rate will be
eight percent (8%) per annum.
(e) The Fixed Rate will be computed on the basis of a three
hundred sixty (360)- day year, computed for the actual number of days elapsed,
and will be payable on each Interest
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Payment Date after the Conversion Date until the principal of, and premium, if
any, and interest on the Bonds shall have been paid in full.
Interest Rate Determination Binding.
The determination of the interest rate on the Bonds by the
Remarketing Agent or Placement Agent, as appropriate, in accordance with the
terms of the Indenture will be conclusive and binding upon the owners of the
Bonds, the Issuer, the Company, the Trustee, the Credit Facility Trustee, the
Remarketing Agent, the Placement Agent, the Tender Agent and the Credit Facility
Issuer.
REDEMPTION OF BONDS
Optional Redemption.
(a) While the Bonds bear interest at the Variable Rate, the
Bonds will be subject to redemption upon the written direction of the Issuer,
given at the request of the Company, with the consent of the Credit Facility
Issuer, on any Interest Payment Date and on the Conversion Date, in whole or in
part, at redemption price equal to one hundred percent (100%) of the principal
amount thereof without premium plus interest accrued to the redemption date.
(b) While the Bonds bear interest at the Fixed Rate, the Bonds
will be subject to redemption upon the written direction of the Issuer, given at
the request of the Company, in whole on any date, or in part on any Interest
Payment Date, occurring on or after the dates set forth below, at the redemption
prices (with a premium expressed as a percentage of principal amount to be
redeemed) set forth below plus interest accrued to the redemption date as
follows:
Commencement of
Redemption Period
- -----------------
The Business Day four (4) years from the
Conversion Date
Redemption Price
- ----------------
103% declining by 1/2% on each succeeding
anniversary date of the first day of the
redemption period until reaching 100% and
thereafter at 100%
(c) The Bonds will be subject to redemption upon the written
direction of the Issuer, given at the request of the Company, at any time in
whole or in part at a redemption price equal to one hundred percent (100%) of
the principal amount thereof plus interest accrued to the redemption date in the
event of damage, destruction or condemnation of the Project, all as more fully
described in Section 7.1(b) of the Indenture.
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Mandatory Redemption.
(a) The Bonds will be subject to mandatory redemption in whole
on any date at a redemption price equal to one hundred percent (100%) of the
principal amount thereof plus accrued interest to the redemption date within one
hundred eighty (180) days after receipt by the Trustee of a written notice of a
Determination of Taxability (as defined in the Loan Agreement).
(b) During the Variable Rate Period, the Bonds will be subject
to mandatory redemption in whole on the Interest Payment Date occurring closest
to but not after fifteen (15) days prior to the date of expiration of the then
current Credit Facility unless prior to such date an Alternate Credit Facility
has been provided in accordance with the Indenture, at a redemption price or
purchase price equal to one hundred percent (100%) of the principal amount
thereof, without premium, plus interest accrued to the redemption date.
(c) The Bonds are subject to redemption without premium from
moneys drawn under the Credit Facility for which the Credit Facility Issuer is
reimbursed from proceeds of the Bonds not used to complete the Project in
accordance with the provisions of the Indenture, which redemption date shall be
no more than sixty (60) days following the date of transfer of moneys to the
Bond Fund established under the Indenture from the Project Fund established
under the Indenture.
Notice of Redemption and Selection of Bonds.
Any notice of redemption, identifying the Bonds or portions
thereof to be redeemed, will be given not more than sixty (60) days and not less
than twenty (20) days prior to the redemption date, by mailing a copy of the
redemption notice by first class mail to the owner of each Bond to be redeemed
in whole or in part at the address shown on the Bond Register (as defined in the
Indenture) maintained by the Bond Registrar (as hereinafter described). Notice
of optional redemption may be conditioned upon the deposit of moneys with the
Trustee before the date fixed for redemption and such notice will be of no
effect unless such moneys are so deposited. All Bonds so called for redemption,
including Bonds purchased by the Company as provided in the Indenture but not
yet surrendered for payment of the purchase price, will cease to bear interest
on the specified redemption date provided funds for their redemption price and
any accrued interest payable on the specified redemption date are on deposit at
the principal place of payment at that time. If less than all the Bonds are to
be redeemed, the particular Bonds to be called for redemption will be selected
in the following order of priority: first, Bonds pledged to the Credit Facility
Issuer, second, Bonds owned by the Company and third, Bonds selected by any
random or other method determined by the Trustee in its sole discretion.
Mandatory Tender for Purchase Upon Conversion to Fixed Rate.
The Bonds will be subject to mandatory purchase in whole (and
not in part) on the Conversion Date at a purchase price equal to one hundred
percent (100%) of the principal amount thereof plus interest accrued thereon to
the date of purchase; provided that there will not be so purchased (a) Bonds or
portions thereof in Authorized Denominations which the owners have
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irrevocably elected to retain on the Conversion Date in accordance with the
Indenture by the delivery of an Optional Retention Notice in the form attached
hereto as Attachment C-1 in accordance with the provisions of Section 2.2(e) of
the Indenture, or (b) Bonds issued in exchange for or upon the registration of
transfer of Bonds referred to in clause (a) above.
THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES TO THE
MANDATORY PURCHASE OF THIS BOND AS PROVIDED IN THE INDENTURE, AND AGREES THAT
THIS BOND WILL BE PURCHASED ON THE DATE SPECIFIED UPON DEPOSIT WITH THE TRUSTEE
OF AN AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND
ALSO UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS
BOND, PROPERLY ENDORSED FOR TRANSFER, TO THE TRUSTEE ON THE DATE SPECIFIED,
INTEREST WILL CEASE TO ACCRUE HEREON ON SUCH SPECIFIED DATE AND THE OWNER HEREOF
WILL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE
BENEFIT OF THE INDENTURE.
Purchase at Option of the Owner During Variable Rate Period.
While the Bonds bear interest at the Variable Rate, any Bond
or portion thereof in an authorized denomination will be purchased on the demand
of the owner thereof, on any Business Day at a purchase price equal to one
hundred percent (100%) of the principal amount thereof plus interest accrued to
the date of purchase upon delivery to the Tender Agent of a notice (herein
called an "Optional Tender Notice") in the form attached hereto as Attachment
C-2 specifying the date on which such Bond will be purchased, which date will be
a Business Day not prior to the seventh (7th) day after the date of delivery of
the Optional Tender Notice. To receive payment of the purchase price, the owner
will be required to deliver such Bond to the Tender Agent, accompanied by an
executed form of assignment and any other instruments of transfer satisfactory
to the Trustee, not less than five (5) days prior to the purchase date specified
in such notice as provided in the Indenture; provided, however, that any owner
which is an investment company registered pursuant to the Investment Company Act
of 1940 may deliver such Bond to the Tender Agent at or prior to 10:00 a.m. on
the date of purchase. No purchase of Bonds at the option of the owner thereof or
on the Conversion Date will be deemed to be a payment or redemption of the Bonds
or any portion thereof. Notwithstanding the foregoing, no owner will have a
right to tender such owner's Bond(s) for purchase as described in this paragraph
following acceleration of the payment of the Bonds pursuant to the terms of the
Indenture or after the Conversion Date.
THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES THAT
DELIVERY OF THE WRITTEN NOTICE DESCRIBED IN THE PRECEDING PARAGRAPH BY THE OWNER
CONSTITUTES AN IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED, AND
THAT THIS BOND WILL BE PURCHASED ON SUCH DATE UPON DEPOSIT WITH THE TENDER AGENT
OF AN AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE THEREOF. THE OWNER OF THIS
BOND ALSO UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER
THIS BOND, PROPERLY ENDORSED FOR TRANSFER, TO THE TENDER AGENT ON THE DATE
SPECIFIED IN THE NOTICE, THIS BOND WILL BE HELD BY THE OWNER AS AGENT FOR THE
COMPANY,
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INTEREST WILL CEASE TO ACCRUE HEREON AS OF THE DATE SPECIFIED IN THE NOTICE AND
THE OWNER HEREOF WILL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE
PRICE AND NOT TO THE BENEFITS OF THE INDENTURE, AND THE ISSUER WILL, TO THE
EXTENT PERMITTED BY LAW, EXECUTE AND THE TRUSTEE WILL AUTHENTICATE AND DELIVER A
SUBSTITUTE BOND IN LIEU OF THE UNDELIVERED BOND.
Tender Agent.
The Issuer had appointed First Union National Bank of Florida
as Tender Agent. The Tender Agent may be changed at any time by the Company with
the consent of the Issuer and the Trustee.
Authorized Denominations.
Subject to the provisions of the Indenture, the Bonds are
issuable as registered Bonds in the denomination of One Hundred Thousand Dollars
($100,000) or any integral multiple of $5,000 in excess thereof. Subject to the
limitations provided in the Indenture and upon payment of any tax or
governmental charge, if any, Bonds may be exchanged for a like aggregate
principal amount of Bonds of other authorized denominations.
Transfer.
This Bond is transferable by the registered owner hereof or
his duly authorized attorney at the corporate trust office of First Union
National Bank of Florida, as Bond Registrar, in the City of Miami, Florida, in
compliance with the terms and conditions set forth in the Indenture and upon
surrender of this Bond, provided that transfers in connection with the
remarketing hereof will be made at the corporate trust office of the Credit
Facility Trustee in Wilson, North Carolina, accompanied by a duly executed
instrument of transfer in form satisfactory to the Bond Registrar, subject to
such reasonable regulations as the Issuer, the Bond Registrar or the Trustee may
prescribe and upon payment of any tax or other governmental charge incident to
such transfer; PROVIDED THAT IF MONEYS FOR THIS PURCHASE OF THIS BOND HAVE BEEN
PROVIDED PURSUANT TO A DRAW UNDER THE CREDIT FACILITY, THIS BOND IS NOT
TRANSFERABLE TO ANYONE OTHER THAN THE COMPANY OR ITS ASSIGNEE OR PLEDGEE. Upon
any such transfer, a new Bond or Bonds registered in the name of the transferee
or transferees in denominations authorized by the Indenture and in the same
aggregate principal amount as the principal amount of this Bond (and of the same
maturity and bearing interest at the same rate) will be issued to the
transferee. Except as set forth in this Bond and as otherwise provided in the
Indenture, the person in whose name this Bond is registered will be deemed the
owner hereof for all purposes, and the Issuer, the Bond Registrar and the
Trustee will not be affected by any notice to the contrary. The owner of this
Bond will have no right to enforce the provisions of the Indenture or to
institute action to enforce the covenants therein, or to take any action with
respect to any Event of Default under the Indenture or to institute, appear in
or defend any suit or other proceeding with respect thereto, except as provided
in the Indenture.
C-12
<PAGE> 99
In certain events, on the conditions, in the manner and with
the effect set forth in the Indenture, the principal of this Bond may become or
may be declared due and payable before the stated maturity hereof, together with
the interest accrued hereon.
Modifications or alterations of the Loan Agreement and the
Indenture and any supplement or amendment thereto may be made only to the extent
and in the circumstances permitted by the Indenture and may be made in certain
cases without the consent of the owners of the Bonds.
Anything herein or in the Indenture to the contrary
notwithstanding, the obligations of the Issuer hereunder will be subject to the
limitation that payment of interest to the owner of this Bond will not be
required to the extent that receipt of any such payment by the owner of this
Bond would be contrary to the provisions of law applicable to such Bond which
limits the maximum rate of interest which may be charged or collected by such
owner.
In any case where the date of maturity of interest on or
principal of the Bonds or the date fixed for redemption of the Bonds shall be in
the city of payment a day other than a Business Day, then payment of interest or
principal need not be made on such date but may be made on the next succeeding
Business Day with the same force and effect as if made on the date of maturity
or the date fixed for redemption, provided that interest will accrue for the
period of any such extension.
This Bond will be governed by and construed in accordance with
the laws of the State of Florida.
All acts, conditions and things required to happen, exist and
be performed precedent to and in the issuance of this Bond and the execution of
the Indenture have happened, exist and have been performed as so required.
IN WITNESS WHEREOF, Palm Beach County, Florida has caused this
Bond to be executed with the manual or facsimile signature of the Chairman or
Vice Chairman of the Issuer, its official seal to be impressed or imprinted
hereon and the same to be attested by the manual or facsimile signature of the
Clerk of the Issuer, all as of April 2, 1996.
PALM BEACH COUNTY, FLORIDA
By:________________________________________
Chairman of its Board of County
Commissioners
(Official Seal)
ATTEST:
By:_____________________________________________
Clerk of its Board of County
Commissioners
C-13
<PAGE> 100
CERTIFICATE OF AUTHENTICATION
This Bond is one of the Bonds of the series designated therein
and issued under the provisions of the within-mentioned Indenture.
FIRST UNION NATIONAL BANK OF FLORIDA,
as Trustee
By:_______________________________________
Its:________________________________________
Date of Authentication: April 2, 1996
C-14
<PAGE> 101
[FORM OF ASSIGNMENT TO APPEAR ON REVERSE OF BOND]
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
_______________________________________
_______________________________________
the within bond of the _________________ and does hereby constitute and appoint
____________________ attorney to transfer the said bond on the books of the
within named Issuer, with full power of substitution in the premises.
Dated:
In the presence of: _______________________________
Bondholder
Signature Guaranteed:
_______________________________________
[End of Form of Bond]
C-15
<PAGE> 102
Attachment C-1
FORM OF BONDHOLDER'S OPTIONAL RETENTION NOTICE
Date:____________
First Union National Bank of Florida, as Trustee (the "Trustee") under the Trust
Indenture dated as of April 1, 1996 (the "Indenture") among the Trustee, Branch
Banking and Trust Company, as Credit Facility Trustee (the "Credit Facility
Trustee") and Palm Beach County, Florida
Attention: Corporate Trust Department
Re: $7,650,000 Palm Beach County, Florida, Variable
Rate Demand Industrial Development Revenue Bonds
(Palm Beach Bedding Company Project), Series 1996
1. The undersigned hereby certifies that it is the lawful
registered owner of the Bonds described above.
2. Pursuant to the provisions of the Indenture, the
undersigned hereby irrevocably elect(s) to hold the Bonds which will bear
interest at the Fixed Rate (as defined in, and to be determined as described in,
the Indenture), effective on the Conversion Date (as defined in the Indenture)
specified in the notice from the Trustee (the "Notice of Conversion").
3. The undersigned hereby acknowledges that it has received
the Notice of Conversion and that it acknowledges, without limitation, that (i)
the Bonds will not be supported by an Alternate Credit Facility after the
Conversion Date, (ii) the rating on the Bonds, if any, may be reduced or
withdrawn after the Conversion Date, and (iii) after the tenth day preceding the
Conversion Date the undersigned will not be entitled to deliver Bonds for
purchase pursuant to Section 2.3 of the Indenture.
4. The undersigned hereby acknowledges that, even if it fails
to deliver such Bonds as agreed pursuant to paragraph 5 hereof, the Bonds will
nevertheless bear the Fixed Rate effective on the Conversion Date.
5. The undersigned hereby undertakes to deliver the Bonds to
First Union National Bank of Florida, as Tender Agent, at its corporate trust
office in Miami, Florida, Attention: Corporate Trust Department, to be stamped
with the legend set forth in Section 2.2(e) of the Indenture not later than
10:00 a.m. Charlotte, North Carolina time on the Conversion Date.
C-16
<PAGE> 103
Name of Bondholder:
-------------------------------
(Type or Print)
Signature:
----------------------------------------
Guaranteed by
-------------------------------------
Name of Institution:
-------------------------------
Date:
---------------------------------------------
[End of Attachment C-1 to Form of Bond]
C-17
<PAGE> 104
Attachment C-2
FORM OF BONDHOLDER'S OPTIONAL TENDER NOTICE
Date______________
First Union National Bank of Florida,
as Trustee (the "Trustee") under the
Trust Indenture dated as of April 1, 1996
(the "Indenture") among the Trustee, Branch
Banking and Trust Company, as Credit Facility
Trustee (the "Credit Facility Trustee") and
Palm Beach County, Florida
Attention: Corporate Trust Department
Re: $7,650,000 Palm Beach County, Florida, Variable
Rate Demand Industrial Development Revenue Bonds
(Palm Beach Bedding Company Project), Series 1996
1. The undersigned hereby certifies that it is the lawful
registered owner of the Bonds described above on the date hereof and that such
Bonds are free and clear of any lien or encumbrance.
2. Pursuant to the provisions of the Indenture, the
undersigned hereby irrevocably request(s) the purchase of the Bonds described
above.
3. The date on which the Bonds shall be purchased shall be
_______________, 19 [Note: This date must be a Business Day (as defined in the
Indenture) which is at least seven days after delivery of this notice to the
Tender Agent].
4. The person or persons to whom or to whose order the
proceeds of the purchase of the Bonds are to be paid is ___________________, and
the address or addresses of such payee or payees is
________________________________________________________________________________
________________________________________________________________________________
5. The undersigned hereby irrevocably authorizes and instructs
the Trustee or the Bond Registrar (as defined in the Bonds) to effect the
transfer of such Bonds (or any Bond(s) exchanged therefor), upon payment of the
purchase price therefor, to the purchaser(s) thereof, whether or not it delivers
such Bonds as agreed pursuant to paragraph 7 hereof.
6. The undersigned hereby acknowledges that, even if it fails
to deliver such Bonds, the Bonds may nevertheless be purchased pursuant to the
Indenture, and that, in any event, on and after the proposed purchase date set
forth in paragraph 3 hereof, the Bonds will cease to be
C-18
<PAGE> 105
outstanding for all purposes under the Indenture, to evidence the indebtedness
of the Issuer with respect thereto and to bear interest.
7. The undersigned hereby undertakes to deliver the Bonds to
you, as Tender Agent, at 200 S. Biscayne Boulevard, 14th Floor, Miami, Florida
33131, Attention: Corporate Trust Group at least five days prior to the proposed
purchase date set forth in paragraph 3 above duly endorsed in blank for
transfer.
Name of Bondholder:
-------------------------------------
(Type or Print)
Signature:
----------------------------------------------
Guaranteed by
-------------------------------------------
Name of Institution:
------------------------------------
Date:
---------------------------------------------------
[End of Attachment C-2 to Form of Bond]
C-19
<PAGE> 106
EXHIBIT D
$________________ No. ______________
REQUISITION AND CERTIFICATE
______________ 19__
First Union National Bank of
Florida, as Trustee
200 S. Biscayne Boulevard, 14th Floor
Miami, Florida 33131
Attention: Corporate Trust Group
Re: $7,650,000 Palm Beach County, Florida, Variable
Rate Demand Industrial Development Revenue Bonds
(Palm Beach Bedding Company Project) Series 1996
Ladies and Gentlemen:
On behalf of Palm Beach Bedding Company (the "Company"), I
hereby requisition, from the funds representing the proceeds of the sale of the
$7,650,000 Palm Beach County, Florida, Variable Rate Demand Industrial
Development Revenue Bonds (Palm Beach Bedding Company Project), Series 1996
issued by Palm Beach County, Florida (the "Issuer") and dated April 2, 1996 (the
"Bonds"), which funds are held by you in the Palm Beach County, Florida,
Variable Rate Demand Industrial Development Revenue Bonds (Palm Beach Bedding
Company Project), Series 1996 Project Fund in accordance with the Trust
Indenture (the "Indenture"), dated as of April 1, 1996, from the Issuer to you
the sum of $__________ from the Project Fund to be used to pay to the payees the
amounts designated on the schedule attached hereto.
I hereby certify that (a) the obligation to make such payment was
incurred by the Company in connection with the acquisition or construction of
the Project, is a proper charge against the Costs of the Project (as defined in
the Loan Agreement, dated as of April 1, 1996, between the Issuer and the
Company, hereinafter referred to as the "Loan Agreement"), and has not been the
basis for any prior requisition which has been paid; (b) neither the Company
nor, to the best of the Company's knowledge, the Issuer has received written
notice of any lien, right to lien or attachment upon, or claim affecting the
right of such payee to receive payment of, any of the money payable under this
requisition to any of the persons, firms or corporations named herein, or if any
notice of any such lien, attachment or claim has been received, such lien,
attachment or claim has been released or discharged or will be released or
discharged upon payment of this requisition; (c) this requisition contains no
items representing payment on account of any retained percentages which the
Company
D-1
<PAGE> 107
is entitled to retain at this date; (d) the payment of this requisition will not
result in less than ninety-five percent (95%) of the proceeds of the Bonds
(determined by adding to the purchase price paid for the Bonds any investment
earnings on said proceeds) to be expended under this requisition and under all
prior requisitions having been used for the acquisition, construction,
reconstruction or improvement of land or property of a character subject to the
allowance for depreciation within the meaning of Section 144(a)(1)(A) of the
Internal Revenue Code of 1986, as amended, (e) the payment of this requisition
will not result in issuance costs equal to more than two percent (2%) of the
aggregate face amount of the Bonds being financed from the proceeds of the Bonds
(including any investment earnings on said proceeds), (f) this requisition
contains no items representing payment of any amounts paid or incurred before
September 8, 1995 (which is sixty (60) days prior to the date of adoption by the
Issuer of the preliminary resolution approving the issuance of the Bonds), (g)
no Event of Default (as defined in the Loan Agreement) or event of default which
after notice or lapse of time or both would constitute an Event of Default has
occurred and not been waived; and (h) the amount requisitioned hereby is being
expended in a manner consistent in all material respects with the
representations and warranties of the Company set forth in the Loan Agreement.
[The following paragraph is to be included when any requisition and certificate
includes any item for payment for labor, for indicated items of equipment or to
contractors, builders of materialmen.]
I hereby certify that insofar as the amount covered by the
above requisition includes payments to be made for labor or to contractors,
builders or materialmen, including payment for equipment, materials or supplies,
in connection with the acquisition or construction of the Project: (i) all
obligations to make such payments have been properly incurred, (ii) any such
labor was actually performed and any such equipment, materials or supplies were
actually furnished or installed on or about the Project and are a proper charge
against the Costs of the Project, and (iii) such equipment, materials or
supplies either are not subject to any lien or security interest or, if the same
are so subject, such lien or security interest will be released or discharged
upon payment of this requisition.
By:________________________________________
Company Representative
APPROVED BY:
FIRST UNION NATIONAL BANK
OF FLORIDA, West Palm Beach, Florida
By:____________________________________
Authorized Officer
D-2
<PAGE> 108
SCHEDULE TO REQUISITION AND CERTIFICATE NO. _____
Payee Item Amount
D-3
<PAGE> 1
EXHIBIT 10.24
================================================================================
HARTZ MOUNTAIN INDUSTRIES, INC.
Landlord,
and
SLEEPMASTER PRODUCTS COMPANY, L.P.
Tenant
------------------------------------
LEASE
------------------------------------
================================================================================
Premises:
2001 Lower Road Linden, New Jersey
240,154 Square Feet
<PAGE> 2
TABLE OF CONTENTS
ARTICLES PAGE
- -------- ----
1 - DEFINITIONS...............................................................2
2 - DEMISE AND TERM...........................................................5
3 - RENT......................................................................6
4 - USE OF DEMISED PREMISES...................................................7
5 - PREPARATION OF DEMISED PREMISES...........................................7
6 - TAX AND OPERATING EXPENSE PAYMENTS........................................8
7 - SECURITY..................................................................9
8 - SUBORDINATION............................................................10
9 - QUIET ENJOYMENT..........................................................12
10 - ASSIGNMENT, SUBLETTING AND MORTGAGING...................................12
11 - COMPLIANCE WITH LAWS....................................................15
12 - INSURANCE AND INDEMNITY.................................................15
13 - RULES AND REGULATIONS...................................................18
14 - ALTERATIONS AND SIGNS...................................................18
15 - LANDLORD'S AND TENANT'S PROPERTY........................................19
16 - REPAIRS AND MAINTENANCE.................................................20
17 - UTILITY CHARGES.........................................................21
18 - ACCESS, CHANGES AND NAME................................................22
19 - MECHANICS' LIENS AND OTHER LIENS........................................22
20 - NON-LIABILITY AND INDEMNIFICATION.......................................23
21 - DAMAGE OR DESTRUCTION...................................................24
22 - EMINENT DOMAIN..........................................................25
23 - SURRENDER...............................................................26
24 - CONDITIONS OF LIMITATION................................................27
25 - RE-ENTRY BY LANDLORD....................................................28
<PAGE> 3
26 - DAMAGES.................................................................29
27 - AFFIRMATIVE WAIVERS.....................................................31
28 - NO WAIVERS..............................................................32
29 - CURING TENANT'S DEFAULTS................................................32
30 - BROKER..................................................................32
31 - NOTICES.................................................................33
32 - ESTOPPEL CERTIFICATES...................................................33
33 - ARBITRATION.............................................................33
34 - MEMORANDUM OF LEASE.....................................................34
35 - MISCELLANEOUS...........................................................34
EXHIBITS
Exhibit A - Description of Land
Exhibit B - Site Plan
Exhibit C - Work and Installation to be Performed and Furnished in Demised
Premises
Exhibit D - Rules and Regulations
<PAGE> 4
LEASE, dated October 13, 1993, between HARTZ MOUNTAIN INDUSTRIES, INC.,
a New York corporation, having an office at 400 Plaza Drive, Secaucus, New
Jersey 07094-3688 ("Landlord"), and SLEEPMASTER PRODUCTS COMPANY, L.P., a
Delaware limited partnership, having an office at 280 Wilson Avenue, Newark, New
Jersey 07105 ("Tenant").
ARTICLE 1 - DEFINITIONS
1.01. As used in this Lease (including in all Exhibits and any Riders
attached hereto, all of which shall be deemed to be part of this Lease) the
following words and phrases shall have the meanings indicated:
A. Advance Rent: 60,038.50
B. Additional Charges: All amounts that become payable by Tenant to
Landlord hereunder other than the Fixed Rent.
C. Architect: Kenneth Carl Bonte, or as Landlord may designate.
D. Broker: Sholom & Zuckerbrot
E. Building: The building or buildings located on the Land and known as
2001 Lower Road, Linden, New Jersey 07036.
F. Business Days: All days except Saturdays, Sundays, days observed by
the federal or state government as legal holidays.
G. Business Hours: Generally customary daytime business hours, but not
before 9:00 A.M. or after 6:00 P.M.
H. Calendar Year: Any twelve-month period commencing on a January 1.
I. Commencement Date: The earlier of (a) the date on which both: (i)
the Demised Premises shall be Ready for Occupancy, and (ii) actual possession of
the Demised Premises shall have been delivered to Tenant by notice to Tenant, or
(b) the date Tenant, or anyone claiming under or through Tenant, first occupies
the Demised Premises or any part thereof for any purpose other than the
performance of Tenant's Work.
J. Demised Premises: The Building and the Land in Linden, New Jersey
depicted as lot 7 Block 581 on the site plan attached hereto as Exhibit B, which
includes a Building containing approximately 240.154 square feet of Floor Space,
K. Expiration Date: The date that is the day before the tenth (10th)
anniversary of the Commencement Date if the Commencement Date is the first day
of a month, or the tenth (10th) anniversary of the last day of the month in
which the Commencement Date occurs if the Commencement Date is not the first day
of a month. However, if the Term is extended by Tenant's effective exercise of
Tenant's right, if any, to extend the Term, the "Expiration Date" shall be
changed to the last day of the latest extended period as to which
<PAGE> 5
Tenant shall have effectively exercised its right to extend the Term. For the
purposes of this definition, the earlier termination of this Lease shall not
affect the "Expiration Date."
L. Fixed Rent: Commencing on the Commencement Date through the date
which is the day before the fifth anniversary of the Commencement Date, an
amount at the annual rate of Three and 00/100 ($3.00) Dollars multiplied by the
Floor Space; and from the fifth (5th) anniversary of the Commencement Date
through the Expiration Date, an amount at the annual rate of Three and 50/100
Dollars ($3.50) multiplied by the Floor Space of the Demised Premises.
M. Floor Space: As to the Demised Premises, the sum of the floor area
stated in square feet bounded by the exterior faces of the exterior walls. Any
reference to Floor Space of a building shall mean the floor area of all levels
or stories of such building, excluding any roof, except such portion thereof
(other than cooling towers, elevator penthouses, mechanical rooms, chimneys and
staircases, entrances and exits) as is permanently enclosed, and including any
interior basement level or mezzanine area not occupied or used by a tenant on a
continuing or repetitive basis, and any mechanical room, enclosed or interior
truck dock, and areas used by Landlord for storage, for housing meters and/or
other equipment or for other purposes. Any reference to the Floor Space is
intended to refer to the Floor Space of the entire area in question irrespective
of the Person(s) who may be the owner(s) of all or any part thereof.
N. Guarantor: None.
O. Insurance Requirements: Rules, regulations, orders and other
requirements of the applicable board of underwriters and/or the applicable fire
insurance rating organization and/or any other similar body performing the same
or similar functions and having jurisdiction or cognizance over the Land and
Building, whether now or hereafter in force.
P. Land: The land described on Exhibit A, upon which the Building is
located.
Q. Landlord's Work: The materials and work to be furnished, installed
and performed by Landlord at its expense in accordance with the provisions of
Exhibit C.
R. Legal Requirements: Laws and ordinances of all federal, state,
county, and municipal governments, and rules, regulations, orders and directives
of all departments, subdivisions, bureaus, agencies or offices thereof, and of
any other governmental, public or quasi-public authorities having jurisdiction
over the Land and Building, whether now or hereafter in force, including, but
not limited to, those pertaining to environmental matters.
S. Mortgage: A mortgage and/or a deed of trust.
T. Mortgagee: A holder of a mortgage or a beneficiary of a deed of
trust.
4
<PAGE> 6
U. Operating Expenses: The cost and expense (whether or not within the
contemplation of the parties) for the insurance and operation of the Building
and Land. The "Operating Expenses" shall include, without limitation, the
following: (i) the cost for rent, casualty, liability, boiler and fidelity
insurance, if not purchased directly by Tenant pursuant to Section 12.01; (ii)
reasonable legal, accounting and other professional fees, plus (iii) 5% of the
resulting total of all of the foregoing items making up "Operating Expenses" for
Landlord's home office administration and overhead cost and expense. All items
included in Operating Expenses shall be determined in accordance with generally
accepted accounting principles consistently applied.
V. Permitted Uses: Light manufacturing of bedding (mattresses), and
warehouse storage and distribution of bedding (mattresses) and related items in
connection with Tenant' business, and ancillary office use in not more than
10,000 square feet of Floor Space.
W. Person: A natural person or persons, a partnership, a corporation,
or any other form of business or legal association or entity.
X. Ready for Occupancy: The condition of the Demised Premises when for
the first time the Landlord's Work shall have been substantially completed and a
temporary or permanent Certificate of Occupancy shall have been issued
permitting use of the Demised Premises for the Permitted Uses. The Landlord's
Work shall be deemed substantially completed notwithstanding the fact that minor
or insubstantial details of construction, mechanical adjustment or decoration
remain to be performed, the noncompletion of which does not materially interfere
with Tenant's use of the Demised Premises.
Y. Real Estate Taxes: The real estate taxes, assessments, special
assessments, sewer rents, water charges, and all other similar charges and
impositions imposed upon the Building and Land by any federal, state, municipal
or other governments or governmental bodies or authorities, and any expenses
incurred by Landlord in contesting such taxes or assessments and/or the assessed
value of the Building and Land, which expenses shall be allocated to the period
of time to which such expenses relate. If at any time during the Term the
methods of taxation prevailing on the date hereof shall be altered so that in
lieu of, or as an addition to or as a substitute for, the whole or any part of
such real estate taxes, assessments and special assessments now imposed on real
estate there shall be levied, assessed or imposed (a) a tax, assessment, levy,
imposition, license fee or charge wholly or partially as a capital levy or
otherwise on the rents received therefrom, or (b) any other such additional or
substitute tax, assessment, levy, imposition or charge, then all such taxes,
assessments, levies, impositions, fees or charges or the part thereof so
measured or based shall be deemed to be included within the term "Real Estate
Taxes" for the purposes hereof. Real Estate Taxes shall not include income or
gains taxes imposed on Landlord.
Z. Rent: The Fixed Rent and the Additional Charges.
AA. Rules and Regulations: The reasonable rules and regulations that
may be promulgated by Landlord from time to time, which may be reasonably
changed by Landlord from time to time. The Rules and Regulations now in
5
<PAGE> 7
effect are attached hereto as Exhibit D provided, however, that such Rules and
Regulations shall not be enforced against Tenant in a discriminatory manner and
they shall not unreasonably affect the conduct of the Tenant's business.
BB. Security Deposit: $240,154.00 in cash or by Letter of Credit.
CC. Successor Landlord: As defined in Section 8.03.
DD. Superior Lease: Any lease to which this Lease is, at the time
referred to, subject and subordinate, including but not limited to the Lease
between Raymond Enterprises as Landlord and Hartz Mountain Industries, Inc. as
Tenant dated September 26, 1990.
EE. Superior Lessor: The lessor of a Superior Lease or its successor in
interest, at the time referred to.
FF. Superior Mortgage: Any Mortgage to which this Lease is, at the time
referred to, subject and subordinate.
GG. Superior Mortgagee: The Mortgagee of a Superior Mortgage at the
time referred to.
HH. Tenant's Property: As defined in Section 15.02.
II. Tenant's Work: The facilities, materials and work which may be
undertaken by or for the account of Tenant (other than the Landlord's Work) to
equip, decorate and furnish the Demised Premises for Tenant's occupancy in
accordance with the provisions of Exhibit C.
JJ. Term: The period commencing on the Commencement Date and ending at
11:59 p.m. of the Expiration Date, but in any event the Term shall end on the
date when this Lease is earlier terminated.
KK. Unavoidable Delays: A delay arising from or as a result of a
strike, lockout, or labor difficulty, explosion, sabotage, accident, riot or
civil commotion, act of war, fire or other catastrophe, Legal Requirement or an
act of the other party and any cause beyond the reasonable control of that
party, provided that the party asserting such Unavoidable Delay has exercised
its best efforts to minimize such delay.
ARTICLE 2 - DEMISE AND TERM
2.01, Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Demised Premises, for the Term. This Lease is subject to (a) any
and all existing encumbrances, conditions, rights, covenants, easements,
restrictions and rights of way, of record, and other matters of record,
applicable zoning and building laws, regulations and codes, and such matters as
may be disclosed by an inspection or survey, and (b) easements now or hereafter
created by Landlord in, under, over, across and upon a strip of land twenty feet
(20') in width running along all lot lines of the Land for sewer,
6
<PAGE> 8
water, electric, gas and other utility lines and services now or hereafter
installed; provided, however, Landlord represents covenants and warrants to
Tenant that the Demises Premises may be used and occupied for the purposes set
forth herein; and that the foregoing shall in no manner interfere with Tenant's
use and quiet enjoyment of the Demised Premises. Promptly following the
Commencement Date, the parties hereto shall enter into an agreement in form and
substance satisfactory to Landlord setting forth the Commencement Date.
ARTICLE 3 - RENT
3.01. Tenant shall pay the Fixed Rent in equal monthly installments in
advance on the first day of each and every calendar month during the Term
(except that Tenant shall pay, upon the execution and delivery of this Lease by
Tenant, the Advance Rent, to be applied against the first installment or
installments of Fixed Rent becoming due under this Lease). If the Commencement
Date occurs on a day other than the first day of a calendar month, the Fixed
Rent for the partial calendar month at the commencement of the Term shall be
prorated.
3.02. The Rent shall be paid in lawful money of the United States to
Landlord at its office, or such other place, or Landlord's agent, as Landlord
shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due
without notice or demand therefor and without any abatement, deduction or setoff
for any reason whatsoever, except as may be expressly provided in this Lease. If
Tenant makes any payment to Landlord by check, same shall be by check of Tenant
and Landlord shall not be required to accept the check of any other Person, and
any check received by Landlord shall be deemed received subject to collection.
If any check is mailed by Tenant, Tenant shall post such check in sufficient
time prior to the date when payment is due so that such check will be received
by Landlord on or before the date when payment is due. Tenant shall assume the
risk of lateness or failure of delivery of the mails, and no lateness or failure
of the mails will excuse Tenant from its obligation to have made the payment in
question when required under this Lease.
3.03. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Rent shall be deemed to be other than a payment
on account, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy in this Lease or at law
provided.
3.04. If Tenant is in arrears in payment of Rent, Tenant waives
Tenant's right, if any, to designate the items to which any payments made by
Tenant are to be credited, and Landlord may apply any payments made by Tenant to
such items as Landlord sees fit, irrespective of and notwithstanding any
designation or request by Tenant as to the items to which any such payments
shall be credited.
7
<PAGE> 9
3.05. In the event that any installment of Rent due hereunder shall be
overdue for ten (10) days, a "Late Charge" equal to three percent (3%) or the
maximum rate permitted by law, whichever is less ("Late Payment Rate") for Rent
so overdue may be charged by Landlord for each month or part thereof that the
same remains overdue. Any such Late Charges if not previously paid shall, at the
option of the Landlord, be added to and become part of the next succeeding Rent
payment to be made hereunder.
ARTICLE 4 - USE OF DEMISED PREMISES
4.01. Tenant shall use and occupy the Demised Premises for the
Permitted Uses, and Tenant shall not use or permit or suffer the use of the
Demised Premises or any part thereof for any other purpose.
4.02. If any governmental license or permit, other than a Certificate
of Occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises or any part thereof, Tenant shall duly procure
and thereafter maintain such license or permit and submit the same to Landlord
for inspection. Tenant shall at all times comply with the terms and conditions
of each such license or permit. Tenant shall not at any time use or occupy, or
suffer or permit anyone to use or occupy the Demised Premises, or do or permit
anything to be done in the Demised Premises, in any manner which (a) violates
the Certificate of Occupancy for the Demised Premises or for the Building; (b)
causes or is liable to cause injury to the Building or any equipment, facilities
or systems therein; (c) constitutes a violation of the Legal Requirements or
Insurance Requirements; (d) impairs or tends to impair the character, reputation
or appearance of the Building; (e) impairs or tends to impair the proper and
economic maintenance, operation and repair of the Building and/or its equipment,
facilities or systems.
ARTICLE 5 - PREPARATION OF DEMISED PREMISES
5.01. (a) The Demised Premises shall be completed and prepared for
Tenant's occupancy in the manner described in, and subject to the provisions of,
Exhibit C at Landlord's sole cost and expense. Tenant shall occupy the Demised
Premises promptly after the same are Ready for Occupancy and possession thereof
is delivered to Tenant by Landlord giving to Tenant a notice of such effect.
Except as expressly provided to the contrary in this Lease. the taking of
possession by Tenant of the Demised Premises shall be conclusive evidence as
against Tenant that the Demised Premises and the Building were in good and
satisfactory condition at the time such possession was taken. Except as
expressly provided to the contrary in this Lease, Tenant is leasing the Demised
Premises "as is" on the date hereof.
(b) Tenant shall, within ten (10) days of the date hereof,
provided Landlord with all information Landlord needs to prepare working
drawings for the construction of Landlord's Work.
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5.02. If the substantial completion of the Landlord's Work shall be
delayed due to (a) any act or omission of Tenant or any of its employees, agents
or contractors (including, without limitation, [i] any delays due to changes in
or additions to the Landlord's Work, or [ii] any delays by Tenant in the
submission of plans, drawings, specifications or other information or in
approving any working drawings or estimates or in giving any authorizations or
approvals), or (b) any additional time needed for the completion of the
Landlord's Work by the inclusion in the Landlord's Work of any items specified
by Tenant requiring long lead time for delivery or installation, then the
Demised Premises shall be deemed Ready for Occupancy on the date when they would
have been ready but for such delay(s). The Demised Premises shall be
conclusively presumed to be in satisfactory condition on the Commencement Date
except for the minor or insubstantial details of which Tenant gives Landlord
notice within thirty (30) days after the Commencement Date specifying such
details with reasonable particularity.
ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS
6.01. Throughout the Term, Tenant agrees to pay to Landlord as an
"Additional Charge" hereunder within fifteen (15) days in advance of the final
date for which such is due without interest or penalty, all Real Estate Taxes.
If any assessment is payable in annual installments or in a lump sum and Tenant
does not elect to reimburse Landlord for such assessment in a lump sum, there
shall be added to the amount of the Real Estate Taxes payable for the Calendar
Year in which such assessment is payable and such subsequent calendar years only
that amount of such assessment, together with such interest thereon, as would
have been payable to the municipality in said Calendar Year if Landlord had
elected to pay said assessment in annual installments. Landlord shall submit to
Tenant copies of all bills covering Real Estate Taxes. Landlord represents that
the Land constitutes a separate tax lot (Block 581, Lot 7), and is fully
assessed.
6.02. Tenant shall pay to Landlord the Operating Expenses within ten
(10) days after Landlord submits to Tenant an invoice for the Operating
Expenses.
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6.03. Each such statement given by Landlord pursuant to Section 6.01 or
Section 6.02 shall be prima facie conclusive and binding upon Tenant unless
within 90 days after the receipt of such statement Tenant shall notify Landlord
that it disputes the correctness of the statement, specifying the particular
respects in which the statement is claimed to be incorrect. if such dispute is
not settled by agreement, either party may submit the dispute co arbitration as
provided in Article 33. Pending the determination of such dispute by agreement
or arbitration as aforesaid, Tenant shall, within ten (110) days after receipt
of such statement, pay the Additional Charges in accordance with Landlord's
statement, without prejudice to Tenant's position. If the dispute shall be
determined in Tenant's favor, Landlord shall forthwith pay to Tenant the amount
of Tenant's overpayment resulting from compliance with Landlord's statement.
ARTICLE 7 - SECURITY
7.01. (a) Tenant has deposited with Landlord the Security Deposit as
security for the full and faithful payment and performance by Tenant of Tenant's
obligations under this Lease. If Tenant defaults in the full and prompt payment
and performance of any of its obligations under this Lease, including, without
limitation, the payment of Rent, Landlord may use, apply or retain the whole or
any part of the security so deposited to the extent required for the payment of
any Rent or any other sums as to which Tenant is in default or for any sum which
Landlord may expend or may be required to expend by reason of Tenant's default
in respect of any of Tenant's obligations under this Lease, including, without
limitation, any damages or deficiency in the reletting of the Demised Premises,
whether such damages or deficiency accrue before or after summary proceedings or
other re-entry by Landlord. If Landlord shall so use, apply or retain the whole
or any part of the security, Tenant shall upon demand immediately deposit with
Landlord a sum equal to the amount so used, applied and retained, as security as
aforesaid. Provided Tenant is not in default under this Lease, the security or
any balance thereof to which Tenant is entitled shall be returned or paid over
to Tenant after the date on which this Lease shall expire or sooner end or
terminate, and after delivery to Landlord of entire possession of the Demised
Premises. In the event of any sale or leasing of the Land, Landlord shall have
the right to transfer the security to which Tenant is entitled to the vendee or
lessee and Landlord shall thereupon be released by Tenant from all liability for
the return or payment thereof; and Tenant shall look solely to the new landlord
for the return or payment of the same; and the provisions hereof shall apply to
every transfer or assignment made of the same to a new landlord. Tenant shall
not assign or encumber or attempt to assign or encumber the monies deposited
herein as security, and neither Landlord nor its successors or assigns shall be
bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
7.01. (b) In the event Landlord agrees to accept a letter of credit
from Tenant in lieu of all or a portion of the cash security required by this
Lease, Tenant shall provide to Landlord an irrevocable Letter of Credit in the
amount of Two Hundred Forty Thousand One Hundred Fifty Four and 00/100 Dollars
($240,154.00) in form and substance satisfactory to Landlord and
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issued by a financial institution approved by Landlord. Landlord shall have the
right, upon written notice to Tenant (except for Tenant's non-payment of Rent or
for Tenant's failure to comply with Article 7.03 for which no notice shall be
required), and regardless of the exercise of any other remedy the Landlord may
have by reason of a default, to draw upon said Letter of Credit to cure any
default of Tenant or for any purpose authorized by section 7.01(a) of this Lease
and if Landlord does so, Tenant shall, upon demand, additionally fund the Letter
of Credit with the amount so drawn so that Landlord shall have the full deposit
on hand at all times during the Term of the Lease and for a period of thirty
(30) days' thereafter. In the event of a sale of the Building or a lease of the
Building subject to this Lease, Landlord shall have the right to transfer the
security to the vendee or lessee.
7.02. The Letter of Credit shall expire not earlier than thirty (30)
days after the Expiration Date of this Lease. Upon Landlord's prior consent, the
Letter of Credit may be of the type which is automatically renewed on an annual
basis (Annual Renewal Date), provided however, in such event Tenant shall
maintain the Letter of Credit and its renewals in full force and effect during
the entire Term of this Lease (including any renewals or extensions) and for a
period of thirty (30) days thereafter. The Letter of Credit, will contain a
provision requiring the issuer thereof to give the beneficiary (Landlord) sixty
(60) days' advance written notice of its intention not to renew the Letter of
Credit on the next Annual Renewal Date.
7.03. In the event Tenant shall fail to deliver to Landlord a
substitute irrevocable Letter of Credit, in the amount stated above, on or
before thirty (30) days prior to the next Annual Renewal Date, said failure
shall be deemed a default under this Lease. Landlord may, in its discretion
treat this the same as a default in the payment of Rent or any other default and
pursue the appropriate remedy. In addition, and not in limitation, Landlord
shall be permitted to draw upon the Letter of Credit as in the case of any
other, default by Tenant under the Lease.
7 04. Provided Tenant has not defaulted under this Lease, Landlord
shall consent to a reduction in the amount of the Letter of Credit of $60,035.50
on the first and second anniversary of the Commencement Date.
ARTICLE 8 - SUBORDINATION
8. 01. This Lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate to all ground leases and underlying leases of the Land
and/or the Building now or hereafter existing and to all Mortgages which may now
or hereafter affect the Land and/or building and/or any of such leases, whether
or not such Mortgages or leases shall also cover other lands and/or buildings,
to each and every advance made or hereafter to be made under such Mortgages, and
to all renewals, modifications, replacements and extensions of such leases and
such Mortgages and spreaders and consolidations of such Mortgages. The
provisions of this Section 8.01 shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, the lessor under any such lease or the Mortgagee of
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any such Mortgage or any of their respective successors in interest may
reasonably request to evidence such subordination; and if Tenant fails to
execute, acknowledge or deliver any such instruments within 10 days after
request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as
Tenant's attorney- in- fact, coupled with an interest, to execute and deliver
any such instruments for and on behalf of Tenant. Landlord shall obtain
nondisturbance agreements from the Superior Lessor, Raymond Enterprises, and the
Superior Mortgagee, Principal Mutual Life Insurance Company, provided Tenant
executes the Superior Mortgagees and Superior Lessor's standard form of
subordination agreement and pays the Superior Mortgagee's customary charge of
same (currently $500.00).
8.02. If any act or omission of Landlord would give Tenant the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to claim a partial or total eviction, Tenant shall not exercise such
right (a) until it has given written notice of such act or omission to Landlord
and each Superior Mortgagee and each Superior Lessor whose name and address
shall previously have been furnished to Tenant, and (b) until a reasonable
period for remedying such act or omission shall have elapsed following the
giving of such notice and following the time when such Superior Mortgagee or
Superior Lessor shall have become entitled under such Superior Mortgage or
Superior Lease, as the case may be, to remedy the same (which reasonable period
shall in no event be less than the period to which Landlord would be entitled
under this Lease or otherwise, after similar notice, to effect such remedy),
provided such. Superior Mortgagee or Superior Lessor shall with due diligence
give Tenant notice of intention to, and commence and continue to, remedy such
act or omission.
8.03. If any Superior Lessor or Superior Mortgagee shall succeed to the
rights of Landlord under this Lease, whether through possession or foreclosure
action or delivery of a new lease or deed, then at the request of such party so
succeeding to Landlord's rights ("Successor Landlord") and upon such Successor
Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn
to and recognize such Successor Landlord as Tenant's landlord under this Lease
and shall promptly execute and deliver any instrument that such Successor
Landlord may reasonably request to evidence such attornment. Upon such
attornment this Lease shall continue in full force and effect as a direct lease
between the Successor Landlord and Tenant upon all of the terms, conditions and
covenants as are set forth in this Lease except that the Successor Landlord
shall not (a) be liable for any previous act or omission of Landlord under this
Lease; (b) be subject to any offset, not expressly provided for in this Lease,
which theretofore shall have accrued to Tenant against Landlord; (c) be liable
for the return of any Security Deposit, in whole or in part, to the extent that
same is not paid over to the Successor Landlord; or (d) be bound by any previous
modification of this Lease or by any previous prepayment of more than one
month's Fixed Rent or Additional Charges, unless such modification or prepayment
shall have been expressly approved in writing by the Superior Lessor of the
Superior Lease or the Mortgagee of the Superior Mortgage through or by reason of
which the Successor Landlord shall have succeeded to the rights of Landlord
under this Lease.
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8.04. If any then present or prospective Superior Mortgagee shall
require any modification(s) of this Lease, Tenant shall promptly execute and
deliver to Landlord such instruments effecting such modification(s) as Landlord
shall request, provided that such modification(s) do not adversely affect in any
material respect any of Tenant's rights under this Lease.
ARTICLE 9 - QUIET ENJOYMENT
9.01. So long as Tenant pays all of the Rent and performs all of
Tenant's other obligations hereunder, Tenant shall peaceably and quietly have,
hold and enjoy the Demised Premises without hindrance, ejection or molestation
by Landlord or any person lawfully claiming through or under Landlord, subject,
nevertheless, to the provisions of this Lease and to Superior Leases and
Superior Mortgages.
ARTICLE 10 - ASSIGNMENT, SUBLETTING AND MORTGAGING
10.01. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise, (a) assign or otherwise transfer this Lease, or
offer or advertise to do so, (b) sublet the Demised Premises or any part
thereof, or offer or advertise to do so, or allow the same to be used, occupied
or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or
otherwise hypothecate this Lease in any manner whatsoever, without in each
instance obtaining the prior written consent of Landlord. Notwithstanding the
foregoing, Landlord shall not unreasonably withhold or delay its consent to any
proposed subletting or assignment of this Lease by Tenant, provided that in the
event Tenant assigns this Lease, Tenant shall pay to Landlord, as an Additional
Charge hereunder, one-half (1/2) of any amounts received by Tenant in connection
with such assignment to the extent any such amounts exceed the Fixed Rent and
Additional Charges payable from time to time hereunder; and in the event the
Tenant sublets the Demised Premises, Tenant shall pay to Landlord, as Additional
Charges hereunder, one-half (1/2) of any rentals or any other payments received
by Tenant in connection with such subletting to the extent any such rentals or
payments exceed the Fixed Rent and Additional Charges payable from time to time
hereunder. Notwithstanding anything contained in this Article 10 to the
contrary, consent by Landlord shall not be required if the Tenant assigns this
Lease to its parent corporation or to its wholly owned subsidiary or a company
under commitment control with Tenant, subject, however, to the further
provisions of this Article 11 and prior notice to Landlord.
10.02. If at any time (a) the original Tenant named herein, (b) the
then Tenant, (c) any Guarantor, or (d) any Person owning a majority of the
voting stock of, or directly or indirectly controlling, the then Tenant shall be
a corporation or partnership, any transfer of voting stock or partnership
interest resulting in the person(s) who shall have owned a majority of such
corporation's shares of voting stock or the general partners' interest in such
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partnership, as the case may be, immediately before such transfer, ceasing to
own a majority of such shares of voting stock or general partner's interest, as
the case may be, except as the result of transfers by inheritance, shall be
deemed to be an assignment of this Lease as to which Landlord's consent shall
have been required, and in any such event Tenant shall notify Landlord. The
provisions of this Section 10.02 shall not be applicable to any corporation all
the outstanding voting stock of which is listed on a national securities
exchange (as defined in the Securities Exchange Act of 1934, as amended) or is
traded in the over-the-counter market with quotations reported by the National
Association of Securities Dealers through its automated system for reporting
quotations and shall not apply to transactions with a corporation into or with
which the then Tenant is merged or consolidated or to which substantially all of
the then Tenant's assets are transferred or to any corporation which controls or
is controlled by the then Tenant or is under common control with the then
Tenant, provided that in any of such events (i) the successor to Tenant has a
net worth computed in accordance with generally accepted accounting principles
at least equal to the greater of (1) the net worth of Tenant immediately prior
to such merger, consolidation or transfer, or (2) the net worth of the original
Tenant on the date of this Lease, and (ii) proof satisfactory to Landlord of
such net worth shall have been delivered to Landlord at least 10 days prior to
the effective date of any such transaction. For the purposes of this Section,
the words "voting stock" shall refer to shares of stock regularly entitled to
vote for the election of directors of the corporation. Landlord shall have the
right at any time and from time to time during the Term to inspect the stock
record books of the corporation to which the provisions of this Section 10.02
apply, and Tenant will produce the same on request of Landlord.
10.03. If this Lease is assigned, whether or not in violation of this
Lease, Landlord may collect rent from the assignee. If the Demised Premises or
any part thereof are sublet or used or occupied by anybody other then Tenant,
whether or not in violation of this Lease, Landlord may, after default by
Tenant, and expiration of Tenant's time to cure such default, collect rent from
the subtenant or occupant. In either event, Landlord may apply the net amount
collected to the Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of any of the provisions of Section
10.01 or Section 10.02, or the acceptance of the assignee, subtenant or occupant
as tenant, or a release of Tenant from the performance by Tenant of Tenant's
obligations under this Lease. The consent by Landlord to any assignment,
mortgaging, subletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging or subletting or use or
occupancy by others not expressly permitted by this Article 10. References in
this Lease to use or occupancy by others (that is, anyone other than Tenant)
shall not be construed as limited to subtenants and those claiming under or
through subtenants but shall be construed as including also licensees and others
claiming under or through Tenant, immediately or remotely.
10.04. Any permitted assignment or transfer, whether made with
Landlord's consent pursuant to Section 10.01 or without Landlord's consent if
permitted by Sections 10.01 or 10.02, shall be made only if, and shall not be
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effective until, the assignee shall execute, acknowledge and deliver to Landlord
an agreement in form and substance reasonably satisfactory to Landlord whereby
the assignee shall assume Tenant's obligations under this Lease and whereby the
assignee shall agree that all of the provisions in this Article 10 shall,
notwithstanding such assignment or transfer, continue to be binding upon it in
respect to all future assignments and transfers. Notwithstanding any assignment
or transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of Rent by Landlord from an assignee, transferee,
or any other party, the original Tenant and any other person(s) who at any time
was or were Tenant shall remain fully liable for the payment of the Rent and for
Tenant's other obligations under this Lease.
10.05. The liability of the original named Tenant and any other
Person(s) (including but not limited to any Guarantor) who at any time are or
become responsible for Tenant's obligations under this Lease shall not be
discharged, released or impaired by any agreement extending the time of, or
modifying any of the terms or obligations under this Lease, or by any waiver or
failure of Landlord to enforce, any of this Lease.
10.06. The listing of any name other than that of Tenant, whether on
the doors of the Demised Premises or the Building directory, or otherwise, shall
not operate to vest any right or interest in this Lease or in the Demised
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Demised Premises or to the
use or occupancy thereof by others.
10.07. Without limiting any of the provisions of Article 24, if
pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted
having the same general purpose), Tenant is permitted to assign this Lease
notwithstanding the restrictions contained in this Lease, adequate assurance of
future performance by an assignee expressly permitted under such Code shall be
deemed to mean the deposit of cash security in an amount equal to the sum of one
(1) year's Fixed Rent plus an amount equal to the Additional Charges for the
Calendar Year preceding the year in which such assignment is intended to become
effective, which deposit shall be held by Landlord for the balance of the Term,
without interest, as security for the full performance of all of Tenant's
obligations under this Lease, to be held and applied in the manner specified for
security in Section 7.01.
10.08. If Tenant shall propose to assign or in any manner transfer this
Lease or any interest therein, or sublet the Demised Premises or any part or
parts thereof, or grant any concession or license or otherwise permit occupancy
of all or any part of the Demised Premises by any person, Tenant shall give
notice thereof to Landlord, together with a copy of the proposed instrument that
is to accomplish same and such financial and other information pertaining to the
proposed assignee, transferee, subtenant, concessionaire or licensee as Landlord
shall reasonably require.
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ARTICLE 11 - COMPLIANCE WITH LAWS
11.01. Tenant shall comply with all Legal Requirements which shall, in
respect of the Demised Premises or the use and occupation thereof, or the
abatement of any nuisance in, on or about the Demised Premises, impose any
violation, order or duty on Landlord or Tenant; and Tenant shall pay all the
cost, expenses, fines, penalties and damages which may be imposed upon Landlord
or any Superior Lessor by reason of or arising out of Tenant's failure to fully
and promptly comply with and observe the provisions of this Section 11.01.
However, Tenant need not comply with any such law or requirement of any public
authority so long as Tenant shall be contesting the validity thereof, or the
applicability thereof to the Demised Premises, in accordance with Section 11.02.
11.02. Tenant may contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any Legal Requirement, provided that (a) Landlord shall not be
subject to criminal penalty or to prosecution for a crime, and neither the
Demised Premises nor any part thereof shall be subject to being condemned or
vacated, by reason of non-compliance or otherwise by reason of such contest; (b)
before the commencement of such contest, Tenant shall furnish to Landlord either
(i) the bond of a surety company satisfactory to Landlord, which bond shall be,
as to its provisions and form, satisfactory to Landlord, and shall be in an
amount at least equal, to 125% of the cost of such compliance (as estimated by a
reputable contractor designated by Landlord) and shall indemnify Landlord
against the cost thereof and against all liability for damages, interest,
penalties and expenses (including reasonable attorneys' fees and expenses),
resulting from or incurred in connection with such contest or non-compliance, or
(ii) other security in place of such bond reasonably satisfactory to Landlord;
(c) such non-compliance or contest shall not constitute or result in any
violation of any Superior Lease or Superior Mortgage, or if any such Superior
Lease and/or Superior Mortgage shall permit such non-compliance or contest on
condition of the taking of action or furnishing of security by Landlord, such
action shall be taken and such security shall be furnished at the expense of
Tenant; and (d) Tenant shall keep Landlord advised as to the status of such
proceedings. Without limiting the application of the above, Landlord shall be
deemed subject to prosecution for a crime if Landlord, or its managing agent, or
any officer, director, partner, shareholder or employee of Landlord or its
managing agent, as an individual, is charged with a crime of any kind or degree
whatsoever, whether by service of a summons or otherwise, unless such charge is
withdrawn before Landlord or its managing agent, or such officer, director,
partner, shareholder or employee of Landlord or its managing agent (as the case
may be) is required to plead or answer thereto.
ARTICLE 12 - INSURANCE AND INDEMNITY
12.01. During the Term Tenant shall maintain at its own cost and
expense the following insurance: (a) comprehensive general public liability.
insurance in respect of the Demised Premises and the conduct and operation of
business therein, having limits of not less than $5,000,000.00 combined single
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limit per occurrence for bodily injury or death to any one person and for bodily
injury or death to any number of persons in any one occurrence, and for property
damage, including water damage and sprinkler leakage legal liability (coverage
to include but not be limited to (i) premises operation, completed operations,
broad form contractual liability and product liability, (ii) comprehensive
automobile, truck and vehicle liability insurance covering all owned, hired and
non-owned vehicles used by the contractor(s) in connection with their work and
any loading of such vehicles, with limits as stated above and (iii) workmen's
compensation, employers liability and occupational disease insurance as required
by statutes, but in any event not less than $500,000.00 for Coverage B covering
all damages and injuries arising from each accident or occupational disease),
(b) All-Risk insurance (including flood and earthquake) covering the Demised
Premises against loss or damage in an amount equal to the full replacement value
thereof (excluding foundations) as same might increase from time to time or such
higher amount as either may be required by the holder of any fee mortgage
covering the Demises Premises or is necessary to prevent Landlord and/or Tenant
from becoming a co-insurer, including boiler and machinery insurance, if
applicable (c) rent insurance with broad form extended coverage endorsement in
an amount equal to the Rent, and all other charges payable by Tenant pursuant to
this Lease for a period of one (1) year and (d) any other insurance required for
compliance with the Insurance Requirements. Landlord may at any time and from
time to time require that the limits for the comprehensive general public
liability insurance to be maintained by, Tenant be increased to the limits that
new Tenants in similar buildings are required by Landlord to maintain. The
insurance carried pursuant to Section 12.01 (b) shall be carried in favor of
Landlord and the holder of any fee mortgage on the Premises and the standard
mortgagee clause shall be attached to the appropriate policies. Insurance
carried pursuant to Section 12.01 (b) shall provide that the loss, if any, shall
be adjusted with and payable to the party who will perform the work of
restoration pursuant to Article 21 and such mortgagee as their interests may
appear. Tenant shall deliver to Landlord and any additional named insured(s)
certificates for such fully paid-for policies at least ten (10) days before the
Commencement Date. Tenant shall procure and pay for renewals of such insurance
from time to time before the expiration thereof, and Tenant shall deliver to
Landlord and any additional insured(s) certificates therefor at least thirty
(30) days before the expiration of any existing policy. All such policies shall
be issued by companies of recognized responsibility, having a Bests Key Rating
Guide of not less than A, Class VII, licensed to do business in New Jersey, and
all such policies shall contain a provision whereby the same cannot be cancelled
unless Landlord and any additional insured(s) are given at least thirty (30)
days' prior written notice of such cancellation. The certificates of insurance
to be delivered to Landlord by Tenant shall name Landlord as an additional
insured and, at Landlord's request, shall also name any Superior Lessors or
Superior Mortgagees as additional insureds, and the following phrase must
be typed on the certificate of insurance: "Hartz Mountain Industries, Inc., and
its respective subsidiaries, affiliates, associates, joint ventures, and
partnerships, are hereby named as additional insureds as their interests may
appear (and if Landlord has so requested, Tenant shall include any Superior
Lessors and Superior Mortgagees as additional insured(s)). It is intended for
this insurance to be primary and
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non-contributing." Tenant shall give Landlord at least thirty (30) days' prior
written notice that any such policy is being cancelled or replaced.
12.02. Tenant shall not do, permit or suffer to be done any act,
matter, thing or failure to act in respect of the Demised Premises or use or
occupy the Demised Premises or conduct or operate Tenant's business in any
manner objectionable to any insurance company or companies whereby the fire
insurance or any other insurance then in effect in respect to the Land and
Building or any part thereof shall become void or suspended or whereby any
premiums in respect of insurance maintained by Landlord shall be higher than
those which would normally have been in effect for the occupancy contemplated
under the Permitted Uses. In case of a breach of the provisions of this Section
12.02, in addition to all other rights and remedies of Landlord hereunder,
Tenant shall (a) indemnify Landlord and the Superior Lessors and hold Landlord
and the Superior Lessors harmless from and against any loss which would have
been covered by insurance which shall have become void or suspended because of
such breach by Tenant and (b) pay to Landlord any and all increases of premiums
on any insurance, including, without limitation, rent insurance, resulting from
any such breach.
12.03. Tenant shall indemnify and hold harmless Landlord and all
Superior Lessors and its and their respective partners, joint venturers,
directors, officers, agents, servants and employees from and against any and all
claims arising from or in connection with (a) the conduct or management of the
Demised Premises or of any business therein, or any work or thing whatsoever
done, or any condition created (other than by Landlord) in the Demised Premises
during the Term or during the period of time, if any, prior to the Commencement
Date that Tenant may have been given access to the Demised Premises; (b) any
act, omission or negligence of Tenant or any of its subtenants or licensees or
its or their partners, joint venturers, directors, officers, agents, employees
or contractors; (c) any accident, injury or damage whatever (unless caused
solely by Landlord's negligence) occurring in the Demised Premises; and (d) any
breach or default by Tenant in the full and prompt payment and performance of
Tenant's obligations under this Lease; together with all costs, expenses and
liabilities incurred in or in connection with each such claim or action or
proceeding brought thereon, including, without limitation, all reasonable
attorneys' fees and expenses. In case any action or proceeding is brought
against Landlord and/or any Superior Lessor and/or its or their partners, joint
venturers, directors, officers, agents and/or employees by reason of any such
claim, Tenant, upon notice from Landlord or such Superior Lessor, shall resist
and defend such action or proceeding by counsel reasonably satisfactory to
Landlord.
12.04. Neither Landlord nor any Superior Lessor shall be liable or
responsible for, and Tenant hereby releases Landlord and each Superior Lessor
from, all liability and responsibility to Tenant and any person claiming by,
through or under Tenant, by way of subrogation or otherwise, for any injury,
loss or damage to any person or property in or around the Demised Premises or to
Tenant's business irrespective of the cause of such injury, loss or damage, and
Tenant shall require its insurers to include in all of Tenant's insurance
policies which could give rise to a right of subrogation against Landlord or any
Superior Lessor a clause or endorsement whereby the insurer waives any
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rights of subrogation against Landlord and such Superior Lessors or permits the
insured, prior to any loss, to agree with a third party to waive any claim it
may have against said third party without invalidating the coverage under, the
insurance policy.
ARTICLE 13 - RULES AND REGULATIONS
13.01. Tenant and its employees and agents shall faithfully observe and
comply with the Rules and Regulations and such reasonable changes therein
(whether by modification, elimination or addition) as Landlord at any time or
times hereafter may make and communicate to Tenant, which in Landlord's
reasonable judgment, shall be necessary for the reputation, safety, care or
appearance of the Land and Building, or the preservation of good order therein,
or the operation or maintenance of the Building or its equipment and fixtures,
and which do not unreasonably affect the conduct of Tenant's business in the
Demised Premises; provided, however, that in case of any conflict or
inconsistency between the provisions of this Lease and any of the Rules and
Regulations, the provisions of this Lease shall control.
ARTICLE 14 - ALTERATIONS AND SIGNS
14.01. Tenant shall not make any alterations or additions to the
Demised Premises, or make any holes or cuts in the walls, ceilings, roofs, or
floors thereof, or change the exterior color or architectural treatment of the
Demised Premises, without on each occasion first obtaining the consent of
Landlord. Tenant shall submit to Landlord plans and specifications for such work
at the time Landlord's consent is sought. Notwithstanding the foregoing, (i) if
alterations are decorative and non-structural in nature and have a cost of less
than $25,000, no consent shall be necessary, however Tenant shall provide
Landlord with details of same, and (ii) for all other alterations, Landlord's
consent shall not be unreasonably withheld or delayed. Tenant shall pay to
Landlord upon demand the reasonable cost and expense of Landlord in (a)
reviewing said plans and specifications and (b) inspecting the alterations to
determine whether the same are being performed in accordance with the approved
plans and specifications and all Legal Requirements and Insurance Requirements,
including, without limitation, the fees of any architect or engineer employed by
Landlord for such purpose. Before with any permitted alteration which will cost
more than $75,000 (exclusive of the costs of decorating work and items
constituting Tenant's Property), as estimated by a reputable contractor
designated by Landlord, Tenant shall obtain and deliver to Landlord either (i) a
performance bond and a labor and materials payment bond (issued by a corporate
surety licensed to do business in New Jersey) , each in an amount equal to 100%
of such estimated cost and in form satisfactory to Landlord, or (ii) such other
security as shall be reasonably satisfactory to Landlord. Tenant shall fully and
promptly comply with and observe the Rules and Regulations then in force in
respect of the making of alterations. Any review or approval by Landlord of any
plans and/or specifications with respect to any alterations is solely for
Landlord's benefit, and without any representation or warranty whatsoever to
Tenant in respect to the adequacy, correctness or efficiency thereof or
otherwise.
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14.02. Tenant shall obtain all necessary governmental permits and
certificates for the commencement and prosecution of permitted alterations and
for final approval thereof upon completion, and shall cause alterations to be
performed in compliance with all applicable Legal Requirements and Insurance
Requirements. Alterations shall be diligently performed in a good and
workmanlike manner, using new materials and equipment at least equal in quality
and class to the better of (a) the original installations of the Building, or
(b) the then standards for the Building established by Landlord. Alterations
shall be performed by contractors first approved by Landlord not to be
unreasonably withheld or delayed; provided, however, that any alterations in or
to the mechanical, electrical, sanitary, heating, ventilating, air conditioning
or other systems of the Building shall be performed only by the contractor(s)
designated by Landlord. Alterations shall be made in such manner as not to
unreasonably interfere with or delay and as not to impose any additional expense
upon Landlord in the construction, maintenance, repair or operation of the
Building; and if any such additional expense shall be incurred by Landlord as a
result of Tenant's making of any alterations, Tenant shall pay any such
additional expense upon demand. Throughout the making of alterations, Tenant
shall carry, or cause to be carried, workmen's compensation insurance in
statutory limits and general liability insurance, with completed operation
endorsement, for any occurrence in or about the Building, under which Landlord
and its managing agent and any Superior Lessor whose name and address shall
previously have been furnished to Tenant shall be named as parties insured, in
such limits as Landlord may reasonably require, with insurers reasonably
satisfactory to Landlord. Tenant shall furnish Landlord with reasonably
satisfactory evidence that such insurance is in effect at or before the
commencement of alterations and, on request, at reasonable intervals thereafter
during the making of alterations.
14.03. Tenant shall not place any signs on the roof, exterior walls or
grounds of the Demised Premises without first obtaining Landlord's written
consent thereto which shall not be unreasonably withheld or delayed provided the
proposed signage is consistent with similar buildings in the area. In placing
any signs on or about the Demised Premises, Tenant shall, at its expense, comply
with all applicable legal requirements and obtain all required permits and/or
licenses.
ARTICLE 15 - LANDLORD'S AND TENANT'S PROPERTY
15.01. All fixtures, equipment, improvements and appurtenances attached
to or built into the Demised Premises at the commencement of or during the Term,
whether or not by or at the expense of Tenant, shall be and remain a part of the
Demised Premises, shall be deemed to be the property of Landlord and shall not
be removed by Tenant, except as provided in Section 15.02. Further, any
carpeting or other personal property in the Demised Premises on the Commencement
Date, unless installed and paid for by Tenant, shall be and shall remain
Landlord's property and shall not be removed by Tenant.
15.02. All movable partitions, business and trade fixtures, machinery
and equipment, communications equipment and office equipment, whether or not
attached to or built into the Demised Premises, which are installed in the
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Demised Premises by or for the account of Tenant without expense to Landlord and
can be removed without structural damage to the Building and all furniture,
furnishings, and other movable personal property owned by Tenant and located in
the Demised Premises (collectively, "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of the Tenant's Property is removed, Tenant shall
repair or pay the cost of repairing any damage to the Demised Premises,
resulting from the installation and/or removal thereof. Any equipment or other
property for which Landlord shall have granted any allowance or credit to Tenant
shall not be deemed to have been installed by or for the account of Tenant
without expense to Landlord, shall not be considered as the Tenant's Property
and shall be deemed the property of Landlord.
15.03. At or before the Expiration Date or the date of any earlier
termination of this Lease, or within fifteen (15) days after such an earlier
termination date, Tenant shall remove from the Demised Premises all of the
Tenant's Property (except such items thereof as Landlord shall have expressly
permitted to remain, which property shall become the property of Landlord if not
removed), and Tenant shall repair any damage to the Demised Premises resulting
from any installation and/or removal of the Tenant's Property. Any items of the
Tenant's Property which shall remain in the Demised Premises after the
Expiration Date or after a period of fifteen (15) days following an earlier
termination date, may, at the option of Landlord, be deemed to have been
abandoned, and in such case such items may be retained by Landlord as its
property or disposed of by Landlord, without accountability, in such manner as
Landlord shall determine at Tenant's Expense.
ARTICLE 16 - REPAIRS AND MAINTENANCE
16.01. Tenant shall, throughout the Term, take good care of the Demised
Premises, the fixtures and appurtenances therein, and shall not do, suffer, or
permit any waste with respect thereto. Tenant shall keep and maintain all
interior and exterior portions of the Demised Premises including, without
limitation, all Building equipment, windows, doors, loading bay doors and
shelters, plumbing and electrical systems, heating, ventilating and air
conditioning ("HVAC") systems in a clean and orderly condition and in good order
and repair. Tenant shall keep and maintain all floors, sidewalks, landscaping
(including lawn areas), curbing, paving whether in driveways, parking areas or
access easements. The phrase "keep and maintain" as used herein includes
repairs, replacement and/or restoration as appropriate. Tenant shall maintain
the exterior areas of the Demised Premises free of accumulation of snow, ice,
dirt and rubbish. Tenant shall not permit or suffer any overloading of the
floors of the Building. Tenant shall promptly replace all scratched, damaged or
broken doors and glass in and about the Demised Premises and shall be
responsible for all repairs, maintenance and replacement of wall and floor
coverings in the Demised Premises and for the repair and maintenance of all
sanitary and electrical fixtures and equipment therein. Tenant shall promptly
make all repairs in or to the Demised Premises for which Tenant is responsible,
and any repairs required to be made by Tenant to the mechanical, electrical,
sanitary, heating, ventilating, air-
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conditioning or other systems of the Building shall be performed only by
contractor(s) designated by Landlord. Any other repairs in or to the Building
and the facilities and systems thereof for which Tenant is responsible may, at
Landlord's option, be performed by Landlord at Tenant's expense; but Landlord
may, at its option, before commencing any such work or at any time thereafter,
require Tenant to furnish to Landlord such security, as required in Section
14.01 hereof.
16.02. Landlord shall be responsible for the structural integrity of
the Building and shall make all repairs thereto except as herein above provided
in Section 16.01. Landlord represents that on the Commencement Date the Building
shall be free of leaks and the plumbing, heating and electrical systems will be
in good working order.
16.03. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant, nor shall Tenant's covenants and obligations
under this Lease be reduced or abated in any manner whatsoever, by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's doing any repairs, maintenance, or changes which Landlord is required
or permitted by this Lease, or required by Law, to make in or to any portion of
the Building provided Landlord shall undertake all reasonable efforts to
minimize the effects of such work on Tenant.
16.04. Tenant shall not permit or suffer the overloading of the floors
of the Demised Premises beyond 250 pounds per square foot.
ARTICLE 17 - UTILITY CHARGES
17.01. Tenant shall pay all charges for gas, water, sewer, electricity,
heat or other utility or service supplied to the Demised Premises as measured by
meters relating to Tenant's use, and the cost of repair, maintenance,
replacement, and reading of any meters measuring Tenant's consumption thereof.
Tenant expressly agrees that Landlord shall not be responsible for the failure
of supply to Tenant of any of the aforesaid, or any other utility service.
Landlord shall not be responsible for any public or private telephone service to
be installed in the space, particularly conduit if required.
17.02, Tenant's use of electric energy in the Demised Premises shall
not at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Demised Premises. In order to insure that
such capacity is not exceeded and to avert possible adverse effect upon the
Building's electric service, Tenant shall not, without Landlord's prior consent
in each instance (which shall not be unreasonably withheld or delayed), connect
any fixtures, appliances or equipment to the Building's electric distribution
system other than those which will not or will not tend to exceed the capacity
of any of the electrical conductors and equipment or make any alteration or
addition to the electric system of the Demised Premises existing on the
Commencement Date. Should Landlord grant such consent, all additional risers or
other equipment required therefor shall be provided by Landlord and the cost
thereof shall be paid by Tenant to Landlord on demand.
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ARTICLE 18 - ACCESS, CHANGES AND NAME
18.01. Except for the space within the inside surfaces of all walls,
hung ceilings, floors, windows and doors bounding the Demised Premises, all of
the Building, including, without limitation, exterior Building walls, core
corridor walls and doors and any core corridor entrance, any terraces or roofs
adjacent to the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other Building facilities and the use thereof, as well
as access thereto through the Demised Premises for the purpose of operating,
maintenance, decoration and repair, are reserved to Landlord. Landlord also
reserves the right, to install, erect, use and maintain pipes, ducts and
conduits in and through the Demised Premises, provided such are properly
enclosed.
18.02. Landlord and its agents shall have the right to enter and/or
pass through the Demised Premises at any time or times (a) to examine the
Demised Premises and to show then to actual and prospective Superior Lessors,
Superior Mortgagees, or prospective purchasers of the Building, and (b) to make
such repairs, alterations, additions and improvements in or to the Demised
Premises and/or in or to the Building or its facilities and equipment as
Landlord is required or desires to make. Landlord shall be allowed to take all
materials into and upon the Demised Premises that may be required in connection
therewith, without any liability to Tenant and without any reduction of Tenant's
obligations hereunder. During the period of eighteen (18) months prior to the
Expiration Date, Landlord and its agents may exhibit the Demised Premises to
prospective tenants.
18.03. If at any time any windows of the Demised Premises are
temporarily darkened or obstructed by reason of any repairs, improvements,
maintenance and/or cleaning in or about the Building, or if any part of the
Building is temporarily or permanently closed or inoperable, the same shall not
be deemed a constructive eviction and shall not result in any reduction or
diminution of Tenant's obligations under this Lease.
18.04. If, during the last month of the Term, Tenant has removed all or
substantially all of the Tenant's Property from the Demised Premises, Landlord
may, without notice to Tenant, immediately enter the Demised Premises and later,
renovate and decorate the same, without liability to Tenant and without reducing
or otherwise affecting Tenant's obligations hereunder.
18.05. Omitted.
18.06. Landlord may adopt any name for the Building. Landlord reserves
the right to change the name and/or address of the Building at any time upon
sixty (60) days prior notice to Tenant.
ARTICLE 19 - MECHANICS' LIENS AND OTHER LIENS
19.01. Nothing contained in this Lease shall be deemed, construed or
interpreted to imply any consent or agreement on the part of Landlord to
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subject Landlord's interest or estate to any liability under any mechanic's or
other lien law. If any mechanic's or other lien or any notice of intention to
file a lien is filed against the Land, or any part thereof, or the Demised
Premises, or any part thereof, for any work, labor, service or materials claimed
to have been performed or furnished for or on behalf of Tenant or anyone holding
any part of the Demised Premises through or under Tenant, Tenant shall cause the
same to be cancelled and discharged of record by payment, bond or order of a
court of competent jurisdiction within sixty (60) days after notice by Landlord
to Tenant.
ARTICLE 20 - NON-LIABILITY AND INDEMNIFICATION
20.01. Neither Landlord nor any partner, joint venturer, director,
officer, agent, servant or employee of Landlord shall be liable to Tenant for
any loss, injury or damage to Tenant or to any other Person, or to its or their
property, irrespective of the cause of such injury, damage or loss, unless
caused by or resulting from the negligence of Landlord, its agents, servants or
employees in the operation or maintenance of the Land or Building without
contributory negligence on the part of Tenant or any of its subtenants or
licensees or its or their employees, agents or contractors. Further, neither
Landlord nor any partner, joint venturer, director, officer, agent, servant or
employee of Landlord shall be liable (a) for any such damage caused by other
tenants or Persons in, upon or about the Land or Building, or caused by
operations in construction of any private, public or quasi-public work; or (b)
even if negligent, for consequential damages arising out of any loss of use of
the Demised Premises or any equipment or facilities therein by Tenant or any
Person claiming through or under Tenant.
20.02. Notwithstanding any provision to the contrary, Tenant shall look
solely to the estate and property of Landlord in and to the Land and Building
(or the proceeds received by Landlord on a sale of such estate and property but
not the proceeds of any financing or refinancing thereof) in the event of any
claim against Landlord arising out of or in connection with this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises, and
Tenant agrees that the liability of Landlord arising out of or in connection
with this Lease, the relationship of Landlord and Tenant or Tenant's use of the
Demised Premises shall be limited to such estate and property of Landlord (or
sale proceeds). No other properties or assets of Landlord or any partner, joint
venturer, director, officer, agent, servant or employee of Landlord shall be
subject to levy, execution or other enforcement procedures for the satisfaction
of any judgement (or other judicial process) or for the satisfaction of any
other remedy of Tenant arising out of, or in connection with, this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises and
if Tenant shall acquire a lien on or interest in any other properties or assets
by judgment or otherwise, Tenant shall promptly release such lien on or interest
in such other properties and assets by executing, acknowledging and delivering
to Landlord an instrument to that effect prepared by Landlord's attorneys.
Tenant hereby waives the right of specific performance and any other remedy
allowed in equity if specific performance or such other remedy could result in
any liability of Landlord for the payment of money to Tenant (to the extent that
same could
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result in liability which has been waived earlier in this subsection), or to any
court or governmental authority (by way of fines or otherwise) for Landlord's
failure or refusal to observe a judicial decree or determination, or to any
third party.
ARTICLE 21 - DAMAGE OR DESTRUCTION
21.01. If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other casualty (and if this Lease shall
not be terminated as in this Article 21 hereinafter provided), Landlord shall
repair the damage and restore and rebuild the Building and/or the Demised
Premises (except for the Tenant's Property) with reasonable dispatch after
notice to it of the damage or destruction and the collection of the insurance
proceeds attributable to such damage.
21.02. Subject to the provisions of Section 21.05, if all or part of
the Demised Premises shall be damaged or destroyed or rendered completely or
partially untenantable on account of fire or other casualty, the Rent shall be
abated or reduced, as the case may be, in the proportion that the untenantable
area of the Demised Premises bears to the total area of the Demised Premises,
for the period from the date of the damage or destruction to the date the damage
to the Demised Premises shall be substantially repaired provided, however,
should Tenant reoccupy a portion of the Demised Premises during the period the
repair or restoration work is taking place and prior to the date that the
Demised Premises are substantially repaired or made tenantable the Rent
allocable to such reoccupied portion, based upon the proportion which the area
of the reoccupied portion of the Demised Premises bears to the total area of the
Demised Premises, shall be payable by Tenant from the date of such occupancy.
21.03. If (a) the Building or the Demised Premises shall be totally
damaged or destroyed by fire or other casualty, or (b) the Building shall be so
damaged or destroyed by fire or other casualty that its repair or restoration
requires the expenditure, as estimated by a reputable contractor or architect
designated by Landlord, of more than twenty percent (20%) (or ten percent [10%]
if such casualty occurs during the last two [2] years of the Term) of the full
insurable value of the Building immediately prior to the casualty, or (c) the
Building shall be damaged or destroyed by fire or other casualty and either the
loss shall not be covered by Landlord's insurance or the net insurance proceeds
(after deducting all expenses in connection with obtaining such proceeds) shall,
in the estimation of a reputable contractor or architect designated by Landlord
be insufficient to pay for the repair or restoration work, then in either such
case Landlord may terminate this Lease by giving Tenant notice to such effect
within ninety (90) days after the date of the fire or other casualty.
21.04. Tenant shall not be entitled to terminate this Lease and no
damages, compensation or claim shall be payable by Landlord for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Building pursuant to this Article 21. Landlord shall use its best
efforts to make such repair or restoration promptly and in such manner as to
not unreasonably interfere with Tenant's use and occupancy of the
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Demised Premises, but Landlord shall not be required to do such repair or
restoration work except during Business Hours on Business Days. Notwithstanding
the foregoing, in the event the Building shall be totally damaged or destroyed
by fire or other casualty during the last eighteen (18) months of the Term of
the Lease, Tenant may terminate this Lease by giving Landlord not less than
thirty (30) days notice to such effect.
21.05. Notwithstanding any of the foregoing provisions of this Article
21, if by reason of some act or omission on the part of Tenant or any of its
subtenants or its or their partners, directors, officers, servants, employees,
agents or contractors, either (a) Landlord or any Superior Lessor or any
Superior Mortgagee shall be unable to collect all of the insurance proceeds
(including, without limitation, rent insurance proceeds) applicable to damage or
destruction of the Land or the Building by fire or other casualty, or (b) the
Building shall be damaged or destroyed or rendered completely or partially
untenantable on account of fire or other casualty, then, without prejudice to
any other remedies which may be available against Tenant, there shall be no
abatement or reduction of the Rent. Further, nothing contained in this Article
21 shall relieve Tenant from any liability that may exist as a result of any
damage or destruction by fire or other casualty.
21.06. Landlord will not carry insurance of any kind on the Tenant's
Property, and, except as provided by law or by reason of Landlord's breach of
any of its obligations hereunder, shall not be obligated to repair any damage or
to replace the Tenant's Property.
21.07. The provisions of this Article 21 shall be deemed an express
agreement governing any case of damage or destruction of the Building by fire or
other casualty, and any law providing for such a contingency in the absence of
an express agreement, now or hereafter in force, shall have no application in
such case.
ARTICLE 22 - EMINENT DOMAIN
22.01. If the whole of the Demised Premises shall be taken by any
public or quasi-public authority under the power of condemnation, eminent domain
or expropriation, or in the event of conveyance of the whole of the Demised
Premises in lieu thereof, this Lease shall terminate as of the day possession
shall be taken by such authority. If 25% or less of the Floor Space of the
Building shall be so taken or conveyed, this Lease shall terminate only in
respect of the part so taken or conveyed as of the day possession shall be taken
by such authority. If more than 25% of the Floor Space of the Building shall be
so taken or conveyed, this Lease shall terminate only in respect of the part so
taken or conveyed as of the day possession shall be taken by such authority, but
either party shall have the right to terminate this Lease upon notice given to
the other party within 30 days after such taking possession. If so much of the
parking facilities shall be so taken or conveyed that the number of parking
spaces necessary, in Landlord's judgment, for the continued operation of the
Building shall not be available, Landlord shall, by notice to Tenant, terminate
this Lease as of the day possession shall be taken. If this Lease shall continue
in effect as to any portion of the Demised Premises not so taken or conveyed,
the Rent shall be computed as of the day possession
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shall be taken on the basis of the remaining Floor Space of the Building. Except
as specifically provided herein, in the event of any such taking or conveyance
there shall be no reduction in Rent. If this Lease shall continue in effect,
Landlord shall, at its expense, but shall be obligated only to the extent of the
net award or other compensation (after deducting all expenses in connection with
obtaining same) available to Landlord for the improvements taken or conveyed
(excluding any award or other compensation for land or for the unexpired portion
of the term of any Superior Lease), make all necessary alterations so as to
constitute the remaining Building a complete architectural and
tenantable unit, except for the Tenants' property, and Tenant shall make all
alterations or replacements to the Tenant's Property and decorations in the
Demised Premises. All awards and compensation for any taking or conveyance,
whether for the whole or a part of the Land or Building, shall be property of
Landlord, and Tenant hereby assigns to Landlord all of Tenant's right, title and
interest in and to any and all such awards and compensation, including, without
limitation, any award or compensation for the value of the unexpired portion of
the Term. Tenant shall be entitled to claim, prove and receive in the
condemnation proceeding such award or compensation as may be allowed for the
Tenant's property and for loss of business, good will, and depreciation or
injury to and cost of removal of the Tenant's property, but only if such award
or compensation shall be made by the condemning authority in addition to, and
shall not result in a reduction of, the award or compensation made by it to
Landlord.
22.02. If the temporary use or occupancy of all or any part of the
Demised Premises shall be taken during the Term, Tenant shall be entitled,
except as hereinafter set forth, to receive that portion of the award or payment
for such taking which represents compensation for the use and occupancy of the
Demised Premises, for the taking of the Tenant's Property and for moving
expenses, and Landlord shall be entitled to receive that portion which
represents reimbursement for the cost of restoration of the Demised Premises.
This Lease shall be and remain unaffected by such taking and Tenant shall
continue responsible for all of its obligations hereunder insofar as such
obligations are not affected by such taking and shall continue to pay the Rent
in full when due. If the period of temporary use or occupancy shall extend
beyond the Expiration Date, that part of the award or payment which represents
compensation for the use and occupancy of the Demised Premises (or a part
thereof) shall be divided between Landlord and Tenant so that Tenant shall
receive (except as otherwise provided below) so much thereof as represents
compensation for the period up to and including the Expiration Date and Landlord
shall receive so much thereof as represents compensation for the period after
the Expiration Date. All monies to be paid to Tenant as, or as part of, an award
or payment for temporary use and occupancy for a period beyond the date to which
the Rent has been paid shall be received, held and applied by the first Superior
Mortgagee (or if there is no Superior Mortgagee, by Landlord as a trust fund)
for payment of the Rent becoming due hereunder.
ARTICLE 23 - SURRENDER
23.01. On the Expiration Date, or upon any earlier termination of this
Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant
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shall quit and surrender the Demised Premises to Landlord "broom-clean" and in
good order, condition and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease, and Tenant shall remove all of Tenant's property therefrom except as
otherwise expressly provided in this Lease.
23.02. If Tenant remains in possession of the Demised Premises after
the expiration of the Term, Tenant shall be deemed to be occupying the Demised
Premises as a tenant from month to month at the sufferance of Landlord subject
to all of the provisions of this Lease, except that the monthly Fixed Rent shall
be twice the Fixed Rent in effect during the last month of the Term.
Notwithstanding the foregoing, in the event Landlord and Tenant are negotiating
in good faith for a renewal/extension of the Term, such doubling of the Fixed
Rent shall not be imposed for the first thirty (30) days following the
expiration of the Term.
23.03. No act or thing done by Landlord or its agents shall be deemed
an acceptance of a surrender of the Demised Premises, and no agreement to accept
such surrender shall be valid unless in writing and signed by Landlord.
ARTICLE 24 - CONDITIONS OF LIMITATION
24.01. This Lease is subject to the limitation that whenever Tenant or
any Guarantor (a) shall make an assignment for the benefit of creditors, or (b)
shall commence a voluntary case or have entered against it an order for relief
under any chapter of the Federal Bankruptcy Code (Title 11 of the United States
Code) or any similar order or decree under any federal or state law, now in
existence, or hereafter enacted having the same general purpose, and such order
or decree shall have not been stayed or vacated within 30 days after entry, or
(c) shall cause, suffer, permit or consent to the appointment of a receiver,
trustee, administrator, conservator, sequestrator, liquidator or similar
official in any federal, state or foreign judicial or nonjudicial proceeding, to
hold, administer and/or liquidate all or substantially all of its assets, and
such appointment shall not have been revoked, terminated, stayed or vacated and
such official discharged of his duties within 30 days of his appointment then
Landlord, at any time after the occurrence of any such event, may give Tenant a
notice of intention to end the Term at the expiration of five (5) days from the
date of service of such notice of intention, and upon the expiration of said
five (5) day period, whether or not the Term shall theretofore have commenced,
this Lease shall terminate with the same effect as if that day were the
expiration date of this Lease, but Tenant shall remain liable for damages as
provided in Article 26.
24.02. This Lease is subject to the further limitations that: (a) if
Tenant shall default in the payment of any Rent, and such default shall continue
for five (5) days after notice or (b) if Tenant shall, whether by action or
inaction, be in default of any of its obligations under this Lease (other than a
default in the payment of Rent) and such default shall continue and not be
remedied within fifteen (15) days after Landlord shall have given to Tenant a
notice specifying the same, or, in the case of a default which cannot with due
diligence be cured within a period of fifteen (15) days and
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the continuance of which for the period required for cure will not subject
Landlord or any Superior Lessor or prosecution for a crime (as more particularly
described in the last sentence of Section 11.02) or termination of any Superior
Lease or foreclosure of any Superior Mortgage, if Tenant shall not, (i) within
said fifteen (15) day period advise Landlord of Tenant's intention to take all
steps necessary to remedy such default, (ii) duly commence within said fifteen
(15) day period, and thereafter diligently prosecute to completion all steps
necessary to remedy the default, and (iii) complete such remedy within a
reasonable time after the date of said notice by Landlord, or (c) if any event
shall occur or any contingency shall arise whereby this Lease would, by
operation of law or other-wise, devolve upon or pass to any person, firm or
corporation other than Tenant, except as expressly permitted by Article 10, or
(d) if Tenant shall vacate or abandon the Demised Premises, then in any of said
cases Landlord may give to Tenant a notice of intention to end the Term at the
expiration of ten (10) days from the date of the service of such notice of
intention, and upon the expiration of said ten (10) days, whether or not the
Term shall theretofore have commenced, this Lease shall terminate with the same
effect as if that day were the expiration date of this Lease, but Tenant shall
remain liable for damages as provided in Article 26.
ARTICLE 25 - RE-ENTRY BY LANDLORD
25.01. If Tenant shall default in the payment of any Rent, and such
default shall continue for ten (10) days after notice, or if this Lease shall
terminate as provided in Article 24, Landlord or Landlord's agents and employees
may immediately or at any time thereafter re-enter the Demised Premises, or any
part thereof, either by summary dispossess proceedings or by any suitable action
or proceeding at law without being liable to indictment, prosecution or damages
therefor, and may repossess the same, and may remove any Person therefrom, to
the end that Landlord may have, hold and enjoy the Demised Premises. The word
"re-enter," as used herein, is not restricted to its technical legal meaning. If
this Lease is ' terminated under the provisions of Article 24, or if Landlord
shall re-enter the Demised Premises under the provisions of this Article 25, or
in the event of the termination of this Lease, or of re-entry, by or under any
summary dispossess or other proceedings or action or any provision of law by
reason of default hereunder on the part of Tenant, Tenant shall thereupon pay to
Landlord the Rent payable up to the time of such termination of this Lease, or
of such recovery of possession of the Demised Premises by Landlord, as the case
may be, and shall also pay to Landlord damages as provided in Article 26.
25.02. In the event of a breach or threatened breach by Tenant of any
of its obligations under this Lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies to which
Landlord may lawfully be entitled at any time and Landlord may invoke any remedy
allowed at law or in equity as if specific remedies were not provided for
herein.
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25.03. If this Lease shall terminate under the provisions of Article
24, or if Landlord shall re-enter the Demised Premises under the provisions of
this Article 25, or in the event of the termination of this Lease, or of
re-entry, by or under any summary dispossess or other proceeding or action or
any provision of law by reason of default hereunder on the part of Tenant,
Landlord shall be entitled to retain all monies, if any, paid by Tenant to
Landlord, whether as Advance Rent, security or otherwise, but such monies shall
be credited by Landlord against any Rent due from Tenant at the time of such
termination or re-entry or, at Landlord's option, against any damages payable by
Tenant under Article 26 or pursuant to law.
ARTICLE 26 - DAMAGES
26.01. If this Lease is terminated under the provisions of Article 24,
or if Landlord shall re-enter the Demised Premises under the provisions of
Article 25, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall pay as
Additional Charges to Landlord, at the election of Landlord, either or any
combination of:
(a) a sum which at the time of such termination of this Lease or at the
time of any such re-entry by Landlord, as the case may be, represents the then
value of the excess, if any, of (i) the aggregate amount of the Rent which would
have been payable by Tenant (conclusively presuming the average monthly
Additional Charges to be the same as were the average monthly Additional Charges
payable for the year, or if less than 365 days have then elapsed since the
Commencement Date, the partial year, immediately preceding such termination or
re-entry) for the period commencing with such earlier termination of this Lease
or the date of any such re-entry, as the case may be, and ending with the
Expiration Date, over (ii) the aggregate rental value of the Demised Premises
for the same period; or
(b) sums equal to the Fixed Rent and the Additional Charges which would
have been payable by Tenant had this Lease not so terminated, or had Landlord
not so re-entered the Demised Premises, payable upon the due dates therefor
specified herein following such termination or such re-entry and until the
Expiration Date, provided, however, that if Landlord shall relet the Demised
Premises during said period, Landlord shall credit Tenant with the net rents
received by Landlord from such reletting, such net rents to be determined by
first deducting from the gross rents as and when received by Landlord from such
reletting the expenses incurred or paid by Landlord in terminating this Lease or
in re-entering the Demised Premises and in securing possession thereof, as well
as the expenses of reletting, including, without limitation, altering and
preparing the Demised Premises for new tenants, brokers' commissions, legal
fees, and all other expenses properly chargeable against the Demised Premises
and the rental therefrom, it being understood that any such reletting may be for
a period shorter or longer than the period ending on the Expiration Date; but in
no event shall Tenant be entitled to receive any excess of such net rents over
the sums payable by Tenant to Landlord hereunder, nor shall Tenant be entitled
in any suit for the collection of
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damages pursuant to this subdivision (b) to a credit in respect of any rents
from a reletting, except to the extent that such net rents are actually received
by Landlord. If the Demised Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a square foot basis
shall be made of the rent received from such reletting and of the expenses of
reletting; or
(c) a sum which at the time of such termination of this Lease or at the
time of any such re-entry by Landlord, as the case may be, represents the
aggregate amount of the Rent which would have been payable by Tenant
(conclusively presuming the average monthly Additional Charges to be the same as
were the average monthly Additional Charges payable for the year, or if less
than 365 days have then elapsed since the Commencement Date, the partial year,
immediately preceding such termination or re-entry) for the period commencing
with such earlier termination of this Lease or the date of any such re-entry, as
the case may be, and ending with the Expiration Date; provided, however, that if
Landlord shall relet the Demised Premises during said period, Landlord shall
credit Tenant with the net rents received by Landlord from such reletting, such
net rents to be determined by first deducting from the gross rents as and when
received by Landlord from such reletting the expenses incurred or paid by
Landlord in terminating this Lease or in re-entering the Demised Premises and in
securing possession thereof, as well as the expenses of reletting, including,
without limitation, altering and preparing the Demised Premises for new
tenant's, brokers' commissions, legal fees, and all other expenses properly
chargeable against the Demised Premises and the rental therefrom, it being
understood that any such reletting may be for a period shorter or longer than
the period ending on the Expiration Date; but in no event shall Landlord have to
account to Tenant for any rents in excess of the total damages recovered by
Landlord hereunder, nor shall Tenant be entitled in any suit for the collection
of damages pursuant to this subdivision (c) to a credit in respect of any rents
from a reletting, except to the extent that such net rents are actually received
by Landlord. If the Demised Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a square foot basis
shall be made of the rent received from such reletting and of the expenses of
reletting.
If the Demised Premises or any part thereof be relet by Landlord before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting. Landlord shall not be liable in any way
whatsoever for its failure to relet the Demised Premises or any part thereof, or
if the Demised Premises or any part thereof are relet, for its failure to
collect the rent under such reletting, and no such failure to relet or failure
to collect rent shall release or affect Tenant's liability for damages or
otherwise under this Lease. Without limiting the foregoing Landlord agrees to
mitigate its damages by attempting to relet in its ordinary course of business.
26.02. Suit or suits for the recovery of such damages or, any
installments thereof, may be brought by Landlord at any time and from time to
time at its election, and nothing contained herein shall be deemed to require
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Landlord to Postpone suit until the date when the Term would have expired if it
had not been so terminated under the provisions of Article 24, or under any
provision of law, or had Landlord not re-entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to prove for and obtain as
damages by reason of the termination of this Lease or re-entry of the Demised
Premises for the default of Tenant under this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time, whether or
not such amount be greater than, equal to, or less than any of the sums referred
to in Section 26.01.
26.03. In addition, if this Lease is terminated under the provisions of
Article 24, or if Landlord shall re-enter the Demised Premises under the
provisions of Article 25, Tenant covenants that: (a) the Demised Premises then
shall be in the same condition as that in which Tenant has agreed to surrender
the same to Landlord at the Expiration Date; (b) Tenant shall have performed
prior to any such termination any obligation of Tenant contained in this Lease
for the making of any alteration or for restoring or rebuilding the Demised
Premises or the Building, or any part thereof; and (c) for the breach of any
covenant of Tenant set forth above in this Section 26.03, Landlord shall be
entitled immediately, without notice or other action by Landlord, to recover,
and Tenant shall pay, as and for liquidated damages therefor, the cost of
performing such covenant (as estimated by an independent contractor selected by
Landlord).
26.04. In addition to any other remedies Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under this Article 26, if any Rent or damages payable hereunder by
Tenant to Landlord are not paid within five (5) days after demand therefor, the
same shall bear interest at the Late Payment Rate or the maximum rate permitted
by law, whichever is less, from the due date thereof until paid, and the amounts
of such interest shall be Additional Charges hereunder.
ARTICLE 27 - AFFIRMATIVE WAIVERS
27.01. Tenant, on behalf of itself and any and all persons claiming
through or under Tenant, does hereby waive and surrender all right and privilege
which it, they or any of them might have under or by reason of any present or
future law, to redeem the Demised Premises or to have a continuance of this
Lease after being dispossessed or ejected from the Demised Premises by process
of law or under the terms of this Lease or after the termination of this Lease
as provided in this Lease.
27.02. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and Tenant's use or occupancy of the
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Demised Premises including, without limitation, any claim of injury or damage,
and any emergency and other statutory remedy with respect thereto. Tenant shall
not interpose any counterclaim of any kind in any action or proceeding commenced
by Landlord to recover possession of the Demised Premises.
ARTICLE 28 - NO WAIVERS
28.01. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this Lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or
Additional Charges with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 29 - CURING TENANT'S DEFAULTS
29.01. If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice in a case of emergency, and in any other case
only if such default continues after the expiration of fifteen (15) days from
the date Landlord gives Tenant notice of the default. Bills for any expenses
incurred by Landlord in connection with any such performance by it for the
account of Tenant, and bills for all costs, expenses and disbursements of every
kind and nature whatsoever, including reasonable attorneys' fees and expenses,
involved in collecting or endeavoring to collect the Rent or any part thereof or
enforcing or endeavoring to enforce any rights against Tenant or Tenant's
obligations hereunder, under or in connection with this Lease or pursuant to
law, including any such cost, expense and disbursement involved in instituting
and prosecuting summary proceedings or in recovering possession of the Demised
Premises after default by Tenant or upon the expiration of the Term or sooner
termination of this Lease, and interest on all sums advanced by Landlord under
this Article at the rate of three percent (3%) per month or the maximum rate
permitted by law, whichever is less, may be sent by Landlord to Tenant monthly,
or immediately, at Landlord's option, and such amounts shall be due and payable
in accordance with the terms of such bills.
ARTICLE 30 - BROKER
30.01. Landlord and Tenant represent that no broker except the Broker
was instrumental in bringing about or consummating this Lease and Tenant
represents that it had no conversations or negotiations with any broker except
the Broker concerning the leasing of the Demised Premises. Each party agrees to
indemnify and hold harmless the other against and from any claims for any
brokerage commissions and all costs, expenses and liabilities in connection
therewith, including, without limitation, attorneys' fees and expenses, arising
out of any conversations or negotiations had by itself with any broker
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other than the Broker. Landlord shall pay any brokerage commissions due the
Broker pursuant to a separate agreement between Landlord and the Broker.
ARTICLE 31 - NOTICES
31.01. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given, rendered or made by either
party to the other, pursuant to this Lease or pursuant to any applicable Legal
Requirement, shall be in writing and shall be deemed to have been properly
given, rendered or made only if hand delivered or sent by United States
registered or certified mail, return receipt requested, addressed to the other
party at the address hereinabove set forth (except that after the Commencement
Date, Tenant's address, unless Tenant shall give notice to the contrary, shall
be the Building) as to Landlord, to the attention of General Counsel with a
concurrent Notice to the attention of Controller, and shall be deemed to have
been given, rendered or made on the second day after the day so mailed, unless
mailed outside the State of New Jersey, in which case it shall be deemed to have
been given, rendered or made on the third business day after the day so mailed.
Either party may, by notice as aforesaid, designate a different address or
addresses for notices, statements, demands, consents, approvals or other
communications intended for it.
ARTICLE 32 - ESTOPPEL CERTIFICATES
32.01. Each party shall, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days' prior notice,
execute and deliver to the requesting party a statement certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), certifying the dates to which the Fixed Rent and Additional
Charges have been paid, stating whether or not, to the best knowledge of the
party giving the statement, the requesting party is in default in performance of
any of its obligations under this Lease, and, if so, specifying each such
default of which the party giving the statement shall have knowledge, and
stating whether or not, to the best knowledge of the party giving the statement,
any event has occurred which with the giving of notice or passage of time, or
both, would constitute such a default of the requesting party, and, if so,
specifying each such event; any such statement delivered pursuant hereto shall
be deemed a representation and warranty to be relied upon by the party
requesting the certificate and by others with whom such party may be dealing,
regardless of independent investigation. Tenant also shall include in any such
statement such other information concerning this Lease as Landlord may
reasonably request.
ARTICLE 33 - ARBITRATION
33.01. Landlord may at any time request arbitration, and Tenant may at
any time when not in default in the payment of any Rent request arbitration,
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of any matter in dispute in the charge or collection of Additional Charges. The
party requesting arbitration shall do so by giving notice to that effect to the
other party, specifying in said notice the nature of the dispute, and said
dispute shall be determined in Newark, New Jersey, by a single arbitrator, in
accordance with the rules then obtaining of the American Arbitration Association
(or any organization which is the successor thereto). The award in such
arbitration may be enforced on the application of either party by the order or
judgment of a court of competent jurisdiction. The fees and expenses of any
arbitration shall be borne by the parties equally, but each party shall bear the
expense of its own attorneys and experts and the additional expenses of
presenting its own proof. If Tenant gives notice requesting arbitration as
provided in this Article, Tenant shall simultaneously serve a duplicate of the
notice on each Superior Mortgagee and Superior Lessor whose name and address
shall previously have been furnished to Tenant, and such Superior Mortgagees and
Superior Lessor shall have the right to participate in such arbitration.
ARTICLE 34 - MEMORANDUM OF LEASE
34.01. Tenant shall not record this Lease. However, at the request of
either party, the other shall promptly execute, acknowledge and deliver to
Landlord a memorandum of lease in respect of this Lease sufficient for
recording. Such memorandum shall not be deemed to change or otherwise affect
any of the obligations or provisions of this Lease. Whichever party records such
memorandum of Lease shall pay all recording costs and expenses, including any
taxes that are due upon such recording.
ARTICLE 35 - MISCELLANEOUS
35.01. Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease or in
any other written agreement(s) which may be made between the parties
concurrently with the execution and delivery of this Lease. All understandings
and agreements heretofore had between the parties are merged in this Lease and
any other written agreement(s) made concurrently herewith, which alone fully and
completely express the agreement of the parties and which are entered into after
full investigation. Neither party has relied upon any statement or
representation not embodied in this Lease or in any other written agreement(s)
made concurrently herewith.
35.02. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in whole
or in part, unless such agreement is in writing, refers expressly to this Lease
and is signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of abandonment is
sought.
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35.03. If Tenant shall at any time request Landlord to sublet or let
the Demised Premises for Tenant's account, Landlord or its agent is authorized
to receive keys for such purposes without releasing Tenant from any of its
obligations under this Lease, and Tenant hereby releases Landlord of any
liability for loss or damage to any of the Tenant's Property in connection with
such subletting or letting.
35.04. Except as otherwise expressly provided in this Lease, the
obligations under this Lease shall bind and benefit the successors and assigns
of the parties hereto with the same effect as if mentioned in each instance
where a party is named or referred to; provided, however, that (a) no violation
of the provisions of Article 10 shall operate to vest any rights in any
successor or assignee of Tenant and (b) the provisions of this Section 35.04
shall not be construed as modifying the conditions of limitation contained in
Article 24.
35.05. Except for Tenant's obligations to pay Rent, the time for
Landlord or Tenant, as the case may be, to perform any of its respective
obligations hereunder shall be extended if and to the extent that the
performance thereof shall be prevented due to any strikes, lockouts, civil
commotions, warlike operations, invasions, rebellions, hostilities, military or
usurped power, governmental regulations or controls, inability to obtain labor
or materials despite due diligence, acts of God, or other causes beyond the
control of the party whose performance is required. Except as expressly provided
to the contrary, the obligations of Tenant hereunder shall not be affected,
impaired or excused, nor shall Landlord have any liability whatsoever to Tenant,
(a) because Landlord is unable to fulfill, or is delayed in fulfilling, any of
its obligations under this Lease due to any of the matters set forth in the
first sentence of this Section 35.05, or (b) because of any failure or defect in
the supply, quality or character of electricity, water or any other utility or
service furnished to the Demised Premises for any reason beyond Landlord's
reasonable control.
35.06. Any liability for payments hereunder (including, without
limitation, Additional Charges) shall survive the expiration of the Term or
earlier termination of this Lease.
35.07. If Tenant shall request Landlord's consent and Landlord shall
fail or refuse to give such consent, Tenant shall not be entitled to any damages
for any withholding by Landlord of its consent; Tenant's sole remedy shall be
an action for specific performance or injunction, and such remedy shall be
available only in those cases where Landlord has expressly agreed in writing
not to unreasonably withhold or delay its consent or where as a matter of law
Landlord may not unreasonably withhold its consent.
35.08. If an excavation shall be made upon land adjacent to or under
the Building, or shall be authorized to be made, Tenant shall afford to the
Person causing or authorized to cause such excavation, license to enter the
Demised Premises for the purpose of performing such work as said Person shall
reasonably deem necessary or desirable to preserve and protect the Building from
injury or damage and to support the same by proper foundations, without
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any claim for damages or liability against Landlord and without reducing or
otherwise affecting Tenant's obligations under this Lease.
35.09. Tenant shall not exercise its rights under Article 14 or any
other provision of this Lease in a manner which would violate Landlord's union
contracts or create any work stoppage, picketing labor disruption or dispute or
any interference with the business of Landlord.
35.10. Tenant shall give prompt notice to Landlord of (a) any
occurrence in or about the Demised Premises for which Landlord might be liable,
(b) any fire or other casualty in the Demised Premises, (c) any damage to or
defect in the Demised Premises, including the fixtures and equipment thereof,
for the repair of which Landlord might be responsible, and (d) any damage to or
defect in any part of the Building's sanitary, electrical, heating, ventilating,
air-conditioning, elevator or other systems located in passing through the
Demised Premises or any part thereof.
35.11. This Lease shall be governed by and construed in accordance with
the laws of the State of New Jersey. If any provision of this Lease shall, be
invalid or unenforceable, the remainder of this Lease shall not be affected and
shall be enforced to the extent permitted by law. The table of contents,
captions, headings and titles in this Lease are solely for convenience of
reference and shall not affect its interpretation. This Lease shall be construed
without regard to any presumption or other rule requiring construction against
the party causing this Lease to be drafted. If any words or phrases in this
Lease shall have been stricken out or otherwise eliminated, whether or not any
other words or phrases have been added, this Lease shall be construed as if the
words or phrases so stricken out or otherwise eliminated were never included in
this Lease and no implication or inference shall be drawn from the fact that
said words or phrases were so stricken out or otherwise eliminated. Each
covenant, agreement, obligation or other provision of this Lease on Tenant's
part to be performed, shall be deemed and construed as a separate and
independent covenant of Tenant, not dependent on any other provision of this
Lease. All terms and words used in this Lease, regardless of the number or
gender in which they are used, shall be deemed to include any other number and
any other gender as the context may require.
35.12. Within thirty (30) days of each anniversary date of this Lease,
Tenant shall annually furnish to Landlord a copy of its then current audited
financial statement which shall be employed by Landlord for purposes of
financing the Demised Premises and not distributed otherwise without prior
authorization of Tenant. Any material adverse change of Tenant's financial
condition shall be furnished to Landlord in writing forthwith and without
request by Landlord for same.
35.13. (i) At least ninety (90) days prior to Tenant's termination of
its lease, and any extensions thereof, Tenant agrees to seek a determination
from the New Jersey Department of Environmental Protection and Energy ("NJDEPE")
in the form of a Letter of Non-applicability ("LNA"), that the New Jersey
Industrial Recovery Act, N.J.S.A. 13:1K-6 et seq. ("ISRA"), is inapplicable to
the Tenant's cessation of operations and termination of its lease. In the event
that the Tenant obtains an LNA from the NJDEPE pursuant
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to this subsection, Landlord agrees to accept an LNA in full and complete
satisfaction of the obligations of this subsection. Tenant represents, warrants,
and covenants that any information contained in any application for an LNA
submitted pursuant to this subsection is true and complete. Tenant represents
that the Standard Industrial Classification (SIC) number applicable to Tenant's
operations is ________________ and would not subject this transaction to the
requirements of ISRA.
(ii) In the event that an LNA is denied by NJDEPE, notice of such
denial will be given to Landlord within two (2) business days of Tenant's
receipt of NJDEPE's denial of the LNA. Tenant shall satisfy its obligations
under ISRA prior to its lease termination date: (1) by securing an approval of
the Tenant's Negative Declaration; or (2) by securing an approval of the
Tenant's Cleanup Plan, and completing the implementation of such Cleanup Plan.
Tenant shall bear sole responsibility for any investigation and cleanup costs,
fees, penalties, or damages associated with ISRA compliance. In the event that
Tenant is unable to complete the its ISRA compliance obligations by the date of
its lease termination, Landlord shall continue to provide Tenant with reasonable
access to the Demised Premises, provided that any work undertaken by Tenant
shall be performed in such a manner as to minimize interference with Landlord's
or any other tenant's use of the Demised Premises. However, Landlord reserves
its rights to deem Tenant a holdover tenant in the event that Tenant's ISRA
compliance unreasonably restricts the Landlord's use of the Demised Premises.
(iii) Tenant shall provide Landlord with copies of all correspondence,
documents and reports, including sampling results submitted to or received
compliance with ISRA.
(iv) Landlord represents that no asbestos containing materials were
used in the construction of the Building, and, to the best of its knowledge, no
asbestos containing materials are currently in the Building.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
HARTZ MOUNTAIN INDUSTRIES, INC.
("Landlord")
By: /s/ Irwin A. Horowitz
----------------------------------
Irwin A. Horowitz
Executive Vice President
[Corporate Seal]
SLEEPMASTER PRODUCTS COMPANY, L.P.
("Tenant")
By: /s/ Peter R. Gummet
----------------------------------
Name: Peter R. Gummet
[Corporate Seal] Title: Chairman
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RIDER TO LEASE DATED OCTOBER 13, 1993, BETWEEN HARTZ MOUNTAIN
INDUSTRIES, INC. , AS LANDLORD AND SLEEPMASTER PRODUCTS COMPANY, L.P., AS
TENANT.
- --------------------------------------------------------------------------------
Rl. If any of the provisions of this Rider shall conflict with any of
the provisions, printed or typewritten, of this Lease, such conflict shall
resolve in every instance in favor of the provisions of this Rider.
R2. Provided Tenant is not in default under the Lease, Tenant shall
have two (2) options to extend the Term of its lease of the Demised Premises,
from the date upon which this Lease would otherwise expire for two (2) extended
periods of five (5) years (herein referred to as the "First Extended Period" and
the "Second Extended Period" respectively), upon the following terms and
conditions:
1. If Tenant elects to exercise said options, it shall do so by giving
notice of such election to Landlord on or before the date which is one (1) year
before the beginning of each Extended Period for which the Term is to be
extended by the exercise of such option. Tenant agrees that it shall have
forever waived its right to exercise each option if it shall fail for any reason
whatsoever to give such notice to Landlord by the time provided herein for the
giving of such notice, whether such failure is inadvertent or intentional, time
being of the essence as to the exercise of such option.
2. If Tenant elects to exercise either option, the Term shall be
automatically extended for the Extended Periods covered by the option so
exercised without execution of an extension or renewal lease. However, within
ten (10) days after request of either party following the effective exercise of
each option, Landlord and Tenant shall execute, acknowledge and deliver to each
other duplicate originals of an instrument in recordable form confirming that
such option was effectively exercised.
3. The Extended Periods shall be upon the same terms and conditions as
are in effect immediately preceding the commencement of such Extended Period;
provided, however, that Tenant shall have no right or option to extend the Term
for any period of time beyond the expiration of the Extended Period and,
provided further, that in the Extended Periods the Fixed Rent shall be as
follows:
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<PAGE> 41
(a) The Fixed Rent during the First Extended Period shall be
equal to the Fixed Rent in effect immediately preceding the First Extended
Period, increased (but not decreased) by the percentage increase by which the
Consumer Price Index (all items for New York-Northeast New Jersey for Urban
Wage Earners and Clerical Workers, or a successor or substitute index properly
adjusted ["CPI"]) last issued prior to the first day of the Extended Period
exceeds the CPI issued last preceding the Commencement Date of this Lease or the
Fixed Rent per square foot per annum in effect immediately preceding the First
Extended Period, whichever is greater.
(b) The Fixed Rent during the Second Extend Period shall be at
Fair Market Value, but not less than the Fixed Rent in effect during the First
Extended Period. Fair Market Value shall be determined by mutual agreement of
the parties. If the parties are unable to agree on the Fair Market Value, the
parties shall choose a licensed real Estate Appraiser who shall determine the
Fair Market Value. The cost of said Real Estate Appraiser shall be borne equally
by the parties. If the parties are unable to agree on a licensed Real Estate
Appraiser, each party shall select one Appraiser to appraise the Fair Market
Value. If the difference between the two appraisals is 20% or less of the lower
appraisal then the Fair Market Value shall be the average of the two appraisals.
If the difference between the two appraisals is greater than 20% of the lower
appraisal, the two Appraisers shall select a third licensed Real Estate
Appraiser to appraise the Fair Market Value. The Fair Market Value shall in such
case be the average of the three appraisals. The cost of the third appraisal
shall be borne equally by the parties. Anything to the contrary contained herein
notwithstanding, the Fixed Rent for the Second Extended Period shall not be less
than the Fixed Rent in effect for the First Extended Period.
4. Any termination, expiration, cancellation or surrender of this Lease
shall terminate any right or option for the Extended Period not yet exercised.
5. Landlord shall have the right, for thirty (30) days after receipt of
notice of Tenant's election to exercise any option to extend the Term, to reject
Tenant's election if Tenant gave such notice while Tenant was in default in the
performance of any of its obligations under the Lease, and such rejection shall
automatically render Tenant's election to exercise such option null and void and
of no effect.
6. The option provided herein to extend the Term of the Lease may not
be severed from the Lease or separately sold, assigned or otherwise transferred.
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<PAGE> 42
R3. Tenant agrees that it shall use its best efforts to deliver the
Security Deposit as soon as possible following the date hereof, and in the event
the Security Deposit is not received by Landlord within seven (7) days of
execution of this Lease, Landlord may terminate this Lease upon notice to
Tenant.
HARTZ MOUNTAIN INDUSTRIES, INC.
("Landlord")
By: /s/ Irwin A. Horowitz
----------------------------------
Irwin A. Horowitz
Executive Vice President
[Corporate Seal]
SLEEPMASTER PRODUCTS COMPANY, L.P.
("Tenant")
By: /s/ Peter R. Gummet
----------------------------------
Name: Peter R. Gummet
[Corporate Seal] Title: Chairman
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<PAGE> 43
October 13, 1993
Workletter
Sleepmaster Products Co. L.P.
The following represents Landlord's work to be done at no additional
cost to tenant.
A. 1. Construct up to 10,000 s.f. of office space (inclusive of
existing offices) pursuant to the attached office sketch and
attached standard office specifications; bathrooms for 20
women and 15 men will be provided in the office area. (The
parties acknowledge that the attached office sketch is subject
to modification in accordance with the foregoing obligations.)
2. Install gas heat in warehouse areas (either Dravo floor
mounted or gas fired unit heaters). If tenant elects to
install the heating system, a credit of $160,000 will be
issued against fixed rent, provided tenant elects to do so by
notice to Landlord within 10 days hereof.
3. Install 3 additional dock height loading doors and 1 drive-in
door on the east wall of the building; this work includes
8' x 10' loading dock doors with dock seals and surface
mounted levelers along with the associated regrading. The
drive-in door will be 10' wide x 12' high.
4. Remove expansion bolts and piping in floor, refurbish the
existing holes created by this removal, remove the existing
fencing.
5. Repair existing roof leaks, if any.
Landlord is budgeting $280,000 for the work contained in A.1. In the
event modifications are made by Tenant which reduce or increase the overall
$280,000 budget, such reduction or increase shall be adjusted between the
parties.
The following represents additional Landlord's work to be performed and
paid for by tenant on the commencement date.
B. Construct one (1) 20' x 30' open office and one (1) 20' x 40' open shop
within the warehouse, contiguous to each other. Walls will be 10' high
and all finishes and electric are to be Landlord's standard. Provide
one (1) through the wall HVAC unit. A single men's and ladies' room
will be adjacent to this area, which will consist of one (1) water
closet, one (1) urinal and one (1) sink for the men; two (2) water
closets and one (1) Sink for the women, and one drinking fountain.
Location to be at Col 6A at an additional cost of $25,000.
In the event the construction of fixtures in the office space results
in a lesser amount of fixtures than required by Code, tenant will be
credited with said difference.
C. Landlord will convert dry sprinkler system to a wet sprinkler system of
the same density at an additional cost of $23,000.
D. Landlord will change 331 high bay sodium light bulbs to metal halide
bulbs on 5' pendants at an additional cost of $67,000.
In the event that a lesser amount of light bulbs are changed, a
resulting credit will be issued.
E. Add 2,000 linear feet of 6' high fencing, with barbed wire on top, at
the perimeter of the building; moving gates and guard shack towards the
street; running electric connection to the guard shack and gates at an
additional cost of $19,000.
<PAGE> 44
Sleepmaster Products Co. L.P.
Page 2
In the event the warehouse area is not Ready for Occupancy on or before
December 1, 1993, Tenant shall receive a one day abatement of Fixed Rent for
each day beyond December 1, 1993 until the warehouse area is Ready for
Occupancy, provided such delay is not caused by Tenant. In the event the office
area is not Ready for Occupancy on or before January 15, 1994, Tenant shall
receive a one day abatement of Fixed Rent for each day beyond January 15, 1994
until the office area is Ready for Occupancy, provided such delay is not caused
by Tenant, and provided further that there shall be no "double-counting" of the
Fixed Rent abatements.
Landlord represents that the ventilation system shall be sufficient to
deliver outside air to meet code requirements for human occupancy, it being
expressly acknowledged that any ventilation air requirement required to support
Tenant's manufacturing operation is the Tenant's responsibility.
<PAGE> 45
EXHIBIT A
[JOHN ZANETAKOS ASSOCIATES, INC. LETTERHEAD]
October 13, 1993
Job No. 7509-20 - BDC
Deed description of a parcel of land situated along the southerly line of Lower
Road at the municipal boundary line between the City of Rahway and the City of
Linden, in the City of Linden, Union County, New Jersey.
Beginning at a point on the southerly side of Lower Road, said point being the
following two (2) courses from the point of intersection of the southerly side
of Barnett Street with the easterly side of Wall Street (50' wide).
a. N 72 degrees 57' 30" E 477.58 feet to a point; thence
b. N 22 degrees 45' 00" E 2.28 feet to the point of beginning and
running; thence
1. N 72 degrees, 57' 30" E 340.37 feet along the southerly side of Lower
Road to a point; thence
2. S 04 degrees 01' 00" W 633.37 feet to a point; thence
3. S 05 degrees 13' 00" W 677.64 feet to a point; thence
4. N 70 degrees 04' 30" W 222.78 feet to a point; thence
5. N 71 degrees 37' 00" W 304.10 feet to a point; thence
6. N 04 degrees 54' 30" E 467.93 feet to a point on the municipal boundary
line between the City of Linden and the City of Rahway; thence
7. N 22 degrees 45' 00" E 616.85 feet along said municipal boundary line
between the City of Rahway and the City of Linden to the point of
beginning.
Containing 12.324 acres.
Subject to all easements, right of ways and agreements of record.
Subject to such statement of facts that an accurate title search may disclose.
Deed description refers to map entitled, "Map of Property of Lot 7, Block 581
prepared for Hartz Mountain Industries, Inc.," prepared by John Zanetakos
Associates, Inc. dated November 13, 1989 and revised February 1, 1992.
<PAGE> 46
EXHIBIT D
RULES AND REGULATIONS
1. The rights of each tenant in the entrances, corridors, elevators and
escalators servicing the Building are limited to ingress and egress from such
tenant's premises for the tenant and its employees, licensees and invitees, and
no tenant shall use, or permit the use of, the entrances, corridors, escalators
or elevators for any other purpose. No tenant shall invite to the tenant's
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators and other facilities of the Building
by any other tenants. Fire exits and stairways are for emergency use only, and
they shall not be used for any other purpose by the tenants, their employees,
licensees or invitees. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of, any of the sidewalks, plazas, entrances,
corridors, escalators, elevators, fire exits or stairways of the Building.
Landlord reserves the right to control and operate the public portions of the
Building and the public facilities, as well as facilities furnished for the
common use of the tenants, in such manner as it deems best for the benefit of
the tenants generally.
2. Landlord may refuse admission to the Building outside of Business
Hours on Business Days to any person not known to the watchman in charge, or not
having a pass issued by Landlord or the tenant whose premises are to be entered,
or not otherwise properly identified, and Landlord may require all persons
admitted to or leaving the Building outside of Business Hours on Business Days
to provide appropriate identification. Tenant shall be responsible for all
persons for whom it issues any such pass and shall be liable to Landlord for all
acts or omissions of such persons. Any person whose presence in the Building at
any time shall, in the judgment of Landlord, be prejudicial to the safety,
character or reputation of the Building or of its tenants may be denied access
to the Building or may be ejected therefrom. During any invasion, riot, public
excitement or other commotion, Landlord may prevent all access to the Building
by closing the doors or otherwise for the safety of the tenants and protection
of property in the Building.
3. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or its employees, licensees or invitees, shall be
paid by such tenant.
4. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be attached
to or hung in, or be used in connection with, any window or door of the premises
of any tenant, without the prior written consent of landlord. Such curtains,
blinds, shades or screens must be of a quality, type, design and color, and
attached in the manner approved by Landlord.
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<PAGE> 47
5. No lettering, sign, advertisement, notice or object shall be
displayed in or on the windows or doors, or on the outside of any tenant's
premises, or at any point inside any tenant's premises where the same might be
visible outside of such premises, without the prior written consent of Landlord.
In the event of the violation of the foregoing by any tenant, Landlord may
remove the same without any liability, and may charge the expense incurred in
such removal to the tenant violating this rule. Interior signs, elevator cab
designations and lettering on doors and the Building directory shall, if and
when approved by Landlord, be inscribed, painted or affixed for each tenant by
Landlord at the expense of such tenant, and shall be of a size, color and style
acceptable to Landlord.
6. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by any tenant, nor shall any
bottles, parcels or other articles be placed on the window sills or on the
peripheral air conditioning enclosures, if any.
7. No showcase or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules.
8. Linoleum, tile or other floor covering shall be laid in a tenant's
premises only in a manner first approved in writing by Landlord.
9. No tenant shall mark, paint, drill into, or in any way deface any
part of its premises or the Building. No boring, cutting or stringing of wires
shall be permitted, except with the prior written consent of Landlord, and as
Landlord may direct.
10. No bicycles, vehicles, animals, fish or birds of any kind shall be
brought into or kept in or about the premises of any tenant of the Building.
11. No noise, including, but not limited to, music or the playing of
musical instruments, recordings, radio or television, which, in the judgment of
Landlord, might disturb other tenants in the Building shall be made or permitted
by any tenant. Nothing shall be done or permitted in the premises of any tenant
which would impair or interfere with the use or enjoyment by any other tenant of
any other space in the Building.
12. No tenant, nor any tenant's contractors, employees, agents,
visitors or licensees, shall at any time bring into or keep upon the premises or
the Building any inflammable, combustible, explosive or otherwise dangerous
fluid, chemical or substance.
13. Additional locks or bolts of any kind which shall not be operable
by the grand master key for the Building shall not be placed upon any of the
doors or windows by any tenant, nor shall any changes be made in locks or the
mechanism thereof which shall make such locks inoperable by said grand master
key. Additional keys for a tenant's
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<PAGE> 48
premises and toilet rooms shall be procured only from Landlord who may make a
reasonable charge therefor. Each tenant shall, upon the termination of its
tenancy, turn over to Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys furnished by Landlord such tenant shall pay to Landlord the
cost thereof.
14. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description, must take place during such hours and in such elevators and in such
manner as Landlord or its agent may determine from time to time. The persons
employed to move safes and other heavy objects shall be reasonably acceptable to
Landlord and, if so required by law, shall hold a master rigger's license.
Arrangements will be made by Landlord with any tenant for moving large
quantities of furniture and equipment into or out of the Building. All labor and
engineering costs incurred by Landlord in connection with any moving specified
in this rule shall be paid by Tenant to Landlord on demand.
15. Landlord reserves the right to inspect all objects and matter to be
brought into the Building and to exclude from the Building all objects and
matter which violate any of these Rules and Regulations or this Lease. Landlord
may require any person leaving the Building with any package or other object or
matter to submit a pass, listing such package or object or matter, from the
tenant from whose premises the package or object or matter is being removed, but
the establishment and enlargement of such requirement shall not impose any
responsibility on Landlord for the protection of any tenant against the removal
of property from the premises of such tenant. Landlord shall in no way be liable
to any tenant for damages or loss arising from the admission, exclusion or
ejection of any person to or from the premises or the Building under the
provisions of this RULE or of RULE 2 hereof.
16. No tenant shall occupy or permit any portion of its premises to be
occupied as an office for a public stenographer or public typist, or for the
possession, storage, manufacture, or sale of liquor, narcotics, dope, tobacco in
any form, or as a barber, beauty or manicure shop, or as a school. No tenant
shall use its premises or any part thereof to be used, for manufacturing, or the
sale at retail or auction of merchandise, goods or property of any kind.
17. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in Landlord's judgment, tends to impair
the reputation of the Building or its desirability as a building for others, and
upon written notice from Landlord, such tenant shall refrain from and
discontinue such advertising or identifying sign.
18. Landlord shall have the right to prescribe the weight and position
of safes and other objects of excessive weight, and no safe or other object
whose weight exceeds the lawful load for the area upon which it would stand
shall be brought into or kept upon any tenant's premises. If, in the judgment of
Landlord, it is necessary to distribute the
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<PAGE> 49
concentrated weight of any heavy object, the work involved in such distribution
shall be done at the expense of the tenant and in such a manner as Landlord
shall determine.
19. No machinery or mechanical equipment other than ordinary portable
business machines may be installed or operated in any tenant's premises without
Landlord's prior written consent, and in no case (even where the same are of a
type so excepted or as so consented to by Landlord) shall any machines or
mechanical equipment be so placed or operated as to disturb other tenants; but
machines and mechanical equipment which may be permitted to be installed and
used in a tenant's premises shall be so equipped, installed and maintained by
such tenant as to prevent any disturbing noise, vibration or electrical or other
interference from being transmitted from such premises to any other area of the
Building.
20. Landlord, its contractors, and their respective employees, shall
have the right to use, without charge therefor, all light, power and water in
the premises of any tenant while cleaning or making repairs or alterations in
the premises of such tenant.
21. No premises of any tenant shall be used for lodging or sleeping or
for any immoral or illegal purpose.
22. Canvassing, soliciting and peddling in the Building are prohibited
and each tenant shall cooperate to prevent the same.
23. No tenant shall cause or permit any unusual or objectionable odors
to emanate from its premises which would annoy other tenants or create a public
or private nuisance. No cooking shall be done in the premises of any tenant
except as is expressly permitted in such tenant's Lease.
24. Nothing shall be done or permitted in any tenant's premises, and
nothing shall be brought into or kept in any tenant's premises, which would
impair or interfere with any of the Building's services or the proper and
economic heating or other servicing of the Building or the premises, or the use
or enjoyment by any other tenant of any other premises, nor shall there be
installed by any tenant any ventilating, air-conditioning, electrical or other
equipment of any kind which, in the judgment of Landlord, might cause any such
impairment or interference.
25. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building
which may damage them. The water and wash closets and other plumbing fixtures in
or serving any tenant's premises shall not be used for any purpose other than
the purposes for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein. All
damages resulting from any misuse of the fixtures shall be borne by the tenants
who, or whose servants, employees, agents, visitors or licensees shall have,
caused the same. Any cuspidors or containers or receptacles used as such in the
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<PAGE> 50
premises of any tenant or for garbage or similar refuse shall be emptied, cared
for and cleaned by and at the expense of such tenant.
26. All entrance doors in each tenant's premises shall be left locked
and all windows shall be left closed by the tenant when the tenant's premises
are not in use. Entrance doors shall not be left open at any time. Each tenant,
before closing and leaving its premises at any time, shall turn out all lights.
27. Hand trucks not equipped with rubber tires and side guards shall
not be used within the Building.
28. All windows in each tenant's premises shall be kept closed, and all
blinds therein above the ground floor shall be lowered as reasonably required
because of the position of the sun, during the operation of the Building
air-conditioning system to cool or ventilate the tenant's premises.
29. Landlord reserves the right to rescind, alter or waive any rule or
regulation at any time prescribed for the Building when, in its judgment, it
deems it necessary, desirable or proper for its best interest and for the best
interests of the tenants, and no alteration or waiver of any rule or regulation
in favor of one tenant shall operate as an alteration or waiver in favor of any
other tenant. Landlord shall not be responsible to any tenant for the
non-observance or violation by any other tenant of any of the rules and
regulations at any time prescribed for the Building.
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<PAGE> 1
EXHIBIT 10.25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1
DEFINITIONS........................................................ 1
1.1 Definitions.................................................. 1
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE BORROWER.................................................... 6
2.1 Organization and Existence................................... 6
2.2 Power and Authority.......................................... 6
2.3 Title to Property and Assets; Liens.......................... 7
2.4 Financial Condition.......................................... 7
2.5 Contingent Liabilities....................................... 7
2.6 Litigation................................................... 7
2.7 Contract or Restriction Affecting Borrower................... 7
2.8 Trademarks, Franchises and Licenses.......................... 7
2.9 No Default................................................... 7
2.10 Governmental Authority....................................... 8
2.11 No Untrue Statements......................................... 8
2.12 ERISA Requirements........................................... 8
2.13 Pollution and Environmental Control; Hazardous Substances.... 8
2.14 Project Site................................................. 9
2.15 Taxes........................................................ 9
2.16 Consideration................................................ 9
2.17 Survival..................................................... 9
2.18 Incorporation by Reference................................... 9
ARTICLE 3
TERMS OF LETTER OF CREDIT,
REIMBURSEMENT AND OTHER PAYMENTS................................... 9
3.1 Letter of Credit............................................. 9
3.2 Reimbursement and Other Payments............................. 9
3.3 Tender Advances.............................................. 10
3.4 Commission and Fee........................................... 11
3.5 Increased Costs Due to Change in Law......................... 11
3.6 Computation.................................................. 11
3.7 Payment Procedure............................................ 11
3.8 Business Days................................................ 12
3.9 Reimbursement of Expenses.................................... 12
3.10 Extension of Expiration Date................................. 12
3.11 Obligations Absolute......................................... 12
</TABLE>
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<PAGE> 2
<TABLE>
<S> <C>
ARTICLE 4
SECURITY; INSURANCE................................................ 13
4.1 Security..................................................... 13
4.2 Casualty and Liability Insurance Required.................... 13
4.3 General Requirements Applicable to Insurance................. 14
4.4 Advances by Bank............................................. 15
4.5 Borrower to Make Up Deficiency in Insurance.................. 15
4.6 Eminent Domain............................................... 15
4.7 Application of Net Proceeds of Insurance and Eminent Domain.. 16
4.8 Parties to Give Notice....................................... 16
4.9 Further Assurances........................................... 17
ARTICLE 5
AFFIRMATIVE COVENANTS.............................................. 17
5.1 Financial Reports and Other Data and Information............. 17
5.2 Books, Records and Institutions.............................. 18
5.3 Maintenance of Property, Insurance........................... 19
5.4 Existence, Franchises, Etc................................... 19
5.5 Compliance with Statutes, Etc................................ 19
5.6 ERISA........................................................ 19
5.7 Performance of Obligations................................... 20
5.8 Taxes and Liens.............................................. 20
5.9 Payment of Obligations....................................... 20
5.10 Environmental Matters........................................ 20
5.11 Conduct of Business.......................................... 21
5.12 Tangible Net Worth, Total Debt, and Current Assets........... 21
5.13 Commitment................................................... 21
5.14 Periodic Redemption Requirement.............................. 21
5.15 Subsidiaries................................................. 21
5.16 Construction Requirements.................................... 21
ARTICLE 6
NEGATIVE COVENANTS................................................. 22
6.1 Liens........................................................ 22
6.2 Consolidation or Merger, Joint Ventures...................... 22
6.3 Sale of Assets, Dissolution, Etc............................. 22
6.4 Intentionally deleted........................................ 22
6.5 Modifications of Certificate of Incorporation and Bylaws..... 23
6.6 Business..................................................... 23
6.7 Transfer of Project.......................................... 23
6.8 Intentionally deleted........................................ 23
6.9 Fiscal Year.................................................. 23
6.10 Guarantees................................................... 23
6.11 Nature of Business, Etc...................................... 23
6.12 Dividends.................................................... 23
6.13 Investments; Liquidity....................................... 24
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 7
CONDITIONS TO ISSUANCE OF LETTER OF CREDIT......................... 24
7.1 Conditions of Issuance....................................... 24
7.2 Additional Conditions Precedent to Issuance of the Letter of
Credit....................................................... 26
7.3 Conditions Precedent to Each Tender Advance.................. 26
ARTICLE 8
DEFAULT............................................................ 27
8.1 Events of Default............................................ 27
8.2 No Remedy Exclusive.......................................... 29
8.3 Anti-Marshalling Provisions.................................. 29
ARTICLE 9
MISCELLANEOUS...................................................... 29
9.1 Indemnification.............................................. 29
9.2 Transfer of Letter of Credit................................. 30
9.3 Reduction of Letter of Credit................................ 30
9.4 Liability of the Bank........................................ 30
9.5 Successors and Assigns....................................... 31
9.6 Notices...................................................... 31
9.7 Amendment.................................................... 32
9.8 Effect of Delay and Waivers.................................. 32
9.9 Counterparts................................................. 32
9.10 Severability................................................. 32
9.11 Cost of Collection........................................... 32
9.12 Governing Law................................................ 32
9.13 References................................................... 32
9.14 Taxes, Etc................................................... 32
9.15 Consent to Jurisdiction, Venue............................... 32
9.16 No Usury..................................................... 33
9.17 Consents..................................................... 33
9.18 Waiver of Jury Trial......................................... 33
</TABLE>
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<PAGE> 4
SCHEDULE OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Title Cross-Reference
------- ----- ---------------
<S> <C> <C>
A Form of Letter of Credit Recitations
2.1 Subsidiaries of Borrower 2.1
2.4 Liabilities of Borrower 2.4
2.5 Contingent Liabilities of Borrower 2.5
2.6 Litigation of Borrower 2.6
2.13 Environmental Matters of Borrower 2.13
2.15 Taxes of Borrower 2.15
5.16 Construction Requirements 5.16
5.17 Amortization Schedule 5.17
</TABLE>
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<PAGE> 5
LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT
THIS AGREEMENT, dated as of April 1, 1996, by and between PALM BEACH
BEDDING COMPANY, a Florida corporation (the "Borrower"), and FIRST UNION
NATIONAL BANK OF FLORIDA, a national banking association organized and existing
under the laws of the United States (the "BANK");
W I T N E S S E T H :
WHEREAS, arrangements have been made pursuant to a Trust Indenture (the
"INDENTURE") to be entered into by and among Palm Beach County, Florida (the
"ISSUER"), First Union National Bank of Florida, Miami, Florida, as trustee (the
"TRUSTEE") and Branch Banking and Trust Company, as Credit Facility Trustee (the
"CREDIT FACILITY TRUSTEE") for the issuance and sale by the Issuer of its
Variable Rate Demand Industrial Development Revenue Bonds (Palm Beach Bedding
Company Project), Series 1996 in the original aggregate principal amount of
$7,650,000 (the "BONDS"); and
WHEREAS, the proceeds from the sale of the Bonds will be lent to the
Borrower pursuant to a Loan Agreement between the Issuer and the Borrower (the
"LOAN AGREEMENT") for the purpose of making a loan to the Borrower to finance
the cost of constructing a manufacturing plant in place, to be owned and
operated by the Borrower; and
WHEREAS, in order to enhance the security and marketability of the Bonds,
the Borrower has requested the Bank to issue an irrevocable direct pay letter of
credit in the form attached hereto as Exhibit A, with such changes as the Bank
and Borrower may agree upon (such letter of credit or any successor or
substitute letter of credit issued by the Bank, together with all amendments and
modifications thereto, herein individually and collectively called the "LETTER
OF CREDIT") in the amount of $7,956,000, of which (a) $7,650,000 shall support
the payment of principal or portion of the purchase price corresponding to
principal of the Bonds, and (b) up to $306,000 shall support the payment of up
to 120 days' interest or portion of the purchase price corresponding to interest
on the Bonds at an assumed interest rate of 12% per annum; and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, including the covenants, terms and conditions
hereinafter appearing, and to induce the Bank to issue the Letter of Credit, the
Borrower does hereby covenant and agree with the Bank as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. All words and terms defined in Article I of the Loan
Agreement shall have the same meanings in this Agreement, unless otherwise
specifically defined herein. The terms defined in this Article 1 have, for all
purposes of this Agreement, the meanings specified hereinabove or in this
Article, unless defined elsewhere herein or the context clearly requires
otherwise.
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"AFFILIATE" shall mean, with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition, "control,"
when used with respect to a Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"AGREEMENT" shall mean this Letter of Credit and Reimbursement Agreement,
as the same may from time to time be amended, modified or supplemented in
accordance with the terms hereof.
"ALTERNATE CREDIT FACILITY" means an irrevocable direct pay letter of
credit, insurance policy or similar credit enhancement or support facility for
the benefit of the Trustee.
"BANK" means First Union National Bank of Florida, its successors and
assigns.
"BANKRUPTCY CODE" means 11 U.S.C. Section 101 et seq., as amended.
"BONDHOLDER" or "BONDHOLDERS" means the initial and any future holders and
owners of the Bond or Bonds as registered on the books and records of the Bond
Registrar pursuant to the Indenture.
"BOND DOCUMENTS" means, collectively, this Agreement, the Loan Agreement,
the Remarketing Agreement (as defined in the Indenture), the Indenture, the
Security Instruments and the Bonds, as the same may be amended, modified or
supplemented from time to time in accordance with their respective terms.
"BORROWER" means Palm Beach Bedding Company, a Florida corporation, its
successors and assigns.
"BUSINESS DAY" means a day upon which banks in Miami, Florida are open for
the transaction of business of the nature required pursuant to the Loan
Agreement and the Indenture.
"COLLATERAL" means all real and personal property of the Borrower with
respect to which the Bank has been or is hereafter granted a lien or security
interest pursuant to this Agreement or the Security Instruments.
"COMMITMENT" means the Bank's commitment letter dated September 20, 1995,
as it may be modified.
"CONSISTENT BASIS" means, in reference to the application of GAAP, that
the accounting principles observed in the period referred to are comparable in
all material respects to those applied in the preceding period.
"CONSULTANT" means any third-party architect or engineer satisfactory to
the Bank.
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"CONVERSION DRAFT" means a drawing under the Letter of Credit made
pursuant to Section 2.2(e) of the Indenture.
"CREDIT FACILITY TRUSTEE" means Branch Banking and Trust Company, as
"Credit Facility Trustee" under the Indenture, and any successor Credit Facility
Trustee appointed pursuant to the Indenture.
"DEFAULT" means any event or circumstance which, with the passage of time
or the giving of notice, or both, would become an Event of Default.
"DEFAULT RATE" means the lesser of (a) five percent (5%) over the Prime
and (b) the highest non-usurious interest rate chargeable under the laws of the
State of Florida.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, including any rules and regulations promulgated thereunder.
"ESI" means Eastern Standard Time or Eastern Daylight Savings Time,
whichever is then in effect in Miami, Florida.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.1 hereto.
"EXPIRATION DATE" means the Stated Termination Date of the Letter of
Credit, as such date may be extended pursuant to the terms of Section 3.10
hereof.
"GAAP" means those principles of accounting set forth in pronouncements of
the Financial Accounting Standards Board and its predecessors or pronouncements
of the American Institute of Certified Public Accountants or those principles of
accounting which have other substantial authoritative support and are applicable
in the circumstances as of the date of application, as such principles are from
time to time supplemented or amended.
"INDEBTEDNESS" means with respect to any Person, all indebtedness of such
Person for borrowed money, all indebtedness of such Person for the acquisition
of property other than purchase of inventory in the ordinary course of business,
obligations secured by and any Lien on the property of such Person whether or
not such obligation is assumed, all liability of such Person by way of
endorsements (other than for collection or deposit in the ordinary course of
business); all guarantees of Indebtedness of any other Person by such Person
(including any agreement, contingent or otherwise, to purchase any obligation
representing such Indebtedness or property constituting security therefor, or to
advance or supply funds for such purpose or to maintain working capital or other
balance sheet or income statement condition, or any other arrangement in
substance effecting any of the foregoing); and all leases and other items which
in accordance with GAAP are classified as liabilities on a balance sheet.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien,
judgment or charge of any kind, including any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing of or
agreement to give any' financing statement under the Uniform Commercial Code, or
other law relating to Liens, of any jurisdiction.
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<PAGE> 8
"MORTGAGE" means the Mortgage and Security Agreement, dated of even date
herewith, by and between the Borrower (as Mortgagor), and the Issuer and the
Bank (as Mortgagees), constituting a first mortgage lien on and security
interest in, the Project and all leases thereof and rents therefrom and the
other Collateral described therein.
"NET PROCEEDS" has the meaning ascribed to that term in Section 4.7 of
this Agreement.
"OFFICER'S CERTIFICATE" means the Certificate of the Chief Financial
Officer of the Borrower.
"PERIODIC REDEMPTION" has the meaning ascribed to that term in Section
5.14 of this Agreement.
"PERIODIC REDEMPTION REQUIREMENT" has the meaning ascribed to that term in
Section 5.14 of this Agreement.
"PERMITTED ENCUMBRANCES" means and includes:
(a) Liens in favor of the Bank;
(b) Except as hereinafter set forth, Liens in respect of property or
assets of the Borrower imposed by law, which were incurred in the ordinary
course of business, such as carriers', warehousemen's and mechanics' liens and
other similar Liens arising in the ordinary course of business, not to exceed
$100,000 in the aggregate, and (x) which do not in the aggregate materially
detract from the value of such property or assets or materially impair the use
thereof in the operation of the business of the Borrower or (y) which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or assets subject to
any such Lien;
(c) Liens securing purchase money Indebtedness to finance equipment
provided that the amount secured does not exceed the purchase price of the
purchased equipment and that the Lien does not extend to property other than the
purchased equipment;
(d) Liens for taxes and assessments not delinquent or which are
being contested in good faith by appropriate proceedings and against which
adequate reserves have been provided for on the books of the Borrower;
(e) Worker's, mechanic's and materialmen's Liens and similar Liens
incurred in the ordinary course of business remaining undischarged or unstayed
for not longer than 60 days following Borrower's notice of the attachment
thereof;
(f) Liens in respect of pledges or deposits under worker's
compensation laws, unemployment insurance or similar legislation and in respect
of pledges or deposits to secure bids, tenders, contracts (other than contracts
for the payment of money), leases or statutory obligations, or in connection
with surety, appeal and similar bonds incidental to the conduct of litigation;
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<PAGE> 9
(g) Liens and security interests in favor of the Issuer as security
for the Bonds;
(h) Those matters to be shown as exceptions in the title insurance
policy to be issued pursuant to Commitment No. FTA-CT 64869 of Chicago Title
Insurance Company.
"PERSON" means an individual, partnership, corporation, trust, joint
venture, unincorporated organization, association, or a government, or agency or
political subdivision or instrumentality thereof.
"PLAN" means any employee pension benefit plan, within the meaning of
Section 3(2) of ERISA, which is maintained (in whole or in part) for the
employees of the Borrower.
"PLEDGE AGREEMENT" means the Pledge Agreement of even date herewith from
the Borrower to the Bank, as it may be hereafter modified.
"PLEDGED BONDS" means Bonds purchased with the proceeds of a Tender
Advance, as provided in Section 3.3(e)
"PRIME RATE" means the rate of interest per annum (but not necessarily the
best or lowest rate charged borrowing customers of the Bank) published or
announced by the Bank from time to time as its prime rate.
"PROJECT" means the facility to be constructed with the proceeds of the
Bonds on a site owned by the Borrower in unincorporated Palm Beach County,
Florida.
"REMARKETING AGENT" has the meaning set forth in the Indenture.
"SECURITY INSTRUMENTS" means, collectively, the Mortgage, the Pledge
Agreement and any and all other agreements or instruments now or hereafter
executed and delivered by the Borrower or any other Person in connection with,
or as security for the payment or performance of, the Letter of Credit or this
Agreement, as such agreements may be amended, modified or supplemented from time
to time in accordance with their respective terms.
"SUBSIDIARY" or "SUBSIDIARIES" means, as to any Person, any corporation
whether organized and existing under the laws of any state of the United States,
including the District of Columbia and Puerto Rico, or under the laws of any
foreign country, of which more than 50% of voting stock at any time is owned or
controlled directly or indirectly by such Person, or which is otherwise directly
or indirectly controlled by such Person through membership, election of
directors or otherwise.
"TANGIBLE NET WORTH" means with respect to any Person, calculated on a
consolidated basis, the net worth of such Person according to generally accepted
accounting principles less any write-up of assets subsequent to September 30,
1995; deferred assets other than prepaid insurance and prepaid taxes; patents,
copyrights, trademarks, trade names, noncompete agreements, franchises and other
intangibles; goodwill or other amounts representing the excess of the purchase
price of assets or stock over the value assigned thereto on the books of such
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<PAGE> 10
Person; unamortized debt discount and expense; any accounts, notes or other
amounts due from Affiliates; and any other amounts categorized as intangibles
under generally accepted accounting principles.
"TENDER ADVANCE" has the meaning ascribed to that term in Section 3.3 of
this Agreement.
"TENDER AGENT" has the meaning set forth in the Indenture.
"TENDER DRAFT" means a drawing under the Letter of Credit pursuant to
Section 2.3 of the Indenture.
"TERMINATION DATE" means the last day a drawing is available under the
Letter of Credit.
"TRUSTEE" means any Person or group of Persons at the time serving as
"Trustee" under the Indenture and shall, if the context requires, include the
Credit Facility Trustee.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE BORROWER
The Borrower makes the following representations and warranties for itself
and, where applicable, for its Subsidiaries:
2.1 Organization and Existence. The Borrower is a Florida corporation duly
organized, existing and in good standing under the laws of the State of Florida,
and has the power and authority under its governing interests and the laws of
the State of Florida to own its properties and to carry on its business as now
being conducted, and as planned to be conducted, and is duly qualified as a
foreign corporation to do business in every jurisdiction in which the nature of
its respective business makes such qualification necessary and is or will be in
good standing in such jurisdiction. The Borrower does not have any investment,
direct or indirect, in excess of $100,000 in the aggregate in other Persons
except for certificates of deposit and other ordinary and customary liquid
assets. On the date of the execution and delivery of this Agreement, the
Borrower has no Subsidiaries except as shown on Exhibit 2.1.
2.2 Power and Authority. The Borrower is duly authorized under all
applicable provisions of law to execute, deliver and perform this Agreement, and
all action on its part required for the lawful execution, delivery and
performance hereof has been duly taken; and this Agreement, upon the due
execution and delivery hereof, will be its valid and binding obligation
enforceable in accordance with its terms. Neither the execution of this
Agreement, nor the fulfillment of or compliance with its provisions and terms,
will (A) conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a violation of or default under any applicable law,
regulation, judgment, writ, order or decree to which it or any of its properties
is subject, or its governing instruments, or any agreement or instrument to
which it is now a party or by which it or any of its properties is bound or
affected, or (B) create any lien, charge or
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<PAGE> 11
encumbrance upon any of its property or assets pursuant to the terms of any
agreement or instrument to which it is a party or by which it or any of its
properties is bound.
2.3 Title to Property and Assets; Liens. The Borrower has good title to
its properties and assets reflected in the financial statements described in
Section 2.4 hereof and the same are free and clear of all Liens except for
Permitted Encumbrances.
2.4 Financial Condition. The balance sheets of Borrower for the fiscal
year ended as of December 31, 1994 and for the nine-month period ended September
30, 1995, and the related statements of income and retained earnings and changes
in financial position for the year or the period, as applicable, then ended as
certified by a firm of independent certified public accountants (as to the
year-end statements), copies of which have been furnished to the Bank, are
correct, complete and fairly present the financial condition of Borrower as at
the date of said balance sheets, and the results of their operations for such
period. The Borrower does not have any material liabilities as of the date of
this Agreement which are not provided for or reflected in the financial
statements dated September 30, 1995, or referred to in notes thereto or set
forth on Exhibit 2.4 hereto. All such financial statements have been prepared in
accordance with GAAP applied on a Consistent Basis maintained throughout the
periods involved. There has been no material adverse change in the business,
properties or condition, financial or otherwise, of the Borrower since September
30, 1995.
2.5 Contingent Liabilities. The Borrower (a) has not guaranteed any
obligations of others, and (b) is not, to the best of its knowledge,
contingently liable to any Person in any manner, direct or indirect, except as
disclosed on Exhibit 2.5 hereto.
2.6 Litigation. There are no pending or threatened actions, investigations
or proceedings before any court or administrative agency which may have a
material adverse effect on the consolidated financial condition or operations of
the Borrower or which, to the knowledge of the officers of the Borrower, seek to
question or set aside any of the transactions herein contemplated, except as
described on Exhibit 2.6 hereto. The Borrower is not in default with respect to
any judgment, suit, injunction, decree, rule, regulation or contract which would
have a material adverse effect on its financial condition or operations.
2.7 Contract or Restriction Affecting Borrower. The Borrower is not a
party to or bound by any contract or agreement or subject to any charter or
other corporate restrictions which materially and adversely affect its business,
properties or condition, financial or otherwise.
2.8 Trademarks, Franchises and Licenses. The Borrower owns, possesses and
has the right to use all necessary patents, licenses, franchises, trademarks,
trademark rights, trade names, trade name rights, copyrights, trade secrets,
know how and confidential commercial and proprietary information, to conduct its
business as now conducted, without known conflict with any patent, license,
franchise, trademark, trade name, copyright or other proprietary right of any
other Person.
2.9 No Default. No Default or Event of Default exists hereunder, and the
Borrower is not in default in the performance, observance or fulfillment of any
of the obligations, covenants
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<PAGE> 12
or conditions contained in any agreement or instrument to which it is a party or
by which it may be bound, the effect of which default would be to allow any
Person to cause such obligation under the agreement or instrument to become due
prior to its stated maturity or to exercise any other remedies.
2.10 Governmental Authority. The Borrower has received the written
approval of all federal, state, local and foreign governmental authorities, if
any, necessary to carry out the terms of this Agreement, and no further
governmental consents or approvals are required in the making or performance of
this Agreement.
2.11 No Untrue Statements. Neither this Agreement nor any reports,
schedules, certificates, agreements or instruments heretofore or simultaneously
with the execution of this Agreement delivered to the Bank, any Bond purchaser,
or the Trustee by it in connection with the issuance and sale of the Bonds or
the issuance of the Letter of Credit contains any misrepresentation or untrue
statement of fact or omits to state any material fact relating to the Borrower
necessary to make this Agreement or any such reports, schedules, certificates or
instruments not misleading.
2.12 ERISA Requirements. The Borrower has not incurred any material
accumulated funding deficiency within the meaning of ERISA, or incurred any
material liability to the Pension Benefit Guaranty Corporation ("PBGC")
established under ERISA (or any successor thereto under ERISA) in connection
with any employee pension benefit plan established or maintained by it or by any
Person under common control with it (within the meaning of Section 414(c) of the
Internal Revenue Code of 1986, as amended, or of Section 4001(b) of ERISA), or
in which its employees are entitled to participate. No Reportable Event (as
defined in ERISA) in connection with any such plan has occurred or is
continuing.
2.13 Pollution and Environmental Control; Hazardous Substances. Except as
described on Exhibit 2.13 hereto, the Borrower has obtained all permits,
licenses and other authorizations which are obtainable to date which are
required under, and is in material compliance with, all federal, state, and
local laws and regulations relating to pollution, reclamation or protection of
the environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic materials
or wastes into air, water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic substances, materials
or wastes in connection with the Project. Neither the Borrower, nor to the
Borrower's best knowledge any previous owner of the Project site or any other
Person, has disposed of any hazardous substances on any portion of the Project
site, except as described in Exhibit 2.13 hereto. As used in this subparagraph,
"hazardous substances" shall have the meaning set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601,
et seq., and the regulations adopted pursuant to such act. The Borrower will use
its best efforts to obtain when needed all permits, licenses and other
authorizations which are not presently obtainable because of the acquisition,
construction and installation of the Project, and has no reason to believe that
all such permits, licenses and other authorizations cannot be obtained. The
representations and covenants set forth herein are in addition to, and not in
lieu of, the representations and covenants concerning hazardous or toxic
substances set forth
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in the Mortgage. The Borrower agrees to comply with the provisions of Section
5.10 hereof and the Mortgage with respect to such matters.
2.14 Project Site. The construction and operation of the Project comply in
all respects with presently existing zoning, concurrency, environmental and
other land use restrictions affecting the Project site, including without
limitation any restrictive covenants.
2.15 Taxes. The Borrower has filed all tax returns required to be filed by
it, and all taxes due with respect thereto have been paid, and except as
described on Exhibit 2.15 hereto, no controversy in respect of additional taxes,
state, federal or foreign, of the Borrower is pending, or, to the knowledge of
the Borrower, threatened.
2.16 Consideration. This Agreement is executed in consideration of the
commitment by the Bank to issue the Letter of Credit.
2.17 Survival. The representations and warranties of the Borrower shall
survive execution and delivery of this Agreement, the Letter of Credit and the
Security Instruments and any investigation at any time made by or on behalf of
the Bank shall not diminish the Bank's right to rely on the representations and
warranties of the Borrower.
2.18 Incorporation by Reference. All representations and warranties of the
Borrower contained in the Bond Documents are incorporated herein by reference.
ARTICLE 3
TERMS OF LETTER OF CREDIT,
REIMBURSEMENT AND OTHER PAYMENTS
3.1 Letter of Credit. The Bank agrees, on the terms and conditions
hereinafter set forth, to issue and deliver the Letter of Credit in favor of the
Credit Facility Trustee upon fulfillment of the applicable conditions set forth
in Article 7 hereof. The Bank agrees that any and all payments under the Letter
of Credit will be made with the Bank's own funds.
3.2 Reimbursement and Other Payments. Except as otherwise provided in
Section 3.3 below, the Borrower shall pay to the Bank:
(a) on or before 3:00 p.m., EST, on the date that any amount is
drawn under the Letter of Credit, a sum equal to such amount so drawn under the
Letter of Credit;
(b) on demand, interest on any and all amounts remaining unpaid by
the Borrower when due hereunder from the date such amounts become due until
payment thereof in full, at a fluctuating interest rate per annum equal at all
times to the Default Rate;
(c) on demand, any and all reasonable expenses incurred by the Bank
in enforcing any rights under this Agreement and the other Security Instruments;
and
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(d) on demand, all charges, commissions, costs and expenses set
forth in Sections 3.4, 3.5 and 3.9 hereof or otherwise payable hereunder or
under any Security Instruments.
3.3 Tender Advances.
(a) If the Bank shall make any payment of that portion of the
purchase price corresponding to principal and interest of the Bonds drawn under
the Letter of Credit pursuant to a Tender Draft and the conditions set forth in
Section 7.3 all have been fulfilled, such payment shall constitute a Tender
Advance made by the Bank to the Borrower on the date and in the amount of such
payment (a "TENDER ADVANCE") payable as provided in Subsection 3.3(b) below;
provided that if the conditions of said Section 7.3 have not been fulfilled, the
amount so drawn pursuant to the Tender Draft shall be payable in accordance with
the terms of Section 3.2(a) above.
(b) The Borrower shall pay interest on the unpaid amount of each
Tender Advance from the date of such Tender Advance until such amount is paid in
full, payable monthly, in arrears, on the first day of each month during the
term of each Tender Advance and on the date such amount is paid in full, at a
fluctuating interest rate per annum in effect from time to time equal to the
Prime Rate plus 1% per annum, provided that the unpaid amount of any Tender
Advance which is not paid when due shall bear interest at the Default Rate until
paid in full.
(c) Notwithstanding any other provision hereof, the Borrower shall
repay in full the unpaid amount of each Tender Advance, together with all unpaid
interest thereon, except as hereinafter described, on the earliest to occur of
(i) such date as Bonds purchased pursuant to a Tender Draft are resold as
provided in Section 3.3(f) hereof, (ii) the 120th day after the date of the
Tender Advance, and (iii) the Termination Date.
(d) The Borrower may prepay on any day the outstanding amount of any
Tender Advance in whole or in part, together with accrued interest to the date
of such prepayment on the date such amount is prepaid. The Borrower shall notify
the Bank prior to 11:00 a.m., EST, on the date of such prepayment of the amount
to be prepaid.
(e) Pursuant to the Pledge Agreement and in accordance with the
terms of the Indenture, the Borrower has agreed that Bonds purchased with
proceeds of any Tender Draft or Conversion Draft ("PLEDGED BONDS") shall be
delivered by the Tender Agent to the Bank or its designee to be held by the Bank
or its designee in pledge as additional Collateral securing the Borrower's
payment obligations to the Bank hereunder. Bonds so delivered to the Bank or its
designee shall be registered in the name of the Bank, or its designee, as
pledgee of the Borrower, as provided for in the Pledge Agreement.
(f) Prior to or simultaneously with the remarketing of Pledged
Bonds, the Borrower shall repay the then outstanding Tender Advances (in the
order in which they were made) by paying to the Bank an amount equal to the sum
of (A) the amounts advanced by the Bank pursuant to the corresponding Tender
Drafts relating to such Bonds, plus (B) the aggregate amount of accrued and
unpaid interest on such Tender Advances. Such payment shall be applied
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<PAGE> 15
by the Bank in reimbursement of such drawings (and as prepayment of Tender
Advances resulting from such drawings in the manner described herein), and, upon
receipt by the Bank of a certificate completed and signed by the Credit Facility
Trustee in substantially the form of Exhibit F to the Letter of Credit, the
Borrower irrevocably authorizes the Bank to rely on such certificate and to
reinstate the Letter of Credit in accordance therewith. Funds held by the Tender
Agent as a result of sales of the Pledged Bonds by the Remarketing Agent shall
be paid to the Bank by the Tender Agent to be applied to the amounts owing by
the Borrower to the Bank pursuant to this Subsection 3.3(f). Upon payment to the
Bank of the amount of such Tender Advance to be prepaid, together with accrued
interest on such Tender Advance to the date of such prepayment on the amount to
be prepaid, the principal amount outstanding of Tender Advances shall be reduced
by the amount of such prepayment and interest shall cease to accrue on the
amount prepaid.
3.4 Commission and Fee.
(a) The Borrower shall pay to the Bank a commission at the rate of
three-eighths of one percent (3/8%) per annum on the undrawn amount available
(or which would be available but for any outstanding Tender Advances) to be
drawn under the Letter of Credit (computed on the date that such commission is
payable) from and including the date of issuance of the Letter of Credit until
the Expiration Date, payable (i) as to the year in which the Letter of Credit is
issued, on such date of issuance, and (ii) thereafter payable annually in
advance in full on each anniversary date of the issuance of the Letter of
Credit. All such fees shall be fully earned on the due date.
(b) The Borrower shall pay to the Bank, upon transfer of the Letter
of Credit in accordance with its terms, a transfer fee of $1,000.
3.5 Increased Costs Due to Change in Law. In the event of any change in
any existing or future law, regulation, ruling or other interpretation having
influence over the Bank which shall either (a) impose, modify or make applicable
any reserve, special deposit, capital requirement, assessment or similar
requirement against the Letter of Credit or (b) impose on the Bank any other
condition regarding the Letter of Credit, and the net result of any event or
events referred to in clause (a) or (b) above shall be to increase the cost
(including a reasonable allocation of resources) or decrease the yield to the
Bank of issuing or maintaining the Letter of Credit (which increase in cost
shall be the result of the Bank's reasonable allocation of the aggregate of such
cost increases or yield decreases resulting from such events), then, upon demand
by the Bank, the Borrower shall immediately pay to the Bank, from time to time
as specified by the Bank, additional amounts which shall be sufficient to
compensate the Bank for such increased cost or decreased yield. A statement of
charges submitted by the Bank, shall be conclusive, absent manifest error, as to
the amount owed.
3.6 Computation. All payments of interest and other charges under this
Agreement shall be computed on a per annum basis, based upon a year of 360 days,
and calculated for the actual number of days elapsed.
3.7 Payment Procedure. All payments made by the Borrower under this
Agreement shall be made to the Bank in lawful currency of the United States of
America and in immediately
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<PAGE> 16
available funds at the Bank's offices at West Palm Beach, Florida (or other
location as directed by the Bank), before 12:00 noon, EST, on the date when due,
(3:00 p.m. for payments made in accordance with the terms of Section 3.2(a)
hereof).
3.8 Business Days. If the date for any payment hereunder falls on a day
which is not a Business Day, then for all purposes of this Agreement the same
shall be deemed to have fallen on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payments
of interest or commission, as the case may be.
3.9 Reimbursement of Expenses. The Borrower will pay upon demand all
reasonable legal fees (computed without regard to any statutory presumption)
incurred by the Bank in connection with the preparation, execution and delivery
of this Agreement, the Letter of Credit, the Security Instruments, any and all
other agreements and transactions contemplated hereby and thereby and by the
Bond Documents (including any amendments hereto or thereto or consents or
waivers hereunder or thereunder) and will also pay all fees, charges or taxes
for the recording or filing of Security Instruments. The Borrower will also pay
upon demand for all reasonable out-of-pocket expenses of the Bank in connection
with the administration of the Letter of Credit, this Agreement and the Security
Instruments. The Borrower will, upon demand, promptly reimburse the Bank for all
amounts expended, advanced or incurred by the Bank to collect or satisfy any
obligation of the Borrower under this Agreement or any Security Instrument, or
to enforce the rights of the Bank under this Agreement, or any Security
Instrument, which amounts will include, without limitation, all court costs,
reasonable attorneys' fees (whether or not suit be brought and including such
costs and fees on appeal and in insolvency proceedings), fees of auditors and
accountants and investigation expenses incurred by the Bank in connection with
any such matters. The Borrower shall also pay to the Bank on demand any
documentary stamp taxes, intangible taxes or other excise taxes payable on
account of the execution, delivery or enforcement of this Agreement, the Letter
of Credit, the Security Instruments or the Bond Documents (including any
amendments hereto or thereto) or the performance of any obligations thereunder
(including the payment of drawings and the making of loans), and any penalties
and/or interest incurred because of the failure of the Bank or the Borrower to
pay such taxes when due. The Borrower acknowledges that it is not relying upon
the Bank or the Bank's counsel with respect to the applicability or
nonapplicability of any such taxes. The provisions of this paragraph shall
survive payment in full and discharge of the Borrower's obligations to the Bank.
3.10 Extension of Expiration Date. The Bank hereby agrees that the
Expiration Date shall automatically be extended for successive one year terms
effective on the initial Expiration Date and on each anniversary date of the
initial Expiration Date unless the Bank shall have notified the Borrower and the
Credit Facility Trustee in writing at least 180 days prior to the Expiration
Date, as from time to time extended pursuant to this Section 3.10, that the Bank
will not extend such applicable Expiration Date.
3.11 Obligations Absolute. The obligations of the Borrower under this
Agreement shall be absolute, unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, under all circumstances
whatsoever, including, without limitation, the following circumstances:
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(a) Any lack of validity or enforceability of the Letter of Credit,
the Bonds, any of the other Bond Documents, any of the Security Instruments or
any other agreement or instrument related thereto;
(b) Any amendment or waiver of or any consent to departure from the
terms of the Letter of Credit, the Bonds, any of the other Bond Documents, any
of the Security Instruments or any other agreement or instrument related
thereto;
(c) The existence of any claim, setoff, defense or other right which
the Borrower or the Issuer may have at any time against the Trustee, any
beneficiary or any transferee of the Letter of Credit (or any Person for whom
the Trustee, any such beneficiary or any such transferee may be acting), the
Bank or any other Person, whether in connection with this Agreement, the other
Security Instruments, the Letter of Credit, the Bond Documents, the Project or
any unrelated transaction;
(d) Any statement, draft or other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect, or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) The surrender, exchange or impairment of any security for the
performance or observance of any of the terms of this Agreement; or
(f) Any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Borrower, except subject to the
qualification that obligations may be reinstated upon bankruptcy,
notwithstanding payment in full of the Borrower's obligations to the Bank.
ARTICLE 4
SECURITY; INSURANCE
4.1 Security. As security for the full and timely payment and performance
by the Borrower of its obligations hereunder, the Borrower shall on the date
hereof deliver to the Bank the Security Instruments, conveying to the Bank duly
perfected liens upon and security interests in the Collateral related thereto,
subject only to Permitted Encumbrances. The Borrower also grants to the Bank a
security interest in all existing and future funds, accounts, investments and
other Collateral now or hereafter securing the Bonds, and all proceeds thereof
and substitutions therefor, whether held by the Trustee or otherwise, subject
only to Permitted Encumbrances.
4.2 Casualty and Liability Insurance Required.
(a) The Borrower will keep its tangible assets, including the
Collateral, continuously insured against such risks as are customarily insured
against by businesses of like size and type engaged in the same or similar
operations.
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(b) Without limiting the generality of any other covenant
contained herein or in the Bond Documents or Security Instruments, the Borrower
shall maintain the following insurance:
(i) Casualty insurance on the Collateral (including
builder's all-risk during construction) in an amount not less than the
full insurable value thereof, against loss or damage by theft, fire and
lightning and other hazards ordinarily included under uniform broad
form standard extended coverage policies, limited only as may be
provided in the standard broad form of extended coverage endorsement at
the time in use in the State of Florida;
(ii) General comprehensive liability insurance
against claims for bodily injury, death or property damage occurring
on, in or about the Collateral (such coverage to include provisions
waiving subrogation and defenses against the Bank and the Trustee) in
amounts not less than $1,000,000 with respect to bodily injury to any
one person, $1,000,000 with respect to bodily injury to two or more
persons in any one accident and $1,000,000 with respect to property
damage resulting from any one occurrence;
(iii) Liability insurance with respect to the
operation of its facilities under the workers' compensation laws of
Florida;
(iv) If at any time the Project Site or any portion
thereof is in an area that has been identified by the Secretary of
Housing and Urban Development as having special flood or mud slide
hazards, the Borrower shall purchase and maintain a flood insurance
policy with amounts and coverage satisfactory to the Bank;
(v) Business interruption insurance insuring against
loss of income because of damage to the Project for at least 12 months;
and
(vi) Any other or additional insurance required by the
Commitment;
provided, however, that the insurance so required may be provided by blanket
policies now or hereafter maintained by the Borrower.
4.3 General Requirements Applicable to Insurance.
(a) Each insurance policy obtained in satisfaction of the
requirements of Section 4.2(b) hereof:
(i) Shall be by such insurer (or insurers) as shall
be financially responsible, qualified to do business in the State of
Florida and of recognized standing;
(ii) Shall be in such form and have such provisions
(including, without limitation, the loss payable clause, the waiver of
subrogation clause, the deductible amount, if any, and the standard
mortgagee endorsement clause), as are generally
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considered standard provisions for the type of insurance involved and
are acceptable in all respects to the Bank;
(iii) Shall prohibit cancellation or substantial
modification, termination or lapse in coverage by the insurer without
at least 30 days' prior written notice to the Bank and the Trustee;
(iv) Shall provide that losses to Collateral
thereunder shall be adjusted by the Borrower only upon concurrence of
the Bank except that losses involving damage of less than $50,000,
prior to the occurrence of a Default or an Event of Default hereunder,
shall be adjusted with the insurer by the Borrower at its expense on
behalf of the insured parties; and
(v) Without limiting the generality of the foregoing,
all insurance policies carried on the Collateral shall name the Bank,
the Issuer and the Trustee as mortgagee, loss payee and a party insured
thereunder and any loss thereunder shall be made payable and shall be
applied as provided in Section 4.7 hereof.
(b) The Borrower shall furnish copies of insurance policies
evidencing the insurance required by the Loan Documents within 10 days of date
of delivery of this Agreement and within 10 days of receipt of any new or
replacement policies. Prior to expiration of any such policy, the Borrower shall
furnish the Bank with evidence satisfactory to the Bank that the policy or
certificate has been renewed or replaced or is no longer required by this
Agreement.
4.4 Advances by Bank. In the event the Borrower shall fail to maintain,
or cause to be maintained, the full insurance coverage required hereunder or
shall fail to keep the Collateral in good repair and good operating condition,
the Bank may (but shall be under no obligation to), contract for the required
policies of insurance and pay the premiums on the same or, after 10 days'
written notice to the Borrower, make any required repairs, renewals and
replacements; and the Borrower agrees to reimburse the Bank to the extent of the
amounts so advanced with interest thereon at a rate per annum equal to the
Default Rate from the date of advance to the date of reimbursement.
Any amounts so advanced by the Bank shall become an additional
obligation of the Borrower secured by the Security Instruments.
4.5 Borrower to Make Up Deficiency in Insurance. The Borrower agrees
that to the extent that it fails to carry the casualty insurance required by
Section 4.2(b) hereof, it shall pay promptly to the Bank, for application in
accordance with the provisions of Section 4.7(b) hereof, such amount as would
have been received as Net Proceeds (as hereinafter defined) by the Bank,
under the provisions of Section 4.7(b) hereof had such insurance been carried to
the extent required.
4.6 Eminent Domain. In the event that title to, or the temporary use
of, the Collateral or any part thereof shall be taken by Eminent Domain, the Net
Proceeds received as a result of such Eminent Domain shall be applied as
provided in Section 4.7(b) hereof.
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4.7 Application of Net Proceeds of Insurance and Eminent Domain.
(a) The Net Proceeds of the insurance carried pursuant to the
provisions of Sections 4.2(b)(ii), 4.2(b)(iii) shall be applied by the Borrower
toward extinguishment of the defect or claim or satisfaction of the liability
with respect to which such insurance proceeds may be paid.
(b) The Net Proceeds of the insurance carried with respect to
the Collateral pursuant to the provisions of Sections 7.1(c), 4.2(b)(i),
4.2(b)(iv) and 4.2(b)(v) hereof and all other casualty insurance required
hereunder (excluding the Net Proceeds of any business interruption insurance,
which shall be paid to the Borrower so long as no Default exists), and the Net
Proceeds resulting from Eminent Domain, shall be paid and applied to redeem
Bonds and repay outstanding Tender Advances and other amounts owing to the Bank,
in such order as the Bank may determine; provided, however, that the Bank shall
not unreasonably withhold its consent to use of such proceeds to repair, rebuild
or restore (collectively, "RESTORE") the Project if the estimated cost of
restoration does not exceed $50,000 or, if the cost of restoration exceeds
$50,000, the following conditions are satisfied:
(i) Such proceeds, together with other funds provided
by the Borrower, are sufficient to restore the Project and the Bank has
a perfected, first priority pledge of such proceeds and funds;
(ii) No Default or Event of Default exists hereunder
and there has been no material adverse change in the financial
condition or business prospects of the Borrower;
(iii) The restored Project would have a utility and
value at least equal to that of the original Project in the good faith
opinion of the Bank;
(iv) The Borrower shall have satisfied all conditions
set forth in Article 7 hereof and in the Commitment, or as the Bank may
reasonably impose, including approval by the Bank of all plans,
specifications and budgets.
If the Net Proceeds are made available for restoration of the Project, the
Borrower shall promptly restore the Project in accordance with this Agreement.
"NET PROCEEDS," when used with respect to any insurance proceeds or award
resulting from, or other amount received in connection with, Eminent Domain,
shall mean the gross proceeds from such proceeds, award or other amount, less
all expenses (including attorneys' fees) incurred in the realization thereof.
4.8 Parties to Give Notice. In case of any material damage to or
destruction of all or any part of the Collateral, the Borrower shall give prompt
notice thereof to the Bank. In case of a taking or proposed taking of all or any
part of the Collateral or any right therein by Eminent Domain, the Borrower
shall give prompt notice thereof to the Bank. Each such notice shall describe
generally the nature and extent of such damage, destruction, taking, loss,
proceeding or negotiations.
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4.9 Further Assurances. At the request of the Bank at any time or from
time to time, the Borrower will cause to be executed by its duly authorized
officers any agreement, certificate, instrument or document, and to pay all
connected costs, and to take such further action, which the Bank may deem
necessary or advisable to create, protect or preserve the security interests of
the Bank contemplated hereby or by the Security Instruments.
ARTICLE 5
AFFIRMATIVE COVENANTS
Until all the Obligations to be performed and paid shall have been
performed and paid in full, and for so long as the Letter of Credit shall be
outstanding, unless the Bank shall otherwise consent in writing, the Borrower
will perform and observe all covenants and agreements imposed on them by this
Article 5.
5.1 Financial Reports and Other Data and Information. The Borrower will
deliver to the Bank:
(a) Quarterly Financial Statements. Within 45 days after the
close of each quarterly accounting period, a consolidated balance sheet as at
the end of such quarterly period and the related consolidated statements of
income, statements of changes in fund balances, statements of cash flow and a
reconciliation of surplus statement for such quarterly period and for the
elapsed portion of the fiscal year ended with the last day of such quarterly
period, in each case setting forth comparative figures for the related periods
in the prior fiscal year, all of which shall be prepared in accordance with GAAP
and certified by the Borrower's Chief Financial Officer, subject to normal
year-end audit adjustments.
(b) Annual Financial Statements. Within 90 days after the
close of each fiscal year, a consolidated income statement and balance sheet as
at the end of each fiscal year and the related consolidated statements of
changes in fund balances and statements of cash flow for such fiscal year, along
with a reconciliation of surplus statement, in each case setting forth
comparative figures for the preceding fiscal year, which shall be prepared in
accordance with GAAP and certified, without scope limitation, both by the
Borrower's Chief Financial Officer and by a firm of independent certified public
accountants of recognized standing selected by the Borrower and satisfactory to
the Bank, accompanied by a statement by such certified public accountants that
they have no knowledge of any Default or Event of Default which has occurred and
is continuing or, if such a Default or Event of Default has occurred and is
continuing, a statement as to the nature and duration thereof.
(c) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 5.1(a) and 5.1(b), a certificate
of the Borrower's Chief Financial Officer to the effect that (1) to the best of
his or her knowledge, no Default or Event of Default has occurred and is
continuing, (2) he or she has not received notice of circumstances or events
from which a Default or Event of Default is likely to arise, or if such Chief
Financial Officer is unable to make the certifications required herein, he or
she shall supply a statement setting forth the reasons for such inability,
specifying the nature and extent of such reasons. Such certificate of the
Borrower shall also set forth the calculations required to establish whether
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the Borrower was in compliance with the provisions of Sections 5.12, at the end
of such fiscal quarter or year, as the case may be.
(d) Notice of Default or Litigation. Promptly, and in any
event within three Business Days after an officer of the Borrower obtains
knowledge thereof, notice of (1) the occurrence of any event which constitutes a
Default or Event of Default, (2) any litigation or governmental proceeding
pending against the Borrower in excess of $25,000.
(e) Environmental Matters. Promptly upon obtaining knowledge
thereof, notice of any facts or circumstances known to the Borrower or any
Subsidiary that it reasonably believes could form the basis for the assertion of
any material claim against the Borrower or any Subsidiary relating to
environmental matters including, but not limited to, any claim arising from past
or present environmental practices asserted under CERCLA, RCRA, or any other
federal, state or local environmental statute. As promptly as practicable
following such notice, a letter from an independent engineer experienced in
environmental matters containing a description of such facts or circumstances
relating to such environmental matters and including an assessment of the extent
of the problem forming the basis for the assertion of such claim and
supplemented by a letter, after the initiation of corrective work relating to
such problem, reassessing the extent of the same and verifying the extent of
soil or other damage in connection therewith. Such supplemental letter shall
include such matters requested in respect thereof by the Bank.
(f) Other Reports and Filings. Promptly, copies of regulatory
reports, deficiency letters and similar documents received by the Borrower or
any Subsidiary from governmental agencies and from similar public or private
entities which in any respect threaten the Borrower or any Subsidiary or the
Project, and copies of all financial information, proxy materials and other
information and reports, if any, which the Borrower or any Subsidiary (1) shall
file with the Securities and Exchange Commission or any governmental agencies
substituted therefor (the "SEC"), or (2) shall deliver to holders of, or to any
agent or trustee with respect to, Indebtedness of the Borrower or any Subsidiary
in their capacity as such a holder, agent or trustee. The Borrower and each
Subsidiary shall permit the Bank to inspect, review and copy any of the
documents specified above, whether or not adverse.
(g) Other Information. As received, all management letters
from accountants and, from time to time, such other information or documents
(financial or otherwise) as the Bank may request, including, but not limited to,
schedules of aging of accounts receivable and accounts payable, lease contracts,
loan agreements, verification of payment of taxes and other matters, in the
discretion of the Bank.
5.2 Books, Records and Institutions. The Borrower and its Subsidiaries
shall keep proper books of record and account in which full, true and correct
entries in conformity with GAAP and all requirements of law shall be made of all
dealings and transactions in relation to their businesses and activities. The
Borrower and its Subsidiaries shall permit officers and designated
representatives of the Bank to visit and inspect, under guidance of the
Borrower's officers, any of the properties of the Borrower or its Subsidiaries,
and to examine the books of account of the Borrower and its Subsidiaries, and
will allow the Bank to make copies thereof at the expense of the Bank, and
discuss the affairs, finances and accounts of the Borrower and its
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Subsidiaries with, and be advised as to the same by, its and their officers, as
applicable, all at such reasonable times and intervals and to such reasonable
extent as the Bank may request.
5.3 Maintenance of Property, Insurance. Within ten days following
execution and delivery of this Agreement, the Borrower shall deliver to the Bank
a true and complete listing of all insurance maintained by the Borrower and its
Subsidiaries as of the date hereof, with the amounts insured on the date hereof
set forth therein. The Borrower and its Subsidiaries shall (1) keep all property
useful and necessary in their businesses in good working order and condition,
(ii) maintain with financially sound and reputable insurance companies insurance
which provides substantially the same (or greater) coverage and against at least
such risks as are required by Section 4.2, and (iii) furnish to the Bank, upon
written request, full information as to the insurance carried. The provisions of
this Section 5.3 and Section 4.2 shall be deemed to be supplemental to, but not
duplicative of, the provisions of any of the Security Instruments that require
the maintenance of insurance.
5.4 Existence, Franchises, Etc. The Borrower and each Subsidiary shall
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and its material rights, franchises, licenses
and patents, including all permits and certificates of need as are reasonably
necessary to effectively and efficiently carry on its operations as now
conducted or contemplated; provided, however, that nothing in this Section 5.4
shall prevent the withdrawal of any qualification as a foreign corporation (if
applicable) in any jurisdiction where such withdrawal could not have a material
adverse effect on its business, operations, property, assets, condition
(financial or otherwise) or prospects.
5.5 Compliance with Statutes, Etc. The Borrower and each Subsidiary
shall comply with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of their businesses and their ownership of
property (including applicable statutes, regulations, orders and restrictions
relating to environmental standards and controls), except such noncompliances as
could not, in the aggregate, have a material adverse effect on its business,
operations, property, assets, condition (financial or otherwise) or prospects.
5.6 ERISA. As soon as possible and in any event within 10 days after
the Borrower knows that a Reportable Event has occurred with respect to a Plan,
that an accumulated funding deficiency has been incurred or an application is to
be or has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including any required installment
payments) or an extension of any amortization period under Section 412 of the
Code with respect to a Plan, that a Plan has been or may be terminated,
reorganized, petitioned or declared insolvent under Title IV of ERISA, that a
Plan has an Unfunded Current Liability giving rise to a lien under ERISA, that
proceedings may be or have been instituted to terminate a Plan, or that the
Borrower or any Subsidiary will or may incur any liability (including any
contingent or secondary liability) to or on account of a Plan which is a
single-employer plan under Section 4062, 4063 or 4064, or which is a
multi-employer plan under Section 515, 4201 or 4204 of ERISA, the Borrower will
deliver to the Bank a certificate of a financial officer thereof, setting forth
details as to such occurrence and action, if any, which the Borrower or any
Subsidiary is required or proposes to take, together with any notices required
or proposed to be given to or filed with or by the Borrower or any Subsidiary,
the PBGC, a Plan participant or the
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<PAGE> 24
Plan administrator with respect thereto. The Borrower will deliver to the Bank a
complete copy of the annual report (Form 550) of each Plan required to be filed
with the Internal Revenue Service or the PBGC, given to Plan participants or
received by the Borrower or any Subsidiary.
5.7 Performance of Obligations. The Borrower and each Subsidiary shall
perform all of its obligations under the terms of each mortgage, indenture,
security agreement and other agreement by which it is bound, except such
non-performances as could not in the aggregate have a material adverse effect on
its business, operations, property, assets, condition (financial or otherwise)
or prospects.
5.8 Taxes and Liens. The Borrower and each Subsidiary shall promptly
pay, or cause to be paid, all taxes, assessments or other governmental charges
which may lawfully be levied or assessed upon its income or profits or upon its
property, real, personal or mixed, or upon any part thereof, and also any lawful
claims for labor, material and supplies which, if unpaid, might become a lien or
charge against any such property; provided, however, that it shall not be
required to pay any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be actively contested in good faith by proper proceedings
and, if requested by the Bank, against which it shall have established reserves
which are in amounts satisfactory both to the Bank and to the Borrower's
independent certified public accountants; but provided further that any such
tax, assessment, charge, levy or claim shall be paid forthwith upon the
commencement of proceedings to foreclose any lien securing the same unless a
surety bond satisfactory to the Bank is obtained and delivered to the Bank.
5.9 Payment of Obligations. The Borrower and each Subsidiary shall pay,
when due, all its material obligations and liabilities, except where the same
(other than Indebtedness owed to the Bank) are being contested in good faith by
appropriate proceedings diligently prosecuted and appropriate reserves for the
accrual of same are maintained and, in the case of judgments, enforcement
thereof has been stayed pending such contest.
5.10 Environmental Matters. The Collateral will at all times be in full
compliance with applicable laws relating to environmental protection. The
Borrower and each Subsidiary shall obtain and maintain all licenses, permits,
and approvals required in connection with the Project and its other properties
with respect to Hazardous Materials (which shall mean all materials defined as
"hazardous substances," "hazardous waste" or "solid waste" in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Resource
Conservation and Recovery Act or any similar environmental statute), and as
applicable, will remain in full compliance with such licenses, permits and
approvals. The Borrower and each Subsidiary will give the Bank copies of any
citations, orders, notices or other communications received with respect to
violations or alleged violations of any environmental laws in connection with
the Project or its other properties. The Borrower shall indemnify and hold the
Bank and its directors, officers, shareholders and employees harmless from and
against any and all damages, penalties, fines, claims, liens, suits,
liabilities, costs (including clean-up costs) judgments and expenses (including
attorneys', consultants' or experts' fees and expenses) of every kind and nature
suffered by or asserted against the Bank as a direct or indirect result of any
warranty or representation made by the Borrower or any Subsidiary relating to
environmental matters being false or untrue in any material respect or any
requirement under any environmental law, which requires the elimination or
removal of any Hazardous Materials by the Bank, the Borrower or
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any Subsidiary or any transferee of the Borrower or any Subsidiary or the Bank.
This covenant shall be in addition to, and not in lieu of, covenants relating to
hazardous and toxic materials contained in the Mortgage and shall survive
payment in full of the Indebtedness and termination of this Agreement.
5.11 Conduct of Business. The Borrower and each Subsidiary will conduct
its businesses in substantially the same manner and in substantially the same
areas as such businesses now are and have heretofore been carried on and
conducted.
5.12 Tangible Net Worth, Total Debt, and Current Assets.
(a) The Borrower's Tangible Net Worth shall exceed $9,000,000
on and after the close of the fiscal year ending December 31, 1995; shall exceed
$9,666,667 on and after the close of the fiscal year ending December 31, 1996;
shall exceed $10,333,333 on and after the close of the fiscal year ending
December 31, 1997; and shall exceed $11,000,000 on and after the close of the
fiscal year ending December 31, 1998.
(b) The Borrower's total liabilities shall not exceed fifty
percent (50%) of its Tangible Net Worth at the close of the fiscal year ended
December 31, 1995; shall not exceed one hundred fifty percent (150%) of its
Tangible Net Worth on or after the close of the fiscal year ending December 31,
1996; and shall not exceed one hundred twenty-five percent (125%) of its
Tangible Net Worth at the close of the fiscal year ending December 31, 1997, or
at any time thereafter.
(c) At all times, the Borrower's current assets shall exceed
two hundred fifty percent (250%) of its current liabilities (both as determined
under GAAP).
5.13 Commitment. In addition to any negative or affirmative covenants
set forth herein or in any other Bond Documents, the Borrower shall comply with
all obligations set forth in the Commitment (which shall survive the transaction
contemplated herein) except to the extent in direct conflict with the
requirements of this Agreement or the other Bond Documents.
5.14 Periodic Redemption Requirement. The Borrower shall redeem and
cancel (a "PERIODIC REDEMPTION") Bonds on each Interest Payment Date under the
Indenture in aggregate principal amount equal to $95,000 per quarter beginning
July 1996 through and including October 2013 and $100,000 per quarter beginning
January 2014 through April 2016, as set forth in Exhibit 5.17 herein ("PERIODIC
REDEMPTION REQUIREMENT").
5.15 Subsidiaries. The Borrower shall notify the Bank promptly upon
creation or acquisition of any new Subsidiaries, describing their activities.
The Borrower shall require each of its Subsidiaries to observe the covenants and
agreements herein to the extent applicable to such Subsidiary.
5.16 Construction Requirements. In addition to any requirements in the
Loan Agreement, the Commitment or elsewhere herein, the Borrower shall satisfy
the conditions and observe the covenants contained in Exhibit 5.16.
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ARTICLE 6
NEGATIVE COVENANTS
Until all the obligations to be performed and paid hereunder shall have
been performed and paid in full, and for so long as the Letter of Credit shall
be outstanding, unless the Bank shall otherwise consent in writing, the Borrower
covenants and agrees as follows:
6.1 Liens. Neither the Borrower nor any Subsidiary will create, incur,
assume or suffer to exist any Lien upon or with respect to any of its property
or assets (real or personal, tangible or intangible), or sell any such property
or assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets (including sales of accounts receivable with
recourse), or assign any right to receive income or permit the filing of any
financing statement under the UCC or any other similar notice of Lien under any
similar recording or notice statute; provided that the provisions of this
Section 6.1 shall not prevent the creation, incurrence, assumption or existence
of Permitted Encumbrances.
Notwithstanding the foregoing provisions of this Section 6.1
and the provisions of the Mortgage, the Borrower shall not permit any
mechanics', materialmen's, suppliers', vendors, or similar liens to be
established or remain against the Collateral for labor or materials furnished or
services rendered in connection with the acquisition, construction and
installation of the Project or in connection with any additions, modifications,
improvements, repairs, renewals or replacements made on or to the Collateral
pursuant to the Security Instruments. If any such Lien should at any time be
filed, the Borrower shall cause the same to be discharged of record or bonded
against within thirty (30) days after the date of the filing of the same. If the
Borrower shall fail to discharge or bond against any such Lien, the Bank may
(but shall be under no obligation to) discharge or bond against the same by a
bonding company approved by the issuer of the title insurance policy which
insures the Mortgage, and any amount expended by the Bank in doing so, together
with interest thereon at a rate of interest per annum equal to the Default Rate
from the date thereof, shall become due and payable on demand of the Bank and
the Bank will provide written subordination agreements as to purchase money
obligations which are Permitted Encumbrances.
6.2 Consolidation or Merger, Joint Ventures. Neither the Borrower nor
any Subsidiary shall enter into any transaction of merger or consolidation or
any joint venture or other combination, without the prior written consent of the
Bank.
6.3 Sale of Assets, Dissolution, Etc. The Borrower shall not: (a)
transfer, sell, assign, lease or otherwise dispose of, except in the ordinary
course of business, (i) any Collateral, (ii) with or without recourse, any of
its accounts receivable, notes, franchises or contract rights, (iii) any stock
or any indebtedness of any Subsidiary, or (iv) the Project, in whole or in part,
or any assets or properties necessary or desirable for the proper conduct of its
business, or (v) any other assets unless such assets are not required for the
operation of the Borrower's business; or (b) change the nature of its business,
or wind up, liquidate or dissolve, or agree to do any of the foregoing, or
permit any Subsidiary to do so.
6.4 Intentionally deleted.
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6.5 Modifications of Certificate of Incorporation and Bylaws. Neither
the Borrower nor any Subsidiary shall amend, modify or change its certificate of
incorporation or bylaws (including, without limitation, by the filing or
modification of any certificate of designation) without the prior written
consent of the Bank.
6.6 Business. Neither the Borrower nor any Subsidiary shall engage
(directly or indirectly) in any business other than the business in which it is
engaged on the date hereof (or which is contemplated hereby), plus reasonable
extensions and expansions thereof.
6.7 Transfer of Project. The Borrower shall not sell, assign, lease or
otherwise transfer or dispose of the Collateral or any part thereof or any
interest therein, except as may be otherwise expressly permitted pursuant to
this Agreement.
6.8 Intentionally deleted.
6.9 Fiscal Year. Neither the Borrower nor any Subsidiary shall change
its fiscal year, which currently coincides with the calendar year.
6.10 Guarantees. Neither the Borrower nor any Subsidiary shall
guarantee, endorse, become surety for, indemnify or otherwise in any way become
or be directly or indirectly liable or responsible for the obligations of
another, whether by agreement to purchase the indebtedness of another, by
working capital maintenance agreements, take or pay contracts, or agreement for
the furnishing of funds to another, directly or indirectly, through the purchase
of goods, supplies or services (or by the way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging the
Indebtedness of another, or otherwise, or enter into or be a party to any
contract for the purchase of merchandise, materials, supplies or other property
if such contract provides that payment for such merchandise, materials, supplies
or other property shall be made regardless of whether delivery of such
merchandise, materials, supplies or other property is even made or tendered, or
otherwise enter into any transaction which is in the nature of a guaranty,
except such transactions as are described in Exhibit 2.5 (without increase in
amounts) and other guarantees to creditors of less than $100,000 in the
aggregate, without the prior written consent of the Bank, which consent shall
not be unreasonably withheld.
6.11 Nature of Business, Etc. Neither the Borrower nor any Subsidiary
shall:
(a) Directly or indirectly engage in any business activity
which would represent a material change from the kind of business activities
conducted on the date hereof;
(b) Change its name or identity without giving at least thirty
(30) days' prior written notice to the Bank; or
(c) Change its management or corporate structure or control;
provided, however, that a change in personnel shall not be deemed to constitute
a change in corporate structure for purposes of this Section.
6.12 Dividends. The Borrower will not declare or pay any dividends,
return any capital, or make distributions or loans to any Person, or authorize
or make any other distribution,
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payment or delivery of property or cash to any Person, or acquire any of its
capital stock, or set aside any funds for any of the foregoing purposes during
the continuance of, or which would cause, a Default.
6.13 Investments; Liquidity. Neither the Borrower nor any Subsidiary
shall invest in any other entity or business if a Default exists or would exist
after such investment.
ARTICLE 7
CONDITIONS TO ISSUANCE OF LETTER OF CREDIT
7.1 Conditions of Issuance. On or prior to the date of issuance of the
Letter of Credit, the Borrower shall have furnished to the Bank, in form
satisfactory to the Bank, the following:
(a) Two executed counterparts of this Agreement and executed
counterparts of each of the Security Instruments, including the recorded
Mortgage;
(b) Executed counterparts of each of the Bond Documents
(except for the Bonds, as to which a specimen copy may be furnished);
(c) A commitment for mortgagee's title insurance policy (with
Form 9 Endorsement), together with evidence that all premiums in respect of such
policy have been paid, which policy shall (i) be in an amount equal to the face
amount of the Letter of Credit; (ii) insure that the Mortgage creates a valid
first lien on the property covered by such Mortgage, free and clear of all
defects and encumbrances (except Permitted Encumbrances); (iii) name the Bank
and the Issuer as the insured parties thereunder; (iv) be in a form approved by
the Bank; (v) provide for a pending disbursements clause automatically
increasing coverage by the amount of each construction draw; and (vi) contain
such endorsements and effective coverage as the Bank may reasonably request;
(d) A physical survey containing maps or plats of the
perimeter or boundaries of the site of the Project and any other property
covered by the Mortgage certified to the Bank, the Issuer, the title insurance
company and its agent, in a manner acceptable to each of them, dated a date
satisfactory to the Bank and the title insurance company, by an independent
professional licensed land surveyor satisfactory to the Bank and the title
insurance company, which survey shall indicate the following: (i) the locations
on such site of all the buildings, structures and other improvements and the
established building setback lines insofar as the foregoing affect the perimeter
or boundary of such property; (ii) the lines of streets abutting the site and
width thereof; (iii) all access and other easements appurtenant to the site or
necessary or desirable to use the site; (iv) all roadways, paths, driveways,
easements, encroachments and overhanging projections and similar encumbrances
affecting the site, whether recorded, apparent from a physical inspection of the
site or otherwise known to the surveyor; (v) any encroachments on any adjoining
property by the building structures and improvements on the site; and (vi) if
the Project Site is described as being on a filed map, a legend relating the
survey to said map, all in form satisfactory to the Bank; together with such
other requirements as may be set forth in the Commitment or reasonably required
by the Bank, together with certification from an independent professional
licensed land surveyor satisfactory to the Bank as to the location of the
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Project or any property covered by the Mortgage in any "special flood hazard"
area within the meaning of the Federal Flood Disaster Protection Act of 1973;
(e) Evidence of compliance with the insurance requirements
contained in Article 4 hereof (upon which there shall be affixed long form loss
payable and mortgagee clauses);
(f) An opinion from the Issuer's counsel dated the date hereof
and addressed to, and in form and substance acceptable to, the Bank as to such
matters as the Bank may require;
(g) An opinion from the Borrower's counsel dated the date
hereof, and addressed to, and in form and substance acceptable to, the Bank as
to such matters as the Bank may require;
(h) The opinion of Bond Counsel, in form and substance
satisfactory to the Bank and its counsel;
(i) Certificate(s) of the Borrower including (i) Articles of
Incorporation and Bylaws, (ii) resolutions of the Board of Directors authorizing
the execution, delivery and performance of the appropriate Bond Documents, this
Agreement and the Security Instruments to which the Borrower is a party, (iii)
incumbency and specimen signatures of officers, and (iv) such other matters as
the Bank may require;
(j) Certified copies of the Articles of Incorporation and good
standing certificates of the Borrower;
(k) Copies of all governmental approvals required in
connection with this transaction, including the resolution of the Issuer
authorizing the authentication and issuance of the Bonds;
(l) Evidence of payment to the Bank of the initial letter of
credit fee and any other fees;
(m) Evidence satisfactory to the Bank that any documents
(including, without limitation, financing statements) required to be recorded,
delivered or filed in order to create, in favor of the Bank, a perfected lien on
and security interest in all real and personal property covered by the Mortgage
have been properly recorded or filed in each office in each jurisdiction
required in order to create, in favor of the Bank, a perfected lien on and
security interest in the respective Collateral described therein; and the Bank
shall have received evidence of all such recordation and acknowledgment copies
of all such filings (or, in lieu thereof, the Bank shall have received other
evidence satisfactory to the Bank that all such filings have been made or will
be made), and the Bank shall have received evidence that all necessary
recordation and filing fees and all documentary taxes or other expenses related
to such filings or recordations have been paid in full;
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<PAGE> 30
(n) Evidence satisfactory to the Bank that a Notice of
Commencement in form approved by the Bank's counsel has been recorded, after the
Mortgage and financing statements, in the public records;
(o) The appraisal and Phase I Environmental Report required by
the Commitment; and
(p) Such other documents, instruments and certifications as
required by the Commitment, by Exhibit 5.16 as conditions to the initial
construction advance, or as the Bank may reasonably require.
7.2 Additional Conditions Precedent to Issuance of the Letter of
Credit. The obligation of the Bank to issue the Letter of Credit shall be
subject to the further conditions precedent that on the date of issuance:
(a) The following statements shall be true and the Bank shall
have received a certificate signed by the President or Chief Financial Officer
of the Borrower, dated the date of issuance, stating that:
(i) The representations and warranties contained in
this Agreement, the Pledge Agreement, the Loan Agreement and the
Mortgage are correct on and as of the date of issuance of the Letter of
Credit as though made on and as of such date;
(ii) No event has occurred or would result from the
issuance of the Letter of Credit, which constitutes an Event of Default
or would constitute an Event of Default but for the requirement that
notice be given or time elapse or both;
(b) There shall have been no introduction of or change in, or
in the interpretation of, any law or regulation that would make it unlawful or
unduly burdensome for the Bank to issue the Letter of Credit, no outbreak or
escalation of hostilities or other calamity or crisis, no suspension of or
material limitation on trading on the New York Stock Exchange or any other
national securities exchange, no declaration of a general banking moratorium by
the United States or Florida banking authorities, and no establishment of any
new restrictions on transactions in securities or on banks materially affecting
the free market for securities or the extension of credit by banks;
(c) There shall have occurred no material adverse changes in
the condition, financial or otherwise, of the Borrower; and
(d) Any other conditions set forth in the Commitment shall
have been satisfied.
7.3 Conditions Precedent to Each Tender Advance. Each payment made by
the Bank under the Letter of Credit pursuant to a Tender Draft shall constitute
a Tender Advance hereunder only if on the date of such payment the following
statements shall be true:
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(a) The representations and warranties contained in this
Agreement, the Pledge Agreement, the Loan Agreement and the Mortgage are correct
on and as of the date of such Tender Advance as though made on and as of such
date except as otherwise disclosed in writing to the Bank on or before such
date; and
(b) No event has occurred and is continuing or would result
from such Tender Advance, which constitutes a Default or an Event of Default.
Unless the Borrower shall have previously advised the Bank in writing or the
Bank has actual knowledge that one or more of the above statements is no longer
true, the Borrower shall be deemed to have represented and warranted, on the
date of payment by the Bank under the Utter of Credit pursuant to a Tender
Draft, that on the date of such payment the above statements are true and
correct.
ARTICLE 8
DEFAULT
8.1 Events of Default. Each of the following shall constitute an Event
of Default under this Agreement, whereupon all obligations, whether then owing
or contingently owing, will, at the option of the Bank or its successors or
assigns, immediately become due and payable by the Borrower without
presentation, demand, protest or notice of any kind, all of which are hereby
expressly waived, and the Borrower will pay the reasonable attorneys' fees
incurred by the Bank, or its successors or assigns, in connection with such
Event of Default or recourse against any Collateral held by the Bank, or its
successors or assigns, as security for the obligations hereunder:
(a) Failure of the Borrower to pay when due any payment of
principal, interest, commission, charge or expense hereunder; or
(b) The occurrence of an "Event of Default" under any of the
Security Instruments or any of the Bond Documents; or
(c) The Borrower or any Subsidiary defaults in the payment of
principal when due, whether by acceleration or otherwise, or interest on any
other Indebtedness beyond any period of grace provided with respect thereto, or
in the performance of any other agreement, term or condition contained in any
agreement under which any such obligation is created, if the effect of such
default is to cause, or permit the holder or holders of such obligation (or a
trustee for such holder or holders) to cause, such obligation to become due
prior to its stated maturity or to exercise any other remedy; or
(d) Any representation, warranty, certification or statement
made by the Borrower herein, or in any writing furnished by or on behalf of the
Borrower in connection with the loan by the Issuer under the Loan Agreement or
pursuant to this Agreement or any of the Security Instruments, shall have been
false, misleading or incomplete in any material respect on the date as of which
made; or
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(e) The Borrower or any of its Subsidiaries defaults in the
performance or observance of any agreement or covenant contained in Article 5 or
Article 6 hereof; or
(f) The Borrower defaults in the performance or observance of
any other agreement, covenant, term or condition contained herein, and such
default shall not have been remedied 30 days after written notice thereof shall
have been received by it from the Bank; or
(g) The Borrower or any Subsidiary makes an assignment for the
benefit of creditors, files a petition in bankruptcy, generally fails to pay its
debts as they come due (either as to number or amount), admits in writing its
inability to pay its debts generally as they mature, makes a voluntary
assignment for the benefit of creditors, commences any voluntary assignment for
the benefit of creditors, commences or has filed against it any proceeding
relating to it under any reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect, or by any act, indicates its consent to, approval of or
acquiescence in any such proceeding, or a trustee or a receiver shall be
appointed for it or for a substantial part of its property and such appointment
remains in effect for more than sixty (60) days, or a petition in bankruptcy or
for reorganization shall be filed against it and such petition shall not be
dismissed within sixty (60) days after such filing; or
(h) The Borrower or any Subsidiary defaults under any current
or future Indebtedness to the Bank or its Affiliates, or defaults under the
terms of any agreement or instrument evidencing or securing any obligation for
borrowed money or the deferred purchase price or the lease of property, in
either event if such default shall continue for more than the period of grace,
if any, specified therein, unless such default shall have been waived by the
party or parties entitled to give such waiver under the terms of such agreement
or instrument; or
(i) If a final judgment, which with other outstanding final
judgments against the Borrower or any Subsidiary exceeds an aggregate of
$50,000, shall be rendered against the Borrower or any Subsidiary and if within
30 days after entry thereof such judgment shall not have been discharged or
execution thereof stayed pending appeal, or if within 30 days after the
expiration of any such stay such judgment shall not have been discharged; or
(j) Any abandonment or change in ownership of the Project,
other than a change in ownership permitted hereby, without the prior written
consent of the Bank; or
(k) A change in control or legal structure of the Borrower
without the prior written consent of the Bank.
Upon the occurrence of any of the preceding Events of Default, then at
any time thereafter, the Bank may (1) pursuant to Section 9.2 of the Indenture,
advise the Trustee that an Event of Default has occurred and instruct the
Trustee to declare the principal of all Bonds then outstanding and interest
thereon to be immediately due and payable, and (2) require the immediate payment
in full of all Tender Advances and accrued interest thereon, and (3) proceed
hereunder, and under the Security Instruments and, to the extent therein
provided, under the Bond Documents, in such order as it may elect, and the Bank
shall have no obligation to proceed against any Person or exhaust any other
remedy or remedies which it may have, and shall have no obligation to resort to
any other security, whether held by or available to the Bank.
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<PAGE> 33
8.2 No Remedy Exclusive. No remedy herein conferred upon or reserved to
the Bank is intended to be exclusive of any other available remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder and the Security Instruments or now or
hereafter existing at law or in equity or by statute. In addition to any other
remedies, the Bank shall have all rights of a secured party after default with
respect to any Collateral.
8.3 Anti-Marshalling Provisions. The Borrower hereby grants the Bank
the right to make releases (whether in whole or in part) of all or any part of
the Collateral under the Security Instruments agreeable to the Bank, without
notice to or consent, approval or agreement of other parties and interests,
including junior lienors, which releases shall not impair in any manner the
validity of or priority of the liens and security interest in the remaining
Collateral conferred under such documents, nor release the Borrower from
liability for the obligations thereby secured. Notwithstanding the existence of
any other security interest in the Collateral held by the Bank, the Bank shall
have the right to determine the order in which any or all of the Collateral
shall be subjected to the remedies provided herein, or in the Security
Instruments. The Borrower hereby waives any and all right to require the
marshalling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided herein or therein.
ARTICLE 9
MISCELLANEOUS
9.1 Indemnification.
(a) The Borrower hereby indemnifies and holds the Bank
harmless from and against any and all claims, damages, losses, liabilities,
costs or expenses whatsoever which the Bank may incur (or which may be claimed
against the Bank by any Person) (i) by reason of or in connection with the
execution and delivery or transfer of, or payment or failure to pay under, the
Letter of Credit, provided that the Borrower shall not be required to indemnify
the Bank for any claims, damages, losses, liabilities, costs or expenses to the
extent, but only to the extent, caused by (1) the willful misconduct of the Bank
in connection with paying drafts presented under the Letter of Credit or (2) the
Bank's willful failure to pay under the Letter of Credit (other than in
connection with a court order) after the presentation to it by the beneficiary
of a sight draft and certificate strictly complying with the terms and
conditions of the Letter of Credit; or (ii) by reason of or in connection with
the execution, delivery or performance of any of this Agreement, the Security
Instruments, or any transaction contemplated herein or therein.
(b) The Borrower hereby indemnifies and holds the Bank
harmless from and against any and all damages, penalties, fines, claims, liens,
suits, liabilities, costs (including clean-up costs), judgments and expenses
(including attorneys', consultants' or experts' fees and expenses) of every kind
and nature suffered by or asserted against the Bank as a direct or indirect
result of (1) any warranty or representation made by the Borrower being false or
untrue in any material respect, or (2) any requirement under any law, regulation
or ordinance, local, state, or federal, which requires the elimination or
removal of any hazardous materials, substances, wastes or other environmentally
regulated substances. The Borrower's obligations to the Bank hereunder shall not
be limited to any extent by the term of this Agreement, and, as to any act or
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occurrence prior to the termination of this Agreement which gives rise to
liability hereunder, shall continue, survive and remain in full force and effect
notwithstanding the termination of the Bank's obligations hereunder.
Anything herein to the contrary notwithstanding, nothing in this Section 9.1 is
intended or shall be construed to limit the Borrower's reimbursement obligation
contained in Article 3 hereof. Without prejudice to the survival of any other
obligation of the Borrower, the indemnities and obligations of the Borrower
contained in this Section 9.1 shall survive the Termination Date and the payment
in full of amounts payable pursuant to Article 5.
9.2 Transfer of Letter of Credit. The Letter of Credit may be
transferred and assigned in accordance with the terms of the Letter of Credit
upon payment of any required transfer fee.
9.3 Reduction of Letter of Credit.
(a) The Letter of Credit is subject to reduction pursuant to
its terms.
(b) If the amount available to be drawn under the Letter of
Credit shall be permanently reduced in accordance with the terms thereof, then
the Bank shall have the right to require the Trustee to surrender the Letter of
Credit to the Bank and to issue on such date, in substitution for such
outstanding Letter of Credit, a substitute irrevocable letter of credit,
substantially in the form of the Letter of Credit but with such changes therein
as shall be appropriate to give effect to such reduction, dated such date, for
the amount to which the amount available to be drawn under the Letter of Credit
shall have been reduced.
9.4 Liability of the Bank. Neither the Bank nor any of its officers,
directors, employees, agents or consultants shall be liable or responsible for:
(a) the use which may be made of the Letter of Credit or for
any acts or omissions of the Trustee or any beneficiary or transferee
in connection therewith;
(b) the validity, sufficiency or genuineness of documents, or
of any endorsements thereon, even if such documents should in fact prove to be
in any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(c) payment by the Bank against presentation of documents
which do not comply with the terms of the Letter of Credit, including failure of
any documents to bear any reference or adequate reference to the Letter of
Credit; or
(d) any other circumstances whatsoever in any way related to
the making or failure to make payment under the Letter of Credit;
except only that the Borrower shall have a claim against the Bank, and the Bank
shall be liable to the Borrower, to the extent but only to the extent, of any
direct, as opposed to consequential, damages suffered by the Borrower which the
Borrower proves were caused by (i) willful misconduct of the Bank in determining
whether documents presented under the Letter of Credit complied with the terms
of the Letter of Credit or (ii) wrongful failure of the Bank to pay under
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the Letter of Credit after the presentation to it by the beneficiary thereof of
a sight draft and certificate strictly complying with the terms and conditions
of the Letter of Credit. In furtherance and not in limitation of the foregoing,
the Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation.
9.5 Successors and Assigns. This Agreement shall be binding upon the
Borrower and its successors and assigns and all rights against the Borrower
arising under this Agreement shall be for the sole benefit of the Bank, its
successors and assigns, all of whom shall be entitled to enforce performance and
observance of this Agreement to the same extent as if they were parties hereto.
9.6 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made when hand
delivered or mailed first class, certified or registered mail, postage prepaid,
or by overnight courier service, addressed as follows or to such other address
as the parties hereto shall have been notified pursuant to this Section 9.6:
The Bank: First Union National Bank of Florida
303 Banyan Boulevard
West Palm Beach, FL 33401
Attention: D. Guy Guenthner, Vice President
and First Union National Bank of Florida
4299 N.W. 36th Street
Miami Springs, FL 33166
Attention: Bruce Roland, Portfolio Management
with copy to: Foley & Lardner
200 Laura Street (32202)
P.O. Box 240
Jacksonville, FL 32201-0240
Attention: John M. Welch, Jr., Esq.
The Borrower: Palm Beach Bedding Company
P.O. Box 2617
West Palm Beach, FL 33402
Attention: Michael W. Bubis, President
with copy to: Foster Foster & Heffling
Suite 219
1897 Palm Beach Lakes Boulevard
West Palm Beach, FL 33409-3507
Attention: John Fenn Foster, Esq.
except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed,
in which event said notice, request or demand shall be effective only upon
receipt by the addressee.
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9.7 Amendment. This Agreement may be amended, modified or discharged
only upon an agreement in writing of the Borrower and the Bank.
9.8 Effect of Delay and Waivers. No delay or omission to exercise any
right or power accruing upon any default, omission or failure of performance
hereunder shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed expedient. In order to entitle the Bank to
exercise any remedy now or hereafter existing at law or in equity or by statute,
it shall not be necessary to give any notice, other than such notice as may be
herein expressly required. In the event any provision contained in this
Agreement should be breached by any party and thereafter waived by the other
party so empowered to act, such waiver shall be limited to the particular breach
hereunder. No waiver, amendment, release or modification of this Agreement shall
be established by conduct, custom or course of dealing, but solely by an
instrument in writing duly executed by the parties thereunto duly authorized by
this Agreement.
9.9 Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.10 Severability. The invalidity or unenforceability of any one or
more phrases, sentences, clauses or sections contained in this Agreement shall
not affect the validity or enforceability of the remaining portions of this
Agreement, or any part thereof.
9.11 Cost of Collection. The Borrower shall be liable for the payment
of all reasonable fees and expenses, including attorneys' fees (regardless of
whether suit is brought and including fees on appeal and insolvency
proceedings), incurred in connection with the enforcement of this Agreement.
9.12 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida.
9.13 References. The words "herein," "hereof," "hereunder" and other
words of similar import when used in this Agreement refer to this Agreement as a
whole, and not to any particular article, section or subsection.
9.14 Taxes, Etc. Any taxes, including documentary stamp taxes and/or
nonrecurring intangible taxes, but excluding income taxes, payable or ruled
payable by federal or state authority in respect of the Letter of Credit, this
Agreement or the other Security Instruments shall be paid by the Borrower, as
the case may be, upon demand by the Bank, together with interest and penalties,
if any. The Borrower acknowledges that it is not relying upon the Bank or its
counsel with respect to applicability of such taxes.
9.15 Consent to Jurisdiction, Venue. In the event that any action, suit
or other proceeding is brought against the Borrower by or on behalf of the Bank
to enforce the observance or performance of any of the provisions of this
Agreement or of any of the Security Instruments, including without limitation
the collection of any amounts owing thereunder, the Borrower hereby (i)
irrevocably consents to the exercise of jurisdiction over the Borrower and,
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to the extent permitted by applicable laws, its property, by the United States
District Court, Southern District of Florida and by the Circuit Court, Palm
Beach County, Florida, and (ii) irrevocably waives any objection it might now or
hereafter have or assert to the venue of any such proceeding in any court
described in clause (i) above, and (iii) constitutes and appoints the Secretary
of State of Florida (and, so long as the Borrower shall appoint and maintain any
other qualified Person located within the State of Florida as agent for service
of process and shall give notice (effective upon receipt) thereof to the Bank,
then such other Person) for service of process upon it in connection with any
such proceeding.
9.16 No Usury. Notwithstanding anything herein or in any other document
or instrument, the Borrower shall not be required to make any payments of
interest or payments in the nature of interest which, when combined with all
other such payments, would cause the violation of any usury or similar law
applicable to the Bank, and if any such excess amounts are charged or collected,
such excess, together with interest thereon at the highest lawful rate from the
date collected, shall automatically be applied to reduce the related extension
of credit, and if such extension of credit has been fully repaid, shall be paid
to the Borrower, as applicable. The Borrower hereby agrees that the provisions
of this paragraph shall be in lieu of any other remedies available under the
law.
9.17 Consents. If the consent or approval of the Bank is required under
this Agreement or any related agreement, such consent may be given or withheld
in the discretion of the Bank except as otherwise specifically provided in
connection with such requirement.
9.18 Waiver of Jury Trial. THE BANK AND THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED UPON THIS AGREEMENT OR ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO
BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
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IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Agreement to be executed in their respective names and their respective seals to
be hereunto affixed and attested by their duly authorized representatives, all
as of the date first above written.
THE BORROWER:
PALM BEACH BEDDING COMPANY
By /s/ Michael Bubis
---------------------------------
Its President
THE BANK:
FIRST UNION NATIONAL BANK OF FLORIDA
By /s/ Its Vice President
--------------------------------
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EXHIBIT A
IRREVOCABLE LETTER OF CREDIT
Date: April 2, 1996
LETTER OF CREDIT NO.: S532191
Branch Banking and Trust Company,
as Credit Facility Trustee
223 West Nash Street
Wilson, North Carolina 27893
Attention: Corporate Trust Department
Gentlemen:
We hereby issue to you, Branch Banking and Trust Company, as Credit
Facility Trustee under the Trust Indenture, dated as of April 1, 1996 (the
"Indenture"), by and between Palm Beach County, Florida (the "Issuer"), First
Union National Bank of Florida, as Trustee and you, pursuant to which $7,650,000
aggregate principal amount of Variable Rate Demand Industrial Development
Revenue Bonds (Palm Beach Bedding Company Project), Series 1996 (the "Bonds")
are being issued, this irrevocable Letter of Credit No. S532191 (the "Letter of
Credit") for the account of Palm Beach Bedding Company, a Florida corporation
(the "Company") in the amount of $7,956,000 (the "Initial Stated Amount" and, as
from time to time reduced and reinstated as hereinafter provided, the "Amount
Available"), of which (i) subject to the provisions below reducing amounts
available hereunder, $7,650,000 (as from time to time reduced and reinstated as
hereinafter provided, the "Principal Amount Available") shall be available for
the payment of principal or the portion of the purchase price corresponding to
principal of the Bonds and (ii) subject to the provisions below reducing amounts
available hereunder, $306,000 (as from time to time reduced and reinstated as
hereinafter provided, the "Interest Amount Available") shall be available for
the payment of up to 120 days' interest or the portion of the purchase price
corresponding to interest on the Bonds at an assumed rate of 12% per annum
(computed on the basis of a year of 360 days). Subject to such aggregate limits
and to the conditions set forth herein, funds may be drawn upon hereunder (i)
with respect to payment of the unpaid principal amount or the portion of
purchase price corresponding to the principal of the Bonds and (ii) with respect
to payment of up to 120 days' interest accrued and payable or the portion of
purchase price corresponding to interest accrued on the Bonds on or prior to
their stated maturity date. This Letter of Credit is effective immediately and
expires at 3:00 p.m. (Miami, Florida time) at our Presentation Office (as
hereinafter defined) on April 2, 1999 (as it may be extended from time to time
as hereinafter described, the "Stated Termination Date") or earlier as
hereinafter provided. This Letter of Credit shall automatically be extended for
an additional one-year period from the then applicable Stated Termination Date
unless we give you, or any successor Credit Facility Trustee, written notice of
our election not to renew this Letter of Credit at least 180 days prior to the
then applicable Stated Termination Date by U.S. certified mail, return receipt
requested. All drawings under this Letter of Credit will be paid with our own
funds.
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We hereby irrevocably authorize you to draw on us, in an aggregate amount
not to exceed the Amount Available and in accordance with the terms and
conditions and subject to the reductions in amount as hereinafter set forth, (1)
in a single drawing (subject to the provisions contained in the next following
paragraph) by your draft drawn on us at sight, presented for payment on a day on
which banks are not required or authorized to close in Miami, Florida (a
"Business Day") and referring therein to the number of this Letter of Credit,
and accompanied by your written and completed certificate signed by you in the
form of Annex A attached hereto (such draft accompanied by such certificate
being your "Interest Draft"), an amount not exceeding the Interest Amount
Available on the date of such drawing; (2) in one or more drawings by one or
more of your drafts drawn on us at sight, presented for payment on a Business
Day and referring therein to the number of this Letter of Credit, and
accompanied by your written completed certificate signed by you in the form of
Annex B attached hereto (any such draft accompanied by such certificate being
your "Tender Draft"), an aggregate amount not exceeding the Amount Available on
the date of such drawing; (3) in one or more drawings by one or more of your
drafts drawn on us at sight, presented for payment on a Business Day and
referring therein to the number of this Letter of Credit, and accompanied by
your written and completed certificate signed by you in the form of Annex C
attached hereto (any such draft accompanied by such certificate being your
"Partial Redemption Draft"), an aggregate amount not exceeding the Amount
Available on the date of such drawing; (4) in a single drawing by your draft
drawn on us at sight presented for payment on a Business Day and referring
therein to the number of this Letter of Credit, and accompanied by your written
and completed certificate signed by you in the form of Annex D hereto (any such
draft accompanied by such certificate being your "Conversion Draft"), an amount
not exceeding the Amount Available on the date of such drawing; and (5) in a
single drawing by your draft drawing on us at sight, presented for payment on a
Business Day and referring therein to the number of this Letter of Credit, and
accompanied by your written and completed certificate signed by you in the form
of Annex E attached hereto (such draft accompanied by such certificate being
your "Final Draft"), an amount not exceeding the Amount Available on the date of
such drawing.
If you shall draw on us by an Interest Draft and you shall not have
received from us within ten (10) calendar days from the date of our payment in
respect of such drawing a notice to the effect that we have not been reimbursed
for such drawing and that the interest portion of the Letter of Credit will not
be reinstated, then (x) your right to draw on us in a single drawing by your
Interest Draft under clause (1) of the immediately preceding paragraph shall be
automatically reinstated and (y) effective as of the eleventh (11th) calendar
day from the date of our payment in respect of such drawing, you shall again be
authorized to draw on us by your Interest Draft in accordance with said clause
(1). The provisions of this paragraph providing for the reinstatement of your
right to draw on us by your Interest Draft in a succeeding single drawing shall
be applicable to each successive drawing by your Interest Draft under clause (1)
of the immediately preceding paragraph so long as this Letter of Credit shall
not have terminated as set forth below.
Upon our honoring any Tender Draft presented by you hereunder, the Amount
Available under this Letter of Credit shall be automatically reduced by the
amount drawn under such Tender Draft, the Principal Amount Available to be drawn
hereunder by you shall be automatically reduced by an amount equal to the
principal component of such Tender Draft and
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the Interest Amount Available to be drawn hereunder by you shall be
automatically reduced by an amount equal to the amount of the interest component
of such Tender Draft.
Upon our honoring any Partial Redemption Draft presented by you hereunder,
the Amount Available under this Letter of Credit shall be automatically and
permanently reduced by the amount drawn under any such Partial Redemption Draft,
the Principal Amount Available to be drawn hereunder by you shall be
automatically and permanently reduced by an amount equal to the principal
component of such Partial Redemption Draft honored by us hereunder and the
Interest Amount Available to be drawn hereunder by you shall be automatically
and permanently reduced by an amount equal to the amount of the interest
component of any such Partial Redemption Draft honored by us hereunder.
Upon our honoring any Conversion Draft presented by you hereunder, the
Amount Available under this Letter of Credit shall be automatically and
permanently reduced by the amount drawn under any such Conversion Draft, the
Principal Amount Available to be drawn hereunder by you shall be automatically
and permanently reduced by an amount equal to the principal component of such
Conversion Draft honored by us hereunder, and the Interest Amount Available to
be drawn hereunder by you shall be automatically and permanently reduced by an
amount equal to the amount of the interest component of any such Conversion
Draft honored by us hereunder.
The Amount Available, the Principal Amount Available and the Interest
Amount Available to be drawn under this Letter of Credit with respect to any
Tender Draft shall be reinstated as provided in this paragraph to the extent,
but only to the extent, that we are reimbursed by or on behalf of the Company in
immediately available funds delivered to us at the Presentation Office on or
before 3:00 p.m. (Miami, Florida time) on a Business Day for any amount drawn in
respect of principal and interest under any Tender Draft. If we receive such
reimbursement by or on behalf of the Company, all in strict conformity with the
terms and conditions of this Letter of Credit after 3:00 p.m. (Miami, Florida
time) on a Business Day prior to the termination hereof, such reimbursement will
be honored as stated above as if received on the next succeeding Business Day.
Any amount received by us from or on behalf of the Company in reimbursement of
amounts drawn hereunder by a Tender Draft shall, if accompanied by your
completed certificate signed by you in the form of Annex F attached hereto, be
applied to the extent of the amount received by us and indicated therein to
reimburse us for amounts drawn hereunder by your Tender Drafts and we will
confirm to you the amount of the Principal Amount Available and the Interest
Amount Available increased by such reimbursement by delivering to you the
executed and completed acknowledgment accompanying the form of Annex F delivered
by you in connection with such reimbursement. The Amount Available, the
Principal Amount Available and the Interest Amount Available shall be increased
only in compliances with the provisions of this paragraph.
Each draft and certificate presented hereunder shall be dated the date of
its presentation and each such draft and certificate shall be presented at our
office located at 200 South Biscayne Boulevard, 12th Floor, Miami, Florida
33131, Attention: International Operations (or at any other office in the States
of North Carolina or Florida which may be designated by us by written notice
delivered to you at least three Business Days prior to a date on which interest
is payable on the Bonds) (the "Presentation Office") and shall be presented on a
Business Day. If we
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receive any of your drafts and certificates at such office, all in strict
conformity with the terms and conditions of this Letter of Credit, not later
than 10:00 a.m. (Miami, Florida time) on a Business Day on or prior to the
termination hereof, we will honor the same by initiating the wiring of funds by
1:30 p.m. (Miami, Florida time) on the same day in accordance with your payment
instructions. If we receive any of your drafts and certificates at such office,
all in strict conformity with the terms and conditions of this Letter of Credit,
after 10:00 a.m. (Miami, Florida time) on a Business Day prior to the
termination hereof, we will honor the same on the next succeeding Business Day
in accordance with your payment instructions. If requested by you, payment under
this Letter of Credit may be made by wire transfer of Federal Reserve Bank funds
to your account in a bank on the Federal Reserve wire system or by deposit of
same day funds into a designated account that you maintain with us.
In connection with the presentation of any Tender Draft or Conversion
Draft, Bonds in aggregate principal amount equal to the principal amount of such
Tender Draft or Conversion, Draft shall be delivered to us or our designee as
promptly as practicable, and in any event within five Business Days after such
presentation, registered in our name or in the name of our designee, as pledgee
of the Company, pledged to us pursuant to the Pledge Agreement dated as of April
1, 1996 (the "Pledge Agreement"), between the Company and us. With respect to
any Tender Draft, we agree that we shall not release any Bonds pledged to us
until the Letter of Credit shall have been reinstated so that the Amount
Available, as so reinstated, shall equal or exceed the aggregate principal and
120 days' interest thereon calculated at an assumed rate of 12% per annum on all
Bonds for which drawings are available hereunder after giving effect to such
release.
Upon the earliest of (i) our honoring your Final Draft presented
hereunder, (ii) the second day following the date on which we receive a
certificate signed by you stating that the interest rate on the Bonds has been
converted to a fixed interest rate, (iii) the date on which we receive a
certificate signed by you stating that the Company has provided and you have
accepted an Alternate Credit Facility in accordance with the terms of the
Indenture which is effective the date of such certificate, or (iv) the Stated
Termination Date, this Letter of Credit shall terminate.
This Letter of Credit is transferable only in its entirety to any
transferee whom you certify to us has succeeded you as Credit Facility Trustee
under the Indenture, and may be successively transferred. Transfer of the Amount
Available under this Letter of Credit to such transferee shall be effected by
the presentation to us of this Letter of Credit accompanied by a certificate in
the form of Annex G attached hereto and payment of the transfer commission
referred to therein. Upon such presentation we shall forthwith transfer the same
to your transferee or, if so requested by your transferee, issue a letter of
credit to your transferee with provisions therein consistent with this Letter of
Credit.
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including, without limitation, the Bonds or the Indenture), except only the
certificates and the drafts referred to herein which are hereby incorporated by
reference; and any such reference shall not be deemed to incorporate herein by
reference any document, instrument or agreement except for such certificates and
such drafts.
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Except as otherwise provided herein, this Letter of Credit shall be
governed by and construed in accordance with the Uniform Customs and Practice
for Documentary Credits (1994 Revisions), International Chamber of Commerce
Publication No. 500 (the "UCP") and, to the extent not inconsistent therewith,
the laws of the State of Florida. Communications with respect to this Letter of
Credit other than presentations of drafts and certificates hereunder shall be in
writing and shall be addressed to us at 200 South Biscayne Boulevard, 12th
Floor, Miami, Florida 33131, Attention: International Operations, specifically
referring to the number of the Letter of Credit.
Very truly yours,
FIRST UNION NATIONAL BANK OF FLORIDA
By_______________________________________
Title:_________________________________
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<PAGE> 44
Annex A
[Form of Certificate for Interest Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF UP TO 120 DAYS' INTEREST
Irrevocable Letter of Credit No. S532191
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank of Florida (the "Bank"), with reference to Irrevocable
Letter of Credit No. S532191 (the "Letter of Credit; the terms defined therein
and not otherwise defined herein being used herein as therein defined) issued by
the Bank in favor of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under the
Indenture for the holders of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter of
Credit with respect to a payment of interest on the Bonds, which payment is due
and payable on a regular Interest Payment Date. On the record date for such
Interest Payment Date, none of such Bonds for which interest is drawn pursuant
to the draft were held of record by the Company, or by the Bank, or its
designee, as pledgee of the Company.
(3) [The Interest Draft accompanying this Certificate is the first
Interest Draft presented by the Credit Facility Trustee under the Letter of
Credit.]* [The Interest Draft last presented by the Credit Facility Trustee
under the Letter of Credit was honored and paid by the Bank on ______________,
______, and the Credit Facility Trustee had not received a notice within ten
days of presentation of such Interest Draft from the Bank that the Bank has not
been reimbursed.]**
(4) The amount of the Interest Draft accompanying this Certificate is
$________ it was computed in compliance with the terms and conditions of the
Bonds and the Indenture and does not exceed the Interest Amount Available to be
drawn by the Credit Facility Trustee under the Letter of Credit.
(5) Upon receipt by the undersigned of the amount demanded hereby, (a) the
undersigned will apply the same directly to the payment when due of the interest
amount owing on account of the Bonds pursuant to the Indenture, (b) no portion
of said amount shall be applied by the undersigned for any other purpose, and
(c) no portion of said amount shall be commingled with other funds held by the
undersigned.
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IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the ________ day of _________________, 19__.
BRANCH BANKING AND TRUST
COMPANY, as Credit Facility Trustee
By___________________________________
Name_________________________________
Title________________________________
____________________
* To be used in the Certificate relating to the first Interest Draft only.
** To be used in each Certificate relating to each Interest Draft other than
the first Interest Draft.
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Annex B
[Form of Certificate for Tender Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL PURCHASE PRICE AND PORTION OF PURCHASE PRICE
CORRESPONDING TO INTEREST OF BONDS TENDERED
Irrevocable Letter of Credit No. S532191
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank of Florida (the "Bank"), with reference to Irrevocable
Letter of Credit No. S532191 (the "Letter of Credit"; the terms defined herein
and not otherwise defined herein being used herein as therein defined) issued by
the Bank in favor of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the registered owners of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter
of Credit with respect to a payment, upon a tender of all or less than all
of the Bonds, which are Outstanding (as defined in the Indenture), or the
unpaid principal amount of the Bonds and accrued interest thereon to be
purchased as a result of such tender pursuant to the terms of Section 2.3
of the Indenture (other than Bonds, presently held of record by the
Company, or by the Bank, or its designee, as pledge of the Company) which
payment is due on the date on which this Certificate and the Tender Draft
it accompanies are being presented to the Bank.
(3) The amount of the Tender Draft accompanying this Certificate is
equal to the sum of (i) $________ being drawn in respect of the payment of
unpaid principal of Bonds (other than Bonds presently held of record by
the Company or by the Bank, or its designee, as pledgee of the Company) to
be purchased as a result of a tender, which amount does not exceed the
Principal Amount Available under the Letter of Credit, and (ii) $________
being drawn in respect of the payment of _________ days' [not to exceed
120 days'] accrued and unpaid interest on such Bonds constituting a
portion of the purchase price of such Bonds being purchased as a result of
a tender, which amount does not exceed the Interest Amount Available under
the Letter of Credit.
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<PAGE> 47
(4) The Credit Facility Trustee shall register or cause to be
registered in the name of the Bank, or its designee, as pledgee of the
Company, pursuant to Section 3 of the Pledge Agreement, and shall deliver
or cause to be delivered to the Bank or its designee Bonds in the
principal amount of the Tender Draft accompanying this Certificate as
promptly as practicable, and in any event within five Business Days after
presentation of the Tender Draft accompanying this Certificate.
(5) Upon receipt of the undersigned of the amount demanded hereby,
(a) the undersigned will apply the same directly to the payment when due
of the purchase price of Bonds tendered pursuant to the Indenture, (b) no
portion of said amount shall be applied by the undersigned for any other
purpose, and (c) no portion of said amount shall be commingled with other
funds held by the undersigned.
(6) The amount of the Tender Draft accompanying this Certificate was
computed in compliance with the terms and conditions of the Bonds and the
Indenture and does not exceed the Amount Available under the Letter of
Credit.
The Credit Facility Trustee acknowledges that, pursuant to the terms of
the Letter of Credit, upon the Bank's honoring of the Tender Draft accompanying
this Certificate, (i) the Amount Available under the Letter of Credit shall be
automatically reduced by the aggregate amount of such Tender Draft, (ii) the
Principal Amount Available under the Letter of Credit shall be automatically
reduced by an amount equal to the amount of the principal component of such
draft set forth in paragraph 3 above, and (iii) the Interest Amount Available
under the Letter of Credit shall be automatically reduced by an amount equal to
the amount of the interest component of such draft set forth in paragraph 3
above, subject to reinstatement as set forth in the Letter of Credit.
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the ______ day of __________________, ______.
BRANCH BANKING AND TRUST
COMPANY, as Credit Facility Trustee
By___________________________________
Name_________________________________
Title________________________________
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Annex C
[Form of Certificate for Partial Redemption Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL AND UP TO 120 DAYS' INTEREST UPON
PARTIAL REDEMPTION
Irrevocable Letter of Credit No. S532191
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certified to First
Union National Bank of Florida (the "Bank"), with reference to Irrevocable
Letter of Credit No. S532191 (the "Letter of Credit"; the terms defined therein
and not otherwise defined herein being used herein as therein defined) issued by
the Bank in favor of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the registered owners of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter
of Credit with respect to a payment, upon redemption of less than all of
the Bonds which are Outstanding (as defined in the Indenture), of the
unpaid principal amount of, and up to 120 days' accrued and unpaid
interest on, the Bonds to be redeemed pursuant to the Indenture (other
than Bonds presently held of record by the Company, or by the Bank, or its
designee, as pledgee of the Company).
(3) The amount of the Partial Redemption Draft accompanying this
Certificate is $__________ and is equal to the sum of (i) $___________ being
drawn in respect of the payment of unpaid principal of Bonds (other than Bonds
presently held of record by the Company or by Bank, or its designee, as pledgee
of the Company) to be redeemed, which amount does not exceed the Principal
Amount Available under the Letter of Credit and (ii) $____________ being drawn
in respect of the payment of ______ days' [not to exceed 120 days'] accrued and
unpaid interest on such Bonds, which amount does not exceed the Interest Amount
Available under the Letter of Credit.
(4) The amount of the Partial Redemption Draft accompanying this
Certificate was computed in accordance with the terms and conditions of
the Bonds and the Indenture and does not exceed the Amount Available under
the Letter of Credit.
(5) This Certificate and the Partial Redemption Draft it accompanies
are dated, and are being presented to the Bank on, the date on which the
unpaid principal amount of, and accrued and unpaid interest on, Bonds to
be redeemed are due and payable under the Indenture upon redemption of
less than all of the Bonds which are Outstanding (as defined in the
Indenture).
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<PAGE> 49
(6) Upon receipt by the undersigned of the amount demanded hereby,
(a) the undersigned will apply the same directly to the payment when due
of the principal amount of and accrued and unpaid interest on the Bonds
pursuant to the Indenture, (b) no portion of said amount shall be applied
by the undersigned for any other purpose and (c) no portion of said amount
shall be commingled with other funds held by the undersigned.
The Credit Facility Trustee acknowledges that, pursuant to the terms of
Letter of Credit, upon the Bank's honoring the Partial Redemption Draft
accompanying this Certificate, (i) the Amount Available under the Letter of
Credit shall be permanently reduced by the aggregate amount of such Partial
Redemption Draft, (ii) the Principal Amount Available under the Utter of Credit
shall be permanently reduced by an amount equal to the amount of the principal
component of such draft set forth in paragraph 3 above and (iii) the Interest
Amount Available under the Letter of Credit shall be permanently reduced by an
amount of the interest component of such draft set forth in paragraph 3 above.
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the _______ day of ___________, 19__.
BRANCH BANKING AND TRUST
COMPANY, as Credit Facility Trustee
By__________________________________
Name________________________________
Title_______________________________
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Annex D
[Form of Certificate for Conversion Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE
PAYMENT OF PRINCIPAL PLUS ACCRUED INTEREST
UPON A MANDATORY PURCHASE
(CONVERSION TO A FIXED INTEREST RATE)
Irrevocable Letter of Credit No. S532191
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank of Florida (the "Bank"), with reference to Irrevocable
Letter of Credit No. S532191 (the "Letter of Credit"; the terms defined therein
and not otherwise defined herein being used herein as therein defined) issued by
the Bank in favor of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the registered owners of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter
of Credit with respect to a payment, upon a mandatory tender for purchase
pursuant to Section 2.2(e) of the Indenture (conversion to a Fixed
Interest Rate within the meaning of the Indenture) of all or less than all
of the Bonds which are Outstanding (as defined in the Indenture), of the
unpaid principal amount of, and up to 120 days' accrued and unpaid
interest on, the Bonds to be so purchased (other than Bonds presently held
of record by the Company, or the Bank, or its designee, as pledgee of the
Company), which payment is due on the date on which this Certificate and
the Conversion Draft it accompanies are being presented to the Bank.
(3) The amount of the Conversion Draft accompanying this Certificate
is $_______ and is equal to the sum of (i) $_______ being drawn in respect
of the payment of unpaid principal of Bonds (other than Bonds presently
held of record by the Company, or by the Bank, or its designee, as pledgee
of the Company) to be purchased, which amount does not exceed the
Principal Amount Available under the Letter of Credit, and (ii) $________
being drawn in respect of the payment of ____ days' [not to exceed 120
days'] accrued and unpaid interest on such Bonds, which amount does not
exceed the Interest Amount Available under the Letter of Credit.
(4) The amount of the Conversion Draft accompanying this Certificate
was computed in compliance with the terms and conditions of the Bonds and
the Indenture and does not exceed the Amount Available under the Letter of
Credit.
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<PAGE> 51
(5) Upon receipt by the undersigned of the amount demanded hereby,
(a) the undersigned will apply the same directly to the payment when due
of the principal amount of, and interest accrued and unpaid on, the Bonds
pursuant to the Indenture, (b) no portion of said amount shall be applied
by the undersigned for any other purpose and (c) no portion of said amount
shall be commingled with other funds held by the undersigned.
(6) The Credit Facility Trustee shall register or cause to be
registered in the name of the Bank, or its designee, as pledgee of the
Company, pursuant to Section 3 of the Pledge Agreement and shall deliver
or cause to be delivered to the Bank or its designee a principal amount of
Bonds equal to the principal amount of the Conversion Draft accompanying
this Certificate as promptly as practicable, and in any event within five
Business Days after presentation of the Conversion Draft accompanying this
Certificate.
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the _____ day of ______________, 19__.
BRANCH BANKING AND TRUST
COMPANY, as Credit Facility Trustee
By_________________________________
Name_______________________________
Title______________________________
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Annex E
[Form of Certificate for Final Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL PLUS ACCRUED INTEREST, UPON STATED
OR ACCELERATED MATURITY OR OPTIONAL OR MANDATORY
REDEMPTION AS A WHOLE
Irrevocable Letter of Credit No. S532191
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank of Florida (the "Bank"), with reference to Irrevocable
Letter of Credit No. S532191 (the "Letter of Credit"; the terms defined therein
and not otherwise defined herein being used herein as therein defined) issued by
the Bank in favor of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the registered owners of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter
of Credit with respect to a payment, either at stated maturity, upon
acceleration, or as a result of a redemption as a whole pursuant to the
Indenture, of the unpaid principal amount of and up to 120 days' accrued
and unpaid interest on, all of the Bonds which are "Outstanding" within
the meaning of the Indenture (other than Bonds presently held of record by
the Company or by the Bank, or its designee, as pledgee of the Company).
(3) The amount of the Final Draft accompanying this Certificate is
$____________ and is equal to the sum of (i) $______________ being drawn
in respect of the payment of unpaid principal of Bonds (other than Bonds
presently held of record by the Company or by the Bank, or its designee,
as pledgee of the Company), which amount does not exceed the Principal
Amount Available under the Letter of Credit, and (ii) $______ being drawn
in respect of the payment of ______ days' [not to exceed 120 days']
accrued and unpaid interest on such Bonds, which amount does not exceed
the Interest Amount Available under the Letter of Credit.
(4) The amount of the Final Draft accompanying this Certificate was
computed in compliance with the terms and conditions of the Bonds and the
Indenture and does not exceed the Amount Available under the Letter of
Credit.
(5) Upon receipt by the undersigned of the amount demanded hereby,
(a) the undersigned will apply the same directly to the payment when due
of the principal amount and accrued and unpaid interest thereon owing on
account of the Bonds pursuant to the Indenture, (b) no portion of said
amount shall be applied by the undersigned for any other purpose and (c)
no portion of said amount shall be commingled with other funds held by the
undersigned.
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IN WITNESS WHEREOF, the Credit Facility Trustee has executed and
delivered this Certificate as of the _____ day of __________, 19__.
BRANCH BANKING AND TRUST
COMPANY, as Credit Facility Trustee
By_________________________________
Name_______________________________
Title______________________________
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Annex F
[Form of Reinstatement Certificate For Tender Draft]
CERTIFICATE FOR THE REINSTATEMENT OF AMOUNTS AVAILABLE
UNDER IRREVOCABLE LETTER OF CREDIT NO. S532191
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank of Florida (the "Bank"), with reference to Irrevocable
Letter of Credit No. S532191 (the "Letter of Credit"; the terms defined therein
and not otherwise defined herein being used herein as therein defined) issued by
the Bank in favor of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the holders of the Bonds.
(2) The amount of $________ paid to you today by or on behalf of the
Company is a payment made to reimburse you, pursuant to Section 3.2 of the
Letter of Credit and Reimbursement Agreement, dated as of April 1, 1996,
as it may have been modified (the "Reimbursement Agreement"), by and among
the Company and the Bank, for amounts drawn under the Letter of Credit by
Tender Drafts. The Credit Facility Trustee hereby requests that you
reinstate the Letter of Credit upon receipt of such payment in an amount
equal to the amount of payment so received.
(3) Of the amount referred to in paragraph (2), $_________
represents the aggregate principal amount of Bonds resold or to be sold on
behalf of the Company.
(4) Of the amount referred to in paragraph (2), $________ represents
accrued and unpaid interest on the Bonds.
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the ____ day of _________, 19__.
BRANCH BANKING AND TRUST
COMPANY, as Credit Facility Trustee
By_________________________________
Name_______________________________
Title______________________________
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[attached to Annex F]
ACKNOWLEDGMENT
The Bank hereby confirms to the Credit Facility Trustee that the
Principal Amount Available under the Letter of Credit has been reinstated by the
amount of $_______________ and the Interest Amount Available under the Letter of
Credit has been reinstated by the amount of $_______________________.
This _____ day of __________, 19__.
FIRST UNION NATIONAL BANK OF
FLORIDA
By_________________________________
Name_______________________________
Title______________________________
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<PAGE> 56
Annex G
[Form of Transfer Certificate]
INSTRUCTION TO TRANSFER
First Union National Bank of Florida
200 South Biscayne Boulevard, 12th Floor
Miami, Florida 33131
Attention: International Operations
Re: Your Irrevocable Letter of Credit No. S532191
Ladies and Gentlemen:
For value received, the undersigned beneficiary (the "Transferor")
hereby irrevocably transfers to:
________________________________
[Name of Transferee]
________________________________
[Address]
(the "Transferee") all rights of the Transferor with respect to the
above-referenced Letter of Credit, including the right to draw under said Letter
of Credit in the Amount Available. Said Transferee has succeeded the Transferor
as Credit Facility Trustee under that certain Trust Indenture dated as of April
1, 1996, by and between Palm Beach County, Florida, First Union National Bank of
Florida, as trustee and Branch Banking and Trust Company, as the initial Credit
Facility Trustee thereunder, as it may have been amended or supplemented (the
"Indenture"), with respect to the Palm Beach County Variable Rate Demand
Industrial Development Revenue Bonds (Palm Beach Bedding Company Project),
Series 1996 in the aggregate original principal amount of $7,650,000 and has
complied with the provisions of the Indenture.
By virtue of this transfer, the Transferee shall have the sole
rights as beneficiary of said Letter of Credit, including sole rights relating
to any past or future amendments thereof, whether increases or extensions or
otherwise. All amendments are to be advised directly to the Transferee without
necessity of any consent of or notice to the Transferor.
By its signature below, the Transferee acknowledges that it has duly
succeeded the Transferor as Credit Facility Trustee pursuant to the Indenture.
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The advice of such Letter of Credit is returned herewith, along with
a transfer fee of $1,000.00, and we ask you to endorse the transfer on the
reverse side thereof and to forward it directly to the Transferee with your
customary notice of transfer.
Very truly yours,
BRANCH BANKING AND TRUST COMPANY,
as Credit Facility Trustee
By_______________________________________
[insert name and title of
authorized officer]
[Corporate Seal]
Acknowledged by:
________________________________
[insert name of Transferee]
By:_____________________________
[insert name and title of
authorized officer]
[Corporate Seal]
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EXHIBIT 2.1
SUBSIDIARIES OF BORROWER
None
-54-
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EXHIBIT 2.4
LIABILITIES OF BORROWER
None
-55-
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EXHIBIT 2.5
CONTINGENT LIABILITIES
None
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EXHIBIT 2.6
LITIGATION
None
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EXHIBIT 2.13
ENVIRONMENTAL MATTERS
None
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EXHIBIT 2.15
TAXES
None
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EXHIBIT 5.16
CONSTRUCTION REQUIREMENTS
1. Definitions. The capitalized terms used in this Exhibit and not defined
in the Agreement shall have the following meanings:
<TABLE>
<S> <C>
AGREEMENT: The Letter of Credit and Reimbursement Agreement to
which this is an exhibit.
ARCHITECT: The Contractor in its capacity as architect under the design-
build contract with the Borrower.
COMPLETION DATE: December 31, 1996.
CONSTRUCTION LOAN: As defined below in Paragraph 2.
CONTRACTOR: Weitz Company, Inc.
COST OF IMPROVEMENTS: All direct and indirect costs required to be
expended by the Borrower to comply with the
requirements of this Agreement relating to
construction of the Improvements.
IMPROVEMENTS: The building and fixtures to be constructed on the Property
in accordance with the Plans, and all equipment.
INCURRED COST: The reasonable cost of labor and materials actually
expended or incurred by the Borrower pursuant to the Plans
and incorporated in the Improvements on the Property. At
the Bank's option, expressed in writing, Incurred Cost may
include interest accrued on the indebtedness evidenced by
the Note, materials stored on the Property or elsewhere and
properly secured and insured, or any one or more of such
items. No amounts paid to the Borrower or any affiliate of
the Borrower shall be considered to be an Incurred Cost
except to the extent that such amounts are not in excess of
those that would be charged for the services or materials
acquired in the absence of such relationship. No general
overhead or management fees, commissions or similar fees
of the Borrower or of any such other persons shall be
considered Incurred Cost except as specifically approved by
the Bank in the Project budget or otherwise.
PLANS: The final plans, drawings, specifications, construction
budget, schedule of values, trade and materials breakdown
and other cost allocations for construction of the
Improvements now or hereafter prepared by the
Borrower
</TABLE>
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<TABLE>
<S> <C>
or the Architect and approved in writing
by the Bank and all amendments and modifications
thereto made with the written approval of the
Bank.
</TABLE>
2. Construction Advance. Subject to the terms and conditions contained
herein, and if there exists no Default, the Bank shall authorize advances to the
Borrower of up to the face amount of the Bonds, to be used to finance the
Incurred Cost of the Improvements (the "CONSTRUCTION LOAN").
3. Borrower's Covenants.
(a) Construction of Improvements. The Borrower shall promptly
construct the Improvements on the Property in a true, thorough, workmanlike and
substantial manner and in strict accordance with the Plans, building permits and
applicable building and zoning codes. The Borrower shall provide or cause to be
provided, at the Borrower's expense, all manner of materials, labor, implements
and cartage of every description necessary for the due performance of the work.
The Borrower shall take all necessary steps to assure that construction and
installation of the Improvements shall begin within 30 days after the date of
the Note, shall proceed continuously and diligently, and shall be completed in a
timely manner in accordance with the Plans and that construction shall be
completed on or before the Completion Date.
(b) Evidence of Payment of Costs. If requested by the Bank, the
Borrower shall furnish, before each advance herein agreed to be made and on
completion of construction, all receipted bills, certificates, affidavits,
releases of lien and other documents which may be required by the Bank or the
title insurer, as evidence of full payment of all labor and materials incident
to the construction of the Improvements and will promptly secure the release of
the Property from all liens.
(c) Inspection. The Borrower will permit the Bank and its
representatives to enter upon the Property at reasonable times, inspect the
Improvements and all materials to be used in the construction thereof, and
examine all detailed plans and shop drawings which are or may be kept at the
construction site, and all books and records of the Borrower relating to the
Property and will cooperate with the Bank and the Bank's representatives to
enable it to perform its functions hereunder. It is expressly agreed that the
Bank has no duty to inspect the Improvements, and if the Bank should inspect the
Improvements, the Bank shall have no liability or obligation to the Borrower or
other person arising out of such inspection. Inspections made by the Bank or its
representatives shall be made solely for the protection and benefit of the Bank,
and neither the Borrower or other party primarily or secondarily liable to the
Bank, nor any person or party claiming by, through or under the Borrower, shall
be entitled to claim any loss, damage or offset either against the Bank or its
representatives for failure to properly inspect the Property or Improvements.
The Borrower agrees to pay the cost of such inspections and the fees and other
charges of any inspecting architect, engineer or consultant employed by the
Bank.
(d) Correction of Deficient Work. If the Bank determines that any
portion of the Improvements is not being constructed in accordance with the
Plans in a workmanlike manner, it may require work to be stopped and withhold
disbursements until the deficiencies are corrected. The Borrower agrees that it
will correct, at its own cost and not from Loan proceeds,
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any work performed and replace any materials that do not comply with the Plans,
applicable laws, regulations or permits, or accepted standards of quality and
workmanship. In the event of any dispute between the Borrower and the Bank with
respect to the interpretation and meaning of the Plans, the same shall be
determined at the Borrower's cost by an independent architect or engineer
selected by the Bank.
(e) Adequate Financing. The Borrower will provide from its own
funds, without secondary financing involving any mortgage or other Lien against
the Property (except as otherwise expressly provided in this Agreement), all
amounts necessary to pay all Costs of the Improvements which are in excess of
the disbursements required to be authorized by the Bank hereunder for any budget
category, and the Bank shall not be required to make any disbursement hereunder
if the undisbursed proceeds of the Bonds for any budget category (taking into
account any reserves required hereunder) shall be less than the amount,
determined in the Bank's reasonable judgment, necessary to pay for all Cost of
Improvements required for the completion of the Improvements or category
thereof. If, for any reason, the Bank shall determine in good faith that the
undisbursed Bond Proceeds allocated to any category of Improvements will be
insufficient for completion of the Improvements, the Borrower will within ten
days after written request by the Bank, deposit the deficiency with the Trustee,
and such deposit shall be first disbursed in the same manner as the Bond
proceeds are to be disbursed before any further disbursements of the proceeds of
the Bonds shall be made or may be held for application after complete
disbursement of Bond proceeds. All such funds shall be subject to the security
interest of the Bank.
(f) Further Assurances. To the end that the agreements of the
Borrower set forth herein and in the Loan Agreement shall be effectively and
fully performed and the intent and purpose of this Agreement fulfilled, the
Borrower agrees to execute all other and further instruments reasonably required
by the Bank from time to time in order to carry out the provisions of this
Agreement, or for the purpose of creating, perfecting, preserving and enforcing
the Bank's security. The Borrower hereby irrevocably appoints the Bank as its
attorney-in-fact to take all such action in the event the Borrower fails to do
so.
(g) Use of Bond Proceeds. All labor and materials contracted for in
connection with construction of the Improvements shall be used and employed
solely on the Property and in said construction, and only in accordance with the
Plans. The monies authorized to be disbursed to or for the account of the
Borrower under this Agreement shall constitute a trust fund in the hands of the
Borrower or other payee, and shall be used solely by such payee for the payment
of Incurred Cost and for no other purpose unless another use is specifically
provided for in this Agreement or consented to in writing by the Bank. Nothing
in this paragraph shall be deemed to impose a trust on the undisbursed portion
of the Bond proceeds or to impose any duty on the Bank with respect thereto.
(h) Construction Documents. All Plans, project budgets, construction
contracts and major subcontracts and subcontractors shall be approved in writing
by the Bank. No changes shall be made in any approved Plans, budgets, contracts
or subcontracts except with the written consent of the Bank. All bonds and
errors and omissions insurance required by the Bank shall be maintained in force
as approved.
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4. Advances During Construction.
(a) Disbursement Schedule. Subject to the terms and conditions
contained herein, the Bank will authorize the Trustee to disburse and the
Borrower will accept the proceeds of the Construction Loan in the manner and at
the time set forth in Paragraph 10 hereof.
(b) Method of Disbursement. Each request for advance shall be made
in writing and shall be delivered to the Bank at the Bank's address stated in
this Agreement. The Bank shall not be required to make any such advances until
at least five (5) days after receipt of request therefor. Funds shall be
disbursed by the Trustee in accordance with this Agreement and the Loan
Agreement directly to the Borrower, or, at the option of the Bank, such funds
may be disbursed by checks payable to the Borrower and to any other person, firm
or corporation to whom the Borrower is indebted for work done or materials
delivered, or, at its option, the Bank may require the Trustee to make such
disbursements directly to the Borrower's Architect or Contractor, or to any
subcontractor, sub subcontractor, supplier, laborer or materialman that may have
performed work on or furnished material to the Property, and the execution of
this Agreement by the Borrower shall and hereby does constitute an irrevocable
direction and authorization to so direct disbursement of the funds.
(c) Inspections. The Bank may, at its option, make inspection of the
Property upon receipt of a request for an advance of proceeds of the Bonds to
determine whether the Improvements conform to applicable law and regulations and
are in compliance with the Plans. Such inspections if made shall be for the sole
and exclusive benefit of the Bank and shall not be for the direct or indirect
benefit of any other person or party.
(d) Disbursement Obligation of Bank. The Bank may, at its option,
authorize disbursement of funds whether under the terms of this Agreement or the
Loan Agreement such disbursement is required or not and whether all conditions
to such advance have been met or not. Part or the whole of any advance may be
disbursed before or after it becomes due if the Bank deems it advisable to do
so. All such advances shall be deemed to have been made pursuant to this
Agreement and the Loan Agreement and not in modification thereof. No further
direction or authorization from the Borrower shall be necessary to warrant
advances and the Bank may authorize advances even though the Borrower has not
made a request therefor. After Default, the Bank is irrevocably authorized, but
shall not be required to, authorize the disbursement of Bond proceeds (which
shall be secured by the Mortgage) for the account of the Borrower for the
purpose of (i) completing any Improvements, whether or not included within the
scope of the Plans, (ii) protecting and preserving the Project and its
operational integrity, including, without limitation, paying for insurance,
taxes, repairs, and maintenance, and (iii) otherwise completing the Improvements
and operating the Project. The power granted herein shall not excuse the
Borrower from its funding obligations.
(e) Reserves. The Bank shall have the right to require a portion of
the Bond proceeds to be set aside as reserves for the payment of construction
period interest, insurance premiums, payments or escrows required by
governmental authorities or otherwise, taxes and for other required payments.
The Bank may authorize disbursement of proceeds as needed for such purposes and
all such disbursements shall be treated as if specifically requested by and paid
to the Borrower.
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<PAGE> 68
5. Conditions to Initial Advance. Prior to the initial advance hereunder
and in addition to satisfying any remaining conditions set forth in Section 7.1
of this Agreement, the Borrower shall have fulfilled the following conditions
(each of which the Borrower covenants to fulfill), and if any such condition is
waived as to the initial or any subsequent advance, it shall continue as a
condition to subsequent advances unless waived in writing by the Bank:
(a) evidence satisfactory to the Bank that public water and sewage
facilities of adequate capacity and electrical, gas (if applicable), and
telephone service are available at the Property site and that sewer, water,
electrical, gas (if applicable), and telephone lines to the Property will be in
place when required for scheduled occupancy;
(b) evidence satisfactory to the Bank that all permits necessary for
construction of the Improvements pursuant to the Plans have been obtained from
the appropriate municipal, state and federal authorities, that a valid building
permit for the Improvements has been issued and is in good standing, and that
the Improvements, when constructed, will be in compliance with all environmental
laws, zoning ordinances and building codes then applicable thereto;
(c) a soils report showing the Property to be suitable for the
construction of the Improvements and a letter from the Borrower's Architect
stating that the soils report is satisfactory for purposes of the planned
Improvements;
(d) at the Bank's request, a report by a structural engineer
acceptable to the Bank setting forth the type of construction and/or servicing
required to ensure the stability of the foundations of the Improvements;
(e) detailed Project budget, trade and materials breakdown and
schedule of values showing all projected Direct and Soft Costs, as defined in
Paragraph 10, and all reserves, all of which shall be approved by the Bank;
(f) construction and disbursement schedules;
(g) a complete certified set of Plans as more fully described in
this Agreement, as reviewed and approved by the appropriate governmental
authorities for the issuance of all permits necessary to construct the
Improvements, all of which shall be satisfactory to the Bank;
(h) satisfactory performance, labor and materials payment bonds
covering all work to be performed by the Borrower's contract with the Contractor
in dual-obligee form, naming the Bank as additional insured, if required by the
Bank;
(i) true and correct copies of all contracts to be executed with
Contractors, architects and engineers relating to construction of the
Improvements, including the general contract with the Borrower's Contractor;
(j) consents from the Borrower's Contractor and Architect in form
satisfactory to the Bank;
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<PAGE> 69
(k) evidence of adequate parking owned or controlled by the Borrower
and mortgaged to the Bank;
(l) a UCC search showing no adverse matters except Permitted
Encumbrances;
(m) list of subcontractors, if required by the Bank;
(n) copies of major subcontracts, if required by the Bank;
(o) evidence of zoning appropriate for the intended use of the
Property;
(p) an MAI as-built appraisal satisfactory in form and amount to the
Bank.
(q) evidence of the Borrower's Architect's errors and omissions
coverage in amounts satisfactory to the Bank;
(r) payment of any construction monitoring or other fees;
(s) evidence that the Improvements are not in a flood plain or
special flood hazard area;
(t) such other evidence or documents as may be required by the
Commitment or the Bank or as the Bank's counsel may reasonably deem necessary.
6. Conditions to Advances. All authorizations for advances of Bond
proceeds will be made subject to the following conditions as to each advance
(each of which the Borrower covenants to fulfill), and if any condition is
waived as to an advance, it shall continue as a condition to subsequent
advances:
(a) Compliance with Representations and Warranties, Etc. The
Borrower shall have fully complied with all of its covenants in this Agreement;
there shall be no breach of the Borrower's representations and warranties; each
condition to advances shall have been met or waived in writing by the Bank;
there shall exist no Default under this Agreement; the Borrower's agreements
with the Contractor or Architect shall have been complied with and all of the
terms, provisions and conditions of this Agreement shall have been complied with
by the Borrower; and the Property shall not have suffered any material damage or
loss or become subject to any condemnation proceeding.
(b) Conformity of Improvements to Plans. The Improvements shall have
been constructed in strict compliance with the Plans, and the construction
thereof and materials used therein shall be in strict compliance with the Plans,
and all shall be certified to be so by the Architect.
(c) Notice to Borrower. The Bank shall have been furnished with an
affidavit of the Borrower or Borrower's duly authorized representative, as to
whether or not the Borrower or agent has been served with any written notice, as
required or permitted by Chapter 713,
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<PAGE> 70
Florida Statutes, that a Lien upon the Property may be claimed for any amounts
unpaid for materials furnished or labor performed by any person or party. A copy
of each such notice, if any, shall be attached to such affidavit.
(d) Receipts for Payment of Costs. The Borrower shall have procured
(if required by the Bank) such mechanics' lien waivers, releases, affidavits and
accepted bills as may be required by the Bank, showing payment of all parties
who have furnished materials or performed labor of any kind entering into the
construction or installation of any of the Improvements.
(e) Sufficiency of Remaining Proceeds. The Borrower shall have
furnished satisfactory proof to the Bank that the undisbursed Bond proceeds will
be sufficient to pay the Cost of Improvements.
(f) Zoning. The Improvements shall not be in violation of any law,
regulation, covenant, restriction, or zoning ordinance affecting the Property or
Improvements. The Bank may require written evidence of proper zoning and
regulatory compliance.
(g) Title Insurance. If required by the Bank, the Bank shall have
received an endorsement with respect to the title insurance binder or policy
theretofore delivered, increasing the coverage of said binder or policy to an
amount equal to the total amount advanced, showing the Borrower to be then
vested with marketable title in fee simple absolute free of all Liens and
encumbrances excepting only Permitted Encumbrances and showing that the Mortgage
is a valid first lien on the Property subject only to Permitted Encumbrances.
(h) Permits and Licenses. The Borrower shall have furnished the Bank
a copy of all building and other applicable licenses and permits issued and
applicable to any existing or future Improvements on the Property, and no
violation of any of the provisions thereof shall have occurred.
(i) Architect's Certificate. The Borrower shall have furnished to
the Bank at no cost to the Bank, a certificate of the Architect that the
Improvements have been constructed according to applicable law, regulations and
the Plans and that the advance requested is properly to be made by the Bank
hereunder and under Paragraph 10 hereof; and further stating the opinion of the
Architect as to the total cost required to complete the Improvements. Such
certificate shall contain the information necessary to justify the requested
advance in accordance with Paragraph 10, shall contain such other matters as the
Bank may reasonably require and shall be on standard AIA forms G702 or G703
unless the Bank shall otherwise agree.
(j) Foundation Survey. The Borrower shall have provided to the Bank
a satisfactory foundation survey promptly upon completion of the foundation of
the Improvements.
(k) Conditions in Loan Agreement. The Borrower shall have satisfied
all conditions to disbursement contained in the Loan Agreement.
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<PAGE> 71
(1) Other Conditions. The Borrower shall have provided to the Bank
such other assurances and documentation and shall have satisfied such other
conditions as may be normally required by prudent lenders or as may otherwise be
reasonably required by the Bank
7. Conditions to Final Disbursement. The final disbursement shall be
subject to the following conditions (each of which the Borrower covenants to
fulfill):
(a) Architect Certificate. The Bank shall have received a
certificate of the Architect that the Improvements are complete and have been
constructed according to applicable law and regulations and the Plans;
(b) Survey. The Bank shall have received an as-built survey
satisfactory to the Bank;
(c) Inspection. A final inspection of the Improvements shall have
been completed and shall be satisfactory to the Bank;
(d) Acceptance. The Bank shall have received a written acceptance of
the Improvements by any purchaser or lessee or other person for which any
Improvements have been constructed and by any permanent lender, if required by
the Bank;
(e) Lien Waivers. The Bank shall have received final Lien waivers,
contractor's affidavits, and other documentation required by Florida law
governing mechanic's Liens sufficient to evidence satisfaction of all existing
and inchoate mechanic's and materialmen's Liens;
(f) Other Assurances. The Bank shall have received such other
documentation and assurances and shall be satisfied as to such other conditions
as may be customarily required by prudent lenders, as may be required by the
Loan Agreement or as the Bank may otherwise reasonably require.
8. Representation. Each request for advance shall be deemed a
representation by the Borrower that the conditions to such advance have been
met. The making of any advance authorized by the Bank when the Borrower is not
entitled to such advance, whether by reason of waiver or otherwise, will not
constitute a waiver of the Bank's right to require compliance as to any further
advance.
9. Assignment of Contracts.
(a) The Borrower hereby assigns to the Bank, as additional
collateral, all present and future rights of the Borrower under its contracts
with the Borrower's Contractor, Architect and Engineer, which rights may be
exercised upon the occurrence of a Default hereunder. The Bank shall have the
option after Default, in addition to all other rights and remedies the Bank may
have, to exercise the Bank's rights under this assignment. Nothing herein shall
be construed to require the Bank to exercise any rights under this Section. At
the Bank's request, the Borrower shall provide to the Bank separate assignment
agreements satisfactory to the Bank.
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<PAGE> 72
(b) The Borrower shall cause the Borrower's Contractor and Architect
to execute consents and subordinations, all in form and content satisfactory to
the Bank. The Bank shall not be required to make any disbursements in respect to
any contract until such consents are furnished to the Bank.
10. Loan Advances.
(a) Disbursements Prior to Completion.
(i) The proceeds of the Bonds shall be authorized by the Bank
to be disbursed to the Borrower as construction of the Improvements progresses,
upon written request from the Borrower given at least five (5) days prior to the
requested advance. At the time each advance is requested, the Borrower will
furnish to the Bank the Borrower's Certificate hereinafter described. Each
request for Construction Loan advances shall be accompanied by receipted
invoices (or other evidence of payment which the Bank may consider satisfactory)
for all of Incurred Costs which have been paid prior to the request for advance,
and shall be accompanied by invoices not receipted covering Incurred Costs which
are due and payable, but which have not been paid. Each request for Construction
Loan advance shall also be accompanied by a certification by the Borrower and
the Architect stating that the work has been accomplished to entitle the
Borrower to the Construction Loan disbursement requested and by a certification
by the Borrower and the Borrower's Contractor that all bills for labor,
materials and services then incurred and payable in connection with the
Improvements have been paid or will be paid from the Construction Loan advance
being requested. The Bank shall be entitled to require further reasonable
evidence of the progress of the work and that the Borrower has paid or incurred
costs forming the predicate for the requested advance or for advances previously
made, but the Bank shall be fully protected in authorizing advances based solely
upon the Borrower's requests therefor.
(ii) Not more frequently than monthly, the Bank will authorize
disbursement to the Borrower a sum which, when added to all previous advances
(and subject to any required reserves), will equal the Incurred Costs which are
due and payable by the Borrower and Incurred Costs theretofore actually expended
by the Borrower in accordance with the Borrower's contract with the Contractor;
provided that until completion of all Improvements, the Bank shall not be
required to authorize disbursement of more than ninety percent (90%) of the
lesser of: (1) the estimated total cost to the Borrower of labor, material and
other direct costs of construction of the Improvements ("DIRECT COSTS")
multiplied by the percentage of completion of in-place construction of the
Improvements then attained, as determined by the Bank or its inspecting
architect, or (2) the total Construction Loan allocated to Direct Costs
multiplied by the percentage of completion of in-place construction of the
Improvements, as determined by the Bank or its inspecting architect, less in
each case, amounts theretofore advanced. In addition, the Bank will authorize
advances, as incurred and payable, of one hundred percent (100%) of costs to the
Borrower other than Direct Costs ("SOFT COSTS") specifically approved by the
Bank relating to construction or financing of the Improvements. The
determination by the Bank of the amount of Incurred Costs which properly form a
predicate for any advance and allocation between Direct and Soft Costs shall be
final and conclusive. Notwithstanding anything to the contrary in this exhibit
or in the Agreement, the Bank shall not be required to disburse any amount which
would reduce the undisbursed portion of the Bond proceeds, plus sums deposited
by the Borrower with
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<PAGE> 73
the Trustee, below the cost estimated by the Bank as required to complete the
Improvements in accordance with the requirements of the Plans, taking into
account any required reserves.
(b) Final Disbursement. The Bank will authorize disbursement to the
Borrower of all undisbursed Bond proceeds and any deposit held by the Bank which
was made by the Borrower upon performance of the Borrower's obligations and
satisfaction of all conditions under the Agreement and the Loan Agreement and
completion of all of the Improvements contemplated by the Loan Agreement
according to the Plans and all applicable laws, regulations, building codes,
covenants and restrictions.
(c) Borrower's Certificate. The Borrower's Certificate to be
furnished with each request for advance shall certify as to the progress of
construction during the period from the date of the last Certificate and shall
show the cumulative total of the cost of labor and materials incorporated in the
Improvements and all of Incurred Costs; that all work and materials are in
accordance with the Plans; that all certifications and approvals which may be
necessary or customary at such stage of construction have been received; that
all work has been done according to all applicable laws, regulations, building
codes, covenants and restrictions and in a good and workmanlike manner; that the
unpaid portion of the cost of the Improvements, whether complete or incomplete,
will not exceed the undisbursed portion of the Bond proceeds; that all
representations of the Borrower herein are true and correct; that there exists
no Default under this Agreement or other Bond Documents; and shall show such
other facts as the Bank may reasonably require.
(d) Other Requirements. The terms and conditions of this exhibit
shall be in addition to any terms and conditions contained in the body of the
Agreement, in the Loan Agreement or in the Commitment.
-69-
<PAGE> 74
EXHIBIT 5.17
<TABLE>
<CAPTION>
PAYMENT # AMORTIZATION SCHEDULE FOR SERIES AMOUNT
PALM BEACH BEDDING COMPANY
BONDS OPTIONALLY CALLED FOR REDEMPTION
ON FIRST BUSINESS DAY OF:
<S> <C> <C>
1 Jul-96 $95,000
2 Oct-96 $95,000
3 Jan-97 $95,000
4 Apr-97 $95,000
5 Jul-97 $95,000
6 Oct-97 $95,000
7 Jan-98 $95,000
8 Apr-98 $95,000
9 Jul-98 $95,000
10 Oct-98 $95,000
11 Jan-99 $95,000
12 Apr-99 $95,000
13 Jul-99 $95,000
14 Oct-99 $95,000
15 Jan-2000 $95,000
16 Apr-2000 $95,000
17 Jul-2000 $95,000
18 Oct-2000 $95,000
19 Jan-2001 $95,000
20 Apr-2001 $95,000
21 Jul-2001 $95,000
22 Oct-2001 $95,000
23 Jan-2002 $95,000
24 Apr-2002 $95,000
25 Jul-2002 $95,000
26 Oct-2002 $95,000
27 Jan-2003 $95,000
28 Apr-2003 $95,000
29 Jul-2003 $95,000
30 Oct-2003 $95,000
31 Jan-2004 $95,000
32 Apr-2004 $95,000
33 Jul-2004 $95,000
34 Oct-2004 $95,000
35 Jan-2005 $95,000
36 Apr-2005 $95,000
37 Jul-2005 $95,000
38 Oct-2005 $95,000
39 Jan-2006 $95,000
40 Apr-2006 $95,000
</TABLE>
-70-
<PAGE> 75
<TABLE>
<S> <C> <C>
41 Jul-2006 $95,000
42 Oct-2006 $95,000
43 Jan-2007 $95,000
44 Apr-2007 $95,000
45 Jul-2007 $95,000
46 Oct-2007 $95,000
47 Jan-2008 $95,000
48 Apr-2008 $95,000
49 Jul-2008 $95,000
50 Oct-2008 $95,000
51 Jan-2009 $95,000
52 Apr-2009 $95,000
53 Jul-2009 $95,000
54 Oct-2009 $95,000
55 Jan-2010 $95,000
56 Apr-2010 $95,000
57 Jul-2010 $95,000
58 Oct-2010 $95,000
59 Jan-2011 $95,000
60 Apr-2011 $95,000
61 Jul-2011 $95,000
62 Oct-2011 $95,000
63 Jan-2012 $95,000
64 Apr-2012 $95,000
65 Jul-2012 $95,000
66 Oct-2012 $95,000
67 Jan-2013 $95,000
68 Apr-2013 $95,000
69 Jul-2013 $95,000
70 Oct-2013 $95,000
71 Jan-2014 $100,000
72 Apr-2014 $100,000
73 Jul-2014 $100,000
74 Oct-2014 $100,000
75 Jan-2015 $100,000
76 Apr-2015 $100,000
77 Jul-2015 $100,000
78 Oct-2015 $100,000
79 Jan-2016 $100,000
80 Apr-2016 $100,000
--------
7,650,000
</TABLE>
-71-
<PAGE> 1
EXHIBIT 10.28
ASSIGNMENT
THIS AGREEMENT made as of and effective from the 18th day of May,
1999.
A M O N G:
STAR BEDDING PRODUCTS (1986) LTD.
(the "Assignor")
OF THE FIRST PART,
- and -
STAR BEDDING PRODUCTS LIMITED
(the "Assignee")
OF THE SECOND PART;
- and -
N.H.D. DEVELOPMENTS LIMITED
(the "Landlord")
OF THE THIRD PART:
W H E R E A S:
A. By a lease dated the 15th day of August, 1995 (the "Lease") the Landlord
leased to the Assignor, as tenant, certain premises (the "Premises"), located in
the building known as 53 Courtland Avenue, Concord, Ontario, in the Province of
Ontario, for and during a term (the "Term") of five (5) years, commencing on the
1st day of January, 1996 and expiring on the last day of December, 2000.
B. The Lease contains a covenant on the part of the tenant not to assign the
Lease or sublet the Premises without the Landlord's consent;
C. The Assignor has agreed to assign the Lease to the Assignee subject to
obtaining the Landlord's consent to such assignment;
D. The Assignor has applied to the Landlord for the Landlord's consent to assign
the Lease to the Assignee, subject to and upon the terms and conditions herein
set out;
E. The Landlord has agreed to grant its consent to the within assignment as of
the 18th day of May, 1999 (the "Effective Date"), subject to the terms and
conditions herein set out.
1. CONSIDERATION
The consideration for this Agreement is the mutual covenants and
agreements between the parties to this Agreement and the sum of Ten ($10.00)
Dollars that has been paid by each of the parties to each of the others, the
receipt and sufficiency of which is hereby acknowledged.
-1-
<PAGE> 2
2. ASSIGNMENT
The Assignor hereby transfers, sets over and assigns unto the
Assignee, as of and from the Effective Date, all of the Assignor's right, title
and interest both at law and in equity in and to the Lease and the Premises, and
all privileges and appurtenances thereto belonging, together with the unexpired
residue of the Term of the Lease and all benefits and advantages to be derived
therefrom (including, without limitation, the rights of the Assignor to any
deposit given to the Landlord) to have and to hold the same, subject to the
obligation of the Assignee to make payment of the Rent as may become due and
payable under the terms of the Lease, and to observe and perform the covenants
and conditions of the tenant contained in the Lease, in each case from and after
the Effective Date.
For the purpose of this Agreement, "Rent" includes minimum rent,
basic rent, net rent, additional rent and any other amount payable by the tenant
pursuant to the Lease.
3. ASSIGNOR'S COVENANTS
The Assignor hereby makes the following representations and
covenants in favour or the Assignee:
(a) despite any act of the Assignor, the Lease is a good, valid and
subsisting Lease and the Rent thereby reserved has been duly paid up
to the Effective Date (subject to any adjustments to be made
pursuant to the terms of the Lease) and the covenants and conditions
therein contained have been duly observed and performed by the
Assignor up to the Effective Date;
(b) the Assignor has good right, full power and absolute authority to
assign the Lease of the Premises in the manner aforesaid, according
to the true intent and meaning of this Agreement;
(c) subject to the payment of Rent and to the observance and performance
of the terms, covenants and conditions contained in the Lease on the
part of the tenant therein to be observed and performed, the
Assignee may enter into and upon and hold and enjoy the Premises for
the residue of the Term granted by the Lease for its own use and
benefit without any interruption by the Assignor or by any person
whomsoever claiming through or under the Assignor;
(d) the Assignor will from time to time hereafter, at the request and
cost of the Assignee, promptly execute such further assurances as
the Assignee reasonably requires;
(e) the amount of the deposit being held by the Landlord is $17,893.33;
(f) the Lease is in full force and effect, unamended;
(g) the Assignor will indemnify and save harmless the Assignee from all
actions, suits, costs, losses, charges, damages, liabilities and
expenses arising out of the Assignor's tenancy under the Lease up to
the Effective Date.
-2-
<PAGE> 3
(h) the Assignor shall be responsible for rectification of the items
disclosed on the preliminary check-out inspection report attached as
Schedule "A" to this Assignment, if any; and
(i) the Landlord's consent herein, and the fact that an inspection was
carried out and certain deficiencies enumerated therein, shall not
in any way limit the Assignor's obligation to rectify any item
identified in the inspection report.
4. ASSIGNEE'S COVENANTS
(a) The Assignee covenants with the Assignor that it will at all times
during the balance of the Term of the Lease from and including the
Effective Date pay the Rent and observe and perform the terms,
covenants and conditions contained in the Lease respectively
reserved and contained on the part of the tenant therein to be
observed and performed, in each case occurring on or after the
Effective Date, including, without limitation, the provisions of the
Lease relating to the permitted use of the Premises, and indemnify
and save harmless the Assignor from all actions, suits, costs,
losses, charges, damages and expenses for or in respect thereof from
and including the Effective Date.
(b) The Assignee hereby covenants and agrees with the Landlord that it
will at all times during the balance of the Term of the Lease from
and including the Effective Date pay the Rent reserved by the Lease
and all other payments covenanted to be paid by the tenant therein
in each case occurring on or after the Effective Date, and at the
times and in the manner provided for in the Lease, and will observe
and perform all of the terms, covenants and conditions contained in
the Lease on the part of the tenant therein to be observed and
performed as and when the same are required to be observed and
performed as provided by the Lease, including, without limitation,
the provisions of the Lease relating to the permitted use of the
Premises, from and including the Effective Date.
5. ASSIGNEE'S ACKNOWLEDGMENTS
The Assignee acknowledges that it has received a copy of the
executed Lease and is Familiar with the terms, covenants and conditions
contained therein;
6. LANDLORD'S COVENANTS
The Landlord hereby covenants that subject to the payment of Rent
and to the observance and performance of the terms, covenants and conditions
contained in the Lease on the part of the tenant therein to be observed and
performed, the Assignee may enter into and upon and hold and enjoy the Premises
for the residue of the Term granted by the Lease for its own use and benefit
without any interruption by the Landlord or by any person whomsoever claiming
through or under the Landlord.
The Landlord hereby represents, warrants and covenants to the
Assignee that:
-3-
<PAGE> 4
(a) the Lease is in good standing and in full force and effect in
accordance with its terms and has not been modified or amended;
(b) the Landlord is holding to the credit of the Assignor the sum of
$17,893.33 as a security deposit and/or last month's rent;
(c) to the best of the Landlord's information and belief without having
made any inquiry, the Assignor has observed and performed all
covenants and provisions on its part contained in the Lease and is
not in default thereunder, nor is the Landlord aware of any default
by the Landlord under the Lease or any circumstances which could
give rise to any default by the Landlord or the Assignor under the
Lease;
(d) the Landlord does not currently claim any set-off, defence or
counter-claim against the performance by it of any of its
obligations under the Lease;
(e) the Premises are comprised of approximately 53,680 square feet of
building space;
(f) all rents and other payments required to be made pursuant to the
Lease have been paid up to the first day of May, 1999;
(g) notwithstanding any provision in the Lease to the contrary or the
assignment of the Lease by the Assignor to the Assignee, the option
to extend the term of the Lease contained in section 9 of Schedule D
of the Lease shall continue to be in full force and effect, and the
Assignee shall be entitled to exercise such option in accordance
with the provisions set out in said section 9 of Schedule D of the
Lease;
(h) there is no agreement between the Assignor and the Landlord other
than as is contained in the Lease pertaining to the obligations of
the Landlord and the rights of the Assignor relating to the use and
occupation of the Premises by the Assignor;
(i) the Landlord knows of no litigation or governmental or municipal
proceedings commenced, pending or threatened against the Landlord
with respect to the Premises or which if decided against it, would
adversely impair its ability to comply with the terms of the Lease;
and
(j) the Landlord shall, upon request by the Assignee made after the
Effective Date, make reasonable efforts to obtain from The
Great-West Life Assurance Company (the "Mortgagee") a
non-disturbance agreement on the Mortgagee's customary terms, such
agreement to be procured at the sole cost and expense of the
Assignee.
The Landlord acknowledges that the Assignee is relying an each of
the representations, warranties and covenants set out in this Section.
-4-
<PAGE> 5
7. LANDLORD'S CONSENT
The Landlord consents to this assignment of the Lease from the
Assignor to the Assignee as of and from the Effective Date subject to the
following terms:
(a) the consent does not in any way derogate from the rights of the
Landlord under the Lease nor operate to release the Assignor from
its obligation to pay all of the Rent from time to time becoming due
under the Lease and from the observance and performance of all of
the terms, covenants and conditions contained in the Lease on the
part of the tenant therein to be observed and performed and
notwithstanding the within assignment (or any disaffirmance or
disclaimer of the within assignment), the Assignor shall continue to
remain liable for all of such covenants during the balance of the
Term of the Lease;
(b) the consent does not constitute a waiver of the necessity for
consent to any further assignment of the Lease (as same is required
by the Lease) which must be completed in accordance with the terms
of the Lease. If the Assignee proposes to effect a further
assignment of the Lease, the terms of the Lease with respect to an
assignment shall apply to any such further assignment;
(c) the consent of the Landlord evidenced herein shall not be effective
until the Landlord has received two fully executed original copies
of this Agreement together with payment of its assignment fee
provided for in the Lease together with all taxes exigible thereon
as well as the insurance certificates and\or policies referred to in
sub-paragraph (e) of this provision. The within consent shall be
terminable by the Landlord unless the said items are received by the
Landlord within three (3) business days following the Effective
Date;
(d) the Assignor and the Assignee shall, at their expense, promptly
execute such further assurances with respect to the Promises as the
Landlord reasonably requires from time to time;
(e) the Assignee shall not be entitled to enter into and take possession
of the Premises until it delivers to the Landlord certificates of
insurance, or, if required by the Landlord's mortgagee, certified
copies of each such insurance policy which the tenant is required to
take out pursuant to the Lease confirming that all required coverage
is in effect on the exact terms required by the Lease and all
required permits, licenses, approvals from all governmental
authorities having jurisdiction for the carrying on by the Assignee
of its permitted business in the Premises.
8. In this Agreement, all words and personal pronouns relating thereto shall be
read and construed as the number and gender of the party or parties referred to
in each case require and the verb agreeing therewith shall be construed as
agreeing with the required word or pronoun. Where the context so requires, the
singular of any word shall import the plural and the plural shall import the
singular.
-5-
<PAGE> 6
9. This Agreement shall enure to the benefit of, and be binding upon, the heirs,
executors, administrators and assigns, or successors and assigns, as the case
may be, of the parties.
10. Where the Assignor or the Assignee constitute more than one party, all
covenants, liabilities and obligations of the parties constituting the Assignor
or the Assignee are made on a joint and several basis.
11. This Agreement be executed in counterparts, and such counterparts shall
together be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF the parties hereto have duly executed this
Agreement as of the day and year first above written.
STAR BEDDING PRODUCTS (1986) LTD.
Per: /s/ Cecil Brauer
-----------------------------------------
Name: Cecil Brauer
Title: President
I have authority to bind the Corporation.
STAR BEDDING PRODUCTS LIMITED
Per: /s/ Charles Schweitzer
-----------------------------------------
Name: Charles Schweitzer
Title: Chairman of the Board, President
and CEO
I have authority to bind the Partnership.
N.H.D. DEVELOPMENTS LIMITED
Per: /s/ Edward Cattana
-----------------------------------------
Name: Edward Cattana
Title:A.S.O.
I have authority to bind the Corporation.
Schedule "A" - Inspection Report
-6-
<PAGE> 1
EXHIBIT 10.30
THIS JUNIOR SUBORDINATED NOTE WAS ORIGINALLY ISSUED ON JUNE __, 1999,
AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT UPON DELIVERY TO THE ISSUER OF AN OPINION
OF COUNSEL THAT SUCH SALE, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT.
PURSUANT TO SECTION 4 OF THIS JUNIOR SUBORDINATED NOTE, THIS INSTRUMENT
IS SUBORDINATED TO THE SENIOR INDEBTEDNESS (AS DEFINED HEREIN) AND
NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY CONTAINED IN THIS
INSTRUMENT, NO PAYMENT OF ANY NATURE ON ACCOUNT OF THE OBLIGATIONS
HEREUNDER, WHETHER OF PRINCIPAL OR INTEREST, SHALL BE MADE, PAID,
RECEIVED OR ACCEPTED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH
SECTION 4.
JUNIOR SUBORDINATED NOTE
[__________], 1999$amount #1
SLEEP INVESTOR L.L.C., a Delaware limited liability company
(the "Company"), hereby promises upon the terms and subject to the provisions
hereof to pay to the order of full name (the "Seller") (the Seller and each of
its permitted assigns is a "Holder"), the principal amount of written amount
($amount #1). This Junior Subordinated Note is being issued pursuant to Section
2.5 of the Recapitalization, Redemption and Purchase Agreement by and among the
Seller, the Company, and certain other parties thereto, dated as of October 31,
1996, as the same may be amended (the "Purchase Agreement") and reflects
amendments made to a note originally issued on November 14, 1996.
1. Definitions. As used herein, the following terms shall have
the following meanings:
"Bankruptcy Event" shall occur:
(i) if the Company shall (A) be generally not paying its debts
as they become due, (B) file, or consent by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, (C) make an assignment for the
benefit of its creditors, (D) consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, (E) be adjudicated
insolvent or be liquidated under any bankruptcy or insolvency law, or (F) take
corporate action for the purpose of any of the foregoing; or
<PAGE> 2
(ii) if (A) a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the Company, a
custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, or (B) an order
for relief shall be entered in any case or proceeding for liquidation or
reorganization or otherwise to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the dissolution, winding-up or liquidation
of the Company, and such order, petition or proceeding shall not be dismissed,
stayed or discharged within 60 days.
"Change of Control" means (i) a sale of all or substantially
all of the consolidated assets of the Company or its Subsidiaries, in a single
transaction or a series of related transactions to an Unaffiliated Third Party
or (ii) (A) prior to an initial Public Offering, the failure of CVC to own
(directly or indirectly through the Company) at least 40% of the Common
Interests of Holdings and (B) following the initial Public Offering, the failure
of CVC to own (directly or indirectly through the Company) at least 25% of the
Common Interests of Holdings; provided, that (1) if the initial Public Offering
includes a secondary Public Offering, then following the initial Public Offering
any secondary Public Offering shall be a Change of Control or (2) if the initial
Public Offering does not include a secondary Public Offering, then following the
initial Public Offering any secondary Public Offering which (individually or
when aggregated with any prior Public Offerings) results in net proceeds of more
than $5 million to securityholders of the Company shall be deemed to be a Change
of Control. Notwithstanding the foregoing, a merger of the Company with any of
its Affiliates shall not in and of itself result in a Change of Control.
"Consolidated Fixed Charge Coverage Ratio" has the meaning set
forth in the Indenture.
"Common Interests" has the meaning set forth in the Operating
Agreement.
"Credit Agreement" means the Credit Agreement, dated as of May
18, 1999, by and between First Union, as lender and administrative agent on
behalf of the lenders, Sleepmaster, as borrower, Palm Beach Bedding Company,
Lower Road Associates, LLC and Herr Manufacturing Company, as guarantors, and
the other lenders named therein.
"CVC" means Citicorp Venture Capital, Ltd., a New York
corporation, and its Affiliates and employees.
"First Union" means First Union National Bank, a national
banking association.
"Fiscal Year" means, for each of the Company, Holdings and
Sleepmaster, a twelve month accounting period ending on the last day of December
in each year.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time, applied on a basis consistent with
prior periods.
<PAGE> 3
"Holdings" means Sleepmaster Holdings L.L.C., a New Jersey
limited liability company.
"Indebtedness" shall mean all indebtedness of the Company or
any of its Subsidiaries including, without limitation (i) all obligations for
borrowed money or evidenced by bonds, debentures, notes, letters of credit or
other similar instruments, (ii) obligations as lessee under capital leases,
(iii) obligations to pay the deferred purchase price of property or services,
except accounts payable arising in the ordinary course of business, (iv) all
debt of other Persons guaranteed or otherwise supported by the Company or any of
its Subsidiaries, and (v) any interest, principal, prepayment penalty, fees or
expenses in respect of items listed in clauses (i) through (iv).
"Junior Subordinated Notes" means, collectively, (i) this
Junior Subordinated Note, (ii) any PIK Interest Notes, and (iii) all other
Junior Subordinated Notes issued by the Company on the date hereof, and any
notes which may be issued in exchange, substitution or replacement of such PIK
Interest Notes or Junior Subordinated Notes, in whole or in part.
"Maturity Date" has the meaning set forth in Section 3(a)
hereof.
"Operating Agreement" means the Limited Liability Company
Operating Agreement of the Company dated as of November 14, 1996, as amended.
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PIK Interest Notes" means (i) any PIK Interest Note of the
Company issued pursuant to Section 2 hereof (substantially in the form attached
as Exhibit I), (ii) any PIK Interest Notes of the Company issued in payment of
any interest accrued on any other PIK Interest Note, (iii) all other notes
issued by the Company as payment of interest on the Junior Subordinated Notes or
(iv) any notes which may be issued in exchange or substitution for the notes
described in clauses (i), (ii) or (iii) above, in whole or in part.
"Public Offering" means any sale of equity securities of
Holdings or any successor entity in an underwritten public offering.
"Required Holders" means, at any time, the holders of
two-thirds of the aggregate principal amount of the Junior Subordinated Notes
then outstanding.
"Senior Debt Agreement" means, collectively, the Credit
Agreement, as the same may be amended, restated, extended, refunded, refinanced,
replaced, supplemented, restructured or otherwise modified from time to time (in
whole or in part and without limitation as to terms, conditions or covenants and
without regard to the principal amount thereof), including all related notes,
collateral documents, guarantees, instruments and agreements entered into in
connection therewith, as the same may be amended, restated, extended, replaced,
supplemented, restructured
<PAGE> 4
or otherwise modified from time to time, and any successive refinancings,
restructurings, renewals or refundings thereof in whole or in part.
"Senior Debt Documents" means, collectively, the Senior Debt
Agreement and the Senior Subordinated Debt Agreement.
"Senior Indebtedness" means (i) all Liabilities (as defined in
the Senior Debt Agreement) and all other obligations of the Company or any of
its Subsidiaries, pursuant to the Senior Debt Agreement, (ii) all obligations of
Holdings or any of its Subsidiaries under the Senior Subordinated Debt Agreement
(whether existing on the date hereof or hereafter incurred), (iii) all other
indebtedness for borrowed money and guarantees of such indebtedness of the
Company or any of its Subsidiaries which is not expressly pari passu with, or
subordinated to, the Junior Subordinated Notes, and all permissible renewals,
extensions or refundings thereof, and Senior Indebtedness shall include, in the
cases of clauses (i) or (ii) above, interest accruing after the filing of a
petition initiating any proceeding under the Bankruptcy Code of 1978, as
amended, (whether or not allowed as a claim in such proceeding). Senior
Indebtedness outstanding under the Senior Debt Documents shall continue to
constitute Senior Indebtedness, notwithstanding that such Senior Indebtedness or
any claim in respect thereof may be disallowed, avoided or subordinated pursuant
to any insolvency law, Title 11 of the United States Code or any similar federal
or state law for the relief of debtors or other applicable insolvency law (each,
a "Bankruptcy Law") or equitable principles as a claim for unmatured interest or
as a fraudulent transfer or conveyance.
"Senior Lenders" means any holders of Senior Indebtedness.
"Senior Subordinated Debt Agreement" means the Indenture dated
as of May 18, 1999 by and among the United States Trust Company of New York, as
trustee, Sleepmaster, as issuer, Sleepmaster Finance Corporation, as a
co-obligor, and the guarantors listed in the Indenture, as the same may be
amended, restated, extended, refunded, refinanced, replaced, supplemented,
restructured or otherwise modified from time to time (in whole or in part and
without limitation as to terms, conditions or covenants and without regard to
the principal amount thereof), including all related notes, collateral
documents, guarantees, instruments and agreements entered into in connection
therewith, as the same may be amended, restated, extended, replaced,
supplemented, restructured or otherwise modified from time to time, and any
successive refinancings, restructurings, renewals or refundings thereof in whole
or in part.
"Sleepmaster" means Sleepmaster L.L.C., a New Jersey limited
liability company.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association, limited liability company or other
business entity of which (i) if a corporation or other similar business entity,
a majority of the total voting power of securities entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
advisors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that
<PAGE> 5
Person or one or more of the other Subsidiaries of that Person or a combination
thereof, or (ii) if a partnership, association or other similar business entity,
a majority of the partnership or other similar ownership interests thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest in a
partnership, association, or other business entity if such Person or Persons
shall be allocated a majority of partnership, association or other business
entity gains or losses or shall be or control the managing director or general
partner of such partnership, association or other business entity.
"Unaffiliated Third Party" means any Person who, immediately
prior to the contemplated transaction, (i) does not own in excess of 5% of the
Common Interests of Holdings or the Company on a fully-diluted basis (a "5%
Owner"), (ii) is not controlling, controlled by or under common control with any
such 5% Owner and (iii) is not the spouse or descendent (by birth or adoption)
of any such 5% Owner or a trust for the benefit of such 5% Owner and/or such
other Persons.
2. Interest.
(a) Interest Rate. Interest shall accrue on the unpaid principal amount
of this Junior Subordinated Note from the date hereof until this Junior
Subordinated Note is paid in full, at a rate of 12% per annum (the "Interest
Rate").
(b) Interest Payment Date. Prior to the Maturity Date, the Company
shall pay interest at the Interest Rate semi-annually in arrears on May 18 and
November 18 of each year (each an "Interest Payment Date") in accordance with
Section 2(c).
(c) Interest Payment.
(i) On each Interest Payment Date or, if such day is not
a business day, the next succeeding business day, for so long as no default
exists or would by reason of such cash payment exist under the documents
governing any Senior Indebtedness, interest on this Junior Subordinated Note
shall be paid in the form of cash; provided that, if on such Interest Payment
Date the Consolidated Fixed Charge Coverage Ratio is less than 2:1 then:
(x) so long as Sleepmaster is permitted under the
documents governing any Senior Indebtedness to make
distributions to Holdings with respect to the cash
interest payments due on the Junior Subordinated
Notes, a portion of such interest shall be paid in
cash in an amount equal to the product of (i) the
amount of interest accruing on this Junior
Subordinated Note since the last Interest Payment
Date and (ii) the sum of (A) the then highest
marginal federal individual income tax rate and (B)
the then highest marginal state income tax rate
applicable to an individual resident in New York
State; and
<PAGE> 6
(y) the balance of the interest shall be paid by issuing
one or more PIK Interest Notes in aggregate principal
amount equal to the amount of remaining interest to
be so paid after the cash payment pursuant to (x)
above.
(ii) Notwithstanding the foregoing, after an initial
Public Offering if and to the extent expressly permitted in the documents
governing any Senior Indebtedness, the Company shall make cash interest payments
for the entire amount of the accrued and unpaid interest.
(iii) For the avoidance of doubt, if and to the extent
the Company is unable to make cash payments of interest on any Interest Payment
Date pursuant to clauses (i) and (ii) above, the Company shall pay such portion
of the accrued and unpaid interest by issuing PIK Interest Notes, and the
failure to make cash payments shall not constitute a default or an Event of
Default hereunder.
3. Payment of Principal.
(a) Scheduled Payment. The Company shall pay to the Holder the entire
principal amount of this Junior Subordinated Note which is then unpaid, plus all
accrued and unpaid interest due and payable under Section 2(a) of this Junior
Subordinated Note, on November 14, 2007 (the "Maturity Date").
(b) Optional Prepayments. Subject to the provisions of Section 4, the
Company may, at any time and from time to time, without premium or penalty,
prepay all or a portion of the unpaid principal amount of the Junior
Subordinated Notes, together with accrued and unpaid interest (calculated in
accordance with Section 2(a)) on such portion of the principal amount which it
is prepaying; provided, that no such prepayment shall be made if such prepayment
is then prohibited by the terms of the Senior Indebtedness. A prepayment of less
than all of the unpaid principal amount of this Junior Subordinated Note shall
not relieve the Company of its obligation to make the scheduled payment on this
Junior Subordinated Note on the Maturity Date.
(c) Mandatory Prepayments. Subject to the provisions of Section 4
hereof, within 15 days after the consummation of a Change of Control, the
Company shall prepay the entire outstanding principal amount of the Junior
Subordinated Notes, plus all accrued and unpaid interest (calculated in
accordance with Section 2(a)), without premium or penalty.
(d) Application of Prepayments. All prepayments (whether voluntary or
mandatory) shall be applied to payment of interest before application to
principal. A prepayment of less than all of the unpaid principal amount of any
Junior Subordinated Note shall not relieve the Company of its obligation to make
the scheduled payment on such Junior Subordinated Note on the Maturity Date. A
prepayment of less than all of the aggregate unpaid principal amount of the
Junior Subordinated Notes shall be made pro rata among all holders of Junior
Subordinated
<PAGE> 7
Notes based on the outstanding principal amount of all Junior Subordinated Notes
held by each such holder.
4. Subordination.
(a) Extent of Subordination. Subject to Section 4(b) below,
the indebtedness and all other obligations evidenced by the Junior Subordinated
Notes are subordinate and junior in right of payment to the prior payment in
full in cash of all Senior Indebtedness, and the subordination is for the
benefit of the holder(s) of the Senior Indebtedness and each such holder may
enforce such subordination. Without limiting the foregoing:
(i) during the continuance of any default on or in
respect of Senior Indebtedness, no direct or indirect payment or distribution
(including any payment or distribution which may be payable or deliverable by
reason of the payment of any other indebtedness being subordinated to the Junior
Subordinated Notes) shall be made by or on behalf of the Company for or on
account of any principal of or interest on any other obligation with respect to
or on account of any claim (a "Claim") with respect thereto or the purchase
thereof, and no holder of any Junior Subordinated Notes shall receive from the
Company, directly or indirectly, any payment or distribution, on account of any
obligations with respect to the Junior Subordinated Notes or on account of any
Claim, except that holder(s) of the Junior Subordinated Notes may receive other
indebtedness which is subordinated to at least the same extent as the Junior
Subordinated Notes to (A) Senior Indebtedness or (B) any securities issued in
exchange for Senior Indebtedness; provided, that (x) the final maturity date of
such securities shall be not earlier than the final maturity date of the last to
mature of the Senior Indebtedness (including any securities issued in exchange
therefor) at the time outstanding and the scheduled amortization thereof shall
be not more favorable (as to amount or time of payment) to the holder thereof
than the scheduled amortization of the principal amount of the Junior
Subordinated Notes, (y) such securities shall contain no affirmative or negative
covenants or any greater defenses than contained herein and shall not have the
benefit of a sinking fund, and (z) such securities shall bear dividends or
interest at a rate per annum less than or equal to 12% per annum, computed on
the basis of the actual number of days elapsed over a 360-day year and payable
no more frequently than annually;
(ii) upon the maturity of all or any part of any Senior
Indebtedness by lapse of time, acceleration (unless waived in writing) or
otherwise, all amounts due or to become due in respect of all Senior
Indebtedness shall first be paid in full before any direct or indirect payment
or distribution (including, without limitation, any payment or distribution
which may be payable or deliverable by reason of the payment of any other
indebtedness of the Company being subordinated to the payment of the Junior
Subordinated Notes) to which holder(s) of Junior Subordinated Notes would be
entitled but for this Section 4, may be made by or on behalf of the Company on
account of any obligations with respect to the Junior Subordinated Notes or on
account of any Claim, except that holder(s) of Junior Subordinated Notes may
receive other indebtedness which is subordinated to at least the same extent as
the Junior Subordinated Notes
<PAGE> 8
to (A) Senior Indebtedness or (B) any securities issued in exchange for Senior
Indebtedness; provided, that (x) the final maturity day of such securities shall
be not earlier than the final maturity date of the last to mature of the Senior
Indebtedness (including any securities issued in exchange therefor) at the time
outstanding and the scheduled amortization thereof shall be not more favorable
(as to amount or time of payment) to the holder thereof than the scheduled
amortization of the principal amount of the Junior Subordinated Notes, (y) such
securities shall contain no affirmative or negative covenants or any greater
defenses than contained herein and shall not have the benefit of a sinking fund,
and (z) such securities shall bear dividends or interest at a rate per annum
less than or equal to 12% per annum, computed on the basis of the actual number
of days elapsed over a 360-day year and payable no more frequently than
annually;
(iii) upon any distribution to creditors of the Company in
a total or partial liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property or in an assignment for the benefit of creditors, or an
arrangement, adjustment, composition or relief of the Company or its debts or
any marshaling of the assets and liabilities of the Company:
(A) holder(s) of Senior Indebtedness shall be
entitled to receive payment in full of all amounts due or to become due in
respect of the Senior Indebtedness before holder(s) of Junior Subordinated Notes
shall be entitled to receive any payment or distribution on account of any
obligations with respect to the Junior Subordinated Notes or on account of any
Claim; and
(B) until all amounts due or to become due in
respect of Senior Indebtedness (as provided in subsection (A) above) have been
paid in full, any payment or distribution, including, without limitation, any
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being subordinated to the
payment of the Junior Subordinated Notes, to which holder(s) of the Junior
Subordinated Notes would be entitled but for this Section 4, shall be made to
holder(s) of Senior Indebtedness, as their respective interests may appear, for
application (in the case of cash) to, or as collateral (in the case of non-cash
property or securities) for the payment or prepayment of, the Senior
Indebtedness to the extent necessary to pay all such Senior Indebtedness in full
after giving effect to any concurrent payment or distribution to or for the
holder(s) of such Senior Indebtedness, except that pursuant to a plan of
reorganization under applicable Bankruptcy Law approved by the Senior Lenders
(if any Senior Indebtedness is outstanding), holder(s) of Junior Subordinated
Notes may receive securities that are subordinated to at least the same extent
as the Junior Subordinated Notes to (A) Senior Indebtedness and (B) any
securities issued in exchange for Senior Indebtedness; provided, that (x) the
final maturity date of such securities shall be not earlier than the final
maturity date of the last to mature of the Senior Indebtedness (including any
securities issued in exchange therefor) at the time outstanding and the
scheduled amortization thereof shall be not more favorable (as to amount or time
of payment) to the holder thereof than the scheduled amortization of the
principal amount of the Junior Subordinated Notes, (y) such securities shall
contain no affirmative or negative covenants or any greater defenses than
contained herein and shall not have the benefit of a sinking fund, and (z) such
securities shall bear dividends or interest at a rate per annum less than or
equal to 12% per annum, computed on
<PAGE> 9
the basis of the actual number of days elapsed over a 360-day year and payable
no more frequently than annually;
(iv) if a distribution is made to any holder of Junior
Subordinated Notes which, because of this Section 4, should not have been made
to it, such holder shall segregate such distribution from its other funds and
property and hold in it trust for the benefit of, and, upon written request, pay
it over (in the same form as received, with any necessary endorsement) to, the
holder(s) of Senior Indebtedness as their interests may appear, or their agent
or representative or the trustee under the indenture or other agreement (if any)
pursuant to which Senior Indebtedness may have been issued, as their respective
interests may appear, for application (in the case of cash) to, or as collateral
(in the case of non-cash property or securities) for the payment or prepayment
of, the Senior Indebtedness to the extent necessary to pay such obligations in
full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holder(s) of Senior Indebtedness; and
(v) in any circumstance referred to in clauses (i) through
(iv) above, no holder(s) of Junior Subordinated Notes shall take any action to
enforce any payment, including, without limitation, filing of a bankruptcy or
similar proceeding, except to the extent that the Junior Subordinated Notes may
be accelerated under the circumstances described in Section 6(a)(ii) below.
(b) Rights Not Subordinated. The provisions of Section 4(a)
above are for the limited purpose of defining the relative rights of the
holder(s) of Senior Indebtedness on the one hand and the holder(s) of the Junior
Subordinated Notes on the other hand. Nothing herein shall impair, as between
the Company and the holder(s) of Junior Subordinated Notes, the Company's
obligation to the holder(s) of the Junior Subordinated Notes to pay to such
holder(s) both principal and interest in accordance with the terms of the Junior
Subordinated Notes. No provision of clauses (i) through (iv) of Section 4(a)
above shall be construed to prevent the holder(s) of the Junior Subordinated
Notes from exercising all remedies otherwise available under the Junior
Subordinated Notes or under applicable law upon the occurrence of an Event of
Default, subject to the rights of the holder(s) of Senior Indebtedness set forth
above to receive cash, assets, stock or obligations and distributions and other
payments otherwise payable or deliverable to the holder(s) of the Junior
Subordinated Notes. No provision of Section 4(a) above shall be deemed to
subordinate, to any extent, any claim or right of any holder of the Junior
Subordinated Notes to any claim against the Company by any creditor or any other
Person, except to the extent expressly provided in such Section.
(c) Waiver of Consolidation. The Holder may not at any time
insist upon, plead, or in any manner whatsoever, seek the entry of any order or
judgment of, or take the benefit or advantage of, any substantive consolidation,
piercing of the corporate veil or any other order or judgment that causes an
effective combination of the assets and liabilities of the Company and any other
individual, corporation, partnership or joint venture in any case or proceeding
under Title 11 of the United States Code or any other Bankruptcy Law or other
similar proceeding.
<PAGE> 10
(d) Distributions; Relation to Senior Indebtedness.
(i) A distribution may consist of cash, securities or
other property, by set-off or otherwise, and a payment or distribution on
account of any obligations with respect to the holder(s) of Junior Subordinated
Notes shall include any redemption, purchase or other acquisition of the Junior
Subordinated Notes.
(ii) For the purpose of Section 4, all amounts due or to
become due in respect of Senior Indebtedness now or hereafter existing shall not
be deemed to have been paid in full unless the holder(s) or owners thereof shall
have received payment in full pursuant to the terms of the Senior Debt
Documents.
(iii) Each holder of Junior Subordinated Notes, for the
benefit of the holder(s) of Senior Indebtedness, agrees that it shall be
entitled to receive no payment on or in respect of such Junior Subordinated
Notes (other than payments to the holder(s) of the Junior Subordinated Notes
expressly permitted by the Senior Debt Documents) unless all amounts due or to
become due in respect of Senior Indebtedness under the Senior Debt Documents
have been paid in full in accordance with the terms of the Senior Debt Documents
and the Senior Debt Documents shall have been terminated in accordance with
their terms.
(e) Notice by Company. The Company shall promptly notify the
holder(s) of the Junior Subordinated Notes of any facts known to the Company
that would cause a payment of any obligations with respect to the Junior
Subordinated Notes or of any Claim to violate this Section 4, but failure to
give such notice shall not affect the subordination provided in this Section 4
of the Junior Subordinated Notes or of any Claims to the Senior Indebtedness. If
payment of the Junior Subordinated Notes is accelerated because of an Event of
Default, the Company shall promptly notify holder(s) of Senior Indebtedness of
the acceleration.
(f) Subrogation. After all amounts due or to become due in
respect of Senior Indebtedness have been paid in full in cash and until the
Junior Subordinated Notes are paid in full, holder(s) of Junior Subordinated
Notes shall be subrogated (equally and ratably with all other indebtedness pari
passu with the Junior Subordinated Notes) to the rights of holder(s) of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the holder(s) of Junior
Subordinated Notes have been applied to the payment of Senior Indebtedness. A
distribution made under this Section 4 to holder(s) of Senior Indebtedness which
otherwise would have been made to holder(s) of Junior Subordinated Notes is not,
as between the Company and such holder(s), a payment by the Company on the
Junior Subordinated Notes.
(g) Subordination May Not Be Impaired.
(i) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act in good faith by
any such holder, or by noncompliance by the Company, with the terms and
provisions and covenants herein, regardless of any knowledge
<PAGE> 11
thereof any such holder may have or otherwise be charged with.
(ii) Without in any way limiting the generality of the
foregoing paragraph, the holder(s) of Senior Indebtedness may at any time and
from time to time, without the consent of or notice to any holder of Junior
Subordinated Notes, without incurring responsibility to any holder of Junior
Subordinated Notes, and without impairing or releasing the subordination
provided in this Section 4 or the obligations hereunder of the holder(s) of
Junior Subordinated Notes to the holder(s) of Senior Indebtedness, do any one or
more of the following: (A) change the number, place or terms of payment or
extend the time of payment of, renew or alter, all or any of the Senior
Indebtedness (including any change in the rate of interest thereon), or
otherwise amend or supplement in any manner, or grant any waiver or release with
respect to, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (B) sell, exchange,
release, not perfect or otherwise deal with any property at any time pledged,
assigned or mortgaged to secure or otherwise securing, Senior Indebtedness, or
amend, or grant any waiver or release with respect to, or consent to any
departure from any guarantee for all or any of the Senior Indebtedness; (C)
release any Person liable in any manner under or in respect of Senior
Indebtedness; (D) exercise or refrain from exercising any rights against, and
any other Person; and (E) apply any sums from time to time received to the
Senior Indebtedness.
(iii) All rights and interests under the Junior
Subordinated Notes of the holder(s) of Senior Indebtedness, and all agreements
and obligations of the holder(s) of Junior Subordinated Notes and the Company
under this Section 4 shall remain in full force and effect irrespective of (A)
any lack of validity or enforceability of the Senior Debt Documents, any
promissory notes evidencing the indebtedness thereunder, or any other agreement
or instrument relating thereto or to any other Senior Indebtedness, including,
without limitation, any agreement referred to in the definition of Senior Debt
Documents, or (B) any other circumstances that might otherwise constitute a
defense available to, or a discharge of, any holder(s) of Junior Subordinated
Notes or the Company.
(iv) The provisions set forth in this Section 4 constitute
a continuing agreement and shall (A) be and remain in full force and effect
until payment in full of all Senior Indebtedness at such time when no Person
shall have any obligation to make advances under the Senior Debt Agreement, (B)
be binding upon the holder(s) of Junior Subordinated Notes and the Company and
their respective successors, transferees and assigns, and (C) inure to the
benefit of, and be enforceable directly by, each of the holder(s) of Senior
Indebtedness and their respective successors, transferees and assigns.
(v) Each Senior Lender is hereby authorized to demand
specific performance of the provisions of this Section 4, whether or not the
Company shall have complied with any of the provisions of this Section 4
applicable to it, at any time when any holder of Junior Subordinated Notes shall
have failed to comply with any of these provisions. Each holder of Junior
Subordinated Notes hereby irrevocably waives any defense based on the adequacy
of a remedy at law that might be asserted as a bar to such remedy of specific
performance.
<PAGE> 12
(h) Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holder(s) of Senior
Indebtedness, then distributions may be made and the notice given to their
representative, trustee or agent. Upon payment or distribution of assets of the
Company referred to in this Section 4, the holder(s) of Junior Subordinated
Notes shall be entitled to rely in good faith upon any order or decree made by
any court of competent jurisdiction or upon any certificate of such
representative, trustee or agent or of the liquidating trustee or agent or other
person making any distribution to the holder(s) of Junior Subordinated Notes for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holder(s) of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Section
4.
(i) Reinstatement. The agreement contained in this Section 4
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by any holder of Senior Indebtedness upon the insolvency,
bankruptcy or reorganization of the Company, or otherwise, all as though such
payment had not been made.
(j) Amendments. The Company and each holder of Junior
Subordinated Notes hereby agrees for the benefit of the holder(s) of Senior
Indebtedness that no amendment of, supplement of, modification to or waiver
under, any provision of the Junior Subordinated Notes will be entered into or
effected without the consent of the holder(s) of Senior Indebtedness.
5. Other Indebtedness. The Company shall not incur any
Indebtedness other than any Indebtedness existing on the date hereof; provided,
that nothing in this Section 5 shall prevent the Company from incurring
Indebtedness in the form of a guarantee or any other type of support with
respect to any debt of any Subsidiary of the Company. For avoidance of doubt,
this Section 5 shall not in any way restrict or affect the ability of any
Subsidiary of the Company to assume or incur any Indebtedness. This Section 5
shall expire and be of no further force and effect if at any time Holdings shall
assume the obligations of the Company under this Junior Subordinated Note.
6. Events of Default.
(a) Definition. For purposes of the Junior Subordinated Notes,
an "Event of Default" shall be deemed to have occurred (i) if a Bankruptcy Event
shall have occurred and (ii) upon the Company's failure to pay when due (whether
pursuant to Section 3(a) above or upon acceleration or otherwise) any portion of
the unpaid principal amount of any Junior Subordinated Notes.
(b) Consequences of Events of Default.
(i) Upon the occurrence and during the continuance of an
Event of
<PAGE> 13
Default, the Holder may by notice to the Company and the Senior Lenders declare
all or any portion of the unpaid principal amount of the Junior Subordinated
Notes due and payable and demand immediate payment of all or any portion of the
unpaid principal amount of the Junior Subordinated Notes, subject to the
limitations described in Section 4 above.
(ii) Subject to Section 4 above and Section 6(c) below,
the Holder shall also have all other rights which such holder may have pursuant
to applicable law or in equity.
(c) No Control Over Assets. Notwithstanding anything to the
contrary contained herein, unless and until all obligations under the Senior
Debt Documents have been paid in full in cash and the Senior Debt Documents
shall have been terminated in accordance with their terms, neither the Holder
nor any agent or representative thereof shall have any right to, and the Holder
hereby agrees that it shall not, whether upon an Event of Default hereunder or
otherwise, block, affect, interfere or otherwise participate in any manner in
the treatment or disposition of any assets of the Company or any of its
Subsidiaries following a default or event of default under either of the Senior
Debt Documents or the maturity thereof, whether pursuant to the exercise of any
remedies by the purchaser under the Senior Debt Documents or otherwise.
7. Set-off. The Company may, at its sole option, apply all
amounts due from it, Sleepmaster or their affiliates to the Holder hereunder
against any amounts due from the Holder to the Company, Sleepmaster or their
affiliates. Without limiting the foregoing, all amounts due under this Junior
Subordinated Note may be set-off against all amounts of claims made by the
Company, Sleepmaster or their affiliates to the Holder pursuant to Article 11 of
the Purchase Agreement.
8. Note Register. The Company will maintain a record of
ownership of this Junior Subordinated Note (the "Register"), in which the
Company will record the Holder's right, title and interest in this Junior
Subordinated Note and in the rights to receive any payments hereunder. No
transfer of any interest in this Junior Subordinated Note shall be effective
until, and a transferee may succeed to the rights of a Holder only upon, such
transfer's recordation in the Register following notice to the Company by the
transferor and the transferee. Prior thereto, the Company shall deem and treat
the person whose name appears in the Register as the Holder hereof for all
purposes.
9. Amendment and Waiver. Except as otherwise expressly
provided herein, the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders.
10. Cancellation. After all unpaid principal and interest owed
on this Junior Subordinated Note has been paid in full, this Junior Subordinated
Note shall be surrendered to the Company for cancellation and shall not be
reissued.
11. GOVERNING LAW. THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS
<PAGE> 14
Junior Subordinated Note shall be governed by the internal law, and not the law
of conflicts, of New York.
12. Descriptive Headings. The descriptive headings of this
Junior Subordinated Note are inserted for convenience only, and do not
constitute a part of this Junior Subordinated Note.
* * * * *
<PAGE> 15
IN WITNESS WHEREOF, the Company has executed and delivered
this Junior Subordinated Note on the date first written above.
SLEEP INVESTOR L.L.C.
By:_____________________________
Name:
Title:
<PAGE> 16
EXHIBIT I TO
JUNIOR SUBORDINATED NOTE
THIS PIK INTEREST NOTE WAS ORIGINALLY ISSUED ON _____ __, ____, AND HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT UPON DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL
THAT SUCH SALE, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT.
PURSUANT TO SECTION 4 OF THIS PIK INTEREST NOTE, THIS INSTRUMENT IS
SUBORDINATED TO THE SENIOR INDEBTEDNESS (AS DEFINED HEREIN) AND
NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY CONTAINED IN THIS
INSTRUMENT, NO PAYMENT OF ANY NATURE ON ACCOUNT OF THE OBLIGATIONS
HEREUNDER, WHETHER OF PRINCIPAL OR INTEREST, SHALL BE MADE, PAID,
RECEIVED OR ACCEPTED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH
SECTION 4.
PIK INTEREST NOTE
, $[ ]
----- -- ---- -------
SLEEP INVESTOR L.L.C., a Delaware limited liability company
(the "Company"), hereby promises to pay to the order of ______________ (the
"Holder") the principal amount of _________________ ($_________), together with
interest thereon calculated from the date hereof, on the Maturity Date (as
defined in the Junior Subordinated Note (as defined below)) in accordance with
the provisions of this PIK Interest Note.
This PIK Interest Note (this "Note") was issued pursuant to
Section 2 of the Junior Subordinated Note issued by the Company on June __, 1999
or any note which may be issued in substitution thereof or as a replacement
therefor, in whole or in part (the "Junior Subordinated Note").
The provisions of Sections 1-12 of the Junior Subordinated
Note are hereby incorporated by reference, with all references to Junior
Subordinated Notes hereby deemed to be, for purposes of this Note, references to
this Note.
IN WITNESS WHEREOF, the Company has executed and delivered
this PIK Interest Note on the date first written above.
<PAGE> 17
SLEEP INVESTOR L.L.C.
By:_________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.31
EXECUTION COPY
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is
dated as of March __, 1998 by and among Sleepmaster Holdings L.L.C., a New
Jersey limited liability company (the "Company"), Sleep Investor L.L.C., a
Delaware limited liability company (the "Investor"), PMI Mezzanine Fund, L.P., a
Delaware limited partnership ("PMI"), and Charles Schweitzer, James P. Koscica,
Michael Reilly, Timothy DuPont, Michael Bubis, Richard Tauber, Douglas Phillips
and each other executive of the Company or its subsidiaries who acquires Common
Interests (as defined below) from the Company after the date hereof and executes
a joinder hereto (collectively, the "Executives", and individually an
"Executive").
The original Registration Rights Agreement (the "Original
Agreement") was entered into among the Company, the Investor, PMI and certain of
the Executives as of November 14, 1996.
The Executives hold units of the Company's Class A Common
Interests (the "Class A Common"), and the Investor holds units of the Class A
Common and units of the Company's Class B Common Interests (the "Class B
Common"). The Company issued to PMI warrants to purchase units of Class A Common
pursuant to the Common Interest Purchase Warrants dated as of November 14, 1996
(as amended as of the date hereof the "1996 Warrant Agreement") and the Company
is issuing additional warrants to purchase units of Class A Common pursuant to
Common Interest Purchase Warrants dated the date hereof (the "New Warrant
Agreement," and, together with the 1996 Warrant Agreement, the "Warrant
Agreements").
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall have the
meaning given such terms in the Second Amended and Restated Limited Liability
Company Operating Agreement of the Company, dated November 14, 1996 (the
"Operating Agreement"). As used herein, the following terms shall have the
following meanings.
"Affiliate" means as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Common Interests" means, collectively, the Class A Common,
the Class B Common, and any other class of securities of the Company which is
not limited to a fixed sum or percentage of par value or stated value in respect
of the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the issuer of such securities.
<PAGE> 2
"Company Registrable Securities" has the meaning given to that
term in Section 6(c).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Executive Registrable Securities" means (i) any Common
Interests acquired by, or issued or issuable to, the Executives on or after the
date hereof (provided that if any such Common Interests are subject to vesting
under the terms of an Employment Agreement or other agreement executed by the
Company and/or Sleepmaster and any Executive, such Common Interests shall be
Executive Registrable Securities only if and to the extent such Common Interests
have vested pursuant to the terms of such agreement), and (ii) any securities of
the Company issued or issuable with respect to the securities referred to in
clause (i) by way of a distribution or of a combination, exchange, conversion or
division of such securities or in connection with a recapitalization, merger,
consolidation or other reorganization. As to any particular Executive
Registrable Securities, such securities shall cease to be Executive Registrable
Securities when they have been distributed to the public pursuant to an offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144. For purposes of this
Agreement, a Person will be deemed to be a holder of Executive Registrable
Securities whenever such Person has the right to acquire directly or indirectly
such Executive Registrable Securities (upon conversion or exercise in connection
with a transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected; provided, that if such Executive Registrable
Securities are Vesting Executive Securities (as defined in the applicable
Employment Agreement) or are otherwise subject to vesting, a Person will be
deemed to be a holder of such Executive Registrable Securities only if, and only
to the extent that, such securities have become Vested Interests (as defined in
the applicable Employment Agreement) or have otherwise vested in accordance with
the terms of any applicable agreement.
"Investor Registrable Securities" means (i) Common Interests
acquired by, or issued or issuable to, the Investor or its Affiliates on or
after the date hereof, and (ii) any securities of the Company issued or issuable
with respect to the securities referred to in clause (i) by way of a
distribution or of a combination, exchange, conversion, or division of such
securities or in connection with a recapitalization, merger, consolidation or
other reorganization. As to any particular Investor Registrable Securities, such
securities shall cease to be Investor Registrable Securities when they have been
distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public through a broker, dealer or market maker in
compliance with Rule 144. For purposes of this Agreement, a Person will be
deemed to be a holder of Investor Registrable Securities whenever such Person
has the right to acquire directly or indirectly such Investor Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PMI Registrable Securities" means (i) Common Interests
acquired by, or issued or issuable to, PMI pursuant to the terms and conditions
of the Warrant Agreements on or after the date hereof, and (ii) any securities
of the Company issued or issuable with respect to the securities
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<PAGE> 3
referred to in clause (i) by way of a distribution or of a combination,
exchange, conversion, or division of such securities or in connection with a
recapitalization, merger, consolidation or other reorganization. As to any
particular PMI Registrable Securities, such securities shall cease to be PMI
Registrable Securities when they have been distributed to the public pursuant to
an offering registered under the Securities Act or sold to the public through a
broker, dealer or market maker in compliance with Rule 144. For purposes of this
Agreement, a Person will be deemed to be a holder of PMI Registrable Securities
whenever such Person has the right to acquire directly or indirectly such PMI
Registrable Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"Put Notice" has the meaning given to that term in the Warrant
Agreements.
"Put Option" has the meaning given to that term in the Warrant
Agreements.
"Qualified Public Offering" means the sale, in an underwritten
public offering registered under the Securities Act, of equity securities of the
Company having an aggregate value of at least $20 million.
"Registrable Securities" means, collectively, the Investor
Registrable Securities, the PMI Registrable Securities, and the Executive
Registrable Securities.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company.
"Rule 144" means Rule 144 under the Securities Act (or any
similar rule then in force).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Successor Agreement" means, in the event a Termination Event
occurs, the agreement or undertaking which replaces and is substituted for this
Agreement (if such replacement and substitution is necessary, as determined by
the Company's Board of Advisors in its good faith business judgment), which
Successor Agreement will give registration rights to the holders of Registrable
Securities which are substantially similar to the registration rights of the
holders of Registrable Securities set forth herein.
"Successor Entity" means, if a Termination Event has occurred,
the entity that replaces or succeeds the Company, including: (a) if the Company
is dissolved and liquidated, Sleepmaster (to the extent Sleepmaster is still
owned by the Company at the time of the Company's liquidation), (b) if the
Company is being converted to corporate form, the corporation that succeeds
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<PAGE> 4
to the interests of and replaces the Company or (c) if the existence of the
Company is being terminated as a result of a merger, consolidation,
restructuring or other major transaction, the entity that survives such
transaction and succeeds to the interests of the Company. If there is a
Successor Entity, all references to the Company in this Agreement shall be
deemed to be references to such Successor Entity.
"Termination Event" means (a) the dissolution and liquidation
of the Company, (b) the conversion of the Company to corporate form and/or (c)
any other merger, consolidation, restructuring or other transaction involving
the Company in which the Company does not survive as an existing entity.
2. Demand Registrations.
(a) Requests for Registration. Subject to Section 2(b) below,
(i) at any time and from time to time, the holders of a majority of the Investor
Registrable Securities may request registration, whether underwritten or
otherwise, under the Securities Act of all or part of their Registrable
Securities on Form S-1 or any similar long-form registration ("Long-Form
Registrations") or on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations") if available. In addition, subject to Section 2(g)
below, the holders of a majority of the Investor Registrable Securities may
request that the Company file with the SEC a registration statement under the
Securities Act on any applicable form pursuant to Rule 415 under the Securities
Act (a "415 Registration"), and (ii) from time to time prior to November 14,
2009, in the event that the Company shall fail for any reason (including,
without limitation, the unavailability of financing or the failure to obtain any
necessary approval) to purchase any PMI Registrable Securities following the
receipt of a validly delivered Put Notice pursuant to the terms and conditions
of the Warrant Agreements, on or after the ninetieth (90th) day following the
date of the Put Notice, so long as such Put Notice has not been revoked, the
holders of a majority of the PMI Registrable Securities may request a Long-Form
Registration, whether underwritten or otherwise, of all or any part of the PMI
Registrable Securities; provided, that the registration rights set forth in this
clause (ii) shall terminate upon the termination of the Put Option pursuant to
the terms of the Warrant Agreements. In connection with a Demand Registration
described in the foregoing clause 2(a)(ii), the Company shall use its
commercially reasonable efforts to cause to be included in such registration
Common Interests having an aggregate value (based on the midpoint of the
proposed offering price range specified in the registration statement used to
offer such securities) which will likely provide aggregate net proceeds from the
offering (individually or when aggregated with any prior public offerings of the
Common Interests) of not less than $30,000,000. Each request for a Long-Form
Registration or Short-Form Registration shall specify the approximate number of
Registrable Securities requested to be registered and the anticipated per share
price range for such offering. Within ten days after receipt of any such request
for a Long-Form Registration or Short-Form Registration, the Company will give
written notice of such requested registration to all other holders of
Registrable Securities and will include (subject to the provisions of this
Agreement) in such registration, all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within 20
days after the receipt of the Company's notice. All registrations requested
pursuant to this Section 2(a) are referred to herein as "Demand Registrations".
(b) Long-Form Registrations. The holders of a majority of the
Investor Registrable Securities will be entitled to request, pursuant to the
terms of Section 2(a), up to five (5)
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<PAGE> 5
Long-Form Registrations; provided, that such a registration will not count as a
permitted Long-Form Registration until it has become effective and unless the
holders of Registrable Securities are able to register and sell at least 90% of
the Registrable Securities requested to be included in such registration. The
holders of a majority of the PMI Registrable Securities will be entitled to
request, pursuant to the terms of Section 2(a)(ii), up to two (2) Long-Form
Registrations; provided, that such a registration will not count as a permitted
Long-Form Registration (i) until it has become effective, (ii) unless the
holders of PMI Registrable Securities are able to register and sell at least 90%
of the PMI Registrable Securities requested to be included in such registration,
and (iii) unless such registration (individually or when aggregated with any
prior public offerings of the Common Interests) shall have resulted in net
proceeds to the Company and/or the selling Securityholders of not less than $30
million.
(c) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to Section 2(b), the holders of the Investor
Registrable Securities will be entitled to request an unlimited number of
Short-Form Registrations. Demand Registrations (other than 415 Registrations)
will be Short-Form Registrations whenever the Company is permitted to use any
applicable short form. After the Company has become subject to the reporting
requirements of the Exchange Act, the Company will use its best efforts to make
Short-Form Registrations available for the sale of Registrable Securities.
(d) Priority on Demand Registrations.
(i) The Company will not include in any Long-Form
Registration or Short-Form Registration any securities which are not
Registrable Securities (other than Company Registrable Securities) without the
prior written consent of the holders of at least a majority of the Registrable
Securities included in such registration. Subject to paragraph (ii) below, if a
Long-Form Registration or a Short-Form Registration is an underwritten offering
and the managing underwriters advise the Company in writing that in their
opinion the number of Registrable Securities and, if permitted hereunder, other
securities requested to be included in such offering exceeds the number of
Registrable Securities and other securities, if any, which can be sold therein
without adversely affecting the marketability of the offering, the Company will
include in such registration (A) first, the number of Registrable Securities
requested to be included in such registration pro rata, if necessary, among the
holders of Registrable Securities based on the number of units of Registrable
Securities owned by each such holder, (B) second, any other securities of the
Company requested to be included in such registration pro rata, if necessary, on
the basis of the number of units of such other securities owned by each such
holder, and (C) third, if Company Registrable Securities are to be included in
such registration, the number of Company Registrable Securities to be included
in such registration is that number of Company Registrable Securities which is,
after giving effect to the foregoing clauses (A) and (B), required to attain the
$20 million threshold offering amount set forth in Section 6(c).
(ii) Notwithstanding the foregoing paragraph (i),
upon the receipt of a written request from the holders of a majority of the PMI
Registrable Securities, as provided in Section 2(a)(ii) above, the priority on
such a Demand Registration shall be (A) first, the number of Registrable
Securities requested to be included in such registration by the holders of PMI
Registrable Securities, (B) second, any other Registrable Securities requested
to be included in such registration pro rata, if necessary, among the holders of
such other Registrable Securities based on the number
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<PAGE> 6
of units of Registrable Securities owned by each such holder, (C) third, any
other securities of the Company requested to be included in such registration
pro rata, if necessary, on the basis of the number of units of such other
securities owned by each such holder, and (D) fourth, if Company Registrable
Securities are to be included in such registration, the number of Company
Registrable Securities to be included in such registration is that number of
Company Registrable Securities which is, after giving effect to the foregoing
clauses (A), (B) and (C), required to attain the $30 million threshold offering
amount set forth in Section 2(a)(ii) above.
(e) Restrictions on Demand and Primary Registrations. (i) The
Company will not be obligated to effect any Demand Registration within six
months after the effective date of a previous Demand Registration and (ii) the
Company will not be entitled to effect, and no holder of Registrable Securities
will be entitled to request, any Demand Registration (other than pursuant to the
provisions of Section 2(a)(ii) above) or any primary registration on behalf of
the Company within six months after receipt of a validly delivered Put Notice
pursuant to the terms and conditions of the Warrant Agreements; provided, that
if the Company consummates the repurchase of PMI Registrable Securities upon or
at any time after receipt of a Put Notice, the provisions of this clause (ii)
shall terminate and be of no further force or effect.
(f) Selection of Underwriters. In the case of a Demand
Registration for an underwritten offering, the holders of a majority of the
Registrable Securities to be included in such Demand Registration will have the
right to select the investment banker(s) and manager(s) to administer the
offering (which investment banker(s) and manager(s) will be nationally
recognized) subject to the Company's approval which will not be unreasonably
withheld.
(g) 415 Registrations.
(i) The holders of a majority of the Investor
Registrable Securities will be entitled to request one (1) 415 Registration.
Subject to the availability of required financial information, within 45 days
after the Company receives written notice of a request for a 415 Registration,
the Company shall file with the SEC a registration statement under the
Securities Act for the 415 Registration. The Company shall use its best efforts
to cause the 415 Registration to be declared effective under the Securities Act
as soon as practical after filing, and once effective, the Company shall
(subject to the provisions of clause (ii) below) cause such 415 Registration to
remain effective for such time period as is specified in such request, but for
no time period longer than the period ending on the earlier of (i) the third
anniversary of the date of filing of the 415 Registration or (ii) the date on
which all Investor Registrable Securities have been sold pursuant to the 415
Registration or (iii) the date as of which there are no longer any Investor
Registrable Securities in existence.
(ii) If the holders of a majority of the Investor
Registrable Securities notify the Company in writing that they intend to effect
the sale of all or substantially all of the Investor Registrable Securities held
by such holders pursuant to a single integrated offering pursuant to a then
effective registration statement for a 415 Registration (a "Takedown"), the
Company and each holder of Registrable Securities shall not effect any public
sale or distribution of its equity securities, or any securities convertible
into or exchangeable or exercisable for its equity securities, during the 90-day
period beginning on the date such notice of a Takedown is received.
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<PAGE> 7
(iii) If in connection with any Takedown the managing
underwriters (selected in accordance with clause (iv) below) advise the Company
that, in its opinion, the inclusion of any other securities other than Investor
Registrable Securities would adversely affect the marketability of the offering,
then no such securities shall be permitted to be included. Additionally, if in
connection with such an offering, the number of Investor Registrable Securities
and other securities (if any) requested to be included in such Takedown exceeds
the number of Investor Registrable Securities and other securities which can be
sold in such offering without adversely affecting the marketability of the
offering, the company shall include in such Sale (i) first, the Investor
Registrable Securities requested to be included in such Takedown, pro rata among
the holders of such Registrable Securities on the basis of the number of
Investor Registrable Securities owned by each such holder, and (ii) second,
other securities requested to be included in such Takedown to the extent
permitted hereunder.
(iv) The holders of a majority of the Investor
Registrable Securities shall have the right to retain and select an investment
banker and manager to administer the 415 Registration and any Takedown pursuant
thereto, subject to the Company's approval which will not be unreasonably
withheld.
(v) In addition to the provisions in Section 7
below, all expenses incurred in connection with the management of the 415
Registration (whether incurred by the Company or the holders of the Investor
Registrable Securities) shall be borne by the Company (including, without
limitation, all fees and expenses of the investment banker and manager)
(excluding discounts and commissions).
(h) Other Registration Rights. Except as provided in this
Agreement, the Company will not grant to any Persons the right to request the
Company to register any equity or similar securities of the Company, or any
securities convertible or exchangeable into or exercisable for such securities,
without the prior written consent of the holders of a majority of the Investor
Registrable Securities.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its Common Interests under the Securities Act (other than
pursuant to a Demand Registration, and other than pursuant to a registration
statement on Form S-8 or S-4 or any similar form or in connection with a
registration the primary purpose of which is to register debt securities (i.e.,
in connection with a so-called "equity kicker") and a registration form to be
used may be used for the registration of Registrable Securities (a "Piggyback
Registration"), the Company will give prompt written notice to all holders of
Registrable Securities of its intention to effect such a registration and will
include in such registration (subject to the provisions of this Agreement) all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 20 days after the receipt of the Company's
notice. Notwithstanding the foregoing, in connection only with the initial
registered public offering of the Company's securities which offering is a
primary offering, no Registrable Securities shall be included in such
registration without the prior written consent of the holders of a majority of
Investor Registrable Securities.
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<PAGE> 8
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
the Company will include in such registration all securities requested to be
included in such registration; provided, that if the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability of the
offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the holders of
such Registrable Securities on the basis of the number of units of Registrable
Securities owned by each such holder, and (iii) third, other securities, if any,
requested to be included in such registration.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the Company will
include in such registration (i) first, the securities requested to be included
therein by the holders requesting such registration, (ii) second, the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the number of
units of Registrable Securities owned by each such holder, and (iii) third,
other securities requested to be included in such registration not covered by
clause (i) or clause (ii) above (which registration was consented to pursuant to
Section 2(h) above).
(d) Selection of Underwriters. If any Piggyback Registration
is an underwritten offering, the investment banker(s) and manager(s) for the
offering will be selected by the holders of a majority of the Investor
Registrable Securities.
(e) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to this
Section 3, and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity or similar securities or securities
convertible or exchangeable into or exercisable for its equity or similar
securities under the Securities Act (except on Forms S-4 or S-8 or any successor
forms), whether on its own behalf or at the request of any holder or holders of
such securities, until a period of at least six months has elapsed from the
effective date of such previous registration.
4. Holdback Agreements.
(a) Each holder of Registrable Securities hereby agrees not to
effect any public sale or distribution (including sales pursuant to Rule 144) of
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 120-day period (or, if the managing underwriters so request in writing,
a 180- day period) beginning on the effective date of any Demand Registration
(other than a 415 Registration) or Piggyback Registration for a public offering
to be underwritten on a firm commitment basis in which Registrable Securities
are included (except as part of such underwritten registration), if and to the
extent requested by the Company in the case of a non-underwritten public
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<PAGE> 9
offering or if and to the extent requested by the underwriters managing an
underwritten public offering.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 120-day period (or, if the managing underwriters so request in
writing, a 180-day period) beginning on the effective date of any underwritten
Demand Registration (other than a 415 Registration) or Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Forms S-4 or S-8 or any successor forms), unless the underwriters managing
the registered public offering otherwise agree, and (ii) to cause each holder of
Registrable Securities and each other holder of at least 5% (on a fully diluted
basis) of Common Interests, or any securities convertible into or exchangeable
or exercisable for Common Interests, purchased from the Company at any time
after the date of this Agreement (other than in a registered public offering) to
agree not to effect any public sale or distribution (including sales pursuant to
Rule 144) of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), if and to the extent
requested by the Company in the case of a non-underwritten public offering or if
and to the extent requested by the underwriters managing an underwritten public
offering.
5. Further Assurances.
(a) In the event that the Board of Advisors of the Company
(the "Board") or the holders of a majority of the units of Investor Registrable
Securities then outstanding, as applicable, approve an initial public offering
and sale of Common Interests (an "Initial Public Offering") pursuant to an
effective registration statement under the Securities Act, or if a Demand
Registration is requested pursuant to Section 2(a) prior to an Initial Public
Offering, then all of the parties to this Agreement shall take all necessary or
desirable actions in connection with the consummation of such Initial Public
Offering as the Board or the holders of a majority of the Investor Registrable
Securities so request. Without limiting the generality of the foregoing, for so
long as the Put Option has not been terminated pursuant to the terms and
conditions of the Warrant Agreements, in the event that a Demand Registration is
requested, then upon (i) the request of the Board, (ii) the request of the
holders of a majority of the units of the Investor Registrable Securities then
outstanding, or (iii) the request of the holders requesting such Demand
Registration, all of the parties shall take such actions as may be reasonably
necessary for the Company to convert to a corporate form, including without
limitation the approval of a merger of the Company with and into a corporation,
with the result that each Member shall hold common and preferred stock of such
surviving corporation with rights, preferences and privileges substantially
equivalent to their respective Common Interests and Preferred Interests.
(b) If the Company proposes to take any action that would
result in a Termination Event, then so long as the Put Option has not been
terminated pursuant to the terms and conditions of the Warrant Agreements, the
Members shall take all necessary action to enter into a Successor Agreement and
shall not permit the Company to take any actions that would result in a
Termination Event until the Successor Entity has entered into a Successor
Agreement with the Members (or has entered into a binding agreement to enter
into such a Successor Agreement). The Members acknowledge and agree that the
restrictions set forth in the section of such Successor Agreement
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<PAGE> 10
which corresponds to this Section 5(b) override and shall be given effect over
any other conflicting provision or statement in either the Operating Agreement
or this Agreement.
6. Registration Procedures. Whenever the holders of Registrable Securities have
requested that any Registrable Securities be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the intended method
of disposition thereof, and pursuant thereto the Company will as expeditiously
as possible:
(a) prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected pursuant to Section 7(b) below
copies of all such documents proposed to be filed);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than six months and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) if requested by the holders of a majority of the Investor
Registrable Securities in connection with any Demand Registration requested by
such holders, use its commercially reasonable efforts to cause to be included in
such registration Common Interests having an aggregate value (based on the
midpoint of the proposed offering price range specified in the registration
statement used to offer such securities) of up to $20 million ("Company
Registrable Securities"), to be offered in a primary offering of the Company's
securities contemporaneously with such offering of Registrable Securities;
(d) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(e) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection, (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of process
(i.e., service of process which is not limited solely to securities law
violations) in any such jurisdiction);
(f) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of
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<PAGE> 11
any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at the request of
any such seller, the Company will promptly prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading;
(g) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the Nasdaq National Market
("Nasdaq Market") and, if listed on the Nasdaq Market, use its best efforts to
secure designation of all such Registrable Securities covered by such
registration statement as a Nasdaq "National Market System security" within the
meaning of Rule 11Aa2-1 of the SEC or, failing that, to secure Nasdaq Market
authorization for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register as such with respect to such Registrable Securities with the National
Association of Securities Dealers;
(h) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(i) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of units);
(j) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(k) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering the
period of at least twelve months beginning with the first day of the Company's
first full calendar quarter after the effective date of the registration
statement, which earning statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 promulgated thereunder;
(l) permit any holder of Registrable Securities which holder,
in its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
- 11 -
<PAGE> 12
(m) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(n) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;
and
(o) obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by "cold comfort" letters as the holders of a
majority of the Registrable Securities being sold reasonably request.
If any such registration or comparable statement refers to any holder by name or
otherwise as the holder of any securities of the Company and if, in its sole and
exclusive judgment, such holder is or might be deemed to be a controlling person
of the Company, such holder shall have the right to require (i) the insertion
therein of language, in form and substance satisfactory to such holder and
presented to the Company in writing, to the effect that the holding by such
holder of such securities is not to be construed as a recommendation by such
holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such holder by name or otherwise is not required by the Securities
Act or any similar Federal statute then in force, the deletion of the reference
to such holder; provided, that with respect to this clause (ii) such holder
shall furnish to the Company an opinion of counsel to such effect, which opinion
and counsel shall be reasonably satisfactory to the Company.
7. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all Registration
Expenses, will be borne by the Company.
(b) In connection with each Demand Registration, each
Piggyback Registration and each 415 Registration, the Company will reimburse the
holders of Registrable Securities covered by such registration for the
reasonable fees and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities initially requesting such registration.
8. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted
by law, each holder of Registrable Securities, its officers and directors and
each Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses arising out of or
based upon any untrue or alleged untrue statement of material fact contained in
any registration statement, prospectus or preliminary prospectus or any
amendment thereof or
- 12 -
<PAGE> 13
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse such holder, director, officer or controlling
person for any legal or other expenses reasonably incurred by such holder,
director, officer or controlling person in connection with the investigation or
defense of such loss, claim, damage, liability or expense, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such holder expressly for use therein or by such holder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Company,
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided, that the obligation to indemnify
will be individual to each holder and will be limited to the net amount of
proceeds received by such holder from the sale of Registrable Securities
pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
- 13 -
<PAGE> 14
9. Participation in Underwritten Registrations. No Person may participate in any
registration hereunder which is underwritten unless such Person (a) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Person or Persons entitled hereunder to approve
such arrangements and (b) completes and executes all customary questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements; provided,
that no holder of Registrable Securities included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters other than representations and warranties regarding
such holder and such holder's intended method of distribution.
10. Rule 144 Reporting. With a view to making available to the holders of
Registrable Securities the benefits of certain rules and regulations of the SEC
which may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) make and keep current public information available, within
the meaning of Rule 144 or any similar or analogous rule promulgated under the
Securities Act, at all times after it has become subject to the reporting
requirements of the Exchange Act;
(b) file with the SEC, in a timely manner, all reports and
other documents required of the Company under the Securities Act and Exchange
Act (after it has become subject to such reporting requirements); and
(c) so long as any party hereto owns any Registrable
Securities, furnish to such Person forthwith upon request, a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time commencing 90 days after the effective date of the first
registration filed by the Company for an offering of its securities to the
general public), the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements); a copy of the most recent
annual or quarterly report of the Company; and such other reports and documents
as such Person may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.
11. Amendment and Restatement of Original Agreement. The Original Agreement is
hereby amended and restated in its entirety.
12. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient accompanied by a certified or registered mailing. Such notices,
demands and other communications will be sent to the address indicated below:
- 14 -
<PAGE> 15
To the Company:
Sleepmaster Holdings L.L.C.
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036
Attention: Manager
Telecopy No.: (908) 381-3925
With copies, which shall not constitute notice, to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, New York 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To the Investor:
Sleep Investor L.L.C.
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, New York 10043
Attention: Mr. John Weber
Telecopy No.: (212) 888-2940
With copies, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
- 15 -
<PAGE> 16
PMI Mezzanine Fund, L.P.
610 Newport Center Drive
Suite 1100
Newport Beach, California 92660
Attention: Mr. Robert Bartholomew
Telecopy No.: (714) 721-5446
Brobeck, Phleger & Harrison L.L.P.
550 South Hope Street
Los Angeles, California 90071
Attention: John Francis Hilson, Esq.
Telecopy No.: (213) 239-1324
To PMI:
PMI Mezzanine Fund, L.P.
610 Newport Center Drive
Suite 1100
Newport Beach, California 92660
Attention: Mr. Robert Bartholomew
Telecopy No.: (714) 721-5446
With a copy, which shall not constitute notice, to:
Brobeck, Phleger & Harrison L.L.P.
550 South Hope Street
Los Angeles, California 90071
Attention: John Francis Hilson, Esq.
Telecopy No.: (213) 239-1324
To any of the Executives:
Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036
Attention: [EXECUTIVE'S NAME]
Telecopy No.: (908) 381-3925
With a copy, which shall not constitute notice, to:
Greenberg Traurig Hoffman Lipoff
Rosen & Quentel
200 Park Avenue
New York, New York 10166
Attention: William A. Newman, Esq.
Telecopy No.: (212) 223-7161
- 16 -
<PAGE> 17
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
13. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not enter
into any agreement which is inconsistent with or violates the rights granted to
the holders of Registrable Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and holders of a majority of the
Registrable Securities; provided, that no amendment to the provisions of
Sections 3, 5, 7, subsections (a), (b), (d), (e) and (h) of Section 2, this
subsection 13(c), and the defined terms relating to the foregoing shall be
effective without the prior written consent of the holders of a majority of the
PMI Registrable Securities.
(d) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(e) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(f) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(h) GOVERNING LAW. THE LIMITED LIABILITY COMPANY LAWS OF THE
STATE OF NEW JERSEY WILL GOVERN ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF
THE COMPANY AND ITS
- 17 -
<PAGE> 18
MEMBERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
* * * * *
- 18 -
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Registration Rights Agreement as of the date first above
written.
SLEEPMASTER HOLDINGS L.L.C.
By: ________________________________________
Name:
Title:
SLEEP INVESTOR L.L.C.
By: ________________________________________
Name:
Title:
PMI MEZZANINE FUND, L.P.
By: Pacific Mezzanine Investors, LLC, its
General Partner
By: ____________________________________
Name:
Title:
CHARLES SCHWEITZER
____________________________________________
JAMES P. KOSCICA
____________________________________________
MICHAEL REILLY
____________________________________________
TIMOTHY DUPONT
____________________________________________
<PAGE> 20
MICHAEL BUBIS
____________________________________________
RICHARD TAUBER
____________________________________________
DOUGLAS PHILLIPS
____________________________________________
<PAGE> 21
EXHIBIT A
FORM OF JOINDER TO AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT
THIS JOINDER to the Amended and Restated Registration Rights
Agreement, dated as of March, 1998 by and among Sleepmaster Holdings L.L.C., a
New Jersey limited liability company (the "Company"), and certain
securityholders of the Company (the "Agreement"), is made and entered into as of
_________ by and between the Company and _________________ ("Holder").
Capitalized terms used herein but not otherwise defined shall have the meanings
set forth in the Agreement.
WHEREAS, Holder has acquired certain units of Common
Interests, and the Agreement and the Company contemplates that Holder, as a
holder of Common Interests, may be entitled to become a party to the Agreement,
and Holder agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Joinder hereby
agree as follows:
Agreement to be Bound. Holder hereby agrees that upon
execution of this Joinder, it shall become a party to the Agreement and shall be
fully bound by, and subject to, all of the covenants, terms and conditions of
the Agreement as though an original party thereto and shall be deemed a holder
of Executive Registrable Securities for all purposes thereof. In addition,
Holder hereby agrees that all Common Interests held by Holder shall be deemed
Executive Registrable Securities for all purposes of the Agreement.
1. Successors and Assigns. Except as otherwise provided
herein, this Joinder shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and Holder and any subsequent
holders of Common Interests and the respective successors and assigns of each of
them, so long as they hold any shares of Common Interests.
2. Counterparts. This Joinder may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
3. Notices. For purposes of Section 12 of the Agreement, all
notices, demands or other communications to the Holder shall be directed to:
[Name]
[Address]
[Facsimile Number]
4. GOVERNING LAW. THE LIMITED LIABILITY COMPANY LAWS OF THE
STATE OF NEW JERSEY WILL GOVERN ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF
THE COMPANY AND ITS
- 21 -
<PAGE> 22
MEMBERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW
YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
5. DESCRIPTIVE HEADINGS. The descriptive headings of this
Joinder are inserted for convenience only and do not constitute a part of this
Joinder.
* * * * *
- 22 -
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this
Joinder as of the date first above written.
SLEEPMASTER HOLDINGS L.L.C.
By:________________________________
Name:
Title:
[HOLDER]
By:_________________________________
<PAGE> 1
EXHIBIT 10.32
EXECUTION COPY
================================================================================
-----------------------------------------------------------------------
SLEEP INVESTOR L.L.C.
LIMITED LIABILITY
COMPANY OPERATING AGREEMENT
-----------------------------------------------------------------------
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE
FOR INVESTMENT ONLY BY "ACCREDITED INVESTORS" AS THAT TERM IS DEFINED IN RULE
501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
UNDER STATE SECURITIES LAWS. WITHOUT SUCH REGISTRATION, SUCH INTERESTS MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL THAT (AMONG OTHER MATTERS) SUCH SALE, TRANSFER
OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT.
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THE
FOLLOWING AGREEMENT.
================================================================================
<PAGE> 2
Table of Contents
Page
----
ARTICLE 1
GENERAL....................................................................1
1.1 Definitions.......................................................1
1.2 Construction......................................................7
ARTICLE 2
ORGANIZATION...............................................................8
2.1 Formation; Firm Name; Continuation................................8
2.2 Name..............................................................8
2.3 Offices; Agent....................................................8
2.4 Term..............................................................9
2.5 Purposes..........................................................9
2.6 Powers of the Company.............................................9
2.7 Foreign Qualification............................................10
2.8 No State-Law Partnership.........................................11
ARTICLE 3
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS...................11
3.1 Members..........................................................11
3.2 No Liability of Members..........................................12
3.3 Capital Contributions............................................12
3.4 Issuance of Additional Interests; Additional Members.............12
ARTICLE 4
CAPITAL ACCOUNTS..........................................................14
4.1 Establishment and Determination of Capital Accounts..............14
4.2 Computation of Amounts...........................................14
4.3 Negative Capital Accounts........................................15
4.4 Company Capital..................................................15
ARTICLE 5
DISTRIBUTIONS; ALLOCATIONS OF
PROFITS AND LOSSES .......................................................15
5.1 Generally........................................................15
5.2 Distributions....................................................15
5.3 Allocation of Profits and Losses.................................16
5.4 Regulatory and Special Allocations...............................16
5.5 Tax Distributions................................................17
(i)
<PAGE> 3
5.6 Tax Allocations: Code Section 704(c).............................18
ARTICLE 6
MANAGEMENT OF THE COMPANY.................................................19
6.1 Managing Member; Delegation of Authority and Duties..............19
6.2 Status of Managing Member; Eligibility to Serve..................20
6.3 Resignation or Removal of Managing Member........................20
6.4 Board of Advisors................................................20
6.5 Officers.........................................................21
ARTICLE 7
MEMBERS; VOTING RIGHTS....................................................22
7.1 Meetings.........................................................22
7.2 Voting Rights....................................................23
7.3 Conversion of Class B Common Units...............................23
7.4 Withdrawal; Resignation..........................................24
ARTICLE 8
EXCULPATION AND INDEMNIFICATION...........................................25
8.1 Performance of Duties; No Liability of Member and Officers.......25
8.2 Competing Activities.............................................25
8.3 Right to Indemnification.........................................26
8.4 Advance Payment..................................................26
8.5 Indemnification of Employees and Agents..........................26
8.6 Reimbursement of Fees and Expenses...............................26
8.7 Nonexclusivity of Rights.........................................26
8.8 Insurance........................................................27
8.9 Savings Clause...................................................27
ARTICLE 9
TAXES.....................................................................27
9.1 Tax Returns......................................................27
9.2 Tax Matters Partner..............................................27
9.3 Member Tax Information...........................................27
ARTICLE 10
BOOKS, REPORTS AND COMPANY COVENANTS......................................28
10.1 Maintenance of Books.............................................28
10.2 Financial Statements and Other Information.......................28
10.3 Inspection of Property...........................................29
10.4 Regulatory Compliance Cooperation................................29
10.5 Notice of Developments...........................................30
(ii)
<PAGE> 4
10.6 SBA Matters......................................................31
10.7 Company Funds....................................................31
10.8 Investments......................................................31
ARTICLE 11
TRANSFER OF INTERESTS.....................................................32
11.1 Restrictions.....................................................32
11.2 General Restrictions on Transfer.................................32
11.3 Procedure for Transfers..........................................32
11.4 Prospective Transferees..........................................33
11.5 Legend...........................................................33
11.6 Transfer Fees and Expenses.......................................34
11.7 Limitations......................................................34
ARTICLE 12
DISSOLUTION AND LIQUIDATION...............................................34
12.1 Events Causing Dissolution.......................................34
12.2 Liquidation and Termination......................................35
12.3 Cancellation of Certificate......................................35
ARTICLE 13
GENERAL/MISCELLANEOUS PROVISIONS..........................................36
13.1 Notices..........................................................36
13.2 Governing Law....................................................36
13.3 Certificates of Units............................................36
13.4 Entire Agreement.................................................37
13.5 Effect of Waiver or Consent......................................37
13.6 Amendment or Modification........................................37
13.7 Binding Effect...................................................37
13.8 Power of Attorney................................................37
13.9 Indemnification and Reimbursement for Payments on Behalf of
a Member......................................................38
13.10 Consent to Jurisdiction..........................................38
13.11 WAIVER OF JURY TRIAL.............................................39
13.12 Counterparts.....................................................39
13.13 Severability.....................................................39
13.14 Headings.........................................................39
13.15 Parties in Interest..............................................39
13.16 Further Assurances...............................................39
13.17 Specific Performance; Remedies...................................39
(iii)
<PAGE> 5
SLEEP INVESTOR L.L.C.
LIMITED LIABILITY
COMPANY OPERATING AGREEMENT
This LIMITED LIABILITY COMPANY OPERATING AGREEMENT of Sleep Investor
L.L.C. is made as of November 14, 1996, by and among the Company and each of the
persons designated as a Member on Schedule A attached hereto, as such may be
amended from time to time in accordance with the terms hereof.
WHEREAS, the Members wish to form a limited liability company pursuant
to the Delaware Limited Liability Company Act, Delaware Code, Title 6, Sections
18-101, et seq., as amended from time to time (the "Act"), by the execution and
filing of a Certificate of Formation of the Company (the "Certificate") with the
office of the Secretary of State of Delaware by John D. Weber on behalf of CVC,
as an authorized person for all purposes of the Act and entering into this
Agreement; and
WHEREAS, it is contemplated that the Members shall make capital
contributions to the company in such amounts as are set forth opposite their
names on Schedule A attached hereto;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made and other good and valuable consideration, the Members hereby agree
as follows:
ARTICLE 1
GENERAL
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
"Act" has the meaning given that term in the Preamble.
"Additional Interests" has the meaning set forth in Section 3.4(a).
"Advisors" has the meaning set forth in Section 6.4.
"Affiliate" means, when used with reference to a specified Person,
any Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person, and with respect to any individual,
such individual's spouse or any person within the first degree of kinship of
such individual.
"Agreement" means this Limited Liability Company Operating
Agreement, as it may be further amended from time to time.
"Bankruptcy" or "Bankrupt" means, with respect to any Member, such
Member's making an assignment for the benefit of creditors, becoming a party to
any liquidation or dissolution action or proceeding with respect to such Member
or any bankruptcy, reorganization, insolvency or
<PAGE> 6
other proceeding for the relief of financially distressed debtors with respect
to such Member, or a receiver, liquidator, custodian or trustee being appointed
for such Member or a substantial part of such Member's assets and, if any of the
same occur involuntarily, the same not being dismissed, stayed or discharged
within 90 days; or the entry of an order for relief against such Member under
Title 11 of the United States Code. A Member shall be deemed Bankrupt if the
Bankruptcy of such Member shall have occurred.
"Board" has the meaning set forth in Section 6.4.
"Book Value" means, with respect to any Company property, the
Company's adjusted basis for federal income tax purposes, adjusted from time to
time to reflect the adjustments required or permitted by Treasury Regulation
Sections 1.704-1(b)(2)(iv)(d)--(g); provided that the Book Value of each asset
of the Company shall be adjusted as of the date of this Agreement pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(f) in a manner determined by the
Board such that the aggregate Book Value of the Company's assets (net of the
Company's liabilities) as of such date is equal to the aggregate initial Capital
Account balances of the Members (immediately after the Members' actual or deemed
Capital Contributions pursuant to Section 3.3).
"Boyle" means R. Guy Boyle.
"Capital Account" has the meaning set forth in Section 4.1.
"Capital Contribution" means the aggregate contributions made
(or deemed made) by a Member to the Company pursuant to Article 3 (including
both Common Capital and Preferred Capital) as of the date in question, as shown
opposite such Member's name on Schedule A, as the same may be amended from time
to time.
"Certificate" has the meaning set forth in the Preamble.
"Class A Common Unit" means a Common Unit having the rights
and obligations specified with respect to Class A Common Units in this
Agreement.
"Class A Holder" means each record holder of any portion of a
Class A Common Unit.
"Class A Member" means each Class A Holder which is a Member.
"Class B Common Unit" means a Common Unit having the rights
and obligations specified with respect to Class B Common Units in this
Agreement.
"Class B Holder" means each record holder of any portion of a
Class B Common Unit.
"Class B Member" means each Class B Holder which is a Member.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
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"Common Capital" means, as of any date with respect to a
Member, the portion of such Member's Capital Contribution designated as Common
Capital opposite such Member's name on Schedule A.
"Common Units" means the Units representing a fractional part
of the Membership Interests of the Members and having the rights and obligations
specified with respect to Common Units in this Agreement.
"Company" means Sleep Investor L.L.C.
"Company Minimum Gain" has the meaning set forth for
"Partnership minimum gain" in Treasury Regulation Section 1.704-2(d).
"Consent" means the consent, approval, ratification or
affirmative vote of the Members holding more than 50% in aggregate of the Common
Units.
"Credit Agreement" means the Secured Credit Agreement, dated
as of November 14, 1996, between Sleepmaster and First Source Financial LLP, as
amended, modified, supplemented or restated, and including any agreement
pursuant to which indebtedness thereunder is refinanced, as in effect from time
to time.
"CVC" means Citicorp Venture Capital, Ltd., a New York
corporation.
"Economic Interest" means a Member's or Economic Owner's share
of the Company's net profits, net losses and distributions pursuant to this
Agreement and the Act, but shall not include any right to participate in the
management or affairs of the Company, including the right to vote on, consent to
or otherwise participate in any decision of the Members, or any right to receive
information concerning the business and affairs of the Company, in each case to
the extent provided for herein or otherwise required by the Act.
"Economic Owner" means any owner of an Economic Interest who
is not a Member. No owner of an Economic Interest which is not a Member shall be
deemed a "member" (as that term is used in the Act) of the Company.
"Employment Agreements" means those certain Employment
Agreements among Sleepmaster, Holdings and each of the Executives, dated as of
November 14, 1996.
"Entity" means a Person other than a natural person and
includes, without limitation, corporations (both non-profit and other
corporations), partnerships (both limited and general), trusts, joint ventures,
limited liability companies, and unincorporated associations.
"Executives" means Charles Schweitzer, James Koscica, Michael
Reilly and Timothy DuPont, and each shall be referred to individually as an
"Executive".
"Family Group" means, with respect to a natural person, such
individual's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such individual
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and/or such individual's spouse, their respective ancestors and/or descendants
(whether natural or adopted).
"Fiscal Year" means the twelve-month accounting period ending
on the last day of December in each year.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Holdings" means Sleepmaster Holdings L.L.C., a New Jersey
limited liability company.
"Incapacity" means (a) with respect to a natural person, the
Bankruptcy, death, incompetency or insanity of such individual and (b) with
respect to any other Person, the Bankruptcy, liquidation, dissolution or
termination of such Person.
"Investor Subscription Agreement" means the Investor
Subscription Agreement among Boyle, CVC and the Company.
"Losses" means items of Company loss and deduction determined
according to Section 4.2.
"Managing Member" has the meaning set forth in Section 6.1.
"Member Minimum Gain" has the meaning set forth for "partner
nonrecourse debt minimum gain" in Treasury Regulation Section 1.704-2(i).
"Member Nonrecourse Deductions" has the meaning set forth for
"partner nonrecourse deductions" in Treasury Regulation Section 1.704-2(i).
"Members" means each Person identified on Schedule A hereto as
of the date hereof who has executed this Agreement or a counterpart hereof and
each Person who is hereafter admitted as a Member in accordance with the terms
of this Agreement and the Act. The Members shall constitute the "members" (as
that term is defined in the Act) of the Company. Notwithstanding any provision
of this Agreement to the contrary (but subject to Sections 7.2 and 13.6), the
Members shall constitute a single class or group of members of the Company for
all purposes of the Act and this Agreement.
"Membership Interest" means the limited liability company
interest of a Member in the Company at any particular time, including such
Member's Economic Interest and the right to any and all benefits to which a
Member may be entitled as provided in this Agreement, together with the
obligations of such Member to comply with all terms and provisions of this
Agreement.
"Nonrecourse Deductions" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(i).
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"Option Agreements" means the Option Agreements expected to be
entered into between Holdings and each of the Executives on or about November
14, 1996.
"Person" means any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
Person as the context may require.
"PMI" means Pacific Mezzanine Fund, L.P., a Delaware limited
partnership.
"Preferred Capital" means, as of any date with respect to a
Member, the portion of such Member's Capital Contribution designated as
Preferred Capital opposite such Member's name on Schedule A.
"Preferred Holder" means each record holder of a Preferred
Unit.
"Preferred Member" means each Preferred Holder which is a
Member.
"Preferred Unit" means a Unit representing a fractional part
of the Membership Interests of all Members and having the preference rights and
other rights and obligations specified with respect to Preferred Units in this
Agreement.
"Profits" means items of Company income and gain determined
according to Section 4.2.
"Public Sale" means any sale of equity securities to the
public pursuant to an effective registration statement under the Securities Act
or to the public through a broker, dealer or market maker pursuant to the
provisions of Rule 144 adopted under the Securities Act (or any similar rule
then in force).
"Recapitalization Agreement" means that certain
Recapitalization, Redemption and Purchase Agreement, dated as of October 31,
1996, by and among the Company, Holdings and certain other parties thereto.
"Restricted Securities" means (a) the Membership Interest or
any other interest in the Company held by Member or any of its Affiliates and
(b) any securities issued with respect to, or in exchange for, the securities
referred to in clause (a) above in connection with a conversion, combination of
shares, recapitalization, merger, consolidation or other reorganization,
including in connection with the consummation of any reorganization plan. As to
any particular Restricted Securities, such securities shall cease to be
Restricted Securities when they have (x) been distributed to the public pursuant
to a offering registered under the Securities Act or (y) sold to the public
through a broker, dealer or market maker in compliance with Rule 144 (or any
similar provision then in force) promulgated by the Securities and Exchange
Commission under the Securities Act.
"SBA" means the United States Small Business Administration,
and any successor agency performing the functions thereof.
"SBIC" means a Small Business Investment Company licensed by
an SBA under the SBIC Act.
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"SBIC Act" means the Small Business Investment Act of 1959, as
amended.
"SBIC Regulations" means the SBIC Act and the regulations
issued by the SBA thereunder, codified as Title 13 of the Code of Federal
Regulations ("13 CFR"), parts 107 and 121.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders
Agreement, dated as of November 14, 1996, by and among CVC, PMI, the Company and
certain other parties thereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"Sleepmaster" means Sleepmaster L.L.C., a New Jersey limited
liability company and a Subsidiary of Holdings.
"Subordinated Notes" means the 12% Senior Subordinated Notes
due 2006 issued by Sleepmaster to PMI.
"Subscription Agreement" means the Subscription Agreement by
and among CVC, PMI and the Company, dated as of the date hereof.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of units of 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 that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, limited
liability company, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, manager or a general partner of such partnership, limited
liability company association or other business entity.
"Taxable Year" means the Company's taxable year ending
December 31 (or part thereof in the case of the Company's last taxable year), or
such other year as is (i) required by Section 706 of the Code or (ii) determined
by the Managing Member (if no year is so required by Section 706 of the Code).
"Terminated Member" has the meaning set forth in Section 7.4.
"Transfer" means any direct or indirect sale, transfer,
conveyance, assignment, pledge, hypothecation, gift, delivery or other
disposition.
"Treasury Regulations" shall mean that except where the
context indicates otherwise, the permanent, temporary, proposed, or proposed and
temporary regulations of Department of the Treasury under the Code as such
regulations may be lawfully changed from time to time.
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"Unit" means a Membership Interest of a Member in the Company
representing a fractional part of the Membership Interests of all Members and
shall include Common Units and Preferred Units; provided, that any class of
Units issued shall have designations, preferences or special rights set forth in
this Agreement and the Membership Interest represented by such class of Units
shall be determined in accordance with such designations, preferences or special
rights.
"Unit Equivalents" means (without duplication with any Units
or other Unit Equivalents) rights, warrants, options, convertible securities,
exchangeable securities, indebtedness or other rights, in each case exercisable
for or convertible or exchangeable into, directly or indirectly, Units or
securities exercisable for or convertible or exchangeable into Units, whether at
the time of issuance or upon the passage of time or the occurrence of some
future event.
"Unpaid Preferred Return" means, with respect to a Member, an
amount, determined as of the date of any distribution pursuant to Section 5.2,
equal to the excess of (i) the amount necessary to give the Member a 12%
compounded annual return with respect to his or its Unreturned Preferred Capital
over (ii) amounts previously distributed to such Member pursuant to Section
5.2(a)(i).
"Unreturned Preferred Capital" means, with respect to each
Member, such Member's Preferred Capital reduced by all prior distributions made
to such Member by the Company pursuant to Section 5.2(a)(ii).
"Warrant" means (i) the warrant expected to be issued by
Holdings on or about November 14, 1996 to the Warrantholder entitling the
Warrantholder to purchase certain Common Units for the price and on the other
terms and conditions set forth therein and (ii) any Warrant issued in full or
partial substitution therefor in accordance with the terms thereof.
"Warrantholder" means PMI or its designee, and any other
Person who subsequently acquires a Warrant pursuant to the terms of the Warrant
and the applicable terms of this Agreement.
1.2 Construction. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine and neuter and the
singular number includes the plural number and vice versa. All references to
Articles and Sections refer to articles and sections of this Agreement, and all
references to Schedules are to Schedules attached hereto, each of which is made
a part hereof for all purposes.
ARTICLE 2
ORGANIZATION
2.1 Formation; Firm Name; Continuation.
(a) The Managing Member has caused the Certificate to be
prepared, executed and filed with the Secretary of State of the State of
Delaware on October 11, 1996, in order to form the Company pursuant to the Act,
all of which is hereby authorized and ratified in all respects. The Members
hereby continue the existence of the Company under this Agreement and the Act.
The rights, powers, duties, obligations and liabilities of the Members shall be
determined pursuant to the
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Act and this Agreement. To the extent that the rights, powers, duties,
obligations and liabilities of any Member are different by reason of any
provision of this Agreement than they would be in the absence of such provision,
this Agreement shall, to the extent permitted by the Act, control.
(b) The name and mailing address of each Member of the Company
shall be listed on Schedule A attached hereto. The Managing Member shall be
required to update Schedule A from time to time as necessary to accurately
reflect the information therein. Any reference in this Agreement to Schedule A
shall be deemed to be a reference to Schedule A as amended and in effect from
time to time.
(c) The Managing Member, as an authorized Person within the
meaning of the Act, shall, at any time the Managing Member becomes aware that
any statement in the Certificate was false when made, or that any matter
described has changed making the Certificate false in any material respect,
promptly execute, deliver and file any and all amendments thereto and
restatements thereof in accordance with the Act.
(d) Under the direction of the Board, the Managing Member
shall from time to time take all such actions as may be deemed by him or it to
be necessary or appropriate to effectuate and permit the continuation of the
Company as a limited liability company under the Act and qualify the Company to
act in any other state where the Managing Member deems qualification necessary
or desirable; provided, that the Managing Member will cause the Company not to
conduct business or engage in any action in any jurisdiction where the liability
of the Members is not limited to the same extent as under the Act. The Members
shall execute such certificates, documents and instruments and take such other
action as may be necessary to enable the Managing Member to fulfill his or its
responsibility under this Section 2.1(d).
2.2 Name. The name of the limited liability company continued by
this Agreement is Sleep Investor L.L.C. The business of the Company may be
conducted upon compliance with all applicable laws under any other name
designated by the Managing Member.
2.3 Offices; Agent. The Company shall maintain a registered office
in the State of Delaware at c/o The Prentice-Hall Corporation System, Inc., 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The Company shall
maintain its principal executive office at the offices of the Managing Member
set forth on Schedule B hereto. Upon giving notice to all Members, the Managing
Member may change the location of the Company's offices and may establish
additional offices. The name and address of the Company's registered agent for
service of process on the Company in the State of Delaware is The Prentice-Hall
Corporation System, Inc., 1013 Centre Road, Wilmington, New Castle County,
Delaware 19805 or such other agent as the Managing Member may from time to time
designate. Upon giving notice to all Members, the registered office and the
mailing address of the Company may each be changed by the Managing Member, in
which event the Managing Member shall further comply with Section 18-104 of the
Act.
2.4 Term. The term of the Company shall continue until December
31, 2035 unless sooner terminated in accordance with the provisions of this
Agreement or otherwise dissolved pursuant to the laws of the State of Delaware.
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2.5 Purposes. The nature of the business or purposes to be
conducted or promoted by the Company is to engage in any lawful act or activity
for which limited liability companies may be organized under the Act. Subject to
the provisions of this Agreement, the Company may engage in any and all
activities necessary, desirable or incidental to the accomplishment of the
foregoing. Notwithstanding anything herein to the contrary, nothing set forth
herein shall be construed as authorizing the Company to possess any purpose or
power, or to do any act or thing, forbidden by law to a limited liability
company organized under the laws of the State of Delaware.
2.6 Powers of the Company.
(a) Power and Authority. Subject to the provisions of this
Agreement, the Company shall have the power and authority to take any and all
actions necessary, appropriate, proper, advisable, convenient or incidental to
or for the furtherance of the purposes set forth in Section 2.5, including the
power:
(i) to conduct its business, carry on its operations and have
and exercise the powers granted to a limited liability company by
the Act in any state, territory, district or possession of the
United States, or in any foreign country that may be necessary,
convenient or incidental to the accomplishment of the purpose of
the Company;
(ii) to acquire by purchase, lease, contribution of property
or otherwise, own, hold, operate, maintain, finance, refinance,
improve, lease, sell, convey, mortgage, transfer, demolish or
dispose of any real or personal property that may be necessary,
convenient or incidental to the accomplishment of the purpose of
the Company;
(iii) to enter into, perform and carry out contracts of any
kind, including contracts with any Member or any Affiliate thereof,
or any agent of the Company necessary to, in connection with,
convenient to or incidental to the accomplishment of the purpose of
the Company;
(iv) to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend,
pledge, or otherwise dispose of, and otherwise use and deal in and
with, shares or other interests in or obligations of domestic or
foreign corporations, associations, general or limited partnerships
(including the power to be admitted as a partner thereof and to
exercise the rights and perform the duties created thereby),
trusts, limited liability companies (including the power to be
admitted as a member or appointed as a manager thereof and to
exercise the rights and perform the duties created thereby) or
individuals or direct or indirect obligations of the United States
or of any government, state, territory, governmental district or
municipality or of any instrumentality of any of them;
(v) to lend money for any proper purpose, to invest and
reinvest its funds and to take and hold real and personal property
for the payment of funds so loaned or invested;
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(vi) to sue and be sued, complain and defend, and participate
in administrative or other proceedings, in its name;
(vii) to appoint employees and agents of the Company and
define their duties and fix their compensation;
(viii) to indemnify any Person in accordance with the Act and
to obtain any and all types of insurance;
(ix) to cease its activities and cancel its Certificate;
(x) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any
other action with respect to any lease, contract or security
agreement in respect of any assets of the Company;
(xi) to borrow money and issue evidences of indebtedness and
guaranty indebtedness (whether of the Company or any of its
Subsidiaries), and to secure the same by a mortgage, pledge or
other lien on the assets of the Company;
(xii) to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of
or against the Company or to hold such proceeds against the payment
of contingent liabilities; and
(xiii) to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to the
accomplishment of the purpose of the Company.
(b) Managing Member. Subject to the provisions of this
Agreement and the direction of the Board, (i) the Company, and the Managing
Member on behalf of the Company, may enter into and perform any and all
documents, agreements and instruments contemplated hereby, all without any
further act, vote or approval of any Member and (ii) the Managing Member may
authorize any Person (including any Member or officer) to enter into and perform
any document on behalf of the Company.
2.7 Foreign Qualification. The Managing Member shall cause the
Company to comply with all requirements necessary to qualify the Company as a
foreign limited liability company in any jurisdiction in which the Company owns
property or transacts business to the extent, in the reasonable judgment of the
Managing Member, such qualification or registration is necessary or advisable
for the protection of the limited liability of the Members or to permit the
Company lawfully to own property or transact business. The Managing Member may
and, at the request of the Managing Member or any officer, each Member shall,
execute, acknowledge, swear to and deliver any or all certificates and other
instruments conforming with this Agreement that are necessary or appropriate to
qualify, continue or terminate the Company as a foreign limited liability
company in all such jurisdictions in which the Company may conduct business.
2.8 No State-Law Partnership. The Members intend that the Company
shall not be a partnership (including, without limitation, a limited
partnership) or joint venture, and that no
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Member, Economic Owner, representative or officer shall be a partner or joint
venturer of any other Member, Economic Owner, representative or officer, for any
purposes other than federal and, if applicable, state tax purposes, and this
Agreement shall not be construed to the contrary. The Members intend that the
Company shall be treated as a partnership for federal and, if applicable, state
income tax purposes, and each Member and the Company shall file all tax returns
and shall otherwise take all tax and financial reporting positions in a manner
consistent with such treatment.
ARTICLE 3
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS
3.1 Members.
(a) List of Members; Admission. Subject to the following
sentence, the names, residence, business or mailing addresses, Capital
Contributions and the Units (both Preferred and Common) of the Members are set
forth on Schedule A, as such Schedule shall be amended from time to time in
accordance with the terms of this Agreement. Any reference in this Agreement to
Schedule A shall be deemed to be a reference to Schedule A as amended and in
effect from time to time. Upon (i) his or its execution of this Agreement or
counterpart thereof and (ii) receipt (or deemed receipt) of such Person's
Capital Contribution as set forth on Schedule A, each Person listed on Schedule
A is hereby admitted to the Company as a Member of the Company, with the
Membership Interests set forth on Schedule A, as of the date hereof .
(b) Loans by Members. No Member, as such, shall be required to
lend any funds to the Company or to make any additional contribution of capital
to the Company, except as otherwise required by applicable law or by this
Agreement. Any Member may, with the approval of the Board, make loans to the
Company, and any loan by a Member to the Company shall not be considered to be a
Capital Contribution.
(c) Representations and Warranties of Members. Each Member
hereby represents and warrants to and acknowledges with the Company that: (i)
such Member has such knowledge and experience in financial and business matters
and is capable of evaluating the merits and risks of an investment in the
Company and making an informed investment decision with respect thereto; (ii)
such Member is able to bear the economic and financial risk of an investment in
the Company for an indefinite period of time; (iii) such Member is acquiring or
has acquired interests in the Company for investment only and not with a view
to, or for resale in connection with, any distribution to the public or public
offering thereof; (iv) the interests in the Company have not been registered
under the securities laws of any jurisdiction and cannot be disposed of unless
they are subsequently registered and/or qualified under applicable securities
laws and the provisions of this Agreement have been complied with; (v) the
execution, delivery and performance of this Agreement have been duly authorized
by such Member and do not require such Member to obtain any consent or approval
that has not been obtained and do not contravene or result in a default under
any provision of any law or regulation applicable to such Member or other
governing documents or any agreement or instrument to which such Member is a
party or by which such Member is bound and
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(vi) this Agreement is valid, binding and enforceable against such Member in
accordance with its terms.
3.2 No Liability of Members.
(a) No Liability. Except as otherwise required by applicable
law and as expressly set forth in this Agreement, no Member shall have any
personal liability whatever in such Member's capacity as a Member, whether to
the Company, to any of the other Members, to the creditors of the Company or to
any other third party, for the debts, liabilities, commitments or any other
obligations of the Company or for any losses of the Company. Each Member shall
be liable only to make such Member's Capital Contribution to the Company and the
other payments provided expressly herein.
(b) Distribution. In accordance with the Act a member of a
limited liability company may, under certain circumstances, be required to
return amounts previously distributed to such member. It is the intent of the
Members that no distribution to any Member pursuant to Article 5 hereof shall be
deemed a return of money or other property paid or distributed in violation of
the Act. The provisions of this Agreement and the payment of any such money or
distribution of any such property to a Member shall be deemed to be a compromise
within the meaning of Section 18-502(b) of the Act, and the Member receiving any
such money or property shall not be required to return to any Person any such
money or property. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Member is obligated to
make any such payment, such obligation shall be the obligation of such Member
and not of any other Member.
3.3 Capital Contributions. Each Member shall be deemed to have
made a Capital Contribution to the Company in the amount shown opposite such
Member's name on Schedule A hereto. Upon execution of this Agreement each Member
shall have the Preferred Capital and the Common Capital and shall be deemed to
own the number of Preferred Units and Common Units set forth opposite such
Member's name on Schedule A. The Company shall issue certificates to the Members
representing the Common Units and the Preferred Units held by each Member.
3.4 Issuance of Additional Interests; Additional Members.
(a) Additional Interests. Subject to Section 11.7 and the
Securityholders Agreement, the Board shall have the right to cause the Company
to issue or sell to any Person (including Members and Affiliates of Members) any
of the following (which for purposes of this Agreement shall be "Additional
Interests"): (i) additional Membership Interests or other interests in the
Company (including new classes or series thereof having different rights); (ii)
obligations, evidences of indebtedness or other securities or interests
convertible into or exchangeable for Membership Interests or other interests in
the Company; and (iii) warrants, options or other rights to purchase or
otherwise acquire Membership Interests or other interests in the Company.
Subject to Section 3.4(b) below, the Board shall determine the terms and
conditions governing the issuance of such Additional Interests, including the
number and designation of such Additional Interests, the preference (with
respect to distributions, in liquidation or otherwise) over any other Membership
Interests and any required contributions in connection therewith.
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(b) Admission as a Member. Notwithstanding Section 3.4(a), in
order for a Person to be admitted as a Member of the Company, either with
respect to an Additional Interest or as a transferee of a Membership Interest:
(i) such Person shall have delivered to the Company a written undertaking to be
bound by the terms and conditions of this Agreement and shall have delivered
such documents and instruments as the Board determines to be necessary or
appropriate in connection with the issuance of such Additional Interest to such
Person or to effect such Person's admission as a Member (including, without
limitation, any documents required by Article 11); (ii) Members with a majority
of the Common Interests shall Consent to admit such Person as a Member
(determined in keeping with Revenue Procedure 95-10); and (iii) the Managing
Member or the Secretary of the Company shall amend Schedule A without the
further vote, act or consent of any other Person to reflect such new Person as a
Member; provided, that unless and until each of the conditions (i), (ii) and
(iii) above are met, any transferee of any Membership and any Person who
received any Additional Interest shall be an Economic Owner with respect to such
Membership Interest and such Membership Interest shall constitute an Economic
Interest. Upon satisfaction of clauses (i), (ii) and (iii) above, such Person
shall be deemed to have been admitted as a Member and shall be listed as such on
the books and records of the Company and thereupon shall be issued his or its
Membership Interest, including any Economic Interest that corresponds to and is
part of such Membership Interest. If an Additional Interest is issued to an
existing Member, the Managing Member or the Secretary of the Company shall amend
Schedule A without the further vote, act or consent or any other Person to
reflect the issuance of such Additional Interest and, upon the amendment of such
Schedule A, such Member shall be issued his or its Additional Interest,
including any Economic Interest that corresponds to and is part of such
Additional Interest.
(c) Rights of a Member. Any substitute Member admitted to the
Company pursuant to the requirements of this Section 3.4 shall succeed to all
rights and be subject to all the obligations of the transferring or assigning
Member with respect to the Membership Interest to which such Member was
substituted.
(d) CVC Coinvestors. Upon the (i) execution and delivery of
the CVC Securities Purchase Agreement by and among CVC and certain of its
employees, Affiliates and Affiliates of its employees and (ii) the amendment of
Schedule A by the Managing Member, the Persons set forth on Schedule C attached
hereto shall become Members of the Company. Subject to clauses (i) and (ii) of
the immediately preceding sentence, the Members hereby consent to the admission
of the Persons set forth on Schedule C as Members of the Company.
ARTICLE 4
CAPITAL ACCOUNTS
4.1 Establishment and Determination of Capital Accounts. A capital
account ("Capital Account") shall be established on the date hereof for each
Member on the books of the Company initially reflecting an amount equal to such
Member's Capital Contribution pursuant to Section 3.3. Each Member's Capital
Account shall be (a) increased by any additional Capital Contributions made by
such Member pursuant to the terms of this Agreement and such Member's share of
items of income and gain allocated to such Member pursuant to Article 5, (b)
decreased by such Member's share of items of loss, deduction and expense
allocated to such Member pursuant to Article 5 and any distributions to such
Member of cash or the fair market value of any other property (net of
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liabilities assumed by such Member and liabilities to which such property is
subject) distributed to such Member and (c) adjusted as otherwise required by
the Code and the regulations thereunder, including but not limited to, the rules
of Treasury Regulation Section 1.704-1(b)(2)(iv). Any references in this
Agreement to the Capital Account of a Member shall be deemed to refer to such
Capital Account as the same may be increased or decreased from time to time as
set forth above.
4.2 Computation of Amounts. For purposes of computing the amount
of any item of Company income, gain, loss or deduction to be allocated pursuant
to Article 4 and to be reflected in the Capital Accounts, the determination,
recognition and classification of any such item shall be the same as its
determination, recognition and classification for federal income tax purposes
(including any method of depreciation, cost recovery or amortization used for
this purpose), provided that:
(a) The computation of all items of income, gain, loss and
deduction shall include tax-exempt income and those items described in Treasury
Regulation Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such
items are not includable in gross income or are not deductible for federal
income tax purposes.
(b) If, other than in connection with the transactions
contemplated by the Recapitalization Agreement, the Book Value of any Company
property is adjusted pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(e) or (f), the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such property.
(c) Items of income, gain, loss or deduction attributable to
the disposition of Company property having a Book Value that differs from its
adjusted basis for tax purposes shall be computed by reference to the Book Value
of such property.
(d) Items of depreciation, amortization and other cost
recovery deductions with respect to Company property having a Book Value that
differs from its adjusted basis for tax purposes shall be computed by reference
to the property's Book Value in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(g).
(e) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis).
4.3 Negative Capital Accounts. No Member shall be required to pay
to the Company or any other Member any deficit or negative balance which may
exist from time to time in such Member's Capital Account.
4.4 Company Capital. No Member shall be paid interest on any
Capital Contribution to the Company or on such Member's Capital Account, and no
Member shall have any right (a) to demand the return of such Member's Capital
Contribution or any other distribution from the Company (whether upon
resignation, withdrawal or otherwise), except upon dissolution of the Company
pursuant to Article 12 hereof or (b) to cause a partition of the Company's
assets.
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ARTICLE 5
DISTRIBUTIONS; ALLOCATIONS OF
PROFITS AND LOSSES
5.1 Generally. Subject to the provisions of Section 18-607 of the
Act and Section 5.5, the Board shall have sole discretion regarding the amounts
and timing of distributions to Members, in each case subject to the retention
and establishment of reserves of, or payment to third parties of, such funds as
it deems necessary with respect to the reasonable business needs of the Company
which shall include the payment or the making of provision for the payment when
due of the Company's obligations, including the payment of any management or
administrative fees and expenses or any other obligations.
5.2 Distributions. (a) Subject to Section 5.5, distributions to
be made on any date shall be made in the following order and priority:
(i) First, to the Members in proportion to and to the
extent of their Unpaid Preferred Return;
(ii) Second, to the Members in proportion to and to
the extent of their Unreturned Preferred Capital; and
(iii) Third, to the Members in proportion to their
Common Units.
(b) Notwithstanding Sections 5.1 (but subject to the
Act) or 5.2(a), the Company shall make a distribution to each Preferred Member
on November 14, 2008 (the "Scheduled Redemption Date") in an amount equal to the
full amount of such Preferred Member's Unpaid Preferred Return and Unreturned
Preferred Capital as of the Scheduled Redemption Date; provided, that if the
maturity date of the Subordinated Notes has been extended pursuant to an
amendment of the Subordinated Notes, the Scheduled Redemption Date shall be
extended to the earlier of (i) the twelve month anniversary of the extended
maturity date under the Subordinated Notes and (ii) November 14, 2011; provided
further, that the Scheduled Redemption shall only be extended one (1) time
pursuant to the terms of this Section 5.2(b).
5.3 Allocation of Profits and Losses. For each Fiscal Year of the
Company, after adjusting each Member's Capital Account for all Capital
Contributions and distributions during such Fiscal Year and all special
allocations pursuant to Section 5.4 with respect to such Fiscal Year, all
Profits and Losses (other than Profits and Losses specially allocated pursuant
to Section 5.4) shall be allocated to the Members' Capital Accounts in a manner
such that, as of the end of such Fiscal Year, the Capital Account of each Member
(which may be either a positive or negative balance) shall be equal to (a) the
amount which would be distributed to such Member, determined as if the Company
were to liquidate all of its assets for the Book Value thereof and distribute
the proceeds thereof pursuant to Section 12.2 hereof, minus (b) the sum of (i)
such Member's share of Company Minimum Gain (as determined according to Treasury
Regulation Sections 1.704-2(d) and (g)(3)) and Member Nonrecourse Debt Minimum
Gain (as determined according to Treasury Regulation Section
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1.704-2(i)) and (ii) the amount, if any, which such Member is obligated to
contribute to the capital of the Company as of the last day of such Fiscal Year.
5.4 Regulatory and Special Allocations. Notwithstanding the
provisions of Section 5.3:
(a) If there is a net decrease in Company Minimum Gain during
any Taxable Year, each Member shall be specially allocated items of taxable
income or gain for such Taxable Year (and, if necessary, subsequent Taxable
Years) in an amount equal to such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulation Section
1.704-2(g). The items to be so allocated shall be determined in accordance with
Treasury Regulation Sections 1.704-2(f)(6) and 1.704-2(j)(2). This paragraph is
intended to comply with the minimum gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Nonrecourse Deductions shall be allocated in the
manner required by Treasury Regulation Section 1.704-2(i). Except as otherwise
provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net
decrease in Member Minimum Gain during any Taxable Year, each Member that has a
share of such Member Minimum Gain shall be specially allocated items of taxable
income or gain for such Taxable Year (and, if necessary, subsequent Taxable
Years) in an amount equal to that Member's share of the net decrease in Member
Minimum Gain. Items to be allocated pursuant to this paragraph shall be
determined in accordance with Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2). This paragraph is intended to comply with the minimum gain
chargeback requirements in Treasury Regulation Section 1.704-2(i)(4) and shall
be interpreted consistently therewith.
(c) If any Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of taxable income and gain shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate the adjusted capital account deficit (determined according to Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)) created by such adjustments,
allocations or distributions as quickly as possible. This paragraph is intended
to comply with the qualified income offset requirement in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) The allocations set forth in paragraphs (a), (b) and (c)
above (the "Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations under Code Section 704. Notwithstanding
any other provisions of this Article 5 (other than the Regulatory Allocations),
the Regulatory Allocations shall be taken into account in allocating Profits and
Losses among Members so that, to the extent possible, the net amount of such
allocations of Profits and Losses and other items and the Regulatory Allocations
(including Regulatory Allocations that, although not yet made, are expected to
be made in the future) to each Member shall be equal to the net amount that
would have been allocated to such Member if the Regulatory Allocations had not
occurred.
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5.5 Tax Distributions.
(a) Notwithstanding Sections 5.1 and 5.2 above, so long as the
Managing Member has not determined in good faith that such distribution would be
prohibited or create a default or event of default under the Act or any
financing agreement to which the Company is subject, then (i) at least ten
business days before each date prescribed by the Code for calendar year
corporations to pay quarterly installments of estimated tax, the Company shall
distribute to the Members an amount of cash equal to the excess of (x) the
Quarterly Estimated Tax Amount for the quarter of the Taxable Year with respect
to which such distribution is being made over (y) the amount of distributions
(if any) previously made pursuant to Section 5.2 during such quarter.; (ii) if
the aggregate amount of such distributions with respect to any Taxable Year is
less than the Company's Tax Amount for such Taxable Year, the Company shall
distribute an amount of cash equal to the balance of such Tax Amount ("Shortfall
Distributions"); and (iii) the Company shall use its best efforts to make such
Shortfall Distributions at, on or before the date prescribed by the Code
(without extensions) for calendar year corporations to file federal income tax
returns. If the aggregate amount of such distributions with respect to any
Taxable Year exceeds the Company's Tax Amount for such Taxable Year, the
Company's obligations to make future distributions to such Member pursuant to
this Section 5.5 shall be reduced by the amount of such excess until such excess
has been fully deducted from such distributions.
(b) The Company's "Tax Amount" for a Taxable Year shall be the
federal, state, and local income taxes which would be payable by the Company if
the Company were taxed for such Taxable Year at the highest marginal federal,
state and local income tax rate applicable to any Member on the Company's
taxable income for the Taxable Year (computed as if the Company had elected to
carry forward all loss and credit carryovers, taking into account the character
of any loss and credit carryforward as a capital or ordinary loss). The amounts
in respect of tax withholding on payments to or from the Company for which
Members (or owners directly or indirectly of such Members) are credited under
applicable tax law shall be credited against payments of the Tax Amount to such
Members. The Company's Tax Amount shall be determined initially by the Managing
Member on the basis of figures set forth on IRS Form 1065 filed by the Company
and the similar state or local forms filed by the Company but shall be subject
to subsequent adjustment pursuant to audit, litigation, settlement, amended
return, or the like.
(c) The Company's "Estimated Tax Amount" for a Taxable Year
(or fiscal period) shall be the Company's Tax Amount for such Taxable Year (or
fiscal period) as estimated from time to time by the Managing Member. In making
such estimate, the Managing Member shall take into account amounts shown on IRS
Form 1065 filed by the Company and similar state or local forms filed by the
Company for the preceding taxable year and other adjustments as in the
reasonable business judgment of the Managing Member are necessary or appropriate
to reflect the estimated operations of the Company for the Taxable Year (or
Fiscal Period). The Company's "Quarterly Estimated Tax Amount" for any quarter
of a Taxable Year shall be the excess of (x) the product of (1) 1/4 in the case
of the first quarter of the Taxable Year, 1/2 in the case of the second quarter
of the Taxable Year, 3/4 in the case of the third quarter of the Taxable Year
and 1 in the case of the fourth quarter of the Taxable Year and (2) the
Company's Estimated Tax Amount for such Taxable Year over (y) all prior
distributions of Quarterly Estimated Tax Amounts for such Taxable Year.
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(d) Such portion of the distributions pursuant to Section
5.5(a) as is determined in good faith by the Managing Member to be appropriate,
based on the share of the Company's taxable income allocated to Members on
account of their ownership of Common Units, shall be distributed to Members
holding Common Units, in proportion to their Common Units. Any remaining portion
of the distributions pursuant to Section 5.5(a) shall be treated as a
distribution pursuant to, and shall be made in accordance with, Section 5.2.
(e) Each distribution pursuant to Section 5.5(a) shall be made
to the Persons shown on the Company's books and records as Members as of the
date of such distribution.
5.6 Tax Allocations: Code Section 704(c).
(a) The income, gains, losses, deductions and expenses of the
Company shall be allocated, for federal, state and local income tax purposes,
among the Members in accordance with the allocation of such income, gains,
losses, deductions and expenses among the Members for computing their Capital
Accounts, except that if any such allocation is not permitted by the Code or
other applicable law, the Company's subsequent income, gains, losses, deductions
and expenses shall be allocated among the Members for tax purposes to the extent
permitted by the Code and other applicable law, so as to reflect as nearly as
possible the allocation set forth herein in computing their Capital Accounts.
(b) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, deduction and expense with respect
to any property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its fair market value at the time of contribution under the
remedial allocation method described in Treas. Reg. Section 1.704-3(d).
(c) If the Book Value of any Company asset is adjusted
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) as provided in the
definition of Book Value, subsequent allocations of items of taxable income,
gain, loss, deduction and expense with respect to such asset shall take account
of any variation between the adjusted basis of such asset for federal income tax
purposes and its Book Value in the same manner as under Code Section 704(c).
(d) Allocations of tax credit, tax credit recapture, and any
items related thereto shall be allocated to the Members according to their
interests in such items as determined by the Managing Member taking into account
the principles of Treasury Regulation Section 1.704-1(b)(4)(ii).
(e) Any elections or other decisions relating to such
allocations shall be made by the Managing Member in any manner that reasonably
reflects the purpose and intent of this Agreement. Allocations pursuant to this
Section 5.6 are solely for purposes of federal, state and local taxes and shall
not affect, or in any way be taken into account in computing, any Member's
Capital Account or share of profits, losses, other items or distributions
pursuant to any provisions of this Agreement.
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ARTICLE 6
MANAGEMENT OF THE COMPANY
6.1 Managing Member; Delegation of Authority and Duties.
(a) Except as otherwise required by the Act, the business and
affairs of the Company shall be managed by a Member (the "Managing Member") who
shall at all times be subject to the direction of the Board. CVC is hereby
appointed as the initial Managing Member of the Company and, in such capacity,
shall manage the Company in accordance with this Agreement. The actions of the
Managing Member taken in such capacity and in accordance with this Agreement
shall bind the Company and no other Member, subject to Section 6.1(b), shall
have the ability to bind the Company.
(b) Under the direction of the Board the Managing Member shall
have full, exclusive and complete discretion to manage and control the business
and affairs of the Company, to make all decisions affecting the business,
operations and affairs of the Company and to take all such actions as he or it
deems necessary or appropriate to accomplish the purpose of the Company as set
forth herein. Subject to the provisions of this Agreement, the Managing Member
shall have general and active management of the business and operations of the
Company. In addition, the Managing Member shall have such other powers and
duties as may be prescribed by the Board or this Agreement. The Managing Member
shall have the power and authority to delegate to the Executives or other
officers, agents or employees of the Company the Managing Member's rights and
powers to manage and control the business and affairs of the Company, as the
Managing Member may deem appropriate from time to time. Subject to the
limitations set forth herein, the Managing Member or the Board may authorize any
Person to enter into and perform under any document on behalf of the Company.
(c) The Board shall have the sole authority to remove the
Managing Member with or without Cause and to replace the removed Managing
Member, and any such removal shall be effective upon the Board's action. If such
Managing Member resigns and the business of the Company is continued as provided
in Section 12.1(a) hereof, the Board shall have the sole authority to replace
the Managing Member. The Board shall have the sole authority to terminate the
employment of the Executives in accordance with the terms and conditions of the
Employment Agreements, and any such termination shall be effective upon the
Board's action.
(d) The Managing Member may resign at any time by giving
written notice to that effect to the Board. Unless otherwise directed by the
Board, any such resignation shall take effect at the time of the receipt of that
notice or any later effective time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. The effect of such resignation shall be as
set forth in Sections 6.3 and 7.4 below.
6.2 Status of Managing Member; Eligibility to Serve.
(a) Generally. There shall be no "manager" (as that term is
used in the Act) of the Company. No Person who is not also a Member may be
appointed or serve as the Managing Member. The Managing Member may be an officer
of the Company.
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(b) Remuneration. The Managing Member, in his, her or its
capacity as such, shall not be entitled to remuneration for acting in the
Company business. This Section 6.2 shall in no way limit the employment of the
Executives contemplated by the Employment Agreements or the ownership of
Membership Interests by the Executives or any other Managing Member.
6.3 Resignation or Removal of Managing Member. In the event that
the Managing Member resigns or is removed by the Board, upon the resignation or
removal becoming effective, the Membership Interest owned by such Managing
Member shall be terminated except for the portion thereof that constitutes an
Economic Interest (which such Person shall continue to hold), and the former
Managing Member shall cease to be a Member and shall instead be an Economic
Owner with respect to such Economic Interest and thereafter the former Managing
Member shall be deemed a Terminated Member.
6.4 Board of Advisors.
(a) Establishment. There is hereby established a committee
(the "Board") comprised of natural persons (the "Advisors") having the authority
and duties set forth in this Agreement. Any decisions to be made by the Board
shall require the approval of a majority of the Advisors.
(b) Number of Advisors; Term of Office. The business and
affairs of the Company shall be managed by or under the direction of the Board.
The authorized number of Advisors shall initially be three (3). The Advisors
shall, except as hereinafter otherwise provided for filling vacancies, be
elected at the annual meeting of Members and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
(i) A majority vote of the Members may, at any special meeting
the notice of which shall state that it is called for that purpose,
remove, with or without cause, any Advisor and fill the vacancy;
provided that whenever any Advisor shall have been elected by a
particular Member or Members pursuant to the Securityholders Agreement,
such Advisor may be removed and the vacancy filled only by the Members
entitled to designate such Advisor as set forth in the Securityholders
Agreement. Vacancies caused by any such removal and not filled by the
Members at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Advisor or for
any other reason, and any newly created advisorship resulting from any
increase in the authorized number of Advisors (and not filled by the
Members entitled to designate such Advisor as set forth in the
Securityholders Agreement), may be filled by the affirmative vote of a
majority of the Advisors then in office, although less than a quorum,
and any Advisor so elected to fill any such vacancy or newly created
advisorship shall hold office until his successor is elected and
qualified or until his earlier resignation or removal; provided, that
such Advisor can be removed and replaced by the Members which have the
right to designate such Advisor pursuant to the Securityholders
Agreement.
(ii) When one or more Advisors shall resign effective at a
future date, such vacancy may be filled only by the Members entitled to
designate such Advisor as set forth in the Securityholders Agreement.
Vacancies caused by any such resignation and not filled by the Members
entitled to designate such Advisor, may be filled by the affirmative
vote of
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a majority of the Advisors then in office, including those who are so
resigning, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Advisor so chosen shall
hold office as herein provided in connection with the filling of other
vacancies; provided, that such Advisor can be removed and replaced by
the Members which have the right to designate such Advisor pursuant to
the Securityholders Agreement.
(iii) An Advisor may resign at any time by giving written
notice to that effect to the Board. Unless otherwise directed by the
Board, any such resignation shall take effect at the time of the
receipt of that notice or any later effective time specified in that
notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective.
(c) Meetings of the Board. The Board shall meet at such time
and at such place as the Board may designate; provided, that the Board shall
meet not less than four (4) times in any twelve (12) month period. Special
meetings of the Board shall be held on the call of any Advisor or the Managing
Member upon at least four (4) days' (if the meeting is to be held in person) or
two (2) days' (if the meeting is to be held by telephone communications) oral or
written notice to the Advisors, or upon such shorter notice as may be approved
by the Advisors. Any Advisor may waive such notice as to himself or herself. A
record shall be maintained of meetings of the Board.
(i) Conduct of Meetings. Any meeting of the Advisors may be
held in person or telephonically.
(ii) Quorum. A majority of the Advisors who are then in office
shall constitute a quorum of the Board for purposes of conducting
business.
(iii) Unanimous Written Consent. Unless otherwise prohibited
by law, any action to be taken at any meeting of the Board, or by any
committee thereof, may be taken without a meeting if all the members of
the Board or committee, as the case may be, consent thereto in writing
and the writing(s) are filed with the minutes of the proceedings of the
board or committee.
6.5 Officers.
(a) Appointment of Officers. There shall be two senior
officers of the Company as follows (i) Chief Executive Officer and President and
(ii) Executive Vice President and Chief Financial Officer. Except as otherwise
provided in this Agreement, the Managing Member may appoint other officers at
any time.
(b) Removal, Resignation and Filling of Vacancy of Officers.
The Board may remove any officer of the Company with or without cause at any
time. Any officer may resign at any time by giving written notice to the
Managing Member and the Board. Unless otherwise directed by the Board, any such
resignation shall take effect at the date of the receipt of that notice or any
later time specified in that notice; and, unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary to make it
effective. In the event that an officer resigns or is removed by the Board, upon
the resignation or removal becoming effective, the Membership Interest, if any,
owned by such officer shall be terminated except for the portion thereof
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that constitutes an Economic Interest (which such Person shall continue to hold
subject to the provisions of the Employment Agreement), and if the former
officer is a Member, he shall cease to be a Member and shall instead be an
Economic Owner with respect to such Economic Interest and thereafter the former
officer shall be deemed a Terminated Member.
(c) Salaries of Officers. The officers of the Company shall
not be entitled to receive compensation from the Company.
(d) Duties of Officers Generally. The officers, in the
performance of their duties as such, shall owe to the Members duties of loyalty
and due care of the type owed by the officers of a corporation to the
stockholders of such corporation under the laws of the State of Delaware.
(e) Chief Financial Officer. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Company, including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital and Units. The Chief Financial Officer shall have the
custody of the funds and securities of the Company, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company, and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
Managing Member. The Chief Financial Officer shall have such other powers and
perform such other duties as may from time to time be prescribed by the chief
executive officer or the Managing Member.
ARTICLE 7
MEMBERS; VOTING RIGHTS
7.1 Meetings. Meetings of Members may be held from time to time as
called by the Managing Member or by a Member holding not less than 20% of the
outstanding Units of any class or series of Units, upon (10) ten days' written
notice (such notice may be waived by a Member in writing or by so indicating at
such meeting) if action of the Members is required to be taken pursuant to the
terms of this Agreement. The Managing Member may, or may appoint another Member
to, (and at least one Member shall), preside at meetings of Members. A record
shall be maintained of meetings of the Members.
(a) Any meeting of the Members may be held in person or
telephonically. Except as otherwise provided herein or by applicable law, a
majority of the Class A Common Units, represented in person or by proxy, shall
constitute a quorum of Members for purposes of conducting business.
(b) Unless otherwise prohibited by law, any action to be taken
at a meeting of the Members may be taken without a meeting if a consent of the
Members in writing, setting forth the action so taken, shall be signed by such
of the Members as shall be required to authorize, approve, ratify or otherwise
consent to such action under the Act and this Agreement; provided, however that
any such action approved by less than unanimous written consent of the Members
shall not be
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effective until ten (10) days after notice of such action shall have been
provided to Members entitled to vote who have not consented in writing.
7.2 Voting Rights. Except as specifically provided herein or
otherwise required by applicable law (i) the Class A Members shall be entitled
to one vote per Class A Common Unit held by such Class A Member. Except as
specifically provided herein or otherwise required by applicable law, the Class
B Members and the Preferred Members shall have no right to vote on any matters
to be voted on by the Members of the Company; provided, that the Class B Members
shall have the right to vote as a separate class on any merger or consolidation
of the Company with or into another entity or entities, or any recapitalization
or reorganization, in which the Class B Common Units (x) would receive or be
exchanged for consideration different on a per Common Unit basis from
consideration received with respect to or in exchange for the Class A Common
Units or (y) would otherwise be treated differently from the Class A Common
Units in connection with such transaction, except that the Class B Common Units
without such a separate class vote, may receive or be exchanged for nonvoting
securities (except as otherwise required by law) which are otherwise identical
on a per unit basis in amount and form to the voting securities received with
respect to or exchanged for the Class A Common Units so long as (A) such
nonvoting securities are convertible into such voting securities on the same
terms as the Class B Common Units are convertible into Class A Common Units, and
(B) all other consideration is equal on a per Common Unit basis.
7.3 Conversion of Class B Common Units.
(a) Each Class B Member shall be entitled at any time to
convert any or all of the outstanding Class B Common Units held by such Class B
Member into the same number of Class A Common Units. A Class B Holder or Class B
Holders holding a majority of the Class B Common Units can cause a conversion of
100% of the Class B Common Units into the same number of Class A Common Units.
(b) Each conversion of Class B Common Units into Class A
Common Units shall be effected by written notice by such Class B Member to the
Company at its principal office stating that such Class B Member desires to
convert its Class B Common Units into Class A Common Units. Each conversion of
Class B Common Units shall be deemed to have been effected as of the close of
business on the date on which such notice has been received, and at such time
such Class B Common Units shall be deemed to have been cancelled and converted
into Class A Common Units, and at such time the Class A Common Units issuable
upon such conversion shall be deemed to be issued. At such time, the Company
shall promptly provide written notice to all Members of such conversion.
(c) The conversion of Class B Common Units into Class A Common
Units will be made without charge to the Class B Members electing conversion of
any issuance tax in respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of Class A Common
Units.
(d) All Class A Common Units issuable upon any conversion of
Class B Common Units shall, when issued, be duly and validly issued, and free
from all taxes, liens and charges. The Company shall take all such actions as
may be necessary to assure that all such Class A Common Units may be so issued
without violation of any applicable law or governmental regulation or any
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requirements of any domestic securities exchange upon which Class A Common Units
may be listed (except for official notice of issuance which shall be immediately
transmitted by the Company upon issuance).
(e) The Company shall not close its books against the transfer
of Class B Common Units or Class A Common Units in any manner which would
interfere with the timely conversion of Class B Common Units. The Company shall
assist and cooperate with any Class B Holders required to make any governmental
filings or obtain any governmental approval prior to or in connection with any
conversion of Class B Common Units hereunder (including, without limitation,
making any filings required to be made by the Company).
7.4 Withdrawal; Resignation.
(a) Generally. Any Member may resign as a "member" (as that
term is used in the Act) of the Company by written notice to that effect to the
Company, and any such resignation shall be effective at the time such notice is
given or at such later effective time as may be specified in such notice. Unless
otherwise specified in such notice, the acceptance of the resignation shall not
be necessary to make it effective. A Member shall automatically cease to be a
Member as a result of his or its Incapacity. Upon any such resignation or
Incapacity of a Member, such Member becomes a "Terminated Member." Any Member
who is an employee or an officer of the Company or any of its Subsidiaries
(including any Executive) and whose employment with the Company or any of its
Subsidiaries is terminated for any reason shall be deemed a Terminated Member.
(b) Share of a Terminated Member. In the event that a Member
becomes a Terminated Member, the Membership Interest owned by the Terminated
Member shall be terminated except for the portion thereof which constitutes an
Economic Interest (which such Person shall continue to hold), and such
Terminated Member (or his estate) shall retain such Terminated Member's Units
and Capital Account as adjusted pursuant to the terms hereof, shall be deemed an
Economic Owner only with respect to such Units and Capital Account hereunder and
shall receive allocations and distributions pursuant to Articles 5 and 12 as if
still a Member.
(c) Effect of Termination. Except as provided in Section
12.1(a), the withdrawal or Incapacity or other termination of a Member shall not
affect the existence of the Company, and the remaining Members shall continue
the business of the Company under the terms of this Agreement. Thereafter, the
Terminated Member shall no longer be a Member for purposes of this Agreement and
shall have no rights, except as otherwise provided herein and shall not be
entitled to participate in any Company decision or determination (including,
without limitation, voting or consent rights with respect to amendments to this
Agreement or otherwise, except as provided herein), and the successors and
assigns of a Terminated Member will acquire only such Terminated Member's
Economic Interest as an Economic Owner.
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ARTICLE 8
EXCULPATION AND INDEMNIFICATION
8.1 Performance of Duties; No Liability of Member and Officers. No
Member (including the Managing Member) shall have any duty to the Company or any
Member of the Company except as expressly set forth herein or in other written
agreements. No Member (including the Managing Member), Advisor or officer of the
Company shall be liable to the Company or to any Member for any loss or damage
sustained by the Company or to any Member, unless the loss or damage shall have
been the result of gross negligence, fraud or intentional misconduct by the
Member (including the Managing Member), Advisor or officer in question. In
performing such Person's duties, each such Person shall be entitled to rely in
good faith on the provisions of this Agreement and on information, opinions,
reports or statements (including financial statements and information, opinions,
reports or statements as to the value or amount of the assets, liabilities,
profits or losses of the Company or any facts pertinent to the existence and
amount of assets from which distributions to Members might properly be paid) of
the following other Persons or groups: one or more officers or employees of the
Company; any attorney, independent accountant, appraiser or other expert or
professional employed or engaged by or on behalf of the Company, the Managing
Member, the Board or any committee of the Board; or any other Person who has
been selected with reasonable care by or on behalf of the Company, the Managing
Member, the Board or any committee of the Board in each case as to matters which
such relying Person reasonably believes to be within such other Person's
competence. The preceding sentence shall in no way limit any Person's right to
rely on information to the extent provided in Section 18-406 of the Act. No
Member (including the Managing Member), Advisor or officer of the Company shall
be personally liable for any debt, obligation or liability of the Company,
whether that liability or obligation arises in contract, tort or otherwise,
solely by reason of being a Member, Advisor or officer of the Company or any
combination of the foregoing.
8.2 Competing Activities. Except as set forth herein and in the
Employment Agreements or as may otherwise be agreed in writing and subject to
the By-Laws of Serta, Inc.: (a) the Members, Advisors and the officers,
directors, security holders, partners, members, managers, agents, employees and
Affiliates of each of them, may engage or invest in, own and/or manage,
independently or with others, any business activity of any type or description,
including without limitation those that might be in direct or indirect
competition with the Company; (b) neither the Company nor any Member shall have
any right in or to any of such other ventures or activities or to the income or
proceeds derived therefrom; (c) neither the Members nor the Advisors, officers,
directors, securityholders, partners, members, managers, agents, employees or
Affiliates of any of them shall be obligated to present any investment
opportunity or prospective economic advantage to the Company, even if the
opportunity is of the character that, if presented to the Company, could be
taken advantage of by the Company; and (d) the Members, Advisors and the
officers, directors, securityholders, partners, members, managers, agents,
employees and Affiliates of each of them shall have the right to hold any
investment opportunity or prospective economic advantage for their own account
or to recommend such opportunity to Persons other than the Company.
8.3 Right to Indemnification. Subject to the limitations and conditions
as provided in this Article 8, each Person who was or is made a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether
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civil, criminal, administrative or arbitrative (hereinafter a "Proceeding"), or
any appeal in such a Proceeding or any inquiry or investigation that could lead
to such a Proceeding, by reason of the fact that such Person, or a Person of
which such Person is the legal representative, is or was a Member, Advisor or
officer shall be indemnified by the Company to the fullest extent permitted by
applicable law, as the same exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment) against judgments, penalties
(including excise and similar taxes and punitive damages), fines, settlements
and reasonable expenses (including, without limitation, reasonable attorneys'
fees and expenses) actually incurred by such Person in connection with such
Proceeding, appeal, inquiry or investigation, and indemnification under this
Article 8 shall continue as to a Person who has ceased to serve in the capacity
which initially entitled such Person to indemnity hereunder; provided, that such
Person shall be entitled to indemnification hereunder only if such Person acted
in good faith and in a manner such Person reasonably believed to be in or not
opposed to the best interest of the Company. The rights granted pursuant to this
Article 8 shall be deemed contract rights, and no amendment, modification or
repeal of this Article 8 shall have the effect of limiting or denying any such
rights with respect to actions taken or Proceedings, appeals, inquiries or
investigations arising prior to any amendment, modification or repeal.
8.4 Advance Payment. The right to indemnification conferred in this
Article 8 shall include the right to be paid or reimbursed by the Company the
reasonable expenses incurred by a Person of the type entitled to be indemnified
under Section 8.3 who was, is or is threatened to be, made a named defendant or
respondent in a Proceeding in advance of the final disposition of the Proceeding
and without any determination as to the Person's ultimate entitlement to
indemnification; provided, however, that the payment of such expenses incurred
by any such Person in advance of the final disposition of a Proceeding shall be
made only upon delivery to the Company of a written affirmation by such Person
of his or her good faith belief that he has met the standard of conduct
necessary for indemnification under Article 8 and a written undertaking
(acceptable to the Board), by or on behalf of such Person, to repay all amounts
so advanced if it shall ultimately be determined that such indemnified Person is
not entitled to be indemnified under this Article 8 or otherwise.
8.5 Indemnification of Employees and Agents. The Company, at the
direction of the Board, may indemnify and advance expenses to an employee or
agent of the Company to the same extent and subject to the same conditions under
which it may indemnify and advance expenses under Sections 8.3 and 8.4.
8.6 Reimbursement of Fees and Expenses. The Company shall bear all of
the out-of-pocket expenses, including attorneys' and accountants' fees and
expenses, incurred in connection with the organization of the Company and the
operation and maintenance of the Company and its assets and business. The
Company shall reimburse the Members for all fees and expenses borne by them on
behalf of the Company in connection with the Company and its business.
8.7 Nonexclusivity of Rights. The right to indemnification and the
advancement and payment of expenses conferred in this Article 8 shall not be
exclusive of any other right that a Member, Advisor, officer or other Person
indemnified pursuant to this Article 8 may have or hereafter acquire under any
law (common or statutory) or provision of this Agreement.
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8.8 Insurance. The Company may, but is not obligated to, purchase and
maintain insurance, at its expense, to protect itself and any Member, Advisor,
officer, employee or agent of the Company who is or was serving at the request
of the Company as a manager, director, officer, partner, venturer, proprietor,
trustee, employee, agent, Advisor, or similar functionary of a foreign or
domestic limited liability company, corporation, partnership, joint venture,
sole proprietorship, trust, employee benefit plan or other enterprise against
any expense, liability or loss, whether or not the Company would have the power
to indemnify such Person against such expense, liability or loss under this
Article 8.
8.9 Savings Clause. If this Article 8 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless each Person indemnified
pursuant to this Article 8 as to costs, charges and expenses (including
reasonable attorneys' fees and expenses), judgments, fines and amounts paid in
settlement with respect to any such Proceeding, appeal, inquiry or investigation
to the full extent permitted by any applicable portion of this Article 8 that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
ARTICLE 9
TAXES
9.1 Tax Returns. The Company shall cause to be prepared and filed all
necessary federal and state income tax returns for the Company, and shall make
any elections the Managing Member may deem appropriate and in the best interests
of the Members. Each Member shall furnish to the Company all pertinent
information in its possession relating to Company operations that is necessary
to enable the Company's income tax returns to be prepared and filed.
9.2 Tax Matters Partner. The Chief Financial Officer shall be the "tax
matters partner" of the Company pursuant to section 6231(a)(7) of the Code (the
"Tax Matters Member") if such officer is then a Member, otherwise the Managing
Member shall be the Tax Matters Member. The Tax Matters Member shall take such
action as may be necessary to cause CVC to become a "notice partner" within the
meaning of section 6223 of the Code. The Tax Matters Member is authorized to
represent the Company before the Internal Revenue Service and any other
governmental agency with jurisdiction, and to sign such consents and to enter
into settlements and other agreements with such agencies as the Board deems
necessary or advisable.
9.3 Member Tax Information. Within ninety (90) days after the end of
each Taxable Year, the Managing Member or officers will cause to be delivered to
each Person who was a Member or Economic Owner at any time during such Taxable
Year a Form K-1 or such other information, if any, with respect to the Company
as may be necessary for the preparation of such Member's or Economic Owner's
federal, state and local income tax returns. Any deficiency for taxes imposed on
any Member or Economic Owner (including penalties, additions to tax or interest
imposed with respect to such taxes) shall be paid by such Member or Economic
Owner, and if paid by the Company, shall be recoverable from such Member or
Economic Owner pursuant to Section 13.8.
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ARTICLE 10
BOOKS, REPORTS AND COMPANY COVENANTS
10.1 Maintenance of Books. The Company shall keep books and
records of accounts in accordance with GAAP and shall keep minutes of the
proceedings of its Members and each committee. The Fiscal Year shall be the
accounting year of the Company for financial reporting purposes.
10.2 Financial Statements and Other Information. The Company
shall, upon the request of any Member who holds more than 5% of the outstanding
Common Units, deliver to such Member:
(a) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each Fiscal Year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the Fiscal Year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the annual budget and to the corresponding period in the
preceding Fiscal Year, and all such statements shall be prepared in accordance
with GAAP, consistently applied, subject to the absence of footnote disclosures
and to normal year-end adjustments, and shall be accompanied by an officer's
certificate;
(b) within 45 days after the end of each quarterly accounting
period in each Fiscal Year, unaudited consolidating and consolidated statements
of income and cash flows of the Company and its Subsidiaries for such quarterly
period, and unaudited consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such quarterly period, setting
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding Fiscal Year, and all such statements shall be prepared
in accordance with GAAP, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments, and shall be
accompanied by an officer's certificate;
(c) within 90 days after the end of each Fiscal Year, audited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such Fiscal Year, and audited consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such Fiscal Year, setting forth in each case comparisons to the annual budget
and to the preceding Fiscal Year, all prepared in accordance with GAAP,
consistently applied, and accompanied by (i) with respect to the consolidated
portions of such statements, an opinion of an independent accounting firm of
recognized national standing, (ii) a certificate from such accounting firm,
addressed to the Board, stating that in the course of its examination nothing
came to its attention that caused it to believe that there was any default by
the Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any material agreement to
which the Company or any Subsidiary is a party or, if such accountants have
reason to believe any default by the Company or any Subsidiary exists, a
certificate specifying the nature and period of existence thereof, and (iii) a
copy of such firm's annual management letter to the Board;
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(d) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(e) at least 30 days prior to the end of each Fiscal Year, an
annual budget prepared on a monthly basis for the Company and its Subsidiaries
for the following Fiscal Year (displaying anticipated statements of income and
cash flows and balance sheets), and following preparation thereof quarterly
revisions of such budget and any other significant budgets prepared by the
Company or its Subsidiaries, and within 30 days after any monthly period in
which there is a material adverse deviation from the annual budget, an officer's
certificate explaining the deviation and what actions the Company has taken and
proposes to take with respect thereto; and
(f) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this Article 10 may reasonably request.
10.3 Inspection of Property. The Company shall permit any
Member, upon written demand under oath stating a purpose therefor reasonably
related to its interest as a Member, during normal business hours and such other
times as any such holder may reasonably request, to (i) visit and inspect any of
the properties of the Company and its Subsidiaries, (ii) examine the corporate
and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and (iii) discuss the affairs, finances and
accounts of any such corporations with the directors, officers, key employees
and independent accountants of the Company and its Subsidiaries.
10.4 Regulatory Compliance Cooperation.
(a) Regulatory Violation. In the event that CVC or any of its
Affiliates determines that it has a Regulatory Problem (as defined below), the
Company agrees to take all such actions as are reasonably requested by CVC in
order (i) to effectuate and facilitate any Transfer by CVC of any securities of
the Company then held by CVC to any Person designated by CVC (ii) to permit CVC
(or any of its Affiliates) to exchange all or a portion of any voting security
then held by it on a share-for-share basis for shares of a nonvoting security of
the Company, which nonvoting security shall be identical in all respects to the
voting security exchanged for it, except that it shall be nonvoting and shall be
convertible into a voting security on such terms as are requested by CVC in
light of regulatory considerations then prevailing, and (iii) to continue and
preserve the respective allocation of the voting interests with respect to the
Company provided for in the Securityholders Agreement and with respect to CVC's
ownership of the Common and Preferred Units. Such actions may include, but shall
not necessarily be limited to entering into such additional agreements, adopting
such amendments to this Agreement and taking such additional actions as are
reasonably requested by CVC in order to effectuate the intent of the foregoing.
For purposes of this Agreement, a "Regulatory Problem" means any set of facts or
circumstances wherein it has been asserted by any governmental regulatory agency
(or CVC believes that there is a substantial risk of such assertion) that CVC is
not entitled to hold, or exercise any significant right with respect to, the
Common and Preferred Units.
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(b) Use of Proceeds. The Company hereby agrees that: (i) the
Company will provide CVC with a written summary certified by the Company's
President or Chief Financial Officer describing in reasonable detail the
Company's use of the proceeds received pursuant to the transactions contemplated
by the Recapitalization Agreement (including the intended use of any such unused
proceeds as of the date of such summary) (A) within 75 days of the date hereof,
and (B) at the end of each month thereafter until all of the proceeds received
hereunder have been used by the Company and its Subsidiaries, and (ii) the
Company will repurchase, subject to the Act, at the request of CVC the
Membership Interest held by CVC for an amount equal to the purchase price
thereof (plus any accrued interest or dividends thereon), payable in immediately
available funds, in the event that CVC determines in its reasonable good faith
judgment that a Regulatory Violation (as defined below) occurred. In the event
of such repurchase, the Company shall pay for such Membership Interest by a
cashier's check, certified check or wire transfer within 30 days after the
Company's receipt of the repurchase request, and upon such payment, CVC shall
deliver the certificates evidencing the securities being repurchased.
For purposes of this Agreement, "Regulatory Violation" means
(a) a diversion of the proceeds from the transactions contemplated by the
Recapitalization Agreement described on the use of proceeds statement delivered
by the Company on the date hereof, if such diversion was effected without
obtaining the prior written consent of CVC (which consent may be withheld in
CVC's sole discretion) or (b) a change in the principal business activity of the
Company and its Subsidiaries to an ineligible business activity (within the
meaning of the SBIC Regulations), if such change occurs within one year after
the date hereof.
(c) Number of Class A Members. As long as CVC holds any
Membership Interest, the Company shall notify CVC (a) at least 15 days prior to
taking any action after which the number of Class A Members would be increased
from fewer than 50 to 50 or more, and (b) of any other action or occurrence
after which the number of Class A Members was increased (or would increase) from
fewer than 50 to 50 or more, as soon as practicable after the Company becomes
aware that such other action or occurrence has occurred or is proposed to occur.
(d) Economic Impact Information. Promptly after the end of
each Fiscal Year (but in any event prior to February 28 of each year) the
Company shall deliver to CVC a written assessment of the economic impact of
CVC's investment in the Company, specifying the full-time equivalent jobs
created or retained in connection with the investment, the impact of the
investment on the businesses of the Company in terms of expanded revenue and
taxes, and other economic benefits resulting from the investment, including but
not limited to, technology development or commercialization, minority business
development, urban or rural business development, expansion of exports.
10.5 Notice of Developments. The Company will give prompt
written notice to CVC of any material adverse development causing a breach of
any of the above representations and warranties. No disclosure by the Company
pursuant to this Section 10.5, however, shall prevent or cure any
misrepresentation, breach of warranty, or breach of contract.
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10.6 SBA Matters.
(a) Use of Proceeds. The Company, together with its
"affiliates" (as that term is defined in 13 CFR, Section 121.401), is a "small
business concern" within the meaning of the SBIC regulations, including 13 CFR
Section 121.802. The information regarding the Company and its affiliates set
forth in the SBA Form 480, Form 652 and Section A of Form 1031 is accurate and
complete. Copies of such forms shall have been completed by the Company and
delivered to CVC at the Closing. Neither the Company nor any Subsidiary
presently engages in, or shall hereafter engage in, any activities, nor shall
the Company or any Subsidiary use directly or indirectly the proceeds from the
transactions contemplated by the Recapitalization Agreement for any purpose, for
which an SBIC is prohibited from providing funds by SBIC regulations, including
13 CFR Section 107.804 and Section 107.901.
(b) SBA Forms. The Company shall have delivered to CVC prior
to the date hereof:
(i) duly completed and executed SBA Forms 480, 652 and
Part A of 1031;
(ii) a business plan showing the Company's financial
projections (including balance sheets and income and cash flow statements) for
the period ending December 31, 2001;
(iii) a written statement from the Company regarding its
intended use of the proceeds of the transactions contemplated by the
Recapitalization Agreement; and
(iv) a list, after giving effect to the transactions
contemplated by this Agreement, of (a) the name of each of the Company's
Advisors, (b) the name and title of each of the Company's officers, and (c) the
name of each of the Company's Members setting forth the number and class of
Membership Interests held as of the date hereof.
10.7 Company Funds. The Company may not commingle the
Company's funds with the funds of any Member or the funds of any Affiliate of
any Member.
10.8 Investments. The Company was formed to invest in and
supervise the operation and management of Holdings and its Subsidiaries. As of
the date hereof, the Company does not own any significant assets other than (i)
the membership interests in Holdings and Sleepmaster and (ii) the Junior
Subordinated Notes issued by Holdings pursuant to the Recapitalization
Agreement. The Company will not directly or indirectly, make or own any
Investment (as defined in the Securities Purchase Agreement by and among PMI,
Sleepmaster and Holdings dated as of the date hereof) in any person other than
Holdings and its Affiliates.
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ARTICLE 11
TRANSFER OF INTERESTS
11.1 Restrictions. Each Member acknowledges that he shall not Transfer
any interest in the Company except in accordance with the provisions of this
Article 11, the Securityholders Agreement and the Employment Agreements. Any
attempted Transfer in violation of the preceding sentence shall be deemed null
and void for all purposes, and the Company will not record any such transfer on
its books or treat any purported transferee as the owner of such interests for
any purpose. As used in this Article 11, references to a Transfer of an
"interest" shall mean any Transfer of any Membership Interest or other Economic
Interest or any interest in any portion of a Membership Interest or Economic
Interest.
11.2 General Restrictions on Transfer.
(a) Notwithstanding anything to the contrary in this Agreement, no
transferee of any interest received pursuant to a Transfer (but excluding
transferees that were Members immediately prior to such a Transfer, who shall
automatically become Members with respect to any additional interests they so
acquire) shall become a Member in respect of the interest so transferred unless
a Person is admitted as a Member as set forth in Section 3.4(b).
(b) No Transfer of a Membership Interest in the Company or any
portion thereof shall be effective unless and until (i) written notice
(including the name and address of the purchaser or donee and the date of such
Transfer) has been provided to the Company and the non-transferring Member(s)
and (ii) the transferee executes a form of this Agreement or an amendment hereto
in form and substance reasonably satisfactory to the Board. No transferee of a
Member's Membership Interest (or any interest therein) may further Transfer such
interest without complying with the provisions of this Article 11.
(c) Following a Transfer of an interest that is permitted under
this Article 11, the transferee of such interest shall be treated as having made
all of the Capital Contributions in respect of, and received all of the
distributions received in respect of, such interest, shall succeed to the
Capital Account associated with such interest and shall receive allocations and
distributions under Articles 5 and 12 in respect of such interest as if such
transferee were a Member.
(d) Any Member who Transfers all of his interest in the Company
shall (i) cease to be a Member upon such Transfer, (ii) shall no longer possess
or have the power to exercise any rights or powers of a Member of the Company
and (iii) shall be deemed a Terminated Member.
11.3 Procedure for Transfers. Subject in all events to the general
restrictions on transfers contained in Sections 11.1 and 11.2 and in the
Securityholders Agreement, a Person may Transfer all or any part of its Economic
Interest in the Company in accordance with this Section 11.3.
(a) No Transfer may be completed until the prospective transferee
executes and delivers to the Company and the other Members an agreement to be
bound by this Agreement in form and substance reasonably acceptable to the
Board. In addition, the Board may require the transferor and the transferee to
execute, acknowledge and deliver to the Company, for the benefit
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of the remaining Members, such instruments of transfer, assignment and
assumption and such other certificates, representations and documents, and to
perform all such other acts which the Board may deem necessary or desirable to:
(i) ensure that such transferee will become an Economic Owner;
(ii) preserve the Company after the completion of such sale,
transfer, assignment, or substitution under the laws of each jurisdiction in
which the Company is qualified, organized or does business;
(iii) maintain the status of the Company as a partnership for
federal income tax purposes; and
(iv) assure compliance with any applicable state and federal
laws including securities laws and regulations.
Each Member agrees that, if it is a transferor, upon request of the Board it
shall indemnify the Company and the remaining Members against any and all loss,
damage, or expense (including, without limitation, tax liabilities or loss of
tax benefits) arising directly or indirectly as a result of any Transfer or
purported Transfer in violation of this Section 11.
(b) In connection with the Transfer of any Restricted Securities,
the holder thereof will deliver written notice to the Company describing in
reasonable detail the Transfer or proposed Transfer. In addition, if the holder
of such Restricted Securities delivers to the Company an opinion of such counsel
that no subsequent Transfer of such Restricted Securities will require
registration under the Securities Act, the Company will promptly upon such
contemplated Transfer deliver new certificates or instruments, as the case may
be, for such Restricted Securities which do not bear the restrictive legend
relating to the Securities Act as set forth below. If the Company is not
required to deliver new certificates or instruments, as the case may be, for
such Restricted Securities not bearing such legend, the holder thereof will not
Transfer the same until the prospective transferee has confirmed to the Company
in writing its agreement to be bound by the conditions contained in this Section
11.3.
11.4 Prospective Transferees. Subject to the terms of this Agreement
and the Securityholders Agreement, the Company, the Managing Member and each
Executive agree to cooperate, as may reasonably be requested, in order to
provide any information and access to any information to any prospective
transferee in connection with a proposed Transfer.
11.5 Legend. The certificates representing the Units will bear the
following legend:
"THE UNITS REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED AS OF NOVEMBER 14, 1996, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE
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TRANSFER OF THE UNITS REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE CONDITIONS SPECIFIED IN A LIMITED LIABILITY
COMPANY OPERATING AGREEMENT, GOVERNING THE ISSUER (THE
"COMPANY") AND BY AND AMONG CERTAIN INVESTORS. A COPY OF SUCH
CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER
HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
11.6 Transfer Fees and Expenses. The transferor and transferee of any
Membership Interest or Economic Interest shall be jointly and severally
obligated to reimburse the Company for all reasonable expenses (including
attorneys' fees and expenses) of any Transfer or proposed Transfer, whether or
not consummated.
11.7 Limitations.
(a) Notwithstanding anything to the contrary in this Agreement, no
Unit or Economic Interest may be transferred if such transfer would result in
the Company having more than 100 "beneficial owners" as defined and determined
by the Investment Company Act of 1940, as amended from time to time.
(b) In order to permit the Company to qualify for the benefit of a
"safe harbor" under Code Section 7704, notwithstanding anything to the contrary
in this Agreement, no Transfer of any Unit or Economic Interest shall be
permitted or recognized by the Company or the Managing Member (within the
meaning of Treas. Reg. Section 1.7704-1(d)) if and to the extent that such
Transfer would cause the Company to have more than 100 partners (within the
meaning of Treas. Reg. Section 1.7704-1(h), including the look-through rule in
Treas. Reg. Section 1.7704-1(h)(3)).
ARTICLE 12
DISSOLUTION AND LIQUIDATION
12.1 Events Causing Dissolution.
(a) The Company shall continue in full force and effect until the
expiration of the term set forth in Section 2.4, except that the Company shall
be dissolved prior thereto upon the happening of any of the following events or
by operation of law:
(i) the Company shall be dissolved upon the occurrence of any
of the events specified in Section 18-801 of the Act, including, without
limitation, (A) the written consent of all Members; (B) the death, retirement,
resignation, expulsion, bankruptcy or dissolution of a Member or the occurrence
of any other event which terminates the continued membership of a Member in the
Company, unless after the occurrence of such event, there are at least two
remaining Members and the business of the Company is continued by the consent of
a majority in interest of the remaining Members (determined pursuant to Rev.
Proc. 94-46) within 90 days following the
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occurrence of the event; or (C) the entry of a decree of judicial dissolution
under Section 18-802 of the Act; and
(ii) any event which shall make it unlawful for the existence
of the Company to be continued.
(b) In the event of a Bankruptcy of a Member that does not cause
the Company to dissolve as provided in subsection (a), such Member shall cease
to be a Member for all purposes hereunder unless upon the Consent of the
Members, such Bankrupt Member is permitted to remain a Member hereunder.
12.2 Liquidation and Termination. On dissolution of the Company, the
Managing Member or such other or additional Member or Members as designated by
the Board shall act as liquidator(s). The liquidator(s) shall proceed diligently
to wind up the affairs of the Company and make final distributions as provided
herein and in the Act. The costs of liquidation shall be borne as a Company
expense. Until final distribution, the liquidator(s) shall continue to operate
the Company properties with all of the power and authority of Managing Member
and Members, subject to the power of the Board to remove and replace such
liquidator(s). The steps to be accomplished by the liquidator(s) are as follows:
(a) As promptly as possible after dissolution and again after
final liquidation, the liquidator(s) shall cause a proper accounting to be made
by a recognized firm of certified public accountants of the Company's assets,
liabilities and operations through the last day of the calendar month in which
the dissolution occurs or the final liquidation is completed, as applicable.
(b) The liquidator(s) shall pay, satisfy or discharge from Company
funds all of the debts, liabilities and obligations of the Company (including,
without limitation, all expenses incurred in liquidation) or otherwise make
adequate provision for payment and discharge thereof (including, without
limitation, the establishment of a cash fund for contingent liabilities in such
amount and for such term as the liquidator may reasonably determine).
(c) All remaining assets of the Company shall be distributed to
the Members in accordance with Section 5.2(a) hereof by the end of the taxable
year of the Company during which the liquidation of the Company occurs (or, if
later, 90 days after the date of the liquidation).
The liquidator(s) shall cause only cash and securities to be distributed in any
liquidation. The distribution of cash and/or property to a Member in accordance
with the provisions of this Section 12.2 constitutes a complete return to the
Member of its Capital Contributions and a complete distribution to the Member of
its interest in the Company and all the Company's property and constitutes a
compromise to which all Members have consented within the meaning of the Act. To
the extent that a Member returns funds to the Company, it has no claim against
any other Member for those funds.
12.3 Cancellation of Certificate. On completion of the
distribution of Company assets as provided herein, the Company is terminated,
and shall file a certificate of cancellation of the Company pursuant to Section
18-203 of the Act and take such other actions as may be necessary to terminate
the Company.
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<PAGE> 40
ARTICLE 13
GENERAL/MISCELLANEOUS PROVISIONS
13.1 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be given either by
depositing that writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering that writing to the recipient in person, by courier, or by facsimile
transmission; and a notice, request, or consent given under this Agreement is
effective on receipt by the Person who receives it. All notices, requests and
consents to be sent to a Member must be sent to or made at the address (or
facsimile number) given for that Member on Schedule A, or such other address (or
facsimile number) as that Member may specify by notice to the other Members. Any
notice, request or consent to the Company or the Managing Member must be given
to the Managing Member or, if appointed, the Secretary of the Company at the
Company's chief executive offices. Whenever any notice is required to be given
by law or this Agreement, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
13.2 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES
HEREUNDER SHALL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
13.3 Certificates of Units.
(a) Every holder of Units in the Company shall be entitled to have
a certificate, signed by, or in the name of the Company, by any two of: (i) the
Managing Member, (ii) the president of the Company and (iii) the vice-president
of the Company, certifying the number of Units owned by such holder in the
Company. In case the Managing Member or any officer(s) who have signed any such
certificate(s) shall cease to be Managing Member or officer(s) of the Company
whether because of death, resignation or otherwise before such certificate(s)
have been delivered by the Company, such certificate(s) may nevertheless be
issued and delivered as though the Person or Persons who signed such
certificate(s) had not ceased to hold such position. All certificates for Units
shall be consecutively numbered or otherwise identified. The name of the Person
to whom the Units represented thereby are issued, with the number of Units and
date of issue, shall be entered on the books of the Company. Units of the
Company shall only be transferred on the books of the Company by the holder of
record thereof or by such holder's attorney duly authorized in writing, upon
surrender to the Company of the certificate(s) for such Units endorsed by the
appropriate Person(s), with such evidence of the authenticity of such
endorsement, transfer, authorization, and other matters as the Company may
reasonably require, and accompanied by all necessary transfer stamps. In that
event, it shall be the duty of the Company to issue a new certificate to the
Person entitled thereto, cancel the old certificate(s), and record the
transaction on its books. The Board may appoint a bank or trust company
organized under the laws of the United States or any state thereof to act as its
transfer agent or registrar, or both in connection with the transfer of any
class or series of securities of the Company.
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<PAGE> 41
(b) The Board may direct a new certificate(s) to be issued in
place of any certificate(s) previously issued by the Company alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate(s), the Board may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate(s), or his or her legal representative,
to give the Company a bond sufficient to indemnify the Company against any claim
that may be made against the Company on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.
13.4 Entire Agreement. This Agreement, the Securityholders Agreement,
the Subscription Agreement, the Investor Subscription Agreement and that certain
letter agreement between CVC and PMI, each dated as of the date hereof,
constitute the entire agreement of the parties thereto relating to the Company
and supersede all prior contracts or agreements with respect to the Company,
whether oral or written.
13.5 Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by that
Person of its obligations hereunder or with respect to the Company is not a
consent or waiver to or of any other breach or default in the performance by
that Person of the same or any other obligations of that Person hereunder or
with respect to the Company. Failure on the part of a Person to complain of any
act of any Person or to declare any Person in default hereunder or with respect
to the Company, irrespective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that default
until the applicable statute-of-limitations period has run.
13.6 Amendment or Modification. This Agreement and any provision hereof
may be amended or modified from time to time only by the prior approval of the
holders of no less than 85% of the Class A Common Units and the Class B Common
Units voting together as a single class.
13.7 Binding Effect. Subject to the restrictions on Transfers set forth
in this Agreement, this Agreement is binding on and shall inure to the benefit
of the Members and their respective heirs, legal representatives, successors and
permitted assigns.
13.8 Power of Attorney. Each Member hereby irrevocably constitutes and
appoints the Managing Member his or its true and lawful attorney-in-fact and
agent with full power and authority to act in his name, place and stead to
execute, acknowledge, swear to, deliver, file, record and publish any document
required to be filed on behalf of the Company:
(a) to qualify or continue the Company as a limited liability
company;
(b) to accomplish the purposes and carry out the powers of the
Company as set forth in this Agreement;
(c) to effect the dissolution, winding up and termination of the
Company; or
(d) to effect transfers, admissions, withdrawals and substitution
of Members as specifically provided under the terms of this Agreement, including
any amendment to Schedule A necessary to reflect the same.
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<PAGE> 42
No person shall take any action as an attorney-in-fact of any Member which would
in any way increase the liability of such Member beyond the liability expressly
set forth in this Agreement. This power of attorney is coupled with an interest
and shall be irrevocable and shall not be affected by the subsequent disability
or incapacity of the principal.
13.9 Indemnification and Reimbursement for Payments on Behalf of a
Member. If the Company is obligated to pay any amount to a governmental agency
(or otherwise makes a payment) because of a Member's status or otherwise
specifically attributable to a Member (including, without limitation, federal,
state or local withholding taxes imposed with respect to any issuance of Units
or other interests to a Member or any payments to a Member, federal withholding
taxes with respect to foreign Persons, state personal property taxes, state
unincorporated business taxes, etc.), then such Member (the "Indemnifying
Member") shall indemnify the Company in full for the entire amount paid
(including, without limitation, any interest, penalties and expenses associated
with such payments). The amount to be indemnified shall be charged against the
Capital Account of the Indemnifying Member, and, at the option of the Board,
either:
(i) promptly upon notification of an obligation to indemnify the
Company, the Indemnifying Member shall make a cash payment to the
Company equal to the full amount to be indemnified (and the amount paid
shall be added to the Indemnifying Member's Capital Account but shall
not be treated as a Capital Contribution), or
(ii) the Company shall reduce distributions that would otherwise
be made to the Indemnifying Member, until the Company has recovered the
amount to be indemnified (provided that the amount of such reduction
shall be deemed to have been distributed for all purposes of this
Agreement, but such deemed distribution shall not further reduce the
Indemnifying Member's Capital Account).
An Indemnifying Member's obligation to make contributions to the Company under
this Section 13.9 shall survive the termination, dissolution, liquidation and
winding up of the Company and, for purposes of this Section 13.9, the Company
shall be treated as continuing in existence. The Company may pursue and enforce
all rights and remedies it may have against each Indemnifying Member under this
Section 13.9, including instituting a lawsuit to collect such contribution with
interest calculated at prime rate plus five percentage points per annum (but not
in excess of the highest rate per annum permitted by law).
13.10 Consent to Jurisdiction. Each Member irrevocably submits to the
jurisdiction of any state or federal court sitting in New York, New York or the
State of Delaware for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby. Each
Member further agrees that service of any process, summons, notice or document
by U.S. certified or registered mail to such Member's respective address set
forth on Schedule A shall be effective service of process in any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding sentence. Each
Member irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in any state or federal court sitting in New
York, New York or the State of Delaware, and hereby irrevocably and
unconditionally waives and agrees not to plead or claim in any such court
-38-
<PAGE> 43
that any such action, suit or proceeding brought in such court has been brought
in an inconvenient forum.
13.11 WAIVER OF JURY TRIAL. EACH MEMBER HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY WITH RESPECT TO ANY LITIGATION WHICH ARISES OUT OF, OR WHICH IS
RELATED TO, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
13.12 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original for all purposes, but all of
which taken together shall constitute only one agreement. The production of any
executed counterpart of this Agreement shall be sufficient for all purposes
without producing or accounting for any other counterpart thereof.
13.13 Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision or provisions herein
(a) are determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid or (b) would cause any Member to be bound by the
obligations of the Company under the laws of any state or locale as the same may
now or hereafter exist, such provision or provisions shall be deemed void and of
no effect.
13.14 Headings. All section headings or captions contained in this
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement.
13.15 Parties in Interest. Nothing herein shall be construed to be to
the benefit of or enforceable by any third party including, but not limited to,
any creditor of the Company.
13.16 Further Assurances. The Members will execute and deliver such
further instruments and do such further acts and things as may be required to
carry out the intent and purposes of this Agreement.
13.17 Specific Performance; Remedies. The Company and the Members shall
be entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement
(including costs of enforcement) and to exercise any and all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company or any Member may in its or his sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance or injunctive relief (without posting a bond or other security) in
order to enforce or prevent any violation or threatened violation of the
provisions of this Agreement. No remedy conferred upon or reserved to the
Company or any Member by this Agreement is intended to be exclusive of any other
remedy. Each and every such remedy shall be cumulative and shall be in addition
to any other remedy given to the Company or any Member hereunder or now or
hereafter existing at law or in equity or by statute.
* * * * *
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<PAGE> 44
IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year first above written.
SLEEP INVESTOR L.L.C.
By:
-----------------------------------------
Name:
Managing Member
PMI MEZZANINE FUND, L.P.
By: Pacific Mezzanine Investors, L.L.C., its
General Partner
By:
-----------------------------------------
Name:
Title:
CITICORP VENTURE CAPITAL, LTD.
By:
-----------------------------------------
Name:
Title:
R. GUY BOYLE
---------------------------------------------
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<PAGE> 45
SCHEDULE A
SLEEP INVESTOR L.L.C.
<TABLE>
<CAPTION>
No. of No. of
No. of Class A Class B
Capital Preferred Common Preferred Common Common
Member and Address Contribution Capital Capital Units Units Units
------------------ ------------ --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Citicorp Venture $ 10,850,440.69 $ 10,200,000.00 $ 650,440.69 7,285.70 999 4060
Capital, Ltd.
14th Floor
399 Park Avenue
New York, NY 10043
PMI Mezzanine $ 2,128,571.00 $ 2,000,000.00 $ 128,571.00 1,428.56 1,000 --
Fund, L.P.
610 Newport Center
Drive, Suite 1100
Newport Beach, CA 92660
R. Guy Boyle $ 5,271.41 -- $ 5,271.41 -- 41 --
259 Robin Drive
Sarasota, Florida 34228
TOTAL $ 12,984,283.10 $ 12,200,000.00 $ 784,283.10 8,714.26 2,040 4060
</TABLE>
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<PAGE> 46
SCHEDULE B
Managing Member
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, New York 10043
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<PAGE> 47
SCHEDULE C
CVC Coinvestors
Alchemy, L.P.
Richard Cashin
[63BR PARTNERSHIP]
Charles E. Corpening
Michael A. Delaney
Noelle C. Doumar
David Y. Howe
Byron L. Knief
Richard Mayberry
M. Saleem Muqaddam
Joseph Silvestri
David F. Thomas
James Urry
John D. Weber
-43-
<PAGE> 1
EXHIBIT 10.33
EXECUTION COPY
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
HERR MANUFACTURING COMPANY,
SLEEPMASTER L.L.C.,
AND
THE STOCKHOLDERS LISTED ON
THE SELLER SIGNATURE
PAGE ATTACHED HERETO
================================================================================
February 26, 1999
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1. PURCHASE AND SALE.............................................. 1
1A. Purchase and Sale of the Shares.......................... 1
1B. Purchase Price........................................... 1
1C. The Closing.............................................. 1
1D. Working Capital Purchase Price Adjustment................ 2
1E. Determination of Closing Net Working Capital............. 3
1F. Income Tax Purchase Price Adjustment..................... 4
1G. Operative Rules.......................................... 4
SECTION 2. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT THE CLOSING....... 5
2A. Representations and Warranties; Covenants................ 5
2B. Opinion of the Sellers' Counsel.......................... 5
2C. Litigation............................................... 5
2D. Consents and Approvals................................... 5
2E. Escrow Agreements........................................ 5
2F. Material Adverse Change.................................. 5
2G. Intentionally Omitted.................................... 6
2H. Employment and Noncompetition Arrangements............... 6
2I. Real Estate Matters...................................... 6
2J. Closing Documents........................................ 6
2K. Financing................................................ 7
2L. Fees and Expenses........................................ 7
2M. Resignation of Directors................................. 7
2N. Release of Liens......................................... 7
2O. Transactions with Affiliates............................. 7
2P. Waiver................................................... 7
SECTION 3. CONDITIONS OF THE SELLERS' OBLIGATIONS AT THE CLOSING.......... 8
3A. Representations and Warranties; Covenants................ 8
3B. Escrow Agreements........................................ 8
3C. Employment Agreements.................................... 8
3D. Litigation............................................... 8
3E. Opinion of the Purchaser's Counsel....................... 8
3F. Closing Documents........................................ 8
3G. HSR Act.................................................. 8
3H. Waiver................................................... 8
SECTION 4. PRE-CLOSING COVENANTS AND AGREEMENTS..................... 8
4A. Best Efforts; Further Assurances......................... 9
4B. Third Party Notices and Consents......................... 9
4C. Operation of Business.................................... 9
4D. Full Access.............................................. 10
4E. Press Release and Announcements.......................... 10
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<PAGE> 3
4F. HSR Act.................................................. 10
4G. Compliance with Agreements and Laws...................... 10
4H. Payment of Obligations................................... 10
4I. Notice of Material Developments.......................... 11
4J. Exclusivity.............................................. 11
4K. Certain Pre-Closing Tax Matters.......................... 12
SECTION 5. POST-CLOSING COVENANTS AND AGREEMENTS.................... 12
5A. Confidentiality.......................................... 12
5B. Noncompete, Nonsolicitation.............................. 12
5C. Certain Post-Closing Tax Matters......................... 13
5D. Company Profit Sharing Plan.............................. 14
SECTION 6. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.... 14
6A. Organization, Corporate Power and Licenses............... 14
6B. Capital Stock and Related Matters; Subsidiaries.......... 15
6C. Authorization; No Breach. ............................... 15
6D. Consents................................................. 16
6E. Financial Statements..................................... 16
6F. Absence of Undisclosed Liabilities....................... 17
6G. Accounts Receivable...................................... 17
6H. Inventory................................................ 17
6I. Product Warranty......................................... 17
6J. Product Liability........................................ 17
6K. No Material Adverse Effect............................... 18
6L. Indebtedness............................................. 18
6M. Absence of Certain Developments.......................... 18
6N. Assets................................................... 20
6O. Tax Matters.............................................. 20
6P. Contracts and Commitments................................ 22
6Q. Intellectual Property Rights............................. 24
6R. Litigation, etc.......................................... 25
6S. Brokerage................................................ 26
6T. Insurance................................................ 26
6U. Employees................................................ 26
6V. ERISA.................................................... 26
6W. Compliance with Laws; Permits............................ 28
6X. Environmental and Safety Matters......................... 28
6Y. Affiliate Transactions................................... 29
6Z. Real Property............................................ 30
SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE SELLERS............ 30
7A. Power and Authority. .................................... 31
7B. Authorization; No Breach. ............................... 31
7C. Title to Shares.......................................... 31
7D. Brokerage................................................ 31
7E. Litigation, etc. ........................................ 32
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<PAGE> 4
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......... 32
8A. Organization, Power and Authority. ...................... 32
8B. Authorization; No Breach. ............................... 32
8C. Consents................................................. 32
8D. Brokerage................................................ 33
8E. Bank Financing........................................... 33
8F. Investment Representations............................... 33
SECTION 9. INDEMNIFICATION AND OTHER AGREEMENTS..................... 33
9A. Survival of Representations and Warranties............... 33
9B. General Indemnification. ................................ 34
SECTION 10. DEFINITIONS.............................................. 37
SECTION 11. TERMINATION.............................................. 44
11A. Conditions of Termination................................ 44
11B. Effect of Termination.................................... 44
SECTION 12. MISCELLANEOUS................................................. 45
12A. Fees and Expenses........................................ 45
12B. Remedies................................................. 45
12C. Consent to Amendments; Waivers........................... 45
12D. Successors and Assigns................................... 45
12E. Severability............................................. 46
12F. Counterparts............................................. 46
12G. Descriptive Headings; Interpretation..................... 46
12H. Entire Agreement......................................... 46
12I. No Third-Party Beneficiaries............................. 46
12J. Cooperation on Tax Matters............................... 46
12K. Schedules and Exhibits................................... 47
12L. GOVERNING LAW............................................ 47
12M. Notices.................................................. 47
12N. Jurisdiction and Venue................................... 48
12O. Waiver of Right to Jury Trial............................ 49
12P. No Strict Construction................................... 49
12Q. Dispute Resolution....................................... 49
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<PAGE> 5
EXHIBITS AND SCHEDULES
Exhibits:
Exhibit A - Adjustment Escrow Agreement
Exhibit B - Indemnity Escrow Agreement
Exhibit C - Opinion of the Sellers' Counsel
Exhibit D - Opinion of the Purchaser's Counsel
Exhibit E - Commitment Letter
Disclosure Schedules (with Section references):
Exclude Asset Schedule - 1B
Exceptions to GAAP Schedule - 1E(ii)
Consents Schedule - 2D, 6D
Real Property Schedule - 2I, 6Z
Affiliates Schedule - 2O
Foreign Qualifications Schedule - 6A
Capitalization Schedule - 6B
Authorization Schedule - 6C
Consents Schedule - 6D
Financial Statements Schedule - 6E
Disclosed Liabilities Schedule - 6F
Product Warranty Schedule - 6I
Indebtedness Schedule - 6L
Developments Schedule - 6M
Liens Schedule - 6N
Tax Schedule - 6O
Contracts Schedule - 6P
Intellectual Property Schedule - 6Q
Litigation Schedule - 6R
Brokerage Schedule - 6S, 7D
Insurance Schedule - 6T
Employees Schedule - 6U
Employee Benefits Schedule - 6V
Compliance Schedule - 6W(a)
Permits Schedule - 6W(b)
Environmental Schedule - 6X
Affiliate Transactions Schedule - 6Y
Real Property - 6Z
-iv-
<PAGE> 6
EXECUTION COPY
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
February 26, 1999, by and among Sleepmaster L.L.C., a New Jersey limited
liability company (or one or more of its affiliates, the "Purchaser"), Herr
Manufacturing Company, a Pennsylvania corporation (the "Company"), and the
stockholders listed on the Seller signature page attached hereto (collectively,
the "Sellers" and individually a "Seller"). Capitalized terms used herein and
not otherwise defined herein have the meanings given to such terms in Section 10
below.
WHEREAS, as of the date hereof, the Sellers collectively own
all of the outstanding capital stock of the Company (the "Shares");
WHEREAS, subject to the terms and conditions set forth herein,
the Purchaser desires to purchase the Shares from the Sellers, and the Sellers
desire to sell the Shares to the Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements and understandings herein contained, the receipt and sufficiency of
which is hereby acknowledged, the Parties hereby agree as follows:
SECTION 1 PURCHASE AND SALE
1A. Purchase and Sale of the Shares. At the Closing, subject
to the terms and conditions set forth in Sections 2 and 3 below, as applicable,
the Purchaser shall purchase from the Sellers, and the Sellers shall sell,
convey, assign, transfer, and deliver to the Purchaser, all of the Shares free
and clear of any Liens.
1B. Purchase Price. The aggregate purchase price for the
Shares will be $24,685,000, subject to adjustment as provided in Section 1D plus
the forgiveness of the note from Stuart W. Herr and John K. Herr, III to the
Company in the amount of $542,913.17 in connection with the sale of the life
insurance policies described on the Excluded Asset Schedule 1B (the "Purchase
Price"). The Purchase Price shall be payable as described in Section 1C below.
1C. The Closing. The closing of the purchase and sale of the
Shares and the transactions relating thereto (collectively, the "Closing") will
take place at the offices of Kirkland & Ellis, 153 East 53rd Street, New York,
New York, or at such other place as the Purchaser may specify by notice to the
Sellers, commencing at 9:00 a.m. local time on February 26, 1999, or, if any of
the conditions to Closing set forth in Sections 2 and 3 below have not been
satisfied or waived by the Party entitled to the benefit thereof on or prior to
such date, on the third business day following satisfaction or waiver of such
conditions. The date and time of the Closing are referred to as the "Closing
Date." At the Closing, subject to the satisfaction or waiver of each of the
conditions specified in Sections 2 and 3 below:
(i) The Purchaser will deliver one million dollars
($1,000,000) (the "Adjustment Escrow Fund") to The First National Bank of
Chicago, escrow agent (the "Escrow Agent") as security for any liability of the
Sellers pursuant to the purchase price adjustment in Section 1D
<PAGE> 7
EXECUTION COPY
below. The Adjustment Escrow Fund shall be held by the Escrow Agent pursuant to
the terms and conditions of the Adjustment Escrow Agreement.
(ii) The Purchaser will deliver $1.5 million dollars
($1,500,000) (the "Indemnity Escrow Fund") to the Escrow Agent as security for
any amounts owed to the Purchaser pursuant to the indemnification provisions set
forth in Section 9B(i). The Indemnity Escrow Fund shall be held by the Escrow
Agent pursuant to the terms and conditions of the Indemnity Escrow Agreement,
and $500,000 plus the amount of any accrued interest and/or income, shall be
distributed on the first anniversary less the amount of any claims made prior to
such date in accordance with the terms and conditions of the Indemnity Escrow
Agreements.
(iii) The Purchaser will deliver the balance of the Purchase
Price (reduced pursuant to Section 1C(i) and (ii) above) by wire transfer of
immediately available funds to the account or accounts specified in writing by
the Company
(iv) The Company will deliver to the Purchaser the stock
certificates for all of the Shares of the Company endorsed in blank or
accompanied by duly executed assignment documents.
(v) The Purchaser will cause the Company to cancel the
indebtedness of John K. Herr, III and Stuart W. Herr to the Company which is
evidenced by the promissory note described in Section 1B hereof, to mark said
note as "paid in full" on the face thereof, and to deliver the original of said
note to the makers thereof.
1D. Working Capital Purchase Price Adjustment. If the Target
Net Working Capital exceeds the Closing Net Working Capital (defined below),
then not later than the third business day after the Closing Net Working Capital
is finally determined pursuant to Section 1E below, the Sellers will pay to the
Purchaser, in proportion to their prior respective holdings in the Company, an
amount equal to such excess in immediately available funds to the account
specified by the Purchaser, which amount shall first be satisfied out of the
Adjustment Escrow Fund. If the Adjustment Escrow Fund does not cover the amount
of such payment, the Sellers will pay the balance of such payment in immediately
available funds to the account specified in writing by the Purchaser. If the
Closing Net Working Capital exceeds the Target Net Working Capital, then not
later than the third business day after the Closing Net Working Capital is
finally determined pursuant to Section 1E below, the Company will pay to a
representative designated in writing by the Sellers (the "Sellers'
Representative") an amount equal to such excess in immediately available funds
to the account specified by the Sellers' Representative. Any amount to be paid
pursuant to this Section 1D will be treated as an adjustment to the Purchase
Price for all purposes.
1E. Determination of Closing Net Working Capital.
(i) Definitions. The "Closing Net Working Capital" means the
Net Working Capital as of the close of business on the Closing Date, as
determined in accordance with Sections 1E(ii), (iii) and (iv) below.
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(ii) Closing Balance Sheet. On or before the 60th day after
the Closing Date, the Purchaser will prepare a balance sheet as of the close of
business on the Closing Date which shall be audited by PricewaterhouseCoopers
LLP (the "Purchaser's Accountant") (together with the related audit report of
such firm the "Closing Balance Sheet"), and which shall set forth a calculation
of the Closing Net Working Capital, and the Purchaser will deliver a copy of the
Closing Balance Sheet to the Sellers' Representative. Except as set forth on the
Exceptions to GAAP Schedule 1E(ii), the Closing Balance Sheet shall (x) be
prepared in accordance with GAAP consistent with the preparation of the
Company's audited financial statements as of December 31, 1998 and (y) fairly
present the financial position of the Company as of the Closing Date. During the
30-day period immediately following the Purchaser's delivery of the Closing
Balance Sheet, the Purchaser will provide the Sellers' Representative and the
Sellers' accountant access to the Company's records, and will use reasonable
efforts to provide the Sellers' Representative and the Sellers' accountant
access to the Purchaser's Accountant and the work papers of the Purchaser's
Accountant related to the preparation of the Closing Balance Sheet and the
calculation of the Closing Net Working Capital. On or prior to the 30th day
following Purchaser's delivery of the Closing Balance Sheet, the Sellers'
Representative may give the Purchaser a written notice stating in reasonable
detail the Sellers' objections (an "Objection Notice") to the Closing Balance
Sheet. Any Objection Notice shall specify in reasonable detail the dollar amount
of any objection and the basis therefor. Any determination expressly set forth
on the Closing Balance Sheet which is not specifically objected to in the
Objection Notice shall be deemed final and binding upon the Parties upon
delivery of the Objection Notice. If the Sellers' Representative does not give
the Purchaser an Objection Notice within such 30-day period, then the Closing
Balance Sheet will be conclusive and binding upon the Parties and the Closing
Net Working Capital set forth in the Closing Balance Sheet will constitute the
Closing Net Working Capital for purposes of Section 1D above.
(iii) Dispute and Amicable Resolution. If the Sellers'
Representative gives a timely Objection Notice as described in Section 1E(ii)
above, then the Purchaser and the Sellers' Representative will negotiate in good
faith to resolve their disputes regarding the Closing Balance Sheet.
(iv) Resolution by Independent Accounting Firm. If the
Purchaser and the Sellers' Representative are unable to resolve all disputes
regarding the Closing Net Working Capital on or prior to the 45th day after the
Objection Notice is given, then the Purchaser and the Sellers' Representative
will retain a firm of certified public accountants chosen randomly by lot from
among the "big five" accounting firms other than the Sellers' accountant and the
Purchaser's Accountant (the "Independent Accounting Firm") to determine the
Closing Net Working Capital as soon as practicable. The Independent Accounting
Firm shall only decide the specific items under dispute by the Parties and shall
determine the Closing Net Working Capital in accordance with the principles set
forth in this Agreement. The Closing Net Working Capital determined by the
Independent Accounting Firm will be conclusive and binding upon the Parties and
will constitute the Closing Net Working Capital for purposes of Section 1D
above. The fees and expenses of the Independent Accounting Firm in connection
with its determination of the Closing Net Working Capital will be paid one-half
by the Sellers and one-half by the Purchaser.
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(v) Instructions to Escrow Agent. Upon the final determination
of the Closing Net Working Capital, the Purchaser and the Sellers'
Representative agree to prepare, execute and deliver joint written instructions
to the Escrow Agent (pursuant to the terms of the Adjustment Escrow Agreement)
with respect to the distribution of the entire Adjustment Escrow Fund.
1F. Income Tax Purchase Price Adjustment. If the Closing Tax
Liability exceeds the Prepaid Taxes (both defined in Section 1G below), then not
later than the third business day after the determination that the Closing Tax
Liability exceeds the Prepaid Taxes, the Sellers will pay to the Company, in
proportion to their prior respective holdings in the Company, an amount equal to
such excess in immediately available funds to the account specified by the
Purchaser, which amount shall first be satisfied out of the Indemnity Escrow
Fund. If the Indemnity Escrow Fund does not cover the amount of such payment,
the Sellers will pay the balance of such payment in immediately available funds
to the account specified in writing by the Company. If the Prepaid Taxes exceed
the Closing Tax Liability, then not later than the third business day after the
later of (i) the determination of the Closing Tax Liability or (ii) the receipt
by the Company in cash from the relevant taxing authority of the amount
constituting the Prepaid Taxes (or the use by the Company of the Prepaid Taxes
as an offset against other liabilities owed by the Company), the Company will
pay to the Sellers' Representative an amount equal to such excess in immediately
available funds to the account specified by the Sellers' Representative. Any
amount to be paid pursuant to this Section 1F will be treated as an adjustment
to the Purchase Price for all purposes.
1G. Operative Rules.
(i) The "Closing Tax Liability" means the aggregate Tax
liability of the Company for both federal income Taxes and state income Taxes,
as shown on all Tax Returns prepared and filed pursuant to Section 5C of this
Agreement. If the Company must file a federal or state income Tax Return that
includes but does not end on the Closing Date (a "Straddle Return"), then
Closing Tax Liability shall include only the portion of the Tax shown on that
Straddle Return allocable to the period ending on the Closing Date pursuant to
Section 5C.
(ii) "Prepaid Taxes" means, without duplication, (a) the
amount shown as "Prepaid taxes" on the Closing Balance Sheet as an asset of the
Company and, to the extent not included in the "Prepaid taxes" line item on the
Closing Balance Sheet, (b) all payments made by the Company (whether as
estimated payments or through the crediting of amounts otherwise owed to the
Company) prior to the Closing Date that reduce the amount the Company must pay
in order to satisfy its Closing Tax Liability.
(iii) Any payment made pursuant to Section 1F above shall not
reduce any payment or affect a Party's right to receive a payment pursuant to
Section 9 of this Agreement if any amount is determined to be owed pursuant to
the provisions of Section 9 of this Agreement.
SECTION 2 CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT THE
CLOSING. The obligation of the Purchaser to take the actions set forth in
Section 1 above is subject to the satisfaction as of the Closing of the
following conditions:
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2A. Representations and Warranties; Covenants. The
representations and warranties contained in Sections 6 and 7 hereof shall be
true and correct in all material respects at and as of the date hereof and as of
the Closing Date, and the Company and the Sellers shall have performed in all
material respects all of the covenants required to be performed by the Company
and the Sellers hereunder prior to the Closing.
2B. Opinion of the Sellers' Counsel. The Purchaser shall have
received from Barley, Snyder, Senft & Cohen, LLC, counsel for the Company, an
opinion with respect to the matters set forth in Exhibit C attached hereto,
which shall be addressed to the Purchaser, and dated as of the Closing Date.
2C. Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
or that would reasonably be expected to have a Material Adverse Effect, and no
injunction, judgment, order, decree or ruling with respect thereto shall be in
effect.
2D. Consents and Approvals. The Company shall have made all
filings and shall have obtained and delivered to the Purchaser all governmental
and/or third party permits, authorizations, consents and approvals required to
be obtained by the Company to consummate the transactions contemplated by this
Agreement (the "Consents") as set forth on the Consents Schedule 2D and the
Purchaser shall have received any governmental and/or third party consents or
approvals required to be obtained in connection with the transactions
contemplated hereby, including the consents of Serta, Inc. and its stockholders.
All applicable waiting periods under the HSR Act shall have expired or been
terminated.
2E. Escrow Agreements. Each of the Sellers' Representative,
the Purchaser and the Escrow Agent will have executed and delivered the
Adjustment Escrow Agreement and the Indemnity Escrow Agreement (together, the
"Escrow Agreements") and the Escrow Agreements shall be in full force and effect
as of the Closing and shall not have been amended or modified.
2F. Material Adverse Change. Since December 31, 1998, there
shall not have occurred any material adverse change including any litigation in
the business, assets, condition (financial or otherwise), results of operations,
cash flows, or prospects of the Company.
2G. Intentionally Omitted.
2H. Employment and Noncompetition Arrangements. The Company
shall have entered into employment and/or noncompetition arrangements with
certain key members of management in form and substance satisfactory to the
Purchaser, including employment agreements with each of John K. Herr, III and
Stuart W. Herr, and such employment and/or noncompetition arrangements shall be
in full force and effect as of the Closing and shall not have been amended or
modified.
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2I. Real Estate Matters.
(i) A title insurance company selected by the Purchaser (the
"Title Company") shall be willing to insure at standard rates the Company's
marketable title in and to the Owned Real Property in fee simple, the Company's
leasehold estate in any financable Leased Real Property (a "Financable
Leasehold"), and the Purchaser's lender's ("Lender") mortgage lien on the Owned
Real Property and each Financable Leasehold, in each case free and clear of all
Liens except for Permitted Liens and including such endorsements and affirmative
coverages as the Purchaser and Lender shall reasonably require (including
non-imputation endorsements). The Sellers shall provide all such affidavits and
indemnities as the Title Company reasonably shall require in order to afford
such coverages; provided, that the Purchaser shall bear the cost of obtaining
such title insurance.
(ii) The Purchaser shall have received a survey of each Owned
Real Property and each Leased Real Property to which the Company holds a
Financable Leasehold, in each case conforming to the Minimum Standard Detail
Requirements jointly established and approved in 1992 by ALTA and ACSM,
certified to the Company, the Lender, the Purchaser and the Title Company and
showing no Liens except for Permitted Liens. The Purchaser shall bear the cost
of obtaining such surveys.
(iii) All Real Property shall be in substantially the same
condition and repair as that on the date of this Agreement, reasonable wear and
tear excepted.
(iv) The Purchaser shall have received from each Seller an
affidavit (a) stating under penalties of perjury that such Seller is not a
"foreign person," as defined in Section 1445(f)(3) of the Internal Revenue Code,
(b) setting forth such Seller's taxpayer identification number, and (c) granting
Purchaser permission to furnish a copy of such affidavit to the Internal Revenue
Service.
2J. Closing Documents. At the Closing, the Company and the
Sellers shall have delivered to the Purchaser all of the following:
(i) a certificate of an officer of the Company, dated as of
the Closing Date stating that the conditions specified in Sections 2A, 2C, 2D,
2E, 2F and 2O have been fully satisfied;
(ii) all existing minute books, stock transfer records,
corporate seals and other materials relating to the Company's respective
corporate administration which are in the possession of the Company, the Sellers
or any Affiliate of the Sellers;
(iii) good standing certificates of the Company from its
jurisdiction of incorporation and each jurisdiction in which the Company is
qualified to do business as a foreign corporation, in each case dated within 5
days prior to the Closing Date;
(iv) a waiver and termination of the Shareholders Agreement;
(v) copies of all Consents; and
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(vi) such other documents relating to the transactions
contemplated by this Agreement as the Purchaser or its special counsel may
reasonably request.
2K. Financing. The Purchaser shall have received the cash
proceeds of the financing transactions necessary in order to consummate the
transactions contemplated hereby and to fund the ongoing working capital needs
of the Company, all on terms and conditions satisfactory to the Purchaser.
2L. Fees and Expenses. The Sellers shall timely pay any and
all real property transfer, transfer gains, documentary, sales, use, stamp,
registration and other such taxes and fees, if any, assessed in connection with
the transactions contemplated by this Agreement and shall deliver to the
Purchaser evidence satisfactory to Purchaser and the Title Company of the
payment of such taxes.
2M. Resignation of Directors. The Company and the Purchaser
shall have received the resignation of all of the directors of the Company.
2N. Release of Liens. The Company shall have obtained releases
of all Liens (other than any Permitted Liens) relating to the assets and
properties of the Company and shall have delivered satisfactory evidence, as
determined by the Purchaser, of such releases to the Purchaser.
2O. Transactions with Affiliates. All transactions, agreements
or other arrangements between the Company and any of its Affiliates or any of
the Sellers, other than as set forth on the Affiliates Schedule 2O, this
Agreement and the Employment and Stock Purchase Agreements, shall have been
terminated.
2P. Waiver. Any condition specified in this Section 2 may be
waived if consented to in writing by the Purchaser.
SECTION 3 CONDITIONS OF THE SELLERS' OBLIGATIONS AT THE
CLOSING. The obligation of each of the Sellers to take the actions set forth in
Section 1 above is subject to the satisfaction as of the Closing of the
following conditions:
3A. Representations and Warranties; Covenants. The
representations and warranties contained in Section 8 hereof shall be true and
correct in all material respects at and as of the date hereof and as of the
Closing Date, and the Purchaser shall have performed in all material respects
all of the covenants required to be performed by the Purchaser prior to the
Closing.
3B. Escrow Agreements. Each of the Purchaser, the Sellers'
Representative and the Escrow Agent will have executed and delivered the Escrow
Agreements, and the Escrow Agreements shall be in full force and effect as of
the Closing and shall not have been amended or modified.
3C. Employment Agreements. The Company shall have entered into
employment agreements in form and substance satisfactory to the Purchaser with
each of John K. Herr, III and
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Stuart W. Herr and such employment agreements shall be in full force and effect
as of the Closing and shall not have been amended or modified.
3D. Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
and no injunction, judgment, order, decree or ruling with respect thereto shall
be in effect.
3E. Opinion of the Purchaser's Counsel. The Sellers shall have
received from Kirkland & Ellis, special counsel to the Purchaser, an opinion
with respect to the matters set forth in Exhibit D attached hereto, which shall
be addressed to the Sellers and dated as of the Closing Date.
3F. Closing Documents. At the Closing, the Purchaser shall
have delivered to the Sellers a certificate of an officer of the Purchaser,
dated the Closing Date, stating that the conditions specified in Section 3A
shall have been fully satisfied.
3G. HSR Act. All applicable waiting periods under the HSR Act
shall have been expired or been terminated.
3H. Waiver. Any condition specified in this Section 3 may be
waived if consented to in writing by the Sellers.
SECTION 4 PRE-CLOSING COVENANTS AND AGREEMENTS. Each of the
Parties agrees as follows with respect to the period between the date of this
Agreement and the Closing:
4A. Best Efforts; Further Assurances. Subject to the terms and
conditions herein provided, each of the parties hereto shall use its
commercially reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and to fulfill all of the
conditions set forth in Sections 2 and 3 above and the execution and delivery of
the agreements and instruments contemplated hereby to be executed and delivered
at the Closing. In the event any claim, action, suit, investigation or other
proceeding by any Governmental Authority or other Person is commenced which
questions the validity or legality of the transactions contemplated hereby or
seeks damages in connection therewith, the Parties agree to cooperate and use
commercially reasonable best efforts to defend against such claim, action, suit,
investigation or other proceeding and, if an injunction or other order is issued
in any such action, suit or other proceeding, to use commercially reasonable
best efforts to have such injunction or other order lifted, and to cooperate
reasonably regarding any other impediment to the consummation of the
transactions contemplated hereby.
4B. Third Party Notices and Consents. The Sellers shall and
shall cause the Company to use their respective best efforts to (i) give
required notices to third parties, (ii) obtain any required Consents (including
the consents of Serta, Inc. and its stockholders), and (iii) take any
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actions reasonably required by any third party, in each case in connection with
the matters contemplated by this Agreement.
4C. Operation of Business. The Company shall, and the Sellers
shall cause the Company to, operate its business only in the usual and ordinary
course of business consistent with past custom and practice and in accordance
with all Laws and will preserve the goodwill and organization of its business
and the relationships with its customers, suppliers, employees and other Persons
having business relations with the Company. Without limiting the generality of
the foregoing, prior to the Closing, without the prior written consent of the
Purchaser, the Company and each of the Sellers covenant that:
(i) the Company shall not, and each of the Sellers shall cause
the Company to not, directly or indirectly, except as expressly contemplated by
this Agreement, take or omit to take any action that would require disclosure
under Section 6M below or that would otherwise result in a breach of any of the
representations, warranties or covenants made by the Company or the Sellers in
this Agreement; and
(ii) the Company will, and each of the Sellers shall cause the
Company to, use its commercially reasonable best efforts to (1) preserve intact
the organization and goodwill of the Company, (2) keep available the services of
each of its officers, employees and sales representatives, and (3) maintain
satisfactory relationships with each of its material suppliers and customers.
(iii) the Company shall not, and each of the Sellers shall
cause the Company to not, sell, assign, transfer, lease, license, or abandon any
of its assets, tangible or intangible, except the life insurance policies listed
on the audited consolidated balance sheets of the Company as of December 31,
1998 or in the ordinary course of business consistent with past custom and
practice for a fair consideration.
4D. Full Access. The Company shall, and each of the Sellers
shall cause the Company to, afford, and cause its affiliates, officers,
directors, employees, attorneys, accountants, advisors and other agents (the
"Company Personnel") to afford, to the Purchaser, its financing sources and the
Purchaser's accounting, legal and other representatives full and complete access
at all reasonable times to all premises, properties and Company Personnel of the
Company and to all business, financial, legal, real estate, tax, compensation
and other data and information (including all books, records, contracts,
customer lists, other documents and records and any working papers of the
Company Personnel) concerning the Company and its affairs and operations as
requested by the Purchaser or its representatives or agents.
4E. Press Release and Announcements. None of the Company, the
Sellers or any of their respective representatives shall make any public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of the Purchaser. The foregoing
notwithstanding, any such public announcement may be made if required by
applicable law or a securities exchange rule, provided that the Party required
to make such public announcement shall confer with the other Parties concerning
the timing and content of such public announcement before the same is made.
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4F. HSR Act. In connection with the transactions contemplated
by this Agreement, the Parties shall comply promptly with the notification and
reporting requirements of the HSR Act and use all commercially reasonable best
efforts to obtain early termination of the waiting period under the HSR Act. The
Parties shall substantially comply with any additional requests for information,
including requests for production of documents and production of witnesses for
interviews or depositions, by any antitrust authority.
4G. Compliance with Agreements and Laws. The Company shall,
and each of the Sellers shall cause the Company to, (i) comply with all material
obligations pursuant to any contract or agreement, whether oral or written,
express or implied and (ii) comply in all material respects with all applicable
Laws. Without limiting the generality of the foregoing, each of the Sellers
shall cause the Company to, comply in all material respects with all
Environmental and Safety Requirements and all permits, licenses or other
authorizations issued thereunder; respond in accordance with applicable law to
any Release or threatened Release of any hazardous material, substance or waste
in a manner which complies in all material respects with all Environmental and
Safety Requirements; and provide such documents or information, or conduct at
its own cost such studies or assessments, relating to matters arising under
Environmental and Safety Requirements as the Purchaser may reasonably request.
4H. Payment of Obligations. The Company shall, and each of the
Sellers shall cause the Company to, pay and discharge when payable all Taxes,
assessments and governmental charges imposed upon its properties or upon the
income or profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all claims for labor, materials or
supplies.
4I. Notice of Material Developments. Each Party shall give
prompt written notice to the other Parties of (i) any variances in any of its
representations or warranties contained in this Agreement, (ii) any breach of
any covenant hereunder by such Party, and (iii) any other material development
which would render any of the conditions in Section 2 or 3 incapable of being
satisfied.
4J. Exclusivity. None of the Company, the Sellers or any of
their respective representatives, officers, directors, agents, stockholders or
Affiliates (all such persons and entities, the "Company Group") shall directly
or indirectly initiate, solicit, entertain, negotiate, accept or discuss any
proposal or offer (an "Acquisition Proposal") to acquire all or any significant
part of the Company, whether by merger, purchase of stock, purchase of assets,
tender offer or otherwise (a "Third Party Acquisition"), or provide any
nonpublic information to any third party in connection with an Acquisition
Proposal or a Third Party Acquisition, or enter into any agreement, arrangement
or understanding requiring the Company or any Seller to abandon, terminate or
fail to consummate the transactions contemplated under this Agreement. The
Company shall (i) immediately notify the Purchaser if any member of the Company
Group receives any indication of interest, request for information or offer in
respect of an Acquisition Proposal, (ii) communicate to the Purchaser in
reasonable detail the terms of any such indication, request or proposal, and
(iii) provide the Purchaser with copies of all written communications relating
to any such indication, request or proposal. The Company and the Sellers
represent that no member of the Company Group is party to or bound by any
agreement with respect to an Acquisition Proposal or a Third Party Acquisition
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other than under this Agreement and the members of the Company Group have
terminated all discussions with third parties (other than the Purchaser)
regarding Acquisition Proposals or Third Party Acquisitions. The Company and the
Sellers shall use their best efforts to cause each other member of the Company
Group to comply with the provisions of this Section 4J. In the event that any of
the Company or the Sellers breaches the provisions of this Section 4J and the
transactions contemplated hereby are not consummated for any reason (other than
as a direct result of a breach of this Agreement by the Purchaser in the absence
of any breach of this Agreement by the Company or the Sellers), the Company
and/or the Sellers shall promptly reimburse the Purchaser and its Affiliates for
all out-of-pocket fees and expenses incurred before or after the date of this
Agreement by the Purchaser and its Affiliates related to the transactions
contemplated hereby, including fees and expenses of legal counsel, accountants
and other consultants and advisors retained by the Purchaser in connection with
the transactions contemplated hereby. The foregoing provisions are in addition
to, and not in derogation of, any statutory or other remedy that the Purchaser
may have for a breach of this Section 4J.
4K. Certain Pre-Closing Tax Matters. Except as expressly
contemplated by this Agreement, without the prior written consent of the
Purchaser, neither the Sellers nor the Company shall make or change any
election, change an annual accounting period, adopt or change any accounting
method, file any amended Tax Return, enter into any closing agreement, settle
any Tax claim or assessment relating to the Company, surrender any right to
claim a refund of Taxes, consent to any extension or waiver of the limitation
period applicable to any Tax claim or assessment relating to the Company, fail
to timely file any Tax Return, take a position on a Tax Return not in keeping
with prior practice or take any other similar action, or omit to take any action
relating to the filing of any Tax Return or the payment of any Tax, if such
election, adoption, change, amendment, agreement, settlement, surrender, consent
or other action or omission could have the effect of increasing the present or
future Tax liability or decreasing any present or future Tax asset of the
Company or the Purchaser.
SECTION 5 POST-CLOSING COVENANTS AND AGREEMENTS.
5A. Confidentiality. In consideration of the mutual covenants
contained herein, each of the Sellers agrees that, for all times after the
Closing Date, except as required by law or court order, he or she shall not,
directly or indirectly, disclose to any unauthorized Person or use for his or
her own account any Confidential Information unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of such Seller's acts or omissions to act. Each of
the Sellers further agrees to use his or her commercially reasonable best
efforts and diligence to safeguard the Confidential Information and to protect
it against disclosure, misuse, espionage, loss or theft.
5B. Noncompete, Nonsolicitation.
(i) For a period of 5 years following the Closing Date (the
"Noncompete Period"), none of the Sellers shall directly or indirectly own,
operate, lease, manage, control, participate in, consult with, advise,
authorize, his name to be used by, provide services for, or in any manner engage
in (including by himself or in association with any person, firm, corporate or
other
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business organization or through any other entity) the manufacture or
distribution of mattresses, box springs, bedding products, or any products
competitive with such products within any geographical area in which the Company
Group has obtained or is in the process of obtaining a Serta license. Nothing
herein shall prohibit a Seller (x) from being a passive owner of not more than
2% of the outstanding stock of a corporation which is publicly traded, so long
as the Seller has no active participation in the business of such corporation or
(y) from owning an interest in the Company Group, or any part thereof. For the
avoidance of doubt, each of Stuart W. Herr and John K. Herr, III acknowledge
that, in addition to his obligations pursuant to this Section 5B, he has agreed
to be bound by the provisions of Section 5 of the Stuart Herr Employment
Agreement, with respect to Stuart W. Herr, and the John Herr Employment
Agreement, with respect to John K. Herr, III.
(ii) During the Noncompete Period, none of the Sellers shall
directly or indirectly (x) induce or attempt to induce any employee of the
Company Group to leave the employ of the Company Group, or in any way interfere
with the relationship between the Company Group and any employee thereof,
including, inducing or attempting to induce any union, employee or group of
employees to interfere with the business or operations of the Company Group, (y)
hire any person who was an employee of the Company Group, or (z) induce or
attempt to induce any customer, supplier, distributor, franchisee, licensee or
other business relation of the Company Group to cease doing business with the
Company Group, or in any way interfere with the relationship between any such
customer, supplier, distributor, franchisee, licensee or business relation and
the Company Group.
(iii) Each of the Sellers agrees and acknowledges that: (a) the
covenants set forth in this Section 5B are reasonably limited in both time and
geographical scope and in all other respects, (b) the covenants set forth in
this Section 5B are reasonably necessary for the protection of the Company, (c)
the Purchaser would not have entered into this Agreement but for the covenants
of each of the Sellers contained herein, and (d) the covenants contained herein
have been made in order to induce the Purchaser to enter into this Agreement.
(iv) If, at the time of enforcement of this Section 5B, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under the circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(v) Each of the Sellers recognizes and affirms that in the
event of his breach of any provision of this Section 5B, money damages would be
inadequate and the Purchaser and the Company Group would have no adequate remedy
at law. Accordingly, each of the Sellers agrees that in the event of a breach or
a threatened breach by any such Seller of any of the provisions of this Section
5B, the Purchaser and the Company Group, in addition and supplementary to other
rights and remedies existing in their favor, may apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce or prevent any violations of the provisions
hereof (without posting a bond or other security).
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5C. Certain Post-Closing Tax Matters. The Company shall
prepare, or cause to be prepared, and file, or cause to be filed, any Tax
Returns of the Company for Tax periods which end on or before the Closing Date
and which have not been filed as of the Closing Date. The Company shall prepare,
or cause to be prepared, and file, or cause to be filed, any Tax Returns of the
Company for Tax periods which begin before the Closing Date and end after the
Closing Date. The Company shall permit the Sellers to review and comment on each
such Tax Return described in the preceding sentence prior to filing. The Sellers
shall pay to the Company within ten days following the date on which Taxes are
paid with respect to the Tax periods described in the first two sentences of
this Section 5C, an amount equal to the portion of such Taxes which relates to
the portion of such Tax periods ending on and including the Closing Date to the
extent such Taxes were not (i) included in the calculation of Prepaid Taxes as
defined in Section 1G(ii) or (ii) paid to the Company pursuant to Section 1F.
For purposes of this Section 5C, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such Taxable period ending on the Closing Date shall (a) in the case of any
Taxes other than Taxes based upon or related to income or receipts, be deemed to
be the amount of such Tax for the entire Taxable period multiplied by a
fraction, the numerator of which is the number of days in the Taxable period
ending on and including the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (b) in the case of any Tax
based upon or related to income or receipts, be deemed equal to the amount which
would be payable if the relevant Taxable period ended on the Closing Date. Any
amount to be paid by the Sellers pursuant to this Section 5C shall be satisfied
first from the Indemnity Escrow Fund and then pursuant to the terms of Section 9
of this Agreement.
5D. Company Profit Sharing Plan. Except as may be otherwise
required by law or to maintain the qualified status of any employee benefit plan
maintained by the Company or the Purchaser, the Company shall maintain the Herr
Manufacturing Company Employees Profit Sharing Plan and Trust, as amended (the
"Plan"), for not less than 36 months following the Closing Date (the "Mandatory
Plan Maintenance Period"). The Company may, at its option, cause the Plan to be
terminated and liquidated at any time after the Mandatory Plan Maintenance
Period. At no time (during the Mandatory Maintenance Period or thereafter) shall
the Company Group or any member or affiliate thereof cause the Plan to be merged
or combined with any other employee benefit pension plan or cause any of the
Plan's assets to be transferred to or combined or commingled with any assets
whatsoever of those of any other Person (except for direct plan rollovers
elected by a Plan participant). At all times after the Closing, the Plan's sole
trustee shall be a corporate trustee with local offices appointed, at Closing
and then from time to time as necessary or desirable, by the Company. To the
extent permitted by law, all costs and fees associated with the Plan may be paid
from Plan assets. The Company may, but shall not be required to make
contributions to the Plan during the Mandatory Maintenance Period or thereafter.
SECTION 6 REPRESENTATIONS AND WARRANTIES CONCERNING THE
COMPANY.(1) As a material inducement to the Purchaser to enter into this
Agreement and to purchase the Shares
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(1) These representations and warranties remain subject to change based
upon the results of the Purchaser's due diligence review of the
Company.
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hereunder, the Company and each of the Sellers, jointly and severally, hereby
represent and warrant to the Purchaser that the following statements contained
in this Section 6 are correct and complete as of the date hereof:
6A. Organization, Corporate Power and Licenses. The Company is
a corporation duly organized, validly existing and in good standing under the
Laws of its state of incorporation and is duly authorized to conduct business in
every jurisdiction where such qualification is required, which such
jurisdictions are set forth on the Foreign Qualifications Schedule 6A attached
hereto. The Company possesses all requisite corporate power and authority and
all licenses, permits, and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the charter documents and bylaws which have been
furnished to the Purchaser reflect all amendments made thereto at any time prior
to the date of this Agreement and are correct and complete. The minute books
(containing the records of meetings of the stockholders, the board of directors
and any committees of the board of directors), the stock certificate books and
the stock record books of the Company are correct and complete.
6B. Capital Stock and Related Matters; Subsidiaries.
(i) As of immediately prior to the Closing, the authorized
capital stock of the Company consists of 2,000 shares of common stock, $100 par
value per share, of which 1022.5975 are issued and outstanding. The Shares
constitute all of the outstanding capital stock of the Company and are held
beneficially and of record by the Sellers (free and clear of all Liens) as set
forth on the Capitalization Schedule 6B attached hereto. The Capitalization
Schedule 6B attached hereto, also sets forth any securities convertible or
exchangeable for any equity securities of the Company and any options or other
rights to purchase equity securities of the Company and the amount and type of
such securities or options or rights held by such Persons as of the Closing Date
and immediately thereafter. The Company does not have outstanding (1) any stock
or securities convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, nor any rights or options to
subscribe for or to purchase its capital stock or (2) any stock or securities
convertible into or exchangeable for its capital stock or any stock appreciation
rights or phantom stock or similar plans or rights. The Company is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any warrants, options or other
rights to acquire its capital stock. As of the Closing and immediately
thereafter, all of the outstanding shares of the Company's capital stock shall
be validly issued, fully paid and nonassessable.
(ii) The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock or the offer, sale or issuance of any of its debt securities.
Except as set forth on the Capitalization Schedule 6B, there are no voting
trusts, proxies, or other agreements or understandings among the Company's
shareholders or any other Person with respect to the voting, transfer or
registration of the Company's capital stock or with respect to any other aspect
of the Company's affairs.
(iii) The Company does not have any Subsidiaries.
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6C. Authorization; No Breach. The Sellers' and the Company's
execution, delivery and performance of this Agreement and all other agreements
and instruments contemplated hereby to which such person is a party have been
duly authorized by such person. This Agreement constitutes a valid and binding
obligation of the Sellers and the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by (x) applicable
insolvency, bankruptcy, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (y) applicable equitable principles
(whether considered in a proceeding at law or in equity), and all other
agreements and instruments contemplated hereby to which the Company is a party,
when executed and delivered by the Company in accordance with the terms hereof,
shall each constitute a valid and binding obligation of the Company, enforceable
in accordance with its terms, except as such enforceability may be limited by
(a) applicable insolvency, bankruptcy, reorganization, moratorium or other
similar laws affecting creditors' rights generally and (b) applicable equitable
principles (whether considered in a proceeding at law or in equity). Except as
set forth on the attached Authorization Schedule 6C, the execution and delivery
by the Sellers and the Company of this Agreement and all other agreements and
instruments contemplated hereby to which any such person is a party, and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under (whether
with or without the passage of time, the giving of notice or both), (iii) result
in the creation of any Lien upon the Company's capital stock or assets pursuant
to, (iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or notice or declaration to, the
articles of incorporation or bylaws of the Company, or any Law to which the
Company is subject, or any order, judgment or decree or any material agreement
or instrument to which the Company is subject. The Company is not a party to or
bound by any written or oral agreement or understanding with respect to an
Acquisition Proposal or a Third Party Acquisition other than this Agreement, and
all of them have terminated all discussions with third parties (other than the
Purchaser) regarding Acquisition Proposals or Third Party Acquisitions.
6D. Consents. No consent, approval or authorization of, or
designation, declaration or filing with, any Governmental Entity or other third
party is necessary for the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby, except for
applicable requirements of the HSR Act or as set forth on the attached Consents
Schedule 6D.
6E. Financial Statements. Attached hereto as the Financial
Statements Schedule 6E are the audited balance sheet of the Company as of
December 31, 1998 (the "December 31 Balance Sheet") and the audited balance
sheets of the Company as of December 31, 1995, December 31, 1996, and December
31, 1997 and the related statements of combined income and cash flows (or the
equivalent) for the respective twelve-month periods then ended.
Except as set forth on the Financial Statements Schedule 6E, all of the
foregoing financial statements (including in all cases the notes thereto, if
any) are correct and complete and are consistent with the books and records of
the Company (which books and records are correct and complete) and fairly
present the financial condition, operating results and cash flows of the Company
and have been
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prepared in accordance with GAAP consistently applied throughout such financial
statements and the periods covered thereby.
6F. Absence of Undisclosed Liabilities. Except as set forth on
the attached Disclosed Liabilities Schedule 6F, the Company has no obligation or
liability (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due and regardless of when asserted) arising out of
transactions entered into at or prior to the date hereof, or any action or
inaction at or prior to the date hereof, or any state of facts existing at or
prior to the date hereof (and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, or demand
against the Company giving rise to any liability), other than: (i) liabilities
set forth on the liabilities side of the December 31 Balance Sheet (excluding
any notes thereto), (ii) liabilities and obligations which have arisen after the
date of the December 31 Balance Sheet in the ordinary course of business
consistent with past custom and practice (none of which is a liability resulting
from breach of contract, breach of warranty, tort, infringement, claim or
lawsuit) and (iii) other liabilities and obligations expressly disclosed on
Schedule 6F.
6G. Accounts Receivable. All notes and accounts receivable
reflected on the December 31 Balance Sheet and all notes and accounts receivable
to be reflected on the Closing Balance Sheet (net of allowances for doubtful
accounts as reflected thereon and as determined in accordance with GAAP
consistently applied with respect to each such financial statement) are or shall
be valid receivables arising in the ordinary course of business consistent with
past custom and practice, subject to no setoffs or counterclaims, and are
current and collectible.
6H. Inventory. The inventory of the Company consists of raw
materials and supplies, manufactured and purchased parts, goods in process, and
finished goods, all of which is merchantable and fit for the purpose for which
it was procured or manufactured, and none of which is slow moving, obsolete,
damaged, or defective, subject only to the reserve for inventory shown on the
December 31 Balance Sheet and the reserve inventory to be shown on the Closing
Balance Sheet (as determined in accordance with GAAP consistently applied with
respect to each such financial statement), and such inventory consists or shall
consist of a quantity and quality usable and saleable in the ordinary course of
business consistent with past custom and practice.
6I. Product Warranty. All products manufactured, sold, leased
or delivered by the Company have been in conformity with all applicable
contractual commitments and all express and implied warranties, and the Company
has no liability (and there is no reasonable basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against it giving rise to any such liability) for replacement or repair
thereof or other damages in connection therewith in excess of past custom and
practice and experience. No products manufactured, sold, leased or delivered by
the Company and no services rendered by the Company are subject to any
Guarantee, warranty or other indemnity beyond the applicable standard terms and
conditions of such sale, lease or service. The attached Product Warranty
Schedule 6I includes copies of such standard terms and conditions of sale, lease
and service for the Company (containing applicable guaranty, warranty and
indemnity provisions).
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6J. Product Liability. The Company has no Liability (and there
is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any injury to individuals or properly as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by the Company.
6K. No Material Adverse Effect. Since December 31, 1998, there
has occurred no fact, event or circumstance which has had or would reasonably be
expected to have a Material Adverse Effect.
6L. Indebtedness. On December 31, 1998, all Indebtedness of
the Company was $1,263,252 and is described on the Indebtedness Schedule 6L.
None of such Indebtedness shall exist following the Closing.
6M. Absence of Certain Developments. Except as expressly
contemplated by this Agreement or as set forth on the attached Developments
Schedule 6M, since December 31, 1998, the Company has conducted its business
only in the ordinary course of business consistent with past custom and
practice, and the Company has not:
(i) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities or rights
convertible, exchangeable or exercisable into any capital stock or other equity
securities;
(ii) incurred any Indebtedness, other than any Indebtedness
incurred in the ordinary course of business consistent with past custom and
practice;
(iii) discharged or satisfied any material Lien or paid any
material obligation or liability, other than current liabilities paid in the
ordinary course of business consistent with past custom and practice;
(iv) declared, set aside or made any payment or distribution
of cash or other property to the Sellers with respect to their capital stock or
other equity securities or purchased, redeemed or otherwise acquired any shares
of its capital stock or other equity securities (including any warrants, options
or other rights to acquire its capital stock or other equity securities);
(v) mortgaged or pledged or imposed any security interest upon
any of its properties or assets, tangible or intangible, or subjected them to
any Lien, except Permitted Liens;
(vi) sold, assigned, transferred, leased, licensed or
abandoned any of its assets, tangible or intangible (including the Intellectual
Property Rights), except the sale of the life insurance policies listed on the
Excluded Asset Schedule 1B to Stuart W. Herr and John K. Herr, III or other than
in the ordinary course of business consistent with past custom and practice for
a fair consideration;
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(vii) made or granted any bonus or any wage or salary
increase or made any other change in employment to any director, officer,
employee or group of employees (except as required by pre-existing contracts
described on the attached Contracts Schedule 6P), or made or granted any
increase in any bonus, profit sharing, incentive, severance, or other employee
benefit plan, contract or arrangement, or amended or modified or terminated any
existing employee benefit plan or arrangement or adopted any new employee
benefit plan or arrangement;
(viii) entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any existing
such contracts or agreements;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $50,000;
(x) delayed, postponed or cancelled the payment of any
accounts payable or any other liability or obligation or agreed or negotiated
with any party to extend the payment date of any accounts payable or accelerated
the collection of any accounts or notes receivable;
(xi) made any loans or advances to, Guarantees for the benefit
of, or any Investments in, any Persons or formed any Subsidiary;
(xii) suffered any damage, destruction or casualty loss
exceeding in the aggregate $25,000, whether or not covered by insurance, or
experienced any material changes in the amount and scope of insurance coverage;
(xiii) made any change in any method of accounting or
accounting policies, other than those required by GAAP which have been disclosed
in writing to the Purchaser, or made any write-down in the value of its
inventory that is other than in the ordinary course of business consistent with
past custom and practice;
(xiv) directly or indirectly engaged in any transaction, made
any loan to or entered into any arrangement with any officer, director, partner,
shareholder, employee or other Affiliate of the Company, except as in the
ordinary course of business consistent with past custom and practice;
(xv) except as contemplated hereby, amended its articles of
incorporation, bylaws or other organizational documents;
(xvi) granted any license or sublicense of any rights under or
with respect to any Intellectual Property Rights;
(xvii) cancelled, compromised, waived, or released any right
or claim (or series of related rights and claims) involving more than $25,000;
(xviii) entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
involving more than $10,000;
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(xix) accelerated, terminated, modified, or cancelled any
agreement, contract or license (or series of related agreements, contracts, or
licenses) involving more than $10,000 to which the Company is a party or by
which it is bound;
(xx) experienced any other occurrence, event, incident, or
taken any action or omitted to take any action which would have a Material
Adverse Effect; or
(xxi) agreed, whether orally or in writing, to do any of the
foregoing.
6N. Assets.
(i) Except as set forth on the Liens Schedule 6N attached
hereto, the Company has good and valid title to, or a valid leasehold interest
in, the properties and assets, tangible or intangible, used by it, located on
its premises or shown on the December 31 Balance Sheet or acquired thereafter,
free and clear of all Liens, except for (a) properties and assets disposed of in
the ordinary course of business consistent with past custom and practice since
the December 31 Balance Sheet and (b) Permitted Liens.
(ii) The Company owns, has a valid leasehold interest in, or
has a valid license to use, all the assets, properties and rights, whether
tangible or intangible, necessary for the conduct of its business as presently
conducted and as presently proposed to be conducted.
6O. Tax Matters.
(i) Except as set forth on the attached Taxes Schedule 6O:
(a) the Company has filed all Tax Returns which it is
required to file under applicable laws and regulations, and all such
Tax Returns are complete and correct and have been prepared in
compliance with all applicable laws and regulations;
(b) the Company has paid all Taxes due and owing by it
(whether or not such Taxes are shown or required to be shown on a Tax
Return) and has withheld and paid over to the appropriate taxing
authority all Taxes which it is required to withhold from amounts paid
or owing to any employee, shareholder, creditor or other third party;
(c) the Company has not waived any statute of limitations
with respect to any Taxes or agreed to any extension of time for filing
any Tax Return which has not been filed; and the Company has not
consented to extend to a date later than the date hereof the period in
which any Tax may be assessed or collected by any Taxing Authority;
(d) the accrual for Taxes on the December 31 Balance Sheet
would be adequate to pay all Tax liabilities of the Company if its
current tax year were treated as ending on the date of such balance
sheet (excluding any amount recorded which is attributable solely to
timing differences between book and Tax income) and the Company is
entitled to the entire amount of and has made proper claim for any
refund of Taxes either
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included in the computation of Net Working Capital or included in the
December 31 Balance Sheet, whether as a receivable, a prepaid expense,
or as a reduction of a liability;
(e) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted
with respect to the Company;
(f) there are no material unresolved questions or claims
concerning the Company's Tax liability;
(g) no claim has ever been made by a taxing authority in a
jurisdiction where the Company does not file Tax Returns that the
Company so not filing is or may be subject to Taxes assessed by such
jurisdiction or a filing requirement in that jurisdiction;
(h) the Company has never been a member of an Affiliated
Group or filed or been included in a combined, consolidated or unitary
income Tax Return, other than for an Affiliated Group of which the
Company is the common parent corporation;
(i) the Company is not a party to or bound by any Tax
allocation or Tax sharing agreement;
(j) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company; and
(k) the Company shall not be required to (i) as a result
of a change in method of accounting for a taxable period ending on or
prior to the Closing Date, include any adjustment in taxable income for
any taxable period (or portion thereof) ending after the Closing Date,
(ii) as a result of any "closing agreement," as described in Section
7121 of the Code (or any similar provision of state, local or foreign
income Tax law), include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date, (iii) as a result of any sale
reported on the installment method where such sale occurred on or prior
to the Closing Date, include any item of income in, or exclude any item
of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date, or (iv) as a result of any
prepaid amount received on or prior to the Closing Date, include any
item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the
Closing Date.
(ii) The Company:
(a) has never been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code;
(b) has never made an election under Section 341(f) of the
Code; or
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(c) is not liable for the Taxes of another Person that is
not currently a member of the Affiliated Group of which the Company is
the common parent corporation (1) under Treasury Regulation Section
1.1502-6 (or comparable provisions of state, local or foreigN law), (2)
as a transferee or successor, or (3) by contract or indemnity or
otherwise; or
(d) has not made, is not obligated to make and is not
party to an agreement which under certain circumstances could obligate
it to make payments which will not be deductible under Section 280G of
the Code (or any similar provision of state, local or foreign income
Tax law).
6P. Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached Contracts Schedule 6P, the Company is not a party to
or bound by any written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to its current or former directors, officers or employees
or any other employee benefit plan, arrangement or practice, whether
formal or informal;
(b) collective bargaining agreement or any other contract
with any labor union, or severance agreements, programs, policies or
arrangements;
(c) management agreement or contract for the employment of
any officer, individual employee or other Person on a full-time,
part-time, consulting or other basis (i) providing annual cash or other
compensation in excess of $10,000, (ii) providing for the payment of
any cash or other compensation or benefits upon the consummation of the
transactions contemplated hereby or (iii) otherwise restricting its
ability to terminate the employment of any employee at anytime for any
lawful reason or for no reason without penalty or liability;
(d) contract or agreement involving any Governmental
Entity;
(e) agreement or indenture relating to borrowed money or
other Indebtedness or the mortgaging, pledging or otherwise placing a
Lien on any material asset or material group of assets of the Company
or any letter of credit arrangements;
(f) Guarantee, other than endorsements made for collection
in the ordinary course of business consistent with past custom and
practice;
(g) lease or agreement under which the Company is (i)
lessee of or holds or operates any personal property, owned by any
other party, except for any lease of personal property under which the
aggregate annual rental payments do not exceed $10,000 or (ii) lessor
of or permits any third party to hold or operate any property, real or
personal, owned or controlled by the Company;
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(h) contract or group of related contracts with the same
party or group of affiliated parties for the purchase or sale of raw
materials, commodities, supplies, products, equipment or other personal
property or services under which the undelivered balance since December
31, 1998 of such products and services has a selling price in excess of
$10,000;
(i) other contract or group of related contracts with the
same party or group of affiliated parties continuing over a period of
more than six months from the date or dates thereof, not terminable by
the Company upon 30 days' or less notice without penalty or involving
more than $10,000;
(j) contract relating to the marketing, sale, advertising
or promotion of its products;
(k) agreements relating to the ownership of, investments
in or loans and advances to any Person, including investments in joint
ventures and minority equity investments;
(l) license, royalty, indemnification or other agreement
with respect to any intangible property (including any Intellectual
Property Rights);
(m) broker, agent, sales representative, sales or
distribution agreement;
(n) power of attorney or other similar agreement or grant
of agency;
(o) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world, including
any nondisclosure or confidentiality agreements; or
(p) other agreement which involves a consideration in
excess of $50,000 annually, whether or not in the ordinary course of
business consistent with past custom and practice.
(ii) All of the contracts, agreements and instruments set
forth or required to be set forth on the attached Contracts Schedule 6P (the
"Material Contracts") are valid, binding and enforceable in accordance with
their respective terms, except as such enforceability may be limited by (x)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (y) applicable equitable
principles (whether considered in a proceeding at law or in equity). Each of the
Material Contracts shall be in full force and effect without penalty in
accordance with its terms upon consummation of the transactions contemplated
hereby. The Company has performed all obligations required to be performed by it
and is not in default under or in breach of nor in receipt of any claim of
default or breach under any Material Contract; no event has occurred which with
the passage of time or the giving of notice or both would result in a default,
breach or event of noncompliance by the Company under any Material Contract; and
the Company has no knowledge of any breach or cancellation or anticipated breach
or cancellation by the other parties to any Material Contract to which they are
parties.
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(iii) The Purchaser has been supplied with a true and correct
copy of each written Material Contract, together with all amendments, waivers or
other changes thereto (all of which amendments, waivers or other changes thereto
are described on the attached Contracts Schedule 6P).
6Q. Intellectual Property Rights.
(i) The attached Intellectual Property Schedule 6Q contains a
complete and accurate list of all (a) patented and registered Intellectual
Property Rights owned or used by the Company, (b) pending patent applications
and applications for registrations of other Intellectual Property Rights filed
by the Company, (c) all computer software owned or used by the Company other
than commercially available software with a license fee of less than $1,000, and
(d) material unregistered trade names, corporate names, trademarks, service
marks and copyrights owned or used by the Company. The attached Intellectual
Property Schedule 6Q also contains a complete and accurate list of all licenses
or similar agreements relating to Intellectual Property Rights to which the
Company is a party, in each case identifying the subject Intellectual Property
Rights.
(ii) The Company owns all right, title and interest to, or has
the right to use pursuant to a valid and effective written license, all Company
Intellectual Property Rights. The Company Intellectual Property Rights comprise
all of the Intellectual Property Rights necessary and desirable for the
operation of the business of the Company as presently conducted and as presently
proposed to be conducted, free and clear of all Liens other than Permitted
Liens. No loss or expiration of any of the Company Intellectual Property Rights
is threatened, pending or reasonably foreseeable. The Company has taken all
commercially reasonable actions to maintain and protect the Company Intellectual
Property Rights. To the knowledge of the Company, the owners of any Intellectual
Property Rights licensed to the Company have taken all commercially reasonable
action to maintain and protect the Intellectual Property Rights subject to such
licenses.
(iii) Except as set forth on the attached Intellectual Property
Schedule 6Q, (a) there are no claims against the Company that were either made
within the past five (5) years or are presently pending asserting the
invalidity, misuse or unenforceability of any of the Company Intellectual
Property Rights, and there is no basis for any such claim, (b) the operation of
the business of the Company as currently conducted and as proposed to be
conducted has not infringed, misappropriated or conflicted with and will not
infringe, misappropriate or conflict with any Intellectual Property Rights of
other Persons and the Company has not received any notice regarding any of the
foregoing (including any demands or offers to license any Intellectual Property
Rights from any other Person) or is aware of any facts which indicate a
likelihood of any of the foregoing, (c) no third party has infringed,
misappropriated or otherwise conflicted with any of the Company Intellectual
Property Rights. The transactions contemplated by this Agreement shall have no
Material Adverse Effect on the right, title or interest of the Company in and to
the Company Intellectual Property Rights and all of such Company Intellectual
Property Rights shall be owned or available for use by the Company on
substantially identical terms and conditions immediately after the Closing.
(iv) Except as set forth on Intellectual Property Schedule 6Q,
to the knowledge of the Company, the computer software identified on
Intellectual Property Schedule 6Q pursuant to
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Section 6Q(i)(c) is Millennium Compliant Software except as could not reasonably
be expected to have a Material Adverse Effect. For the purposes of this Section
6Q(iv), "Millennium Compliant Software" means software that will correctly
differentiate between years in different centuries that end in the same two
digits, and will accurately process date/time data (including, but not limited
to, calculating, comparing and sequencing) from, into and between the twentieth
and twenty-first centuries, including leap year calculations.
6R. Litigation, etc. Except as set forth on the attached
Litigation Schedule 6R, there are no (and, during the five years preceding the
date hereof, there have not been any) actions, suits, proceedings (including any
arbitration proceedings, orders, investigations or claims pending or threatened
against the Company or pending or threatened against any of the officers,
directors or employees of the Company with respect to their businesses or
proposed business activities), or pending or threatened by the Company against
any third party, at law or in equity, or before or by any Government Entity
(including any actions, suits, proceedings or investigations with respect to the
transactions contemplated by this Agreement); the Company is not subject to any
arbitration proceedings under collective bargaining agreements or otherwise or
any governmental investigations or inquiries; and there is no basis for any of
the foregoing. The Company is fully insured with respect to each of the matters
set forth on the attached Litigation Schedule 6R. The Company is not subject to
any judgment, order or decree of any Government Entity, and the Company has not
received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability which would
reasonably be expected to have a Material Adverse Effect.
6S. Brokerage. Except as set forth on the Brokerage Schedule
6S attached hereto (all items listed on the Brokerage Schedule 6S shall be the
responsibility of, and shall be borne by, the Sellers), there are and shall be
no claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement to which the Company is a party or to which the Company
is subject. Neither the Company nor the Purchaser shall have any obligation for
any fees or expenses set forth on the Brokerage Schedule 6S.
6T. Insurance. The attached Insurance Schedule 6T contains a
description of each insurance policy maintained by the Company with respect to
its properties, assets and business, and each such policy shall be in full force
and effect as of the Closing or a substituted policy shall have been obtained
therefor. The Company is not in default with respect to its obligations under
any insurance policy maintained by it, and the Company has never been denied
insurance coverage. Other than with respect to the employee benefits matters
covered by Section 6V and except as set forth on the attached Insurance Schedule
6T, the Company does not have any self-insurance or co-insurance programs.
6U. Employees. The Employees Schedule 6W attached hereto
contains a true and complete list as of December 31, 1998 of (i) the employees
employed by the Company having an annual base salary in calendar year 1998 of
$25,000 or more, (ii) the rate of all current compensation payable by the
Company to each such employee, including any bonus, contingent or deferred
compensation, and (iii) the directors of each of the Company. No executive or
key employee of the
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Company and no group of employees of the Company has any plans to terminate
employment with the Company. The Company (a) does not have any material labor
relations problems (including any additional union organization activities,
threatened or actual strikes or work stoppages or material grievances), (b) has
not engaged in any unfair labor practices, (c) during the past five years, has
not suffered any labor strike, lockout, work stoppage or other material labor
dispute or, (d) does not have any union organization campaign in progress with
respect to any of the employees, nor does any question concerning representation
exists respecting such employees. The Company has not engaged in any plant
closing or employee layoff activities within the last two (2) years that would
violate or in any way implicate the Worker Adjustment Retraining and
Notification Act of 1988, as amended, or any similar state or local plant
closing or mass layoff statute, rule or regulation.
6V. ERISA.
(i) The Employee Benefits Schedule 6V lists each Employee
Benefit Plan which the Company maintains, contributes to, or has an obligation
to contribute to, or with respect to which the Company has any liability or
potential liability.
(a) Each Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation with its
terms and with the applicable requirements of ERISA, the Code, and
other applicable laws.
(b) All required reports and descriptions (including Form
5500 annual reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been filed or distributed appropriately with respect
to each Employee Benefit Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code Section 4980B have been met with
respect to each Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(c) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for any period ending on or
before the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance with the
past custom and practice of the Company. All premiums or other payments
for all periods ending on or before the Closing Date have been paid
with respect to each Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(d) Each Employee Benefit Plan which is intended to be
qualified under Code Section 401(a) has received a favorable
determination letter from the Internal Revenue Service and nothing has
occurred since the date of such determination letter that could
adversely affect the qualified status of such plan.
(e) The Sellers have delivered to the Buyer correct and
complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 annual report, and
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all related trust agreements, insurance contracts, and other funding
agreements which implement each Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the
Company, and the Controlled Group of Corporations which includes the Company
maintains or ever has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(a) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any
Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. The Company has
no knowledge of any basis for any such action, suit, proceeding,
hearing, or investigation.
(b) The Company has not incurred, and the Company has no
reason to expect that the Company will incur, any Liability to the PBGC
or otherwise under Title IV of ERISA (including any withdrawal
liability) or under the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) The Company and the other members of the Controlled
Group of Corporations that includes the Company do not contribute to, have never
contributed to, and never have been required to contribute to any Employee
Pension Benefit Plan subject to Title IV of ERISA, including any Multiemployer
Plan, and do not have any Liability (including withdrawal liability) under any
such Employee Pension Benefit Plan or Multiemployer Plan.
(iv) Except as set forth on the attached Employee Benefits
Schedule 6V, the Company has no obligation to provide medical, health, or life
insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with Code Section 4980B).
6W. Compliance with Laws; Permits. Except as set forth on the
attached Compliance Schedule 6W(a):
(i) The Company has complied with all applicable Laws relating
to the operation of its respective business. No notices have been received by
and no claims have been filed against the Company alleging a violation of any
such Laws.
(ii) Except with respect to permits relating to Environmental
and Safety Regulations which are addressed in Section 6X below, the Company
holds all permits, licenses, certificates, accreditations and other
authorizations of all Government Entities required for the conduct of its
business and the ownership of its properties, and the attached Permits Schedule
6W(b) sets forth a list of all of such permits, licenses, certificates,
accreditations and other authorizations. No notices have been received by the
Company alleging the failure to hold any permit, license,
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certificate, accreditation or other authorization of any Government Entity. The
Company is in compliance with all terms and conditions of all permits, licenses,
accreditations and authorizations which it holds. Except as disclosed on the
attached Permits Schedule 6W(b) all of such permits, licenses, accreditations
and authorizations will be available for use by the Company immediately after
the Closing.
6X. Environmental and Safety Matters. Except as set forth on
the attached Environmental Schedule 6X:
(i) The Company has complied with and is currently in
compliance with all Environmental and Safety Requirements. The Company has not
received any oral or written notice, report or information regarding any
violations of or any liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) or corrective, investigatory or remedial obligations
arising under Environmental and Safety Requirements which relate to the Company
or any of its current or former properties or facilities.
(ii) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is currently in compliance with, all
permits, licenses and other authorizations that may be required pursuant to any
Environmental and Safety Requirements for the occupancy of its properties or
facilities or the operation of its business. A list of all such permits,
licenses and other authorizations is set forth on the attached Permits Schedule
6W.
(iii) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on the
Company for site investigation or cleanup, or notification to or consent of any
government agencies or third parties under any Environmental and Safety
Requirements (including any so called "transaction-triggered" or "responsible
property transfer" laws and regulations).
(iv) None of the following exists at any property or facility
owned, occupied or operated by the Company:
(a) underground storage tanks;
(b) asbestos-containing materials in any
form or condition;
(c) materials or equipment containing
polychlorinated biphenyls; or
(d) landfills, surface impoundments or other
disposal areas.
(v) The Company has not treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled or Released any substance
(including any hazardous substance) or owned, occupied or operated any facility
or property (and no such property or facility is contaminated by any such
substance) in a manner that has given or could give rise to any liabilities
(including any liability for response costs, corrective action costs, personal
injury, natural resource
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damages, property damage or attorneys fees or any investigative, corrective or
remedial obligations) pursuant to CERCLA or any other Environmental and Safety
Requirements.
(vi) The Company has not, either expressly or by operation of
law, assumed or undertaken any liability or corrective, investigatory or
remedial obligation of any other Person relating to any Environmental and Safety
Requirements.
6Y. Affiliate Transactions. Except as set forth on the
attached Affiliate Transactions Schedule 6Y, no officer, director, employee,
shareholder or Affiliate of the Company or any individual related by blood,
marriage or adoption to any such individual or any entity in which any such
Person or individual owns any beneficial interest, is a party to any agreement,
contract, commitment or transaction with the Company or has any material
interest in any material property used by the Company.
6Z. Real Property.
(i) The attached Real Property Schedule 6Z sets forth a legal
description of each parcel of real property owned by the Company (the "Owned
Real Property"). The Company has good and marketable title in and to all of the
Owned Real Property subject to no Liens other than Permitted Liens.
(ii) The attached Real Property Schedule 6Z sets forth a list
of all leases, subleases and other occupancy agreements, including all
amendments, extensions and other modifications (the "Leases") for real property
(the "Leased Real Property"; the Owned Real Property and the Leased Real
Property are collectively the "Real Property") to which the Company is a
"tenant," "subtenant," or other lessee party. The Company has a good and valid
leasehold interest in and to all of the Leased Real Property, subject to no
Liens except Permitted Liens. Each Lease is in full force and effect and is
enforceable in accordance with its terms. There exists no default or condition
which, with the giving of notice, the passage of time or both, could become a
default under any Lease. The Company and the Sellers have previously delivered
to Purchaser true and complete copies of all the Leases. Except as described on
Consents Schedule 2D, no consent, waiver, approval or authorization is required
from the landlord under any Lease as a result of the execution of this Agreement
or the consummation of the transactions contemplated hereby.
(iii) The Real Property constitutes all of the real property
owned, leased, occupied or otherwise utilized in connection with the business of
the Company. Other than the Company, there are no parties in possession or
parties having any current or future right to occupy any of the Real Property.
The Real Property is in good condition and repair and is sufficient and
appropriate for the conduct of the business of the Company. The Real Property
and all plants, buildings and improvements located thereon conform to all
applicable building, zoning and other laws, ordinances, rules and regulations.
All permits, licenses and other approvals necessary to the current occupancy and
use of the Real Property have been obtained, are in full force and effect and
have not been violated. There exists no violation of any covenant, condition,
restriction, easement, agreement or order affecting any portion of the Real
Property. Except as set forth on the attached Real Property Schedule 6Z, all
improvements located on the Real Property have direct access to a public road
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adjoining such Real Property. No such improvements or accessways encroach on
land not included in the Real Property and no such improvement is dependent for
its access, operation or utility on any land, building or other improvement not
included in the Real Property. There is no pending or any threatened
condemnation proceeding affecting any portion of the Real Property. There are no
outstanding options or rights of first refusal with respect to the purchase or
use of any of the Real Property, any portion thereof or interest therein. The
Company is not obligated to purchase or lease any real property.
SECTION 7 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. As a
material inducement to the Purchaser to enter into this Agreement and purchase
the Shares hereunder, each Seller hereby, jointly and severally represents and
warrants to the Purchaser and the Company that the following representations and
warranties are true and correct as of the date hereof and as of the Closing
Date:
7A. Power and Authority. Each Seller possesses all requisite
power and authority necessary to carry out the transactions contemplated by this
Agreement.
7B. Authorization; No Breach. This Agreement and all other
agreements or instruments contemplated hereby to which any Seller is a party or
by which any Seller is bound, when executed and delivered by such Seller in
accordance with the terms hereof, shall each constitute a valid and binding
obligation of such Seller, enforceable in accordance with its terms, except as
such enforceability may be limited by (x) applicable insolvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (y) applicable equitable principles (whether considered in a
proceeding at law or in equity). The execution, delivery and performance by each
Seller of this Agreement and all other agreements contemplated hereby to which
such Seller is a party, and the fulfillment of and compliance with the
respective terms hereof and thereof by such Seller, do not and shall not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under (whether with or without the passage of time,
the giving of notice or both), (iii) result in the creation of any lien,
security interest, mortgage, charge or encumbrance upon such Seller's assets
pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any third party or Government Entity pursuant
to, any Law to which such Seller is subject, the articles of incorporation or
bylaws of such Seller, if applicable, or any material agreement, instrument,
order, judgment or decree to which such Seller is subject. None of the Sellers
is a party to or bound by any written or oral agreement or understanding with
respect to an Acquisition Proposal or a Third Party Acquisition other than this
Agreement, and all of them have terminated all discussions with third parties
(other than the Purchaser) regarding Acquisition Proposals or Third Party
Acquisitions.
7C. Title to Shares. All of the Shares are owned of record and
beneficially by the Sellers, and each Seller has good and marketable title to
the Shares owned by such Seller, free and clear of all Liens, agreements, voting
trusts, proxies and other arrangements or restrictions of any kind whatsoever.
None of the Sellers is a Party to any plan, warrant, purchase right or other
contract or commitment that could require such Seller to sell, transfer, or
otherwise dispose of any capital
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stock of the Company (other than this agreement). None of the Sellers is a party
to any voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Company.
7D. Brokerage. Except as set forth on the Brokerage Schedule
7D attached hereto, there are no claims for brokerage commissions, finders' fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement to which any Seller is a party
or to which any Seller is subject. Each Seller shall pay, indemnify, defend and
hold the Company and the Purchaser harmless against, any liability, loss or
expense (including reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
7E. Litigation, etc. There are no actions, suits, proceedings
(including any arbitration proceedings), orders, investigations or claims
pending or threatened against or affecting any of the Sellers in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with the transactions contemplated hereby.
SECTION 8 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. As
a material inducement to the Company and the each of the Sellers to enter into
this Agreement and take the actions set forth in Section 1, the Purchaser hereby
represents and warrants to the Company and each of the Sellers that the
following statements contained in this Section 8 are correct and complete as of
the date hereof and as of the Closing Date:
8A. Organization, Power and Authority. The Purchaser is a
limited liability company duly organized, validly existing and in good standing
under the Laws of its jurisdiction of formation. The Purchaser possesses all
requisite power and authority necessary to carry out the transactions
contemplated by this Agreement.
8B. Authorization; No Breach. The execution, delivery and
performance of this Agreement and all other agreements or instruments
contemplated hereby to which the Purchaser is a party or by which the Purchaser
is bound have been duly authorized by the Purchaser. This Agreement and all
other agreements contemplated hereby to which the Purchaser is a party, when
executed and delivered by the Purchaser in accordance with the terms hereof,
shall each constitute a valid and binding obligation of the Purchaser,
enforceable in accordance with its terms, except as such enforceability may be
limited by (x) applicable insolvency, bankruptcy, reorganization, moratorium or
other similar laws affecting creditors' rights generally and (y) applicable
equitable principles (whether considered in a proceeding at law or in equity).
The execution, delivery and performance by the Purchaser of this Agreement and
all other agreements contemplated hereby to which the Purchaser is a party, and
the fulfillment of and compliance with the respective terms hereof and thereof
by the Purchaser, do not and shall not (i) conflict with or result in a breach
of the terms, conditions or provisions of, (ii) constitute a default under
(whether with or without the passage of time, the giving of notice or both),
(iii) give any third party the right to modify, terminate or accelerate any
obligation under, (iv) result in a violation of the organizational documents of
the Purchaser, or any Law to which the Purchaser is subject, or any agreement,
instrument, order, judgment or decree to which the Purchaser is subject.
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8C. Consents. No consent, approval or authorization of, or
designation, declaration or filing with any Governmental Entity or other third
party is necessary for the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby, except for
applicable requirements of the HSR Act, the consents of Serta, Inc. and its
stockholders, or as set forth on the attached Consents Schedule 8C.
8D. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
the Purchaser is a party or to which the Purchaser is subject. The Purchaser
shall pay, indemnify, defend and hold the Company and the Sellers harmless
against, any liability, loss or expense (including reasonable attorneys' fees
and out-of-pocket expenses) arising in connection with any such claim.
8E. Bank Financing. Attached as Exhibit E is a correct and
complete copy of the financing letter from First Source Financial, Inc. ("First
Source") to the Purchaser regarding First Source's desire to provide (together
with its syndicate of banks) the financing for the transaction contemplated
herein.
8F. Investment Representations.
(i) The Purchaser hereby represents that it is acquiring the
Shares purchased hereunder for its own account with the present intention of
holding such Shares for purposes of investment, and that it has no intention of
selling any such Shares in a public distribution in violation of the federal
securities laws or any applicable state securities laws; provided, that nothing
contained herein shall prevent the Purchaser or any subsequent holder of any of
the Shares from transferring such securities.
(ii) The Purchaser is an "accredited investor" as defined in
Rule 501(a) under the Securities Act.
(iii) The Purchaser understands that the Shares have not been
registered under the Securities Act on the basis that the sale provided for in
this Agreement is exempt from the registration provisions thereof and that the
Company's reliance on such exemption is predicated upon the representations of
the Purchaser set forth herein.
SECTION 9 INDEMNIFICATION AND OTHER AGREEMENTS.
9A. Survival of Representations and Warranties. The
representations and warranties in this Agreement and the Schedules and Exhibits
attached hereto shall survive the Closing as follows:
(i) the representations and warranties in Section 6O (Tax
Matters) shall terminate on the sixtieth (60th) day following the expiration of
the applicable statutes of limitations (after giving effect to any extensions or
waivers thereof);
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(ii) the representations and warranties in Section 6B (Capital
Stock and Related Matters; Subsidiaries), Section 6C (Authorization; No Breach),
Section 6L (Indebtedness), Section 6S (Brokerage), Section 6Y (Affiliate
Transactions), Section 7B (Authorization; No Breach), Section 7C (Title to
Shares), Section 7D (Brokerage), Section 8B (Authorization; No Breach) and
Section 8D (Brokerage) shall survive and shall not terminate;
(iii) the representations and warranties in Section 6V (ERISA)
and Section 6X (Environmental and Safety Matters) shall terminate on the third
anniversary of the Closing Date; and
(iv) all other representations and warranties in this
Agreement and the Schedules and Exhibits attached hereto shall terminate on the
second anniversary of the Closing Date;
provided, that any representation or warranty in respect of which indemnity may
be sought under Section 9B, and the indemnity with respect thereto, shall
survive the time at which it would otherwise terminate pursuant to this Section
9A if notice of the inaccuracy or breach or potential inaccuracy or breach
thereof giving rise to such right or potential right of indemnity shall have
been given to the Party against whom such indemnity may be sought prior to such
time. The representations and warranties in this Agreement and the Schedules and
Exhibits attached hereto or in any writing delivered by any Party to another
Party in connection with this Agreement shall survive for the periods set forth
in this Section 9A and shall in no event be affected by any investigation,
inquiry or examination made for or on behalf of any Party, or the knowledge of
any Party's officers, directors, shareholders, employees or agents or the
acceptance by any Party of any certificate or opinion hereunder.
9B. General Indemnification.
(i) Indemnification for the Benefit of the Company and the
Purchaser by the Sellers. Following the Closing, the Sellers, jointly and
severally, shall indemnify the Purchaser and its Affiliates, shareholders,
partners, officers, directors, employees, agents, representatives, successors
and permitted assigns and the Company (collectively, the "Seller Indemnified
Parties") and save and hold each of them harmless against and pay on behalf of
or reimburse such Seller Indemnified Parties as and when incurred for any direct
or indirect loss, liability, demand, claim, action, cause of action, cost,
damage (including consequential damages and damages for lost profits),
deficiency, Tax, penalty, fine or expense, whether or not arising out of third
party claims (including interest, penalties, reasonable attorneys', consultants'
and experts' fees and expenses and all amounts paid in investigation, defense or
settlement of any of the foregoing) (collectively, "Losses"), which any such
Seller Indemnified Party may suffer, sustain or become subject to, as a result
of, in connection with, relating or incidental to or by virtue of: (a) any facts
or circumstances which constitute a breach of any representation or warranty of
the Company or the Sellers under this Agreement, or in any of the certificates
or other instruments or documents furnished by the Company or the Sellers
pursuant to this Agreement; (b) any nonfulfillment or breach of any covenant,
agreement or other provision by the Company or the Sellers under this Agreement
required to be performed or complied with by the Company or the Sellers at or
prior to the Closing; (c) any nonfulfillment or breach of any covenant,
agreement or other provision by the Sellers under this Agreement required to be
performed or complied with by the Sellers after the Closing; or (d) any
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claim by any Person (other than the Purchaser) with respect to, or arising as a
result of, any Acquisition Proposal or Third Party Acquisition proposed prior to
the Closing Date. If and to the extent any provision of this Section 9B is
unenforceable for any reason, each Seller hereby agrees to make the maximum
contribution to the payment and satisfaction of any Loss for which
indemnification is provided for in this Section 9B which is permissable under
applicable Laws. Notwithstanding anything contained herein, in no event shall
the Company be required to provide indemnification or contribution for any
obligation of the Sellers under this Section 9B(i).
(ii) Indemnification for the Benefit of the Sellers by the
Company and the Purchaser. Following the Closing, the Company and the Purchaser
shall indemnify the Sellers and their Affiliates, shareholders, officers,
directors, employees, agents, representatives, successors and permitted assigns
(collectively, the "Company Indemnified Parties") and hold them harmless against
any Losses which the Company Indemnified Parties may suffer, sustain or become
subject to, as a result of, in connection with, relating or incidental to or by
virtue of: (a) any facts or circumstances which constitute a breach of any
representation or warranty of the Purchaser under this Agreement, or in any of
the certificates or other instruments or documents furnished by the Purchaser
pursuant to this Agreement; (b) any nonfulfillment or breach of any covenant,
agreement or other provision by the Purchaser under this Agreement; or (c) any
matters which occur after the Closing Date as a result of the direction or
approval of the Board following the Closing Date.
(iii) Manner of Payment.
(a) Any indemnification obligations of the Sellers
pursuant to Section 9B(i) shall first be satisfied out of the Indemnity
Escrow Fund to the extent thereof and thereafter shall be paid by wire
transfer of immediately available funds to an account designated in
writing by the applicable Seller Indemnified Party within 15 days after
the determination thereof.
(b) Any indemnification obligations of the Company
pursuant to Section 9B(ii) shall be paid by wire transfer of
immediately available funds to an account designated in writing by the
applicable Company Indemnified Party within 15 days after the
determination thereof.
(c) Any such indemnification payments described in clause
(a) or (b) above shall include interest at 8% per annum calculated on
the basis of the actual number of days elapsed over 360, from the date
any such Loss is suffered or sustained to the date of payment. The
amount of any Loss for which indemnification is provided pursuant to
this Section 9B shall be net of any amounts actually recovered by the
indemnified party under insurance policies with respect to such Loss.
(iv) Instructions to Escrow Agent. In the event of a
determination that a payment is due to any Seller Indemnified Party, the
Purchaser and the Sellers' Representative shall issue joint written instructions
to the Escrow Agent to distribute a portion of the Indemnity Escrow Fund equal
to such payment.
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(v) Defense of Third Party Claims. Any Person making a claim
for indemnification under this Section 9B (an "Indemnitee") shall notify the
indemnifying party (an "Indemnitor") (in the case of a notice to the Sellers,
notice shall be sufficient if made solely to the Sellers' Representatives) of
the claim in writing promptly after receiving written notice of any action,
lawsuit, proceeding, investigation or other claim against it (if by a third
party), describing the claim, the amount thereof (if known and quantifiable) and
the basis thereof; provided that the failure to so notify an Indemnitor shall
not relieve the Indemnitor of its obligations hereunder unless the Indemnitor
shall be actually prejudiced by such failure to so notify. Any Indemnitor shall
be entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to an Indemnitee's claim for
indemnification at such Indemnitor's expense, and at its option (subject to the
limitations set forth below) shall be entitled to assume the defense thereof by
appointing a reputable counsel reasonably acceptable to the Indemnitee to be the
lead counsel in connection with such defense; provided, that prior to the
Indemnitor assuming control of such defense it shall first demonstrate to the
Indemnitee in writing such Indemnitor's financial ability to provide full
indemnification to the Indemnitee with respect to such action, lawsuit,
proceeding, investigation or other claim giving rise to such claim for
indemnification hereunder; and provided further, that:
(a) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such
purpose; provided that the fees and expenses of such separate counsel
shall be borne by the Indemnitee (other than any fees and expenses of
such separate counsel that are incurred prior to the date the
Indemnitor effectively assumes control of such defense which,
notwithstanding the foregoing, shall be borne by the Indemnitor);
(b) the Indemnitor shall not be entitled to assume control
of such defense and shall pay the fees and expenses of counsel retained
by the Indemnitee if (1) the claim for indemnification relates to or
arises in connection with any criminal proceeding, action, indictment,
allegation or investigation; (2) the Indemnitee reasonably believes an
adverse determination with respect to the action, lawsuit,
investigation, proceeding or other claim giving rise to such claim for
indemnification would be severely detrimental to or materially
injurious to the Indemnitee's reputation or future business prospects;
(3) the claim seeks an injunction or equitable relief against the
Indemnitee; (4) a conflict of interest exists between the Indemnitor
and the Indemnitee (other than the mere existence of the Indemnitor's
obligation to indemnify the Indemnitee pursuant to this Section 9B)
which renders the Indemnitor incapable of defending against any such
claim or prevents the fair representation of the Indemnitee; or (5) the
Indemnitor failed or is failing to vigorously prosecute or defend such
claim;
(c) if the Indemnitor shall control the defense of any
such claim, the Indemnitor shall obtain the prior written consent of
the Indemnitee before entering into any settlement of a claim or
ceasing to defend such claim if, pursuant to or as a result of such
settlement or cessation, injunctive or other equitable relief will be
imposed against the Indemnitee or if such settlement does not expressly
and unconditionally release the
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Indemnitee from all liabilities and obligations with respect to such
claim, without prejudice; and
(d) if the claim for Indemnification relates to Taxes, the
Indemnitor's rights to control the defense of such matter shall extend
only to the specific issue for which indemnification is claimed (and
not the entire return or taxable period).
(vi) Limitations on Indemnification. Notwithstanding any
provision herein to the contrary, the maximum liability of all of the Sellers
with respect to any Losses suffered by the Seller Indemnified Parties as a
result of any facts or circumstances which constitute a breach of any
representation or warranty contained in this Agreement shall be an aggregate
amount equal to $1,500,000; provided, that the Sellers will only be required to
indemnify the Seller Indemnified Parties for any breaches of the representations
and warranties described in Sections 9A(iii) and (iv) if such Losses in the
aggregate exceed $150,000 (the "Basket Amount") and then only to the extent of
such excess over $150,000.
(vii) Other Indemnification Provisions; Certain Waivers; etc.
The provisions of Section 9 shall be the exclusive remedy and procedure for all
claims for breach or indemnification pursuant to this Agreement or the Schedules
hereto; provided, however that any claim for common law fraud or suit for
specific performance shall not be subject to the limitations set forth in this
Section 9B(vii). Each Seller hereby agrees that he shall not make any claim for
indemnification hereunder against the Company by reason of the fact that he was
a shareholder, director, officer, employee or agent of the Company or was
serving at the request of the Company as a partner, trustee, director, officer,
employee or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses
or otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by any of the Seller Indemnified Parties against such Seller
pursuant to this Agreement and such Seller hereby acknowledges and agrees that
he shall have no claims or right to contribution or indemnity from the Company
with respect to any amounts paid by the Sellers pursuant to this Section 9B.
SECTION 10 DEFINITIONS. For the purposes of this Agreement,
the following terms have the meanings set forth below:
"Acquisition Proposal" has the meaning set forth in Section
4J.
"Adjustment Escrow Agreement" shall be the Adjustment Escrow
Agreement to be entered into among the Purchaser, the Sellers' Representative
and the Escrow Agent substantially in the form of Exhibit A attached hereto.
"Adjustment Escrow Fund" has the meaning set forth in Section
1C.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
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"Affiliated Group" means any affiliated group as defined in
Code Section 1504 that has filed a consolidated return for federal income tax
purposes (or any similar group under state, local or foreign law) for a period
during which any of the Company was a member.
"Agreement" has the meaning set forth in the Preamble.
"Board" means the board of directors of the Company.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
"Closing" has the meaning set forth in Section 1C.
"Closing Balance Sheet" has the meaning set forth in Section
1E(ii).
"Closing Date" has the meaning set forth in Section 1C.
"Closing Net Working Capital" has the meaning set forth in
Section 1E.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Group" means the Company, Sleepmaster Holdings
L.L.C., a New Jersey limited liability company, Sleepmaster L.L.C., a New Jersey
limited liability company, and their respective Subsidiaries.
"Company Intellectual Property Rights" means all of the
Intellectual Property Rights owned or used by the Company (along with all
income, royalties, damages and payments due or payable at the Closing or
thereafter (including , damages and payments for past or future infringements or
misappropriations thereof)), the right to sue and recover for past infringements
or misappropriations thereof, any and all corresponding rights that, now or
hereafter, may be secured throughout the world and all copies and tangible
embodiments of any such Intellectual Property Rights.
"Confidential Information" means the information, observations
and data of the Company or any of its Subsidiaries concerning the business or
affairs of the Company or any Subsidiary (including the Company's technology,
computer programs, know-how, designs, inventions, methods of doing business and
supplier and customer information) (i) which is material nonpublic information,
(ii) which is proprietary to the Company or any of its Subsidiaries, (iii) the
disclosure of which could reasonably be expected to be detrimental or adverse to
the Company or any of its Subsidiaries, or (iv) is the property of the Company
or such Subsidiary and that the continued success of the Company and its
Subsidiaries depends in large part on keeping this information from becoming
known to competitors of the Company and its Subsidiaries.
"Consents" has the meaning set forth in Section 2D.
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"Controlled Group of Corporations" has the meaning set forth
in Code Section 1563.
"December 31 Balance Sheet" means the audited consolidated
balance sheet of the Company as of December 31, 1998.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution or defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), (c) Employee
Welfare Benefit Plan, or (d) other material fringe benefit plan, program or
arrangement.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(1).
"Employment and Stock Purchase Agreements" means the
Employment and Stock Purchase Agreement by and among the Company, Stuart W.
Herr, Sleepmaster Holdings L.L.C. ("Holdings"), and Sleep Investor L.L.C. (the
"Investor") dated as of the date hereof and the Employment and Stock Purchase
Agreement by and among the Company, John K. Herr, III, Holdings, and the
Investor dated as of the date hereof.
"Environmental and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law, in
each case concerning public health and safety, worker health and safety and
pollution or protection of the environment (including all those relating to the
presence, use, production, generation, handling, transport, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, Release,
threatened Release, control or cleanup of any hazardous or otherwise regulated
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" has the meaning set forth in Section 1C.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Government Entity" means individually, and "Government
Entities" means collectively, the United States of America or any other nation,
any state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions
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of government, including any court, in each case having jurisdiction over the
Company or any of its Subsidiaries.
"Guarantee" means any guarantee of the payment or performance
of any Indebtedness or other obligation and any other arrangement whereby credit
is extended to one obligor on the basis of any promise of such Person, whether
that promise is expressed in terms of an obligation to pay the Indebtedness of
such obligor, to provide reimbursement, or to purchase an obligation owed by
such obligor, or to purchase goods and services from such obligor pursuant to a
take-or-pay contract, or to maintain the capital, working capital, solvency or
general financial condition of such obligor, whether or not any such arrangement
is listed in the balance sheet of such Person, or referred to in a footnote
thereto, but shall not include endorsements of items for collection in the
ordinary course of business consistent with past custom and practice..
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the regulations promulgated thereunder.
"Indebtedness" means at a particular time, without
duplication, (i) any obligations under any indebtedness for borrowed money
(including all principal, interest premiums, penalties, fees, expenses and
brokerage costs), (ii) any obligations for deferred compensation, (iii) any
obligations to pay the deferred purchase price of property or services (except
for accounts payable in the ordinary course of business consistent with past
custom and practice), (iv) any indebtedness evidenced by any note, bond,
debenture or other debt security, (v) any commitment by which a Person assures a
creditor against loss (including contingent reimbursement obligations with
respect to letters of credit), (vi) any indebtedness pursuant to a Guarantee,
(vii) any obligations under capitalized leases or with respect to which a Person
is liable, contingently or otherwise, as obligor, guarantor or otherwise, or
with respect to which obligations a Person assures a creditor against loss, and
(viii) any indebtedness secured by a Lien on a Person's assets, but excludes any
liabilities included in the calculation of Closing Net Working Capital.
"Indemnity Escrow Agreement" shall be the Indemnity Escrow
Agreement to be entered into among the Purchaser, the Sellers' Representative
and the Escrow Agent substantially in the form of Exhibit B attached hereto.
"Indemnity Escrow Fund" has the meaning set forth in Section
1C.
"Intellectual Property Rights" means all (i) patents, patent
applications and patent disclosures, as well as any reissues, continuations,
continuations-in-part, divisions, extensions or reexaminations thereof, (ii)
trademarks, service marks, trade dress, trade names, logos and corporate names
and registrations and applications for registration thereof, together with all
of the goodwill associated therewith, (iii) copyrights and copyrightable works
and registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data, data bases and documentation thereof, (vi) trade secrets and other
confidential information (including ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs,
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plans, proposals, technical data, financial and marketing plans and customer and
supplier lists and information).
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"John Herr Employment Agreement" shall mean the Employment and
Stock Purchase Agreement by and among John K. Herr, III, the Company and the
other parties thereto dated as of the date hereof.
"Laws" means all statutes, laws, codes, ordinances,
regulations, rules, orders, judgments, writs, injunctions, acts or decrees of
any Government Entity.
"Leased Real Property" has the meaning set forth in Section
6Z(ii).
"Liabilities" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Lien" or "Liens" means any mortgage, pledge, security
interest, encumbrance, encroachment, claim, lease, right of possession, other
defect in title or lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any filing or agreement to file a
financing statement as debtor under the Uniform Commercial Code or any similar
statute (other than to reflect ownership by a third party of property leased to
the Company under a lease which is not in the nature of a conditional sale or
title retention agreement), or any subordination arrangement in favor of another
Person.
"Material Adverse Effect" means a material and adverse effect
upon the business, operations, assets, liabilities, financial condition,
operating results, business prospects, cash flow, net worth or employee,
customer or supplier relations of the Company taken as a whole.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"Net Working Capital" means, for purposes of Section 1D above,
the excess of the consolidated current assets of the Company as of the close of
business on the date of determination over the consolidated current liabilities
of the Company as of the close of business on the date of determination
determined in accordance with GAAP on a basis consistent with the Company's
audited financial statements as of December 31, 1998, except as adjusted below.
Consolidated current assets will include (a) cash and cash equivalents; (b)
accounts receivable net of an allowance established by the Company of $32,000;
(c) inventories of raw materials, finished goods and goods for resale; (d)
prepaid assets, except prepaid income taxes and deferred tax assets; and (e)
locker stock. Consolidated current liabilities will include (a) trade accounts
payable and (b) accrued
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liabilities (as modified below). Accrued liabilities for the profit sharing plan
and bonuses (including other payroll accruals) will not exceed $200,000 and
$397,000, respectively. For the avoidance of doubt, any liabilities for the
profit sharing plan and bonuses in excess of these specified amounts shall be
paid prior to Closing. Prepaid income taxes, deferred income tax assets and
liabilities and income tax liabilities shall be excluded from the calculation of
Net Working Capital.
"Noncompete Period" has the meaning set forth in Section
5B(i).
"Owned Real Property" has the meaning set forth in Section
6Z(i).
"Party" has the meaning set forth in the Preamble.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means (i) Liens for Taxes or assessments and
similar charges, which either are (a) not delinquent or (b) being contested in
good faith and by appropriate proceedings, and adequate reserves (as determined
in accordance with GAAP, consistently applied) have been established on the
Company's books with respect thereto, (ii) mechanics', materialmen's or
contractors' Liens or encumbrances or any similar statutory Lien or restriction
for amounts not yet due and payable and for which the Title Company has
affirmatively insured against collection, (iii) zoning, building and other land
use regulations imposed by governmental agencies having jurisdiction over the
Real Property which are not violated by the current occupation, use and
operation of the Real Property, and (iv) covenants, conditions, restrictions,
easements and other similar matters currently of record affecting title to the
Real Property which do not materially impair the occupancy or use, value or
marketability of the parcel of Real Property which they encumber for the
purposes for which it is currently used in connection with the business of the
Company.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Prohibited Transactions" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"Purchaser" has the meaning set forth in the Preamble.
"Real Property" has the meaning set forth in Section 6Z(ii).
"Release" shall have the meaning set forth in CERCLA.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Sellers" has the meaning set forth in the Preamble.
"Sellers' Representative" has the meaning set forth in Section
1D.
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"Shareholders Agreement" means the shareholders agreement by
and among Daniel C. Herr, John K. Herr, Jr., John K. Herr, III, Richard F. Herr,
Stuart W. Herr, William F. Herr, Elizabeth H. Witmer and Benjamin M. Witmer,
Jr., dated as of February 1, 1984 as amended to date.
"Stuart Herr Employment Agreement" shall mean the Employment
and Stock Purchase Agreement by and among Stuart W. Herr, the Company, and the
other parties signatory thereto dated as of the date hereof.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of 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 that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Target Net Working Capital" means $2,325,854.
"Tax" or "Taxes" means federal, state, county, local, foreign
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including
deficiencies, penalties, additions to tax, and interest attributable thereto)
whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
"Third Party Acquisition" has the meaning set forth in Section
4J.
"Title Company" has the meaning set forth in Section 2I
"Treasury Regulation" means the United States Treasury
Regulations promulgated under the Code, and any reference to any particular
Treasury Regulation section shall be interpreted to include any final or
temporary revision of or successor to that section regardless of how numbered or
classified.
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SECTION 11 TERMINATION.
11A. Conditions of Termination. This Agreement may be
terminated at any time prior to the Closing (or as otherwise specified):
(i) by the mutual written consent of the Parties;
(ii) by the Purchaser if the Purchaser shall have received
notice of a breach of the representations and warranties set forth in Sections 6
and/or 7 or a breach of a covenant hereunder which renders the condition in
Section 2A incapable of being satisfied; or
(iii) by the Sellers if the Sellers shall have received notice
of a breach of the representations and warranties set forth in Section 8 or a
breach of a covenant hereunder which renders the condition in Section 3A
incapable of being satisfied; or
(iv) by the Purchaser on the one hand, or the Sellers and the
Company on the other hand, if the transactions contemplated hereby have not been
consummated by February 28, 1999; provided, that the reason for the delay beyond
February 28, 1999 shall not have been caused by the Party initiating such
termination.
11B. Effect of Termination. In the event of termination of
this Agreement as provided above, this Agreement shall forthwith become void and
of no further force and effect, except that the covenants and agreements set
forth in the second to last sentence of Section 4J and in Sections 12A, 12E,
12F, 12H, 12I, 12J, 12M, 12P and 12Q shall survive such termination
indefinitely, and except that nothing in this Section 11B shall be deemed to
release any Party from any liability for any breach by such Party of the terms
and provisions of this Agreement or to impair the right of any Party to compel
specific performance by another Party of its obligations under this Agreement.
SECTION 12 MISCELLANEOUS.
12A. Fees and Expenses. Except as otherwise set forth herein,
the Purchaser will be responsible for all costs and expenses incurred by the
Purchaser in connection with the negotiation, preparation and entry into this
Agreement and the consummation of the transactions contemplated hereby, and the
Sellers will pay their pro rata share (based on their ownership of the Shares)
of all costs and expenses incurred by the Sellers or the Company in connection
with the negotiation, preparation and entry into this Agreement and the
consummation of the transactions contemplated hereby.
12B. Remedies. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by Laws. All such rights and remedies shall be cumulative
and non-exclusive, and may be exercised singularly or concurrently. One or more
successive actions may be brought against the Company, either in the same action
or in separate actions, as often as the
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Purchaser or any of such holders deems advisable, until all of the obligations
to such Person are paid and performed in full.
12C. Consent to Amendments; Waivers. This Agreement may be
amended, or any provision of this Agreement may be waived upon the approval, in
a writing, executed by the Purchaser, the Company, and the Sellers'
Representative. No course of dealing between or among the Purchaser, the
Company, and the Sellers' Representative shall be deemed effective to modify,
amend or discharge any part of this Agreement or any rights or obligations of
any such Party or such holder under or by reason of this Agreement.
12D. Successors and Assigns.
(i) This Agreement and all covenants and agreements contained
herein and rights, interests or obligations hereunder, by or on behalf of any of
the Parties hereto, shall bind and inure to the benefit of the respective
successors and permitted assigns of the Parties hereto whether so expressed or
not, except that neither this Agreement nor any of the covenants and agreements
herein or rights, interests or obligations hereunder may be assigned or
delegated by the Sellers, or assigned or delegated by the Company prior to the
Closing, without the prior written consent of the Purchaser and except as
otherwise provided by Section 12D(ii) below, neither this Agreement nor any of
the covenants and agreements herein or rights, interests or obligations
hereunder may be assigned or delegated by the Purchaser without the prior
written consent of the Sellers.
(ii) The Purchaser may assign this Agreement and its rights
and obligations hereunder to one of its Affiliates and to its lenders for
collateral assignment purposes; provided, that no such assignment shall relieve
the Purchaser from its obligations hereunder. The Purchaser may assign this
Agreement and its rights and obligations hereunder in connection with a merger
or consolidation involving the Company or in connection with a sale of all or
substantially all of the stock or assets of the Company. In addition, and
whether or not any express assignment has been made, the provisions of this
Agreement which are for a Party's benefit as a holder of the Company's equity
securities are also for the benefit of, and enforceable by, any subsequent
holder of the Company's equity securities.
12E. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable law or rule in any respect by a court
of competent jurisdiction, such provision shall be ineffective only to the
extent of such prohibition, illegality or unenforceability, without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
12F. Counterparts. This Agreement may be executed in
counterparts (including by means of telecopied signature pages), any one of
which need not contain the signatures of more than one Party, but all such
counterparts taken together shall constitute one and the same agreement.
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12G. Descriptive Headings; Interpretation. The headings and
captions used in this Agreement and the table of contents to this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized terms used in any Schedule or
Exhibit attached hereto and not otherwise defined therein shall have the
meanings set forth in this Agreement. The use of the word "including" herein
shall mean "including without limitation."
12H. Entire Agreement. This Agreement, the agreements and
documents referred to herein and the Confidentiality Agreement contain the
entire agreement and understanding among the Parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, whether
written or oral, relating to such subject matter in any way, including, without
limitation the letter of agreement dated November 18, 1998 by and among the
Company, certain of the Sellers and the Purchaser.
12I. No Third-Party Beneficiaries. This Agreement is for the
sole benefit of the Parties and their permitted successors and assigns and
nothing herein expressed or implied shall give or be construed to give any
Person, other than the Parties and such permitted successors and assigns, any
legal or equitable rights hereunder.
12J. Cooperation on Tax Matters. The Parties shall cooperate
fully, as and to the extent reasonably requested by each Party and at the
requesting Party's expense, in connection with any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon any Party's request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
12K. Schedules and Exhibits. All Schedules and Exhibits
attached hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein.
12L. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE
SCHEDULES AND EXHIBITS HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING,
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND
CONSTRUCTION OF THIS AGREEMENT (AND ALL SCHEDULES AND EXHIBITS HERETO), EVEN
THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE
SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
12M. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient or when sent by facsimile
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followed by delivery by reputable overnight courier service, one day after being
sent to the recipient by reputable overnight courier service (charges prepaid)
or five days after being mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid. Such notices, demands and
other communications shall be sent to the Purchaser, the Sellers and the Company
at the addresses indicated below or to such other address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. All notices, demands and other communications hereunder
may be given by any other means (including telecopy or electronic mail), but
shall not be deemed to have been duly given unless and until it is actually
received by the intended recipient.
The Company:
Herr Manufacturing Company
18 Prestige Lane
Lancaster, PA 17603
Attention: Mr. Stuart W. Herr
Mr. John K. Herr III
Facsimile: (717) 392-6154
with copies to:
(which shall not constitute notice to the Company)
The Sellers' Representative (on behalf of the Sellers):
with a copy to:
(which shall not constitute notice to the Sellers)
Barley, Snyder, Senft & Cohen, LLC
126 East King Street
Lancaster, PA 17602-2893
Attention: John Shirk, Esq.
Facsimile: (717) 291-4660
The Purchasers:
Sleepmaster L.L.C.
c/o Serta Mattress Company
2001 Lower Road
Linden, NJ 07036-6520
Attention: Mr. Charles Schweitzer
Facsimile: (732) 381-4455
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with a copy to:
(which shall not constitute notice to the Purchaser)
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kimberly P. Taylor, Esq.
Facsimile: (212) 446-4900
12N. Jurisdiction and Venue. SUBJECT TO SECTION 12Q, ALL
JUDICIAL PROCEEDINGS BROUGHT BY OR AGAINST THE COMPANY, THE PURCHASER OR THE
SELLERS WITH RESPECT TO THIS AGREEMENT, ANY OTHER AGREEMENT CONTEMPLATED HEREBY
OR ANY TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY SHALL BE BROUGHT IN ANY STATE
COURT OF COMPETENT JURISDICTION IN THE CITY OF PHILADELPHIA IN THE COMMONWEALTH
OF PENNSYLVANIA OR FEDERAL COURT IN THE EASTERN DISTRICT OF THE COMMONWEALTH OF
PENNSYLVANIA. BY EXECUTION AND DELIVERY OF THIS AGREEMENT THE COMPANY, THE
PURCHASER AND EACH SELLER ACCEPTS FOR ITSELF AND HIMSELF AND IN CONNECTION WITH
ITS OR HIS RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
12O. Waiver of Right to Jury Trial. THE COMPANY, THE PURCHASER
AND EACH SELLER HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL
BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS AGREEMENT, ANY OTHER AGREEMENT CONTEMPLATED HEREBY OR
THEREBY OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT
THEREOF.
12P. No Strict Construction. The Parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties, and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement.
12Q. Dispute Resolution.
(i) Arbitration. In the event of disputes between the Parties
with respect to the terms and conditions of this Agreement (other than disputes
with respect to Section 1E), such disputes shall be resolved by and through an
arbitration proceeding to be conducted under the auspices of the Philadelphia
Court of Common Pleas or the American Arbitration Association (or any like
organization successor thereto) in the Eastern District of Pennsylvania. Such
arbitration proceeding shall be conducted in as expedited a manner as is
practical, and the arbitrator or arbitrators in any such arbitration (an
"Arbitration") shall be persons who are expert in the subject
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<PAGE> 52
EXECUTION COPY
of mergers and acquisitions. Both the foregoing agreement of the Parties to
arbitrate any and all such claims, and the results, determination, finding,
judgment and/or award rendered through such Arbitration, shall be final and
binding on the Parties hereto and may be specifically enforced by legal
proceedings. The Parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
Party may, in its sole discretion, ask for specific performance and/or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement.
(ii) Procedure. The Arbitration shall be conducted before a
panel of arbitrators selected in accordance with the rules of the American
Arbitration Association. Each Party shall bear separately the cost of their
respective attorneys, witnesses and experts in connection with such arbitration.
Time is of the essence of this arbitration procedure, and the arbitrators shall
be instructed and required to render their decision within ten (10) days
following completion of the Arbitration.
(iii) Venue and Jurisdiction. Any and all legal proceedings to
enforce this Agreement (including any action to compel arbitration hereunder or
to enforce any award or judgment rendered thereby), shall be governed in
accordance with Section 12N.
(iv) Procedure. The Arbitration shall be conducted before a
panel of arbitrators selected in accordance with the rules of the American
Arbitration Association. Each Party shall bear separately the cost of their
respective attorneys, witnesses and experts in connection with such arbitration.
Time is of the essence of this arbitration procedure, and the arbitrators shall
be instructed and required to render their decision within ten (10) days
following completion of the Arbitration.
(v) Venue and Jurisdiction. Any and all legal proceedings to
enforce this Agreement (including any action to compel arbitration hereunder or
to enforce any award or judgment rendered thereby), shall be governed in
accordance with Section 12N.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement on the date first written above.
HERR MANUFACTURING COMPANY
By:________________________________
Name:
Title:
SLEEPMASTER L.L.C.
By:________________________________
Name:
Title:
<PAGE> 54
SELLER SIGNATURE PAGE
STUART W. HERR
___________________________________
JOHN K. HERR, III
___________________________________
WITMER GRANTOR RETAINED
ANNUITY TRUST
___________________________________
<PAGE> 55
EXECUTION COPY
EXHIBIT A
Adjustment Escrow Agreement
A - 1
<PAGE> 56
EXECUTION COPY
EXHIBIT B
Indemnity Escrow Agreement
B - 1
<PAGE> 57
EXECUTION COPY
EXHIBIT C
Opinion of the Sellers' Counsel
C - 1
<PAGE> 58
EXECUTION COPY
EXHIBIT D
Opinion of the Purchaser's Counsel
D - 1
<PAGE> 59
EXECUTION COPY
EXHIBIT E
Commitment Letter
E - 1
<PAGE> 60
EXECUTION COPY
EXHIBIT F
Description of Year 2000 Compliance Problems
F - 1
<PAGE> 1
EXHIBIT 10.34
EXECUTION COPY
ASSET PURCHASE AGREEMENT
by and among
STAR BEDDING PRODUCTS LIMITED
and
SLEEPMASTER L.L.C.
as Purchaser
and
STAR BEDDING PRODUCTS (1986) LIMITED,
and
CECIL BRAUER,
as Seller
Dated as of April 8, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
ACQUISITION OF THE SUBJECT ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES AND PURCHASE PRICE.................................................................. 1
1.1 Purchase of the Subject Assets................................................................. 1
1.2 Excluded Assets................................................................................ 4
1.3 Assumed Liabilities............................................................................ 5
1.4 Liabilities Not Assumed........................................................................ 6
1.5 Purchase Price................................................................................. 7
1.6 Determination of Closing Net Working Capital................................................... 8
1.7 Working Capital Purchase Price Adjustment...................................................... 9
1.8 Elections...................................................................................... 10
1.9 Closing Date................................................................................... 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND BRAUER............................................................................... 10
2.1 Organization and Qualification................................................................. 10
2.2 Capitalization; Title to the Securities........................................................ 11
2.3 Authorization; No Breach....................................................................... 11
2.4 Consents....................................................................................... 12
2.5 Certificate of Amalgamation and By-Laws........................................................ 12
2.6 Product Warranty............................................................................... 12
2.7 Financial Statements........................................................................... 12
2.8 Undisclosed Liabilities........................................................................ 13
2.9 No Material Adverse Change..................................................................... 13
2.10 Tax Matters.................................................................................... 13
2.11 Litigation..................................................................................... 14
2.12 Contracts and Other Agreements................................................................. 14
2.13 Real Property.................................................................................. 16
2.14 Transactions with Affiliates................................................................... 17
2.15 Accounts Receivable............................................................................ 17
2.16 Compensation Arrangements: Officers, Directors and Employees................................... 18
2.17 Operations..................................................................................... 18
2.18 Tangible Property.............................................................................. 20
2.19 Intellectual Property.......................................................................... 20
2.20 Employees...................................................................................... 21
2.21 Employee Benefits.............................................................................. 22
2.22 Environmental and Health and Safety Matters.................................................... 23
2.23 Insurance...................................................................................... 25
2.24 Licenses and Permits........................................................................... 25
2.25 Title; Liens................................................................................... 25
2.26 Compliance with Laws........................................................................... 26
2.27 Sufficiency of Subject Assets.................................................................. 26
</TABLE>
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<TABLE>
<S> <C>
2.28 Inventory...................................................................................... 26
2.29 Product Liability.............................................................................. 27
2.30 Brokers........................................................................................ 27
2.31 Disclosure..................................................................................... 27
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................................... 27
3.1 Organization and Qualification................................................................. 27
3.2 Authorization; No Breach....................................................................... 27
3.3 Consents....................................................................................... 28
3.4 Brokers........................................................................................ 28
3.5 No Prior Activity.............................................................................. 28
3.6 Disclosure..................................................................................... 28
ARTICLE IV
PRECLOSING COVENANTS OF THE
COMPANY AND BRAUER...................................................................................... 29
4.1 Corporate Examinations and Investigations...................................................... 29
4.2 Notice of Events............................................................................... 30
4.3 Filings and Authorizations..................................................................... 30
4.4 Taxes.......................................................................................... 30
4.5 Best Efforts; Further Assurances............................................................... 30
4.6 Mutual Assistance.............................................................................. 30
4.7 Exclusivity.................................................................................... 30
4.8 Name Changes................................................................................... 31
4.9 Third Party Notices and Consents............................................................... 31
4.10 Operation of Business.......................................................................... 31
4.11 Press Release and Announcements................................................................ 32
4.12 Compliance with Agreements and Laws............................................................ 32
4.13 Registrations.................................................................................. 32
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING..................................................................... 32
5.1 Conditions Precedent to the Obligations of the Purchaser to Complete the
Closing........................................................................................ 32
5.2 Conditions Precedent to the Obligations of the Company and Brauer to
Complete the Closing........................................................................... 36
ARTICLE VI
POST-CLOSING COVENANTS.................................................................................. 38
6.1 Further Information; Assistance................................................................ 38
6.2 Record Retention............................................................................... 38
6.3 Post-Closing Transfer Taxes.................................................................... 38
6.4 Accounts Receivable; Mail...................................................................... 39
6.5 No Assignment Causing Breach................................................................... 39
6.6 Insurance Coverage............................................................................. 39
</TABLE>
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<TABLE>
<S> <C>
6.7 Employee Matters............................................................................... 40
6.8 Noncompete; Nonsolicitation.................................................................... 41
6.9 Further Assurances............................................................................. 42
ARTICLE VII
SURVIVAL; INDEMNIFICATION............................................................................... 42
7.1 Survival of Representations and Warranties..................................................... 42
7.2 General Indemnification. ...................................................................... 43
ARTICLE VIII
TERMINATION OF AGREEMENT................................................................................ 46
8.1 Termination.................................................................................... 46
8.2 Effect of Termination.......................................................................... 46
ARTICLE IX
CERTAIN DEFINITIONS..................................................................................... 47
9.1 Certain Definitions............................................................................ 47
ARTICLE X
MISCELLANEOUS........................................................................................... 54
10.1 Fees and Expenses.............................................................................. 54
10.2 Remedies....................................................................................... 54
10.3 Consent to Amendments; Waivers................................................................. 54
10.4 Successors and Assigns......................................................................... 54
10.5 Severability................................................................................... 55
10.6 Counterparts................................................................................... 55
10.7 Descriptive Headings; Interpretation........................................................... 55
10.8 Entire Agreement............................................................................... 55
10.9 No Third-Party Beneficiaries................................................................... 55
10.10 Schedules and Exhibits......................................................................... 55
10.11 GOVERNING LAW.................................................................................. 55
10.12 Notices........................................................................................ 56
10.13 Jurisdiction and Venue......................................................................... 57
10.14 WAIVER OF RIGHT TO JURY TRIAL.................................................................. 57
10.15 No Strict Construction......................................................................... 57
10.16 Dispute Resolution............................................................................. 57
</TABLE>
EXHIBITS:
EXHIBIT A Accounting Procedures; Exceptions to GAAP
EXHIBIT B Subordinated Note
EXHIBIT C Escrow Agreement
EXHIBIT D Opinion of Counsel to the Company
EXHIBIT E Assignment and Assumption Agreement
EXHIBIT F Bill of Sale
EXHIBIT G Opinions of Counsel to the Purchaser
EXHIBIT H Brauer Employment Agreement
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<PAGE> 5
SCHEDULES:
SCHEDULE 1.1 Vehicle Identification and Description
SCHEDULE 1.2(c) Excluded Life Insurance
SCHEDULE 1.2(g) Specific Excluded Assets
SCHEDULE 1.4(b) Excluded Obligations
SCHEDULE 1.5(c) Allocation Schedule
SCHEDULE 2.2 Capitalization; Title to the Securities
SCHEDULE 2.3 Authorization; No Breach
SCHEDULE 2.4 Consents
SCHEDULE 2.6 Product Warranty
SCHEDULE 2.7 Financial Statements
SCHEDULE 2.8 Undisclosed Liabilities
SCHEDULE 2.9 Material Adverse Change
SCHEDULE 2.10 Tax Matters
SCHEDULE 2.11 Litigation
SCHEDULE 2.12 Contracts and other Agreements
SCHEDULE 2.13 Real Property
SCHEDULE 2.14 Transactions with Affiliates
SCHEDULE 2.15 Accounts Receivable
SCHEDULE 2.16 Compensation Arrangements
SCHEDULE 2.17 Operations
SCHEDULE 2.18 Tangible Property
SCHEDULE 2.19 Intellectual Property
SCHEDULE 2.20 Employees
SCHEDULE 2.21 Employee Benefits
SCHEDULE 2.22 Environmental and Health and Safety Matters
SCHEDULE 2.23 Insurance
SCHEDULE 2.24 Licenses and Permits
SCHEDULE 2.25 Title; Liens
SCHEDULE 2.26 Compliance With Laws
SCHEDULE 2.27 Sufficiency of Subject Assets
SCHEDULE 2.28 Inventory
SCHEDULE 3.3 Consents
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<PAGE> 6
This ASSET PURCHASE AGREEMENT is dated as of April 8, 1999, by
and among Star Bedding Products (1986) Limited, a corporation amalgamated and
organized under the laws of the Province of Ontario (the "Company"), Cecil
Brauer ("Brauer"), an indirect stockholder of the Company, Star Bedding Products
Limited, a corporation organized under the laws of the Province of New Brunswick
(the "Purchaser"), and Sleepmaster L.L.C., a New Jersey limited liability
company ("Sleepmaster"). The Company, the Purchaser, Sleepmaster and Brauer are
sometimes collectively referred to herein as the "Parties" and individually as a
"Party." Capitalized terms used herein and not otherwise defined herein have the
meaning as set forth in Article IX hereof.
RECITALS:
WHEREAS, Brauer and a trust established by his family own a
controlling interest in the outstanding capital stock of the Company;
WHEREAS, the Company is a licensee of Serta, Inc. ("Serta")
and is engaged in the business of manufacturing and distributing mattresses and
box springs including mattresses and box springs under the Serta brand name (the
"Business"); and
WHEREAS, the Company wishes to sell, and the Purchaser wishes
to purchase, the Subject Assets (as hereinafter defined), subject to the
assumption by the Purchaser of certain liabilities of the Company comprising the
Assumed Liabilities (as hereinafter defined) upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual terms,
conditions and other agreements set forth herein, the Parties hereby agree as
follows:
ARTICLE I
ACQUISITION OF THE SUBJECT ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES AND PURCHASE PRICE
1.1 Purchase of the Subject Assets. On the terms and subject
to the conditions set forth in this Agreement, on the Closing Date, the Company
agrees to sell, transfer, assign, convey and deliver to the Purchaser free and
clear of all Liens (other than Permitted Liens), and the Purchaser agrees to
purchase, acquire and accept from the Company, all of the right, title and
interest in and to all of the assets, properties and rights owned or used by the
Company in the operation of the Business as presently conducted and as conducted
by the Company and its former subsidiary Burrell Bedding Limited on December 31,
1998, of every type and description, real, personal and mixed, tangible and
intangible, wherever located, including those located at 53 Courtland Avenue,
Concord, Ontario (the "Premises"), and whether or not reflected on the Books and
Records of the Company (the foregoing are hereinafter collectively referred to
as the "Subject Assets"), other than those assets, properties and rights which
are specifically excluded pursuant to Section 1.2. Except as specifically
excluded pursuant to Section 1.2, the Subject Assets include, without
limitation, all of the right, title and interest of the Company in or to the
following:
<PAGE> 7
(a) Real Property Lease. (i) The lease of real property set
forth on Schedule 2.13 hereto as to which the Company is the lessee, together
with any options to purchase the underlying property and leasehold improvements
thereon set forth on Schedule 2.13 hereto, and all other rights, subleases,
licenses, permits, deposits and profits appurtenant to or related to such lease
(such lease, as amended, extended or otherwise modified, the "Real Property
Lease");
(b) Inventory. All inventories or raw materials,
work-in-process, finished goods, consigned goods, merchandise, demonstration
equipment, office and other supplies, parts, packaging materials and other
accessories related thereto which are held at, or are in transit from or to, the
locations at which the Business is conducted (including at the Premises), or
located at suppliers' premises or customers' premises on consignment, in each
case, which are used or held for use by the Company in the conduct of the
Business, including any of the foregoing purchased subject to any conditional
sales or title retention agreement in favor of any other Person, together with
all rights of the Company against suppliers of such inventories (the
"Inventory");
(c) Accounts Receivable. All trade accounts receivable and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales occurring in the conduct of the Business and the
security agreements related thereto, including any rights of the Company with
respect to any third party collection proceedings or any other Actions or
Proceedings which have been commenced in connection therewith (the "Accounts
Receivable");
(d) Tangible Personal Property. In addition to the Inventory,
all furniture, fixtures, equipment and machinery, all office supplies, computers
and related equipment, telephones and related equipment, production supplies,
spare parts, other miscellaneous supplies, and other tangible personal property
used or held for use in the conduct of the Business at the locations at which
the Business is conducted (including at the Premises) or at suppliers' premises
or customers' premises on consignment, or otherwise used or held for use by the
Company in the conduct of the Business, including any of the foregoing purchased
subject to any conditional sales or title retention agreement in favor of any
other Person;
(e) Personal Property Leases. The leases of tangible personal
property set forth on Schedule 2.18 hereto as to which the Company is the lessor
or lessee (the "Personal Property Leases");
(f) Business Contracts. In addition to the Real Property
Lease, the Personal Property Leases and the Accounts Receivable, all contracts
and other agreements entered into in the ordinary course of business consistent
with past custom and practice to which the Company is a party and which are
utilized in the conduct of the Business, including contracts and other
agreements relating to suppliers, sales representatives, distributors,
consultants, purchase orders, marketing and purchasing arrangements,
manufacturing arrangements and facilities management agreements (the "Business
Contracts");
(g) Prepaid Expenses. All prepaid expenses relating to the
Business (to the extent assignable);
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<PAGE> 8
(h) Intellectual Property. All Intellectual Property owned or
used by the Company (including everything listed on Schedule 2.19 attached
hereto), along with all income, royalties, damages and payments due or payable
as of the Closing Date or thereafter (including damages and payments for past,
present or future infringements or misappropriations thereof), the right to sue
and recover for past infringements and misappropriations thereof, and any and
all corresponding rights that, now or hereafter, may be secured throughout the
world, in each case together with all books, records, drawings, recipes,
application or other indicia thereof, and in each case together with goodwill
associated therewith;
(i) Licenses. All licenses, permits, franchises, approvals,
authorizations, orders, registrations, certificates, variances and similar
rights (including applications therefor), utilized in the conduct of the
Business and the rights to all data and records held by any Governmental or
Regulatory Body or other agency with respect thereto (collectively, the
"Business Licenses");
(j) Vehicles. All motor vehicles owned or leased by the
Company, described in Schedule 1.1 hereto;
(k) Security Deposits. All security deposits (including
utility deposits) deposited by or on behalf of the Company as lessee, under the
Real Property Lease or the Personal Property Leases (to the extent assignable);
(l) Balance Sheet Assets. Those assets, properties and rights
of the Company reflected on the Latest Balance Sheet or otherwise referred to in
this Agreement or any Schedule hereto, subject to changes in the ordinary course
of business consistent with past custom and practice through the Closing Date;
(m) Books and Records. All Books and Records used or held for
use in the conduct of the Business or otherwise relating to the Company or the
Subjects Assets, except for the Corporate Records and Tax Returns (which will
remain subject to Section 6.1 and 6.2 as applicable);
(n) Warranties. All rights of the Company under or pursuant to
all warranties, representations and guarantees made by suppliers, manufacturers
and contractors in connection with products sold to or services provided to the
Company for the Business, or affecting the property, machinery or equipment used
in the conduct of the Business, or relating to the Subject Assets;
(o) Telephone Numbers. All transferable telephone exchange
numbers;
(p) Claims. All claims, refunds, causes of action, rights of
recovery, rights of set-off and rights of recoupment of every kind and nature,
other than those relating exclusively to the Excluded Assets or Excluded
Liabilities;
(q) Mail and Communications. The right to receive and retain
mail and other communications and collections, including mail and communications
from customers, suppliers, distributors, agents and others, which relate or
pertain to the Subject Assets or the Business;
-3-
<PAGE> 9
(r) Customer Information. All lists and records pertaining to
customers, suppliers, distributors, personnel and agents (past or current) of
the Business and all other files, documents, correspondence, drawings, and
specifications, computer programs and business records of every kind and nature,
in each case whether evidenced in writing, electronically (including by
computer) or otherwise of the Business;
(s) Going Concern. All right, title and interest of the
Company in the Business as a going concern, including the goodwill (if any) and
all other intangible assets associated with the Business;
(t) Certifications. All certifications, ratings, listings and
similar rights or benefits obtained from any customer or product certification
organization; and
(u) Other Assets. All other property owned by the Company or
Brauer which is used in the Business, other than the Excluded Assets.
1.2 Excluded Assets. Any provision of this Agreement to the
contrary notwithstanding, the Purchaser shall not acquire and there shall be
excluded from the Subject Assets the Company's interest in each of the following
(the "Excluded Assets"):
(a) Cash and Cash Equivalents. All cash and cash equivalents
wherever maintained or held;
(b) Corporate Records. The Corporate Records and Tax Returns
of the Company;
(c) Life Insurance. The life insurance policies set forth on
Schedule 1.2(c) with respect to the life of Cecil Brauer and any and all rights
thereto;
(d) Intercompany Loan Accounts. Any amounts owed to the
Company or Brauer by their Affiliates;
(e) Other Matters. All rights of the Company and Brauer, under
this Agreement and the documents and other papers delivered to the Company and
Brauer by the Purchaser and Sleepmaster pursuant to this Agreement;
(f) Claims Related to Excluded Liabilities and Assets. All
claims related to the Excluded Liabilities or Excluded Assets and all claims for
reimbursement, refund or otherwise with respect to Taxes paid by or assessed
against the Company and Brauer; and
(g) Specific Excluded Assets. The assets listed on Schedule
1.2(g) and any and all rights with respect thereto.
1.3 Assumed Liabilities. Subject to the terms and conditions
set forth herein, the Purchaser agrees that, on the Closing Date, the Purchaser
shall assume and thereafter pay, perform or discharge when due or required to be
performed, as the case may be, all of the following obligations and liabilities
of the Company relating to the Business to the extent existing on the
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<PAGE> 10
Closing Date (the "Assumed Liabilities"). The Purchaser will not assume or have
any responsibility with respect to any obligation or liability of the Company
not included within the following Assumed Liabilities:
(a) Balance Sheet Liabilities. All undischarged current
liabilities and obligations of the Company (including current liabilities for
Taxes other than income Taxes) which relate to conduct of the Business prior to
the Closing Date and are reflected on the face of the Closing Balance Sheet (as
opposed to in the notes thereto) to the extent such liabilities (i) are properly
recorded thereon and (ii) have been incurred in the ordinary course of business
consistent with past custom and practice (other than as a result of any breach
of contract, tort, infringement, claim or lawsuit); provided, that Assumed
Liabilities shall not include any Indebtedness of the Company or any liabilities
for income Taxes or liabilities to any Affiliates of the Company or Brauer other
than Liabilities for business expenses incurred in the ordinary course of
business which are accrued on the Closing Balance Sheet;
(b) Real Property Lease Obligations. All obligations of the
Company under the Real Property Lease;
(c) Personal Property Lease Obligations. All obligations of
the Company under the Personal Property Leases;
(d) Obligations Under Contracts and Licenses. All obligations
of the Company under the Business Contracts and Business Licenses;
(e) Product Warranties. All obligations and liabilities of the
Company in respect of its standard product warranties; provided, that with
respect to products manufactured or sold by the Company during the period prior
to the Closing Date, such products shall have been manufactured in accordance
with the applicable specifications;
(f) Utility Charges and Other Payments. All obligations of the
Company for utilities or other similar periodic payments;
(g) Worker's Compensation. All liabilities for worker's
compensation claims arising from or relating to the Transferred Employees; and
(h) Transferred Employees. All liabilities for Transferred
Employees pursuant to the terms and conditions of Section 6.7.
In the event of any claim against the Purchaser with respect
to any of the Assumed Liabilities hereunder, the Purchaser shall have, and the
Company does hereby assign to the Purchaser, any defense, counterclaim, or right
of setoff which would have been available to the Company if such claim had been
asserted against the Company.
1.4 Liabilities Not Assumed. Any provision of this Agreement
to the contrary notwithstanding (and without implication that the Purchaser is
assuming any liability not expressly excluded and, where applicable, without
implication that any of the following have been included
-5-
<PAGE> 11
in the Assumed Liabilities), the following liabilities (the "Excluded
Liabilities") of the Company are excluded and shall not be assumed or discharged
by the Purchaser:
(a) any liabilities and obligations of the Company (or any
consolidated, affiliated or unitary group of which the Company is a member) with
respect to Taxes for any period, except for current Taxes (other than income
Taxes) that are properly accrued on the Closing Balance Sheet;
(b) any liabilities of the Company to any Affiliate of the
Company or Brauer (including the obligations listed on Schedule 1.4(b));
(c) except as expressly provided in Section 6.7, any
liabilities arising out of or in connection with any Employee Plans;
(d) any liabilities of the Company for injury to or death of
persons or damage to or destruction of property (excluding any worker's
compensation claims) regardless of when said claim or liability is asserted,
including any claim for consequential damages in connection with the foregoing;
it being understood and agreed that any such claim or liability asserted after
the Closing Date, but arising out of acts or omissions by the Company which
occur before the Closing Date, shall be considered to be a claim against or a
liability of the Company for injury to or death of persons or damages to or
destruction of property and therefore not assumed hereunder by the Purchaser;
(e) any liabilities of the Company arising out of infringement
of the Intellectual Property rights of any Person;
(f) any liabilities not recorded on the Closing Balance Sheet
for (i) medical, dental, disability income, life insurance or accidental death
benefits, whether insured or self insured, for claims incurred or for sickness,
injury or disabilities occurring prior to the Closing Date or (ii) severance
benefits, for employees of the Company whose employment is terminated on or
prior to the Closing Date or who do not accept the Purchaser's offer of
employment;
(g) any and all liabilities arising out of violations of any
Law or Order and any liabilities resulting from the contravention of any
Environmental Law including, without limitation, for any Release of Hazardous
Material and any failure to satisfy obligations in respect of matters of health
and safety, in each case arising out of the period prior to the Closing Date
(whether asserted or commenced before or after the Closing Date);
(h) any liability in connection with any Action or Proceeding
in respect of the Company or the Business arising out of the period prior to the
Closing Date (whether asserted or commenced before or after the Closing Date);
(i) any liabilities relating to the Excluded Assets of the
Company;
(j) any liabilities of the Company with respect to
Indebtedness;
(k) any liabilities relating to the capital stock of the
Company; and
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<PAGE> 12
(l) without limitation by the specific enumeration of the
foregoing, any liabilities not expressly assumed by the Purchaser pursuant to
the provisions of Section 1.3.
1.5 Purchase Price.
(a) Subject to adjustment pursuant to Section 1.7, the
aggregate purchase price (the "Purchase Price") for the Subject Assets to be
purchased by the Purchaser from the Company hereunder shall be $25,500,000 which
shall consist of: (i) $24,500,000 (the "Cash Payment"), and (ii) a subordinated
promissory note of Sleepmaster Holdings L.L.C. in the form of Exhibit B attached
hereto in an aggregate principal amount of $1,000,000 (the "Subordinated Note"),
plus (iii) the assumption by the Purchaser of the Assumed Liabilities. All
amounts expressed in this Agreement are expressed in Canadian Dollars.
(b) The Cash Payment shall be paid to the Company by the
Purchaser as follows:
(i) the Purchaser has made a nonrefundable initial deposit
of $125,000 to Miller Thomson, the Company's legal counsel, following the
execution by the Purchaser and the Company of the January 8, 1999 letter
agreement (the "Initial Deposit");
(ii) on March 31, 1999 the Purchaser made an additional
nonrefundable deposit of $125,000 to Miller Thomson (the "Subsequent Deposit",
and together with the Initial Deposit, the "Deposits");
(iii) the Purchaser shall deliver $1,000,000 (the
"Indemnity Escrow Fund") to an escrow agent, to be mutually agreed upon by the
Company and the Purchaser, (the "Escrow Agent") on the Closing Date as security
for any amounts owed by the Company or Brauer pursuant to the indemnification
provisions set forth in Section 7.2(a). The Indemnity Escrow Fund shall be held
by the Escrow Agent pursuant to the terms and conditions of the Escrow Agreement
attached as Exhibit C hereto; and
(iv) the Purchaser shall pay $23,250,000 on the Closing
Date by wire transfer of immediately available funds to an account or accounts
designated by the Company in writing not less than three (3) Business Days prior
to Closing by Notice to the Purchaser.
In addition, the Subordinated Note shall be issued by Sleepmaster Holdings
L.L.C. on the Closing Date to the Company. On the Closing Date, the Purchaser
and the Company shall issue joint written instructions to Miller Thomson
instructing it to deliver the total amount of the Deposits to the Company. If
the Closing does not occur by 5:00 p.m. (Toronto time) on June 30, 1999, the
Purchaser and the Company shall be deemed to have issued joint written
instructions to Miller Thomson instructing it to deliver the total amount of the
Deposits to the Company; provided, that the reason for the delay beyond June 30,
1999 shall not have been caused by any act or failure to act of the Company or
Brauer.
(c) The Purchase Price will be allocated among the Subject
Assets for all purposes (including Tax and financial accounting purposes) in the
manner set forth in Schedule 1.5(c) (the "Allocation Schedule") or as otherwise
agreed to in writing by the Purchaser
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and the Company (the "Purchase Price Allocation"). Each of the Parties hereto
will not take a position on any Tax Return, before any governmental agency
charged with the collection of any Tax, or in any judicial proceeding, that is
in any way inconsistent with the Purchase Price Allocation.
1.6 Determination of Closing Net Working Capital.
(a) Definitions. The "Closing Net Working Capital" means the
Net Working Capital as of the close of business on the Closing Date, as
determined in accordance with Sections 1.6(b), (c) and (d) below.
(b) Closing Balance Sheet. On or before the 60th day after the
Closing Date, the Purchaser will, at its own cost, prepare and deliver to the
Company a consolidated balance sheet of the Company as of the close of business
on the Closing Date which shall be audited by PricewaterhouseCoopers LLP (the
"Purchaser's Accountant") (together with the related audit report of such firm
the "Closing Balance Sheet"), and which shall set forth a calculation of the
Closing Net Working Capital. The Closing Balance Sheet shall (x) be prepared in
a manner consistent with the accounting principles, policies and procedures
applied in the preparation of the Company's audited financial statements as of
December 31, 1998 all of which are in conformity with GAAP, except as set forth
on Exhibit A attached hereto (such accounting principles, policies and
procedures and Exhibit A are collectively referred to herein as the "Accounting
Principles") and (y) fairly present the financial position of the Company as of
the Closing Date. With respect to the calculation of the accounts in the Closing
Balance Sheet, no change in Accounting Principles shall be made from those
utilized in preparing the Latest Balance Sheet (without regard to materiality),
including, without limitation, with respect to the nature or classification of
accounts, closing proceedings, levels of reserves (other than the reserve for
doubtful accounts which the Parties agree shall be $50,000) or levels of
accruals (other than with respect to accruals for volume rebates and co-op
advertising which may be adjusted in an amount not to exceed $125,000). For
purposes of the preceding sentence, a "change in Accounting Principles" shall
include any change in accounting principles, policies, practices, procedures or
methodologies with respect to financial statements, their classification or
their display, as well as any change in practices, methods, conventions or
methodologies utilized in making accounting estimates. During the 30-day period
immediately following the Purchaser's delivery of the Closing Balance Sheet, the
Purchaser will provide the Company and the Company's accountant access to the
Purchaser's records, and will use reasonable efforts to provide the Company's
accountant access to the Purchaser's Accountant and the work papers of the
Purchaser's Accountant related to the preparation of the Closing Balance Sheet
and the calculation of the Closing Net Working Capital. On or prior to the 30th
day following Purchaser's delivery of the Closing Balance Sheet, the Company may
give the Purchaser a written notice stating in reasonable detail the Company's
objections (an "Objection Notice") to the Closing Balance Sheet. Any Objection
Notice shall specify in reasonable detail the dollar amount of any objection and
the basis therefor. Any determination expressly set forth on the Closing Balance
Sheet which is not specifically objected to in the Objection Notice shall be
deemed final and binding upon the Parties upon delivery of the Objection Notice.
If the Company does not give the Purchaser an Objection Notice within such 30-
day period, then the Closing Balance Sheet will be conclusive and binding upon
the Parties and the Closing Net Working Capital set forth in the Closing Balance
Sheet will constitute the Closing Net Working Capital for purposes of Section
1.6(a) above.
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(c) Dispute and Amicable Resolution. If the Company gives a
timely Objection Notice as described in Section 1.6(b) above, then the Purchaser
and the Company will negotiate in good faith to resolve their disputes regarding
the Closing Balance Sheet.
(d) Resolution by Independent Accounting Firm. If the
Purchaser and the Company are unable to resolve all disputes regarding the
Closing Net Working Capital on or prior to the 45th day after the Objection
Notice is given, then the Purchaser and the Company will retain a firm of
chartered public accountants chosen randomly by lot from among the "big five"
accounting firms other than the Company's accountant and the Purchaser's
Accountant (the "Independent Accounting Firm") to determine the Closing Net
Working Capital as soon as practicable. The Independent Accounting Firm shall
only decide the specific items under dispute by the Parties and shall determine
the Closing Net Working Capital in accordance with the guidelines and procedures
set forth in this Agreement. The Closing Net Working Capital determined by the
Independent Accounting Firm will be conclusive and binding upon the Parties and
will constitute the Closing Net Working Capital for purposes of Section 1.6(a)
above. The fees and expenses of the Independent Accounting Firm in connection
with its determination of the Closing Net Working Capital will be paid one-half
by the Company and one-half by the Purchaser.
1.7 Working Capital Purchase Price Adjustment. If the Target
Net Working Capital exceeds the Closing Net Working Capital, then not later than
the third business day after the Closing Net Working Capital is finally
determined pursuant to Section 1.6, the Company will pay to the Purchaser an
amount equal to such excess in immediately available funds to the account
specified by the Purchaser. If the Closing Net Working Capital exceeds the
Target Net Working Capital, then not later than the third business day after the
Closing Net Working Capital is finally determined pursuant to Section 1.6 above,
the Purchaser will pay to the Company an amount equal to such excess in
immediately available funds to the account specified by the Company; provided,
that in no event shall the Purchaser's obligation to the Company pursuant to
this Section 1.7 exceed $1,250,000. Any amount to be paid pursuant to this
Section 1.7 will be treated as an adjustment to the Purchase Price for all
purposes.
1.8 Elections. The Parties will use their commercially
reasonable best efforts in good faith to minimize (or eliminate) any Transfer
Taxes in respect of the Closing by, among other things, making such elections
and taking such steps as may be provided for under applicable law (including,
for greater certainty, making a joint election in a timely manner under Section
167 of the Excise Tax Act (Canada)) as may reasonably be requested by the
Purchaser in connection with the Closing. Each of the Purchaser and the Company
agree to elect jointly in the prescribed form under Section 22 of the Income Tax
Act (Canada) as to the sale of the Accounts Receivable and to designate in such
election an amount equal to the portion of the Purchase Price allocated to
Accounts Receivable pursuant to Section 1.5(c).
1.9 Closing Date. The consummation of the purchase and sale of
the Subject Assets and the assumption of the Assumed Liabilities (the "Closing")
shall be held at 10:00 a.m. (E.S.T.) on May 28, 1999 or at such other time and
date as shall be mutually agreed to by the Parties (such date and time of the
Closing being herein referred to as the "Closing Date") at the offices of
Stikeman, Elliott, Suite 5300, Commerce Court West, Toronto, Canada or at such
other location as shall be mutually agreed to by the Parties.
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<PAGE> 15
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND BRAUER
As a material inducement to the Purchaser to enter into this
Agreement and to purchase the Subject Assets hereunder, each of the Company and
Brauer hereby jointly and severally represents and warrants to each of the
Purchaser and Sleepmaster that the following statements contained in this
Article II are correct and complete as of the date hereof and as of the Closing
Date (for purposes of this Article II, all references to the Company, except in
Sections 2.1 and 2.2, shall include its predecessor corporations for periods
prior to the amalgamation of the Company dated January 1, 1999):
2.1 Organization and Qualification. The Company is a
corporation duly amalgamated, organized, validly existing and in good standing
under the laws of the Province of Ontario and has all requisite corporate power
and authority to (i) own, lease and operate its properties and assets as they
are now owned, leased and operated, (ii) carry on the Business as now presently
conducted and (iii) execute and deliver this Agreement and each Related Document
to which it is a party and to carry out the terms hereof and thereof. The
Company is duly qualified to do business in its jurisdiction of amalgamation,
which is the only jurisdiction in which the Company conducts business and in
which the Subject Assets are located.
2.2 Capitalization; Title to the Securities. As of immediately
prior to the Closing, the authorized capital stock of the Company consists of an
unlimited number of Class A and Class B Common Shares and Preferred Shares,
issuable in Series. All of the issued and outstanding shares of capital stock of
the Company are owned, directly or indirectly, beneficially and of record by the
Persons as set forth on Schedule 2.2, free and clear of all Liens, except as set
forth on Schedule 2.2. For purposes of this Section 2.2, "beneficially own" any
shares of capital stock shall mean having or sharing the power to direct or
control the voting or disposition of such shares of capital stock.
2.3 Authorization; No Breach. The Company's execution,
delivery and performance of this Agreement and all other agreements and
instruments contemplated hereby to which it is a party have been duly
authorized, and all necessary corporate action has been taken by, each of the
Company and the Persons listed on Schedule 2.2 above. This Agreement constitutes
a valid and binding obligation of the Company, enforceable in accordance with
its terms, except as
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<PAGE> 16
such enforceability may be limited by (x) applicable insolvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (y) applicable equitable principles (whether considered in a
proceeding at law or in equity), and all other agreements and instruments
contemplated hereby to which the Company is a party, and when executed and
delivered by the Company in accordance with the terms hereof, shall each
constitute a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as such enforceability may be limited by (a)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (b) applicable equitable
principles (whether considered in a proceeding at law or in equity). Except as
set forth on the attached Schedule 2.3, the execution and delivery by the
Company of this Agreement and all other agreements and instruments contemplated
hereby to which it is a party, and the fulfillment of and compliance with the
respective terms hereof and thereof by the Company do not and shall not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under (whether with or without the passage of time,
the giving of notice or both), (iii) result in the creation of any Lien upon any
of the Company's capital stock or the Subject Assets pursuant to, (iv) give any
third party the right to modify, terminate or accelerate any obligation under,
(v) result in a violation of the articles of amalgamation or bylaws of the
Company, or any Law to which the Company is subject, or any order, judgment or
decree or any material agreement or instrument to which the Company is subject.
The Company is not a party to or bound by any written or oral agreement or
understanding with respect to an Acquisition Proposal or a Third Party
Acquisition other than this Agreement, and the Company Group has terminated all
discussions with third parties (other than the Purchaser) regarding Acquisition
Proposals or Third Party Acquisitions, as such items are defined in Section 4.7
of this Agreement.
2.4 Consents. No consent, approval or authorization of, or
designation, declaration or filing with, any Governmental or Regulatory Body or
other third party is necessary for the execution, delivery or performance of
this Agreement by the Company and/or Brauer or the consummation of the
transactions contemplated hereby, except for applicable requirements of the Bank
Act and the Investment Canada Act (both of which are obligations of the
Purchaser and/or Sleepmaster), the consent of Serta, Inc. and its stockholders
and the consent of the Company's stockholders (both of which are obligations of
the Company and Brauer), or as set forth on the attached Schedule 2.4.
2.5 Certificate of Amalgamation and By-Laws. The Company has
heretofore delivered to the Purchaser true, correct and complete copies of its
Certificate and Articles of Amalgamation(certified by the Director, Companies
Branch, Minister of Consumer and Commercial Relations) and its By-Laws and all
amendments thereto (certified by the secretary of the Company) which are in full
force and effect on the date hereof.
2.6 Product Warranty. Each product manufactured, sold, leased
or delivered by the Company has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the Company
has no liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
the Company giving rise to any liability) for replacement or repair thereof or
other damages in connection therewith other than liabilities in respect of the
standard product warranties set forth on
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<PAGE> 17
Schedule 2.6 for products manufactured in accordance with the applicable
specifications. No product manufactured, sold, leased or delivered by the
Company is subject to any guaranty, indemnity, representation, warranty,
condition, covenant or other agreement, express or implied, collateral,
statutory or otherwise, beyond the applicable standard terms, statutory terms
and conditions of sale. Schedule 2.6 includes copies of the standard terms and
conditions of sale or lease for the Company (containing applicable
representation, warranty, condition, covenant and guaranty provisions). The
Company's liabilities for product returns and product warranties during fiscal
year 1998 did not exceed 2% of the Company's Net Sales.
2.7 Financial Statements. Attached hereto as Schedule 2.7 are
the following financial statements:
(a) the audited consolidated balance sheet of the Company as
of December 31, 1998 (the "Latest Balance Sheet") and the audited consolidated
balance sheets of the Company as of December 31, 1995, December 31, 1996, and
December 31, 1997 and the related statements of consolidated income and cash
flows (or the equivalent) for the respective twelve-month periods then ended;
and
(b) the management prepared unaudited balance sheet of the
Company as of February 28, 1999 and the related statements of income and cash
flows (or the equivalent) for the 2-month period then ended. The management
prepared unaudited balance sheet as of March 31, 1999 and the related statements
of income and cash flows (or the equivalent) for the 3-month period then ended
shall be delivered to the Purchaser and attached hereto promptly following the
preparation thereof.
Except as set forth on Schedule 2.7, all of the foregoing
financial statements (including in all cases the notes thereto, if any) are
correct and complete and are consistent with the books and records of the
Company (which books and records are correct and complete) and fairly present
the financial condition, operating results and cash flows of the Company, and
(i) with respect to the financial statements described in clause (a) above, have
been prepared in accordance with GAAP consistently applied throughout such
financial statements and the periods covered thereby, and (ii) with respect to
the financial statements described in clause (b) above, have been prepared in a
manner consistent with the management prepared financial statements prepared for
all prior monthly periods but may not be in accordance with GAAP.
2.8 Undisclosed Liabilities. Except as set forth on the
attached Schedule 2.8, the Company has no material obligation or liability
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due and regardless of when asserted) (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, or demand against the Company giving rise to any liability), other
than: (i) liabilities set forth on the liabilities side of the Latest Balance
Sheet (excluding any notes thereto), (ii) liabilities and obligations which have
arisen after the date of the Latest Balance Sheet in the ordinary course of
business consistent with past custom and practice (none of which is a liability
resulting from breach of contract, tort, infringement or other lawsuit) and
(iii) other liabilities and obligations expressly disclosed on Schedule 2.8.
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2.9 No Material Adverse Change. Except as set forth on
Schedule 2.9, since December 31, 1998, there has been no material adverse change
in the assets, properties, business, operations, income or condition (financial
or otherwise) of the Company, nor does the Company have knowledge of any such
threatened change, nor has there been any damage, destruction or loss which
could have a Material Adverse Effect on the Business or the Subject Assets.
2.10 Tax Matters.
(a) Except as set forth on the attached Schedule 2.10
(i) the accrual for Taxes on the Latest Balance Sheet
would be adequate to pay all Tax liabilities of the Company if its current tax
year were treated as ending on the date of such balance sheet (excluding any
amount recorded which is attributable solely to timing differences between book
and Tax income);
(ii) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the Subject Assets.
(b) The Subject Assets consist of all or substantially all
of the assets used in carrying on the Business for purposes of the Income Tax
Act (Canada) and the Excise Tax Act (Canada).
(c) The Company has not acquired property from, or
disposed of property to, any Person with whom it does not deal at arm's length
for the purposes of the Income Tax Act (Canada) for proceeds less than the fair
market value thereof.
(d) The Company is a registrant for the purposes of the
tax imposed under Part IX of the Excise Tax Act (Canada).
(e) The Company is not a non-resident of Canada within the
meaning of the Income Tax Act (Canada).
2.11 Litigation. Except as set forth on the attached Schedule
2.11, there are no (and, during the six years preceding the date hereof, there
have not been any material) actions, suits, or proceedings (including any
arbitration proceedings or dispute resolution process, orders, investigations or
claims) pending or, to the Company's knowledge threatened, against or affecting
the Company or pending or, to the Company's knowledge, threatened, against any
of the officers, directors or employees of the Company or the Subject Assets, or
pending or, to the Company's knowledge threatened, by the Company against any
third party, at law or in equity, or before or by any Governmental or Regulatory
Body (including any actions, suits, proceedings or investigations with respect
to the transactions contemplated by this Agreement); the Company is not subject
to any material grievance or arbitration proceedings under collective bargaining
agreements or otherwise or any governmental investigations or inquiries; and the
Company has no knowledge of any basis for any of the foregoing. The Company is
fully insured with respect to each of the outstanding or unresolved matters set
forth on the attached Schedule 2.11. The Company is not subject to any
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<PAGE> 19
judgment, order or decree of any Governmental or Regulatory Body and the Company
has not received any opinion or memorandum or legal advice from legal counsel to
the effect that it is exposed, from a legal standpoint, to any liability which
would reasonably be expected to have a Material Adverse Effect.
2.12 Contracts and Other Agreements.
(a) Except as expressly contemplated by this Agreement or as
set forth on the attached Schedule 2.12, the Company is not a party to or bound
by any written or oral:
(i) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to its current or former directors, officers or employees or any
other employee benefit plan, arrangement or practice, whether formal or
informal;
(ii) collective bargaining agreement or any other contract
with any labor union, severance or termination agreements, programs, policies or
arrangements;
(iii) management agreement or contract for the employment
of any officer, individual employee or other Person on a full-time, part-time,
consulting or other basis (i) providing annual cash or other compensation in
excess of $75,000, (ii) providing for the payment of any cash or other
compensation or benefits upon the consummation of the transactions contemplated
hereby or (iii) otherwise restricting its ability to terminate the employment of
any employee at anytime for any lawful reason or for no reason without penalty
or liability, except for oral contracts of indefinite duration terminable by the
Company without cause on reasonable notice in accordance with applicable Law;
(iv) contract or agreement involving any Governmental or
Regulatory Body;
(v) agreement or indenture relating to Indebtedness or the
mortgaging, pledging or otherwise placing a Lien on any material asset or
material group of assets of the Company or any letter of credit arrangements;
(vi) Guarantee, other than endorsements made for
collection in the ordinary course of business consistent with past custom and
practice;
(vii) lease or agreement under which the Company is (i)
lessee of or holds or operates any personal property, owned by any other party,
except for any lease of personal property under which the aggregate annual
rental payments do not exceed $25,000 or (ii) lessor of or permits any third
party to hold or operate any property, real or personal, owned or controlled by
the Company;
(viii) contract or group of related contracts with the
same party or group of affiliated parties for the purchase or sale of raw
materials, commodities, supplies, products,
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equipment or other personal property or services under which the undelivered
balance since December 31, 1998 of such products and services has a selling
price in excess of $25,000;
(ix) other contract or group of related contracts with the
same party or group of affiliated parties continuing over a period of more than
six months from the date or dates thereof, not terminable by the Company upon 30
days' or less notice without penalty or involving more than $25,000;
(x) contract relating to the marketing, sale, advertising
or promotion of its products;
(xi) agreements relating to the ownership of, investments
in or loans and advances to any Person, including investments in joint ventures
and minority equity investments;
(xii) license, royalty, indemnification or other agreement
with respect to any intangible property (including any Intellectual Property);
(xiii) broker, agent, sales representative, sales or
distribution agreement;
(xiv) power of attorney or other similar agreement or
grant of agency;
(xv) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world, including any
nondisclosure or confidentiality agreements; or
(xvi) other agreement which involves a consideration in
excess of $25,000 annually, whether or not in the ordinary course of business
consistent with past custom and practice.
(b) All of the contracts, agreements and instruments set forth
or required to be set forth on the attached Schedule 2.12 (the "Material
Contracts") are valid, binding and enforceable in accordance with their
respective terms, except as such enforceability may be limited by (x) applicable
insolvency, bankruptcy, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (y) applicable equitable principles
(whether considered in a proceeding at law or in equity). Each of the Material
Contracts shall be in full force and effect without penalty in accordance with
its terms upon consummation of the transactions contemplated hereby. The Company
has performed all obligations required to be performed by it and is not in
default under or in breach of nor in receipt of any claim of default or breach
under any Material Contract; no event has occurred which with the passage of
time or the giving of notice or both would result in a default, breach or event
of noncompliance by the Company under any Material Contract; and the Company has
no knowledge of any breach or cancellation or anticipated breach or cancellation
by the other parties to any Material Contract.
(c) The Purchaser has been supplied with a true and correct
copy of each written Material Contract, together with all amendments, waivers or
other changes thereto.
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2.13 Real Property.
(a) The Company does not own any real property.
(b) The Real Property Lease is in good standing and the
Company has a good and valid leasehold interest in and to the property thereby
demised (the "Leased Real Property"), subject to no Liens (other than Permitted
Liens). The Real Property Lease is in full force and effect and is enforceable
in accordance with its terms, all rents and additional rents have been paid, no
waiver, indulgence or postponement of the lessee's obligations has been granted
by the landlord, and to the knowledge of the Company, all of the covenants to be
performed by the parties (other than the Company) under the Real Property Lease
have been fully performed. There exists no event of default or event,
occurrence, act or condition (including the purchase of the Subject Assets)
which, with the giving of notice, the passage of time or both or the happening
of any other event or condition, could become a default under the Real Property
Lease. The Leased Real Property is adequate and suitable for the purposes for
which it is presently being used and the Company has adequate rights of ingress
and egress into the Leased Real Property for the operation of the Business in
the ordinary course. The Company has previously delivered to Purchaser a true
and complete copy of the Real Property Lease. Except as described on Consents
Schedule 2.4, no consent, waiver, approval or authorization is required from the
landlord under the Real Property Lease as a result of the execution of this
Agreement or the consummation of the transactions contemplated hereby.
(c) The Leased Real Property constitutes all of the real
property owned, leased, occupied or otherwise utilized in connection with the
Business. Other than the Company, there are no parties in possession or parties
having any current or future right to occupy any of the Leased Real Property.
The Leased Real Property is in good condition and repair and is sufficient and
appropriate for the conduct of the business of the Company. To the best
knowledge of the Company, the Leased Real Property and all plants, buildings and
improvements located thereon conform to all applicable building, zoning and
other laws, ordinances, rules and regulations. All permits, licenses and other
approvals necessary to the current occupancy and use of the Leased Real Property
have been obtained, are in full force and effect and have not been violated.
Except as set forth on Schedule 2.13(c), there exists no violation of any
covenant, condition, restriction, easement, agreement or order affecting any
portion of the Leased Real Property. All improvements located on the Leased Real
Property have direct access to a public road adjoining such Leased Real
Property. Except as set forth on Schedule 2.13(c), no such improvements or
accessways encroach on land not included in the Leased Real Property and no such
improvement is dependent for its access, operation or utility on any land,
building or other improvement not included in the Leased Real Property. Except
as set forth on Schedule 2.13(c), there is no pending or any threatened
condemnation proceeding affecting any portion of the Leased Real Property.
Except as set forth on Schedule 2.13(c), there are no outstanding options or
rights of first refusal with respect to the purchase or use of any of the Leased
Real Property, any portion thereof or interest therein. The Company is not
obligated to purchase any real property.
(d) The Company is not a party to any sublease, either as
sublessor or sublessee.
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2.14 Transactions with Affiliates. Except as set forth on
Schedule 2.14 and the Brauer Employment Agreement, no director, officer or
Affiliate of the Company or Affiliate or Associate of such director or officer
(a) has any contractual or other claim, express or implied, of any kind
whatsoever against the Subject Assets; or (b) will have as of the Closing Date
any interest in any of the Subject Assets.
2.15 Accounts Receivable. All Accounts Receivable reflected on
the Latest Balance Sheet, and all Accounts Receivable arising subsequent to the
date of the Latest Balance Sheet (net of an allowance for doubtful accounts of
$50,000), (a) have arisen from bona fide sales transactions in the ordinary
course of business consistent with past custom and practice of the Company on
ordinary trade terms, (b) represent valid and binding obligations due to the
Company, enforceable in accordance with their terms, and (c) have been collected
or are collectible in the ordinary course of business of the Company in the
aggregate recorded amounts thereof in accordance with their terms without valid
set-off or counterclaim other than set-off for rebates, cooperative advertising
and other similar allowances provided by the Company in the ordinary course of
business consistent with past custom and practice. Schedule 2.15 lists any
obligor which together with all of its Affiliates owes uncollected amounts to
the Company in an aggregate amount of $25,000 or more.
2.16 Compensation Arrangements: Officers, Directors and
Employees. Schedule 2.16 sets forth: (a) the name and current annual salary (or
other compensation), including any bonus or commitment to pay any other amount
or benefit in connection with a termination of employment, if applicable, of all
present officers, directors, employees and agents of the Company whose current
annual salary (or other compensation), including any promised, expected or
customary bonus or such other amount or benefit, equals or exceeds $100,000 and
(b) the names and titles of all directors and officers of the Company. Except as
specified on Schedule 2.20, the Company has not made a commitment or agreement
(verbally or in writing) to increase the compensation or to modify the
conditions or terms of employment of any Person listed on Schedule 2.16 or of
any other Person if the increase would cause such Person to be required to be
listed on Schedule 2.16. None of such Persons has made a threat or otherwise
indicated any intent to the Company or to any of the officers or directors of
the Company to cancel or otherwise terminate such Person's relationship with the
Company.
2.17 Operations. Except as disclosed on Schedule 2.17 or
expressly authorized by this Agreement, since December 31, 1998, through the
date hereof, the Company has conducted its business only in the ordinary course
of business consistent with past custom and practice, and the Company has not:
(a) amended its certificate or articles of amalgamation (other
than the amalgamation of the Company as of January 1, 1999) or by-Laws or
comparable instruments or merged with or into or consolidated with any other
Person, or changed or agreed to rearrange in any manner the character of its
business;
(b) entered into, amended or terminated any (i) employment
agreement or collective bargaining agreement or (ii) adopted, entered into or
amended any arrangement which is, or would be, an Employee Plan;
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<PAGE> 23
(c) knowingly waived any right of material value to the
Business;
(d) made any change in its accounting methods or practices or
made any changes in depreciation or amortization policies or rates adopted by it
or made any material write-down of Inventory or material write-off as
uncollectible of Accounts Receivable;
(e) made any wage or salary increase or other compensation
payable or to become payable or bonus, or increase in any other direct or
indirect compensation, for or to any of its officers, directors, employees,
consultants, agents or other representatives, or any accrual for or commitment
or agreement to make or pay the same, other than increases made in the ordinary
course consistent with past practice;
(f) made any payment or commitment to pay any severance or
termination pay to any Person or any of its officers, directors, employees,
consultants, agents or other representatives, other than payments or commitments
to pay such Persons or its officers, directors, employees in the ordinary course
of business;
(g) (i) entered into any Material Contract, (ii) sold,
abandoned or made any other disposition of any of its assets or properties other
than in the ordinary course of business consistent with past practice; (iii)
granted or suffered any Lien on any of its assets or properties other than sales
of Inventory in the ordinary course of business consistent with past practice;
or (iv) amended any Material Contract;
(h) except in the ordinary course of business consistent with
past practice, incurred or assumed any debt, obligation or liability (whether
absolute or contingent and whether or not currently due and payable);
(i) except for Inventory or equipment acquired in the ordinary
course of business consistent with past practice, made any acquisition of all or
any part of the assets, properties, capital stock or business of any other
Person;
(j) paid, directly or indirectly, any of its liabilities or
obligations before the same became due in accordance with its terms or otherwise
than in the ordinary course of business consistent with past practice, except to
obtain the benefit of discounts available for early payment;
(k) created, incurred or assumed any indebtedness for borrowed
money, or guaranteed any indebtedness for borrowed money or any capitalized
lease obligation, in each case in excess of $25,000 individually or in the
aggregate;
(l) made any capital expenditures or commitments for capital
expenditures in aggregate amount exceeding $25,000;
(m) delayed, postponed or canceled the payment of any accounts
payable or any other liability or obligation or agreed or negotiated with any
Person to extend the payment date of any accounts payable or accelerated the
collection of any accounts or notes receivables;
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<PAGE> 24
(n) except in the ordinary course of business consistent with
past practice, terminated or failed to renew any Material Contract; or
(o) agreed, whether orally or in writing, to do any of the
foregoing.
2.18 Tangible Property. The Company owns or leases all
categories of tangible personal property (other than Inventory), including
equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
any related capitalized items and other similar tangible property, necessary for
the conduct of the Business as presently conducted (collectively, the "Tangible
Property") and Schedule 2.18 sets forth a description of any leases or subleases
of Tangible Property to which the Company is the lessor, sublessor, lessee or
sublessee and any options to purchase or sell the underlying property. The
Tangible Property is in good operating condition and repair (subject to
continued repair and replacement in the ordinary course of business consistent
with past custom and practice) and is suitable for the purpose for which it
presently is used and presently is prepared to be used. The Company has not
received notice that any of the Tangible Property is in violation of any
existing Law or Order. During the past three (3) years there has not been any
interruption of the operations of the Company due to inadequate maintenance of
the Tangible Property. Except as separately identified on Schedule 2.18, no
approval or consent of any Person is needed so that the interest of the Company
in the Tangible Property shall continue to be enforceable by the Purchaser
following the transactions contemplated by this Agreement.
2.19 Intellectual Property.
(a) Set forth on Schedule 2.19 is a list of all (i) patented
and registered Intellectual Property and applications therefor owned by the
Company; (ii) material computer software and databases owned or used by the
Company; (iii) material unregistered trademarks, trade names, service marks,
copyrights and designs owned or used by the Company; and (iv) licenses and
registered user agreements granted by the Company to any third party or by any
third party to the Company, in each case with respect to Intellectual Property.
(b) (i) The Company owns or has a valid and enforceable
license to use all Intellectual Property necessary for the operation of the
Business as currently conducted, free and clear of any Liens or adverse claims;
(ii) there have been no claims by any third party contesting the validity,
enforceability, ownership or use of any of the Intellectual Property owned or
used by the Company or alleging that the Company has infringed or
misappropriated any Intellectual Property of any third party; (iii) to the
knowledge of the Company, no third party is infringing or misappropriating any
Intellectual Property owned or used by the Company; and (iv) subject to
obtaining the consent of Serta, Inc. and its stockholders referred to in Section
2.4, all Intellectual Property owned or used by the Company immediately prior to
the Closing will be owned or available for use by the Purchaser on identical
terms and conditions immediately subsequent to the Closing.
(c) Schedule 2.19 sets forth an outline of the procedures that
the Company has taken to date and plans to take (together with a schedule of the
target dates for the completion of each such planned procedure) to ensure that
the computer software, computer firmware, computer hardware (whether general or
special purpose) or other similar or related items of automated,
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<PAGE> 25
computerized or software systems ("Computer Systems") that are used or relied on
by the Company in the conduct of the Business will be Year 2000 Compliant, and
to the best knowledge of the Company such Computer Systems will be Year 2000
Compliant. The Company is using its commercially reasonable best efforts to
ensure that the Computer Systems that are used or relied on by the Company in
the conduct of the Business will be Year 2000 Compliant. "Year 2000 Compliant"
means that none of the Computer Systems of a particular Person will malfunction,
will cease to function, will generate incorrect data or will produce incorrect
results when processing, providing or receiving (i) date-related data from, into
and between the twentieth and twenty-first centuries or (ii) date-related data
in connection with any valid date in the twentieth and twenty-first centuries.
(d) The Company has made available to the Purchaser copies of
all material in-house correspondence and memoranda and all material
correspondence between the Company with any insurance companies, vendors,
suppliers and service providers of the Company concerning whether such Persons
are or expect to be Year 2000 Compliant.
(e) The Company has no knowledge, after reasonable inquiry, of
any customer, supplier, contractor, distributor, insurance company, or other
vendor or service provider which has failed to take commercially reasonable
steps to be Year 2000 Compliant in any respect that would have a Material
Adverse Effect on the Company.
2.20 Employees.
(a) Except as set forth on Schedule 2.20, the Company is not
party to or bound by any contract or agreement for the employment of any Person.
(b) Except as set forth on Schedule 2.20, since December 31,
1998, no group of employees of the Company relating to the business has
terminated, or given notice of his or her intent to terminate, employment with
the Company. Except as set forth on Schedule 2.20, the Company is not a party to
or bound by any collective bargaining agreement, nor has it experienced any
strike, slowdown, work stoppage, material union grievance, material claim of
unfair labor practice or other collective bargaining dispute relating to the
Business since January 1, 1997. Except as set forth on Schedule 2.20, there is
no pending union grievance or claim of unfair labor practice and to the
knowledge of the Company no organizational effort is being made or threatened by
or on behalf of any labor union with respect to employees of the Company. The
Company has not received any notification of and to the knowledge of the Company
no labor union has applied to have the Company declared a related employer
pursuant to the Labor Relations Act (Ontario). The Company has not committed any
unfair labor practice or violated any Canadian federal, provincial or local law
or regulation regulating employers or the terms and conditions of its employees'
employment, including laws regulating employee wages and hours, pay equity,
employment discrimination, employee civil rights, equal employment opportunity
and employment of foreign nationals other than such practice or violations which
would not cause a Material Adverse Effect.
(c) Any notice required under any law or collective bargaining
agreement has been given, and all bargaining obligations with any employee
representative have been satisfied. The
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<PAGE> 26
Company has not implemented any plant closing or mass layoff of employees, and
no layoffs that could implicate such laws or regulations will be implemented
before Closing without advance notification to the Purchaser.
(d) All current assessments which are due and payable under
the Workplace Safety and Insurance Act (Ontario) in relation to the Company have
been paid and there are no outstanding special or penalty assessments which are
due and payable but unpaid.
(e) All accruals for unpaid vacation pay, premiums for
employment insurance, health premiums, Canada Pension Plan premiums, accrued
wages, salaries and commissions and employee benefit plan payments in each case
in respect of employees of the Company have been reflected in the Books and
Records of the Company.
(f) The Company is in compliance with the requirements of the
Pay Equity Act (Ontario) and no complaint has been received by the Company
alleging a contravention of the Pay Equity Act (Ontario).
(g) Schedule 2.20 contains a complete and accurate list of the
names of all individuals who are employees of the Company employed or engaged in
the Business as of the date of this Agreement specifying their length of
service, age, salary or hourly wage, title, commission or bonus structure and
whether or not such employee is currently absent from employment for any reason
and the expected date of return to active employment.
2.21 Employee Benefits.
(a) Schedule 2.21 lists and describes all Employee Plans. The
Company has furnished to the Purchaser true, correct and complete copies of all
the Employee Plans as amended as of the date hereof, together with all related
documentation including, without limitation, summary plan descriptions. The
Company does not have, maintain or sponsor any pension plans, whether registered
or unregistered, including group registered retirement savings plans other than
as provided for Unionized Employees.
(b) All obligations regarding the Employee Plans have been
satisfied, there are no outstanding defaults or violations by the Company, or to
the Company's knowledge any other party, to any Employee Plan and no taxes,
penalties, or fees are owing or exigible under or in respect of any of the
Employee Plans.
(c) The Company may unilaterally amend or terminate, in whole
or in part, each Employee Plan subject only to the terms of the Employee Plans,
approvals required by Laws and, with respect to amendment or termination, the
collective agreements disclosed in Schedule 2.21.
(d) To the knowledge of the Company, no Employee Plan is
subject to any pending investigation or examination and no other proceeding,
action or claim is pending or has been initiated by any regulatory authority, or
by any other party (other than routine claims for benefits), and there exists no
state of facts which could reasonably be expected to give rise to any such
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<PAGE> 27
investigation, examination or other proceeding, action or claim or to affect the
registration of any Employee Plan required to be registered.
(e) All contributions or premiums required to be paid by the
Company under the terms of each Employee Plans or by Laws have been made in a
timely fashion in accordance with Laws and the terms. Contributions or premiums
for the period up to the Closing Date shall have been paid or accrued for on the
Closing Balance Sheet.
(f) No commitments to improve or otherwise amend any Employee
Plans have been made, except as required by applicable Laws.
(g) None of the Employee Plans enjoy any special tax status
under any Laws, nor have any advance tax rulings been sought or received in
respect of any Employee Plan.
(h) All employee data necessary to administer each Employee
Plan has been provided by the Company to the Purchaser and, to the Company's
knowledge, is true and correct as of the date of this Agreement and the Company
will notify the Purchaser of any changes thereto.
(i) None of the Employee Plans provide benefits to retired
employees or to the beneficiaries or dependants of retired employees.
2.22 Environmental and Health and Safety Matters.
Except as set forth on the attached Schedule 2.22:
(a) The Company has complied with and is currently in
compliance with all Environmental Laws. The Company has not received any oral or
written notice, report or information regarding any violations of or any
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
or corrective, investigatory or remedial obligations arising under Environmental
Laws which relate to the Company or any of its current or former properties or
facilities.
(b) Schedule 2.22 lists all reports and documents relating to
environmental matters affecting the Company or any of the Real Property and the
Subject Assets. To the knowledge of the Company, there are no other reports or
documents relating to environmental matters affecting the Company or any of the
Real Property or the Subject Assets which have not been made available to the
Purchaser whether by reason of confidentiality restrictions or otherwise.
(c) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is currently in compliance with, all
permits, licenses and other authorizations that may be required pursuant to any
Environmental Laws for the occupancy of its properties or facilities or the
operation of the Business. A list of all such permits, licenses and other
authorizations is set forth on the attached Schedule 2.22.
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<PAGE> 28
(d) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on the
Company for site investigation or cleanup, or notification to or consent of any
government agencies or third parties under any Environmental Laws (including any
so called "transaction-triggered" or "responsible property transfer" laws and
regulations).
(e) To the knowledge of the Company, none of the following
exists or has ever existed at any property including the Leased Real Property or
any facility owned, occupied or operated by the Company, nor has the Leased Real
Property ever been used by any Person for any of the following uses:
(i) underground or aboveground storage tanks or systems,
active or abandoned;
(ii) asbestos-containing materials in any form or
condition;
(iii) materials or equipment containing polychlorinated
biphenyls;
(iv) radioactive substances; or
(v) landfills, licensed or otherwise, surface
impoundments or other disposal areas, including
waste disposal areas.
(f) The Company has not treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled or Released any substance
(including any hazardous substance) or owned, occupied or operated any facility
or property (and no such property or facility is contaminated by any such
substance) in a manner that has given or could give rise to any liabilities
(including any liability for response costs, corrective action costs, personal
injury, natural resource damages, property damage or attorneys fees or any
investigative, corrective or remedial obligations) pursuant to any Environmental
Laws. To this end, the Company has not been required by any Governmental or
Regulatory Body to alter any of the Real Property in a material way in order to
be in compliance with Environmental Laws, or to perform any environmental
closure, decommissioning, rehabilitation, restoration or post-remedial
investigations, on, about, or in connection with any real property.
(g) To the knowledge of the Company, no properties adjacent to
any of the Real Property are contaminated.
(h) To the knowledge of the Company, there are no contaminants
located in the ground or in the groundwater under any of the Real Property.
(i) The Company has not, either expressly or by operation of
law, assumed or undertaken any liability or corrective, investigatory or
remedial obligation of any other Person relating to any Environmental Laws.
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2.23 Insurance. Schedule 2.23 sets forth a list and brief
description (specifying the insurer, the policy number or covering note number
with respect to binders and the amount of any deductible, describing the pending
claims if such claims exceed applicable policy limits and setting forth the
aggregate amount paid out under each such policy through the date hereof and the
aggregate limit, if any, of the insurer's liability thereunder in respect of
such pending claims) of all policies or binders of fire, liability, vehicular,
and other insurance held by or on behalf of the Company. Such policies and
binders are valid and enforceable in accordance with their terms in all material
respects, are in full force and effect, and insure against risks and liabilities
to the extent and in respect of amounts, types and risks insured. The Company is
not in default with respect to any material provision contained in any such
policy or binder and has not failed to give any notice or present any claim
under any such policy or binder in due and timely fashion. Except for claims
disclosed on Schedule 2.23, there are no outstanding unpaid claims under any
such policy or binder which have gone unpaid for more than forty-five (45) days
or as to which the carrier has disclaimed liability. All known claims or
circumstances likely to give rise to any claims, if any, made against the
Company have been disclosed and tendered to the appropriate insurance companies
and are being defended by such appropriate insurance companies in accordance
with the policy terms and limits. The Company has not received any notice of
cancellation or non-renewal of any such policy or binder. The Company has not
received any notice from any of its insurance carriers that any insurance
premiums will be materially increased in the future or that any insurance
coverage listed on Schedule 2.23 will not be available in the future on
substantially the same terms as now in effect. None of the policies disclosed on
Schedule 2.23 provides that premiums paid in respect of periods may be adjusted
or recomputed based on claims-paying experience of such policies or otherwise.
2.24 Licenses and Permits. Schedule 2.24 lists all of the
permits, licenses, registrations, orders, approvals and other governmental
consents and authorizations of any Governmental or Regulatory Body
(collectively, the "Permits") which the Company has obtained in connection with
the Subject Assets including those located on the Premises, and those that are
used to conduct the Business. Except as set forth on Schedule 2.24, no Permits
(including Permits under Environmental Laws) are required to be obtained by the
Company in connection with the Subject Assets or Business. All such Permits are
in full force and effect and in good standing, except as separately identified
on Schedule 2.24. The Company has not received any notice of any claim of
revocation of any such Permits and the Company has no knowledge of any event
which might give rise to such a claim. The Company has no knowledge of any fact
or circumstances which would prevent the Purchaser from obtaining such Permits.
2.25 Title; Liens. The Company owns outright and has good and
marketable title (except for leasehold interests specifically set forth on
Schedule 2.13 and Schedule 2.18) to all of the Subject Assets, and no director,
officer, Affiliate or Associate of the Company or Affiliate of such director or
officer has any right, title or interest in or to any of the Subject Assets. At
the Closing Date, the Company will have good and marketable title to all of the
Subject Assets, in each case free and clear of any Lien, except for (a) Liens
set forth on Schedule 2.25; (b) assets and properties disposed of in the
ordinary course of business consistent with past custom and practice since the
date of the Latest Balance Sheet without violation of Section 2.17 or 4.10; or
(c) Permitted Liens.
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2.26 Compliance with Laws. Except as set forth in Schedule
2.26, the Company (a) is in compliance with all, and is not in violation of any,
and has not received any claim or notice that it is not in compliance in any
material respect with, or that its is in violation in any material respect of,
any Law or Order to which the Business or the Subject Assets (including the use
and occupancy thereof) are subject and (b) the Company has not failed to obtain
or to adhere to the requirements of any governmental permit, license,
registration and other governmental consent or authorization necessary in
connection with the Business or the Subject Assets which failure would have a
Material Adverse Effect on the Company. The Company has no knowledge of any
proposed environmental, safety, health or other law, rule or regulation which
could reasonably be expected to have a Material Adverse Effect on the Company or
the Purchaser, or which could reasonably be expected to require substantial new
capital investments by the Purchaser in the Business.
2.27 Sufficiency of Subject Assets. The sale of the Subject
Assets to be sold by the Company to the Purchaser pursuant to this Agreement
will effectively convey to the Purchaser the entire Business of, and all of the
tangible and intangible property used by, the Company (whether owned, leased or
held under license by the Company, by any of the Affiliates of the Company or
Brauer or by others) in connection with the conduct of the Business as presently
conducted, including all tangible assets and properties of the Company reflected
in the Latest Balance Sheet and assets and properties acquired since the Latest
Balance Sheet Date in the conduct of the Business of the Company, other than the
Excluded Assets and assets and properties disposed of in the ordinary course of
business consistent with past custom and practice since such date without
violation of this Agreement. Except as disclosed in Schedule 2.27, there are no
material facilities, services, assets or properties shared with any other Person
which are used by the Company.
2.28 Inventory. All the Inventory of the Company consists of
raw materials and supplies manufactured and purchased parts, goods in progress,
and finished goods, all of which are merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is slow moving,
obsolete, damaged, or defective, subject only to the reserve for inventory shown
on the Latest Balance Sheet and the reserve for inventory to be shown on the
Closing Balance Sheet (as determined in accordance with GAAP consistently
applied with respect to each such financial statement), and such inventory
consists or shall consist of a quantity and quality usable and saleable in the
ordinary course of business consistent with past custom and practice, subject to
normal and customary allowances in the industry for spoilage, damage and
outdated items. Except as otherwise disclosed on Schedule 2.28, all items
included in the Inventory are the property of the Company, free and clear of any
Lien, have not been pledged as collateral, are not held by the Company on
consignment from others and conform in all material respects to all standards
applicable to such Inventory or its use or sale imposed by any Law or Order.
2.29 Product Liability. Except for ordinary course liabilities
arising in a manner consistent with past custom and practice from the Company's
standard warranties, the Company has no liability (and the Company has no
knowledge of any basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the Company
giving rise to any liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by the Company.
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<PAGE> 31
2.30 Brokers. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
the Company or Brauer is a party or to which the Company or Brauer is subject.
The Company shall pay, indemnify, defend and hold the Purchaser harmless
against, any liability, loss or expense (including reasonable attorneys' fees
and out-of-pocket expenses) arising in connection with any such claim.
2.31 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, contains with respect to the Business, the Subject
Assets, or the Assumed Liabilities an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. All information provided to the Purchaser and its agents
by the Company and its Affiliates or their respective agents with respect to the
Business, the Subject Assets, or the Assumed Liabilities is true, complete and
correct in all material respects. All disclosures relating to the Company, the
Business, the Subject Assets or the Assumed Liabilities contained in a
particular section of this Agreement, the Exhibits, or the Schedules hereto are
disclosed with respect to such section and shall be deemed disclosed for any
other section of this Agreement, the Exhibits, or the Schedules which, based on
the express language of such disclosure, would obviously apply.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As a material inducement to each of the Company and Brauer to
enter into this Agreement and to sell the Subject Assets hereunder, each of the
Purchaser and Sleepmaster hereby, jointly and severally, represents and warrants
to each of the Company and Brauer that the following statements contained in
this Article III are correct and complete as of the date hereof and as of the
Closing Date.
3.1 Organization and Qualification. Each of the Purchaser and
Sleepmaster is duly organized and validly existing and in good standing under
the laws of its jurisdiction of organization and has all requisite power and
lawful authority to execute and deliver this Agreement and each related document
to which it is a party and to carry out the terms hereof and thereof.
3.2 Authorization; No Breach. The execution, delivery and
performance of this Agreement and all other agreements or instruments
contemplated hereby to which each of the Purchaser and Sleepmaster is a party or
by which each of the Purchaser and Sleepmaster is bound have been duly
authorized by such Person. This Agreement and all other agreements contemplated
hereby to which any of the Purchaser and Sleepmaster is a party, when executed
and delivered by such Person in accordance with the terms hereof, shall each
constitute a valid and binding obligation of such Person, enforceable in
accordance with its terms, except as such enforceability may be limited by (x)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (y) applicable equitable
principles (whether considered in a proceeding at law or in equity). The
execution, delivery and performance by each of the Purchaser and Sleepmaster of
this Agreement and all other agreements contemplated hereby to which any of
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<PAGE> 32
the Purchaser and Sleepmaster is a party, and the fulfillment of and compliance
with the respective terms hereof and thereof by each of the Purchaser and
Sleepmaster, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under (whether
with or without the passage of time, the giving of notice or both), (iii) give
any third party the right to modify, terminate or accelerate any obligation
under, (iv) result in a violation of the organizational documents of such
Person, or any Law to which such Person is subject, or any agreement,
instrument, order, judgment or decree to which such Person is subject.
3.3 Consents. No consent, approval or authorization of, or
designation, declaration or filing with any Canadian or United States
Governmental Entity or other third party is necessary for the execution,
delivery or performance of this Agreement by each of the Purchaser and
Sleepmaster or the consummation of the transactions contemplated hereby, except
for applicable requirements of the Bank Act, the Investment Canada Act (both of
which are obligations of the Purchaser and/or Sleepmaster), the consents of
Serta, Inc. and its stockholders and the approval of the Company's shareholders
(both of which are obligations of the Company and Brauer), or as set forth on
the attached Schedule 3.3.
3.4 Brokers. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
any of the Purchaser and Sleepmaster is a party or to which any of the Purchaser
and Sleepmaster is subject. Each of the Purchaser and Sleepmaster shall pay,
indemnify, defend and hold the Company harmless against, any liability, loss or
expense (including reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
3.5 No Prior Activity. The Purchaser was formed for the
purpose of acquiring the Subject Assets of the Company and has not engaged in
any activity as of the date hereof, except in connection with the transactions
contemplated by this Agreement.
3.6 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. All information provided to the Company or Brauer and
their agents by the Purchaser and Sleepmaster and their Affiliates or their
respective agents is true, complete and correct in all material respects.
ARTICLE IV
PRECLOSING COVENANTS OF THE
COMPANY AND BRAUER
Each of the Company and Brauer hereby covenants and agrees
with the Purchaser that from and after the date hereof to and including the
Closing Date, the Parties shall do or refrain from doing the following:
4.1 Corporate Examinations and Investigations.
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(a) From the date hereof, the Purchaser and the Purchaser's
accounting, legal and other representatives shall be entitled, through their
employees and representatives, full and complete access to make such
investigation of management personnel, accountants, representatives, assets,
properties, contracts, business and operations of the Company and the Company
shall furnish such financial and operating data, business plans, strategic
plans, books, records, Tax Returns, and other data of the Company as the
Purchaser or its lenders may wish. Any such investigation and examination shall
be conducted at reasonable times and under reasonable circumstances and the
Company shall cooperate fully therein. In order that the Purchaser and its
lenders may have full opportunity to make such a business, accounting and legal
review, examination or investigation as it or they may wish of the business and
affairs of the Company, the Company shall furnish the representatives of the
Purchaser and the Purchaser's accounting, legal and other representatives and
its lenders during such period with all such information and copies of such
documents concerning the affairs of the Company as such representatives may
reasonably request and cause its officers, employees, consultants, agents,
accountants and attorneys to cooperate fully with such representatives in
connection with such review and examination and to make full disclosure to the
Purchaser and its lenders and the Purchaser's accounting, legal and other
representatives of all material facts affecting the financial condition and
business operations of the Company.
(b) Until the Closing, and if the Closing shall not occur,
thereafter, the Purchaser and its Affiliates shall keep confidential and shall
not use in any manner inconsistent with the transactions contemplated by this
Agreement and after termination of this Agreement, the Purchaser and its
Affiliates shall not disclose, nor use for their own benefit, any information or
documents obtained from the Company concerning the management personnel,
accountants, representatives, assets, properties, contracts, business and
operations of the Company, unless (i) readily ascertainable from public or
published information, or trade sources, (ii) already known or subsequently
developed by the Purchaser independently of any investigation of the Company,
(iii) received from a third party not under an obligation to the Company to keep
such information confidential, (iv) required by any Law or Order, (v) used in
the preparation of and contained in the Offering Memorandum prepared in
conjunction with the offering of the Senior Sub Notes or (vi) disclosed in the
process of marketing the Senior Sub Notes. In the event this transaction does
not close for any reason, the Purchaser and its Affiliates shall return or
destroy all such confidential information and compilations thereof as is
practicable, and shall certify such destruction or return to the Company.
4.2 Notice of Events. Each Party shall give prompt written
notice to the other Parties of (i) any variances in any of its representations
or warranties contained in this Agreement, (ii) any breach of any covenant
hereunder by such Party, and (iii) any other material development which would
render any of the conditions in Article V incapable of being satisfied.
4.3 Filings and Authorizations. Each of the Parties shall, as
promptly as practicable after the execution of this Agreement, make, or cause to
be made, all such filings, applications and submissions under all Laws
applicable to it, as may be required for it to consummate the purchase and sale
of the Subject Assets in accordance with the terms of this Agreement other than
in connection with bulk sales laws.
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4.4 Taxes. The Company shall pay and discharge when due and
payable all Taxes, assessments and governmental charges imposed upon it or upon
its properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon) and all claims in
respect of labor, materials, supplies or services.
4.5 Best Efforts; Further Assurances. Subject to the terms and
conditions herein provided, each of the Parties hereto shall use its
commercially reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and to fulfill all of the
conditions set forth in Article V below and the execution and delivery of the
agreements and instruments contemplated hereby to be executed and delivered at
the Closing. In the event any claim, action, suit, investigation or other
proceeding by any Canadian or United States Governmental Authority or other
Person is commenced which questions the validity or legality of the transactions
contemplated hereby or seeks damages in connection therewith, the Parties agree
to cooperate and use commercially reasonable best efforts to defend against such
claim, action, suit, investigation or other proceeding and, if an injunction or
other order is issued in any such action, suit or other proceeding, to use
commercially reasonable best efforts to have such injunction or other order
lifted, and to cooperate reasonably regarding any other impediment to the
consummation of the transactions contemplated hereby.
4.6 Mutual Assistance. The Company and the Purchaser agree
that they will mutually cooperate in the expeditious filing of all applications,
notices, reports and other filings with any Canadian or United States
Governmental or Regulatory Body required to be submitted by any of the Company,
the Purchaser and Sleepmaster or solely by any one of them in connection with
the execution and delivery of this Agreement, the other agreements contemplated
hereby and the consummation of the transactions contemplated hereby or thereby.
4.7 Exclusivity. The Company, or any of its representatives,
officers, directors, agents, stockholders or Affiliates (all such persons and
entities, the "Company Group") shall not directly or indirectly initiate,
solicit, entertain, negotiate, accept or discuss any proposal or offer (an
"Acquisition Proposal") to acquire all or any significant part of the Company,
whether by merger, purchase of stock, purchase of assets, tender offer or
otherwise (a "Third Party Acquisition"), or knowingly provide any nonpublic
information to any third party in connection with an Acquisition Proposal or a
Third Party Acquisition, or enter into any agreement, arrangement or
understanding requiring the Company to abandon, terminate or fail to consummate
the transactions contemplated under this Agreement. The Company shall (i)
immediately notify the Purchaser if any member of the Company Group receives any
indication of interest, request for information or offer in respect of an
Acquisition Proposal, (ii) communicate to the Purchaser in reasonable detail the
terms of any such indication, request or proposal, and (iii) provide the
Purchaser with copies of all written communications relating to any such
indication, request or proposal. The Company represents that no member of the
Company Group is party to or bound by any agreement with respect to an
Acquisition Proposal or a Third Party Acquisition other than under this
Agreement and the members of the Company Group have terminated all discussions
with third parties (other than the Purchaser) regarding Acquisition Proposals or
Third Party Acquisitions. The Company shall use its best efforts
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to cause each other member of the Company Group to comply with the provisions of
this Section 4.7.
4.8 Name Changes. Simultaneously with the Closing, Brauer
shall cause the Company to amend its certificate and articles of amalgamation or
similar governing document to change its name to a name which does not contain
the words "Star," Burrell," "Bedding," or substantially similar words. Following
the Closing, the Company and Brauer agree that they will not and will cause
their Affiliates to not use such words in connection with any other Person,
business or activity.
4.9 Third Party Notices and Consents. The Company shall use
its best efforts to (i) give required notices to third parties, (ii) obtain any
required Consents (including the consents of Serta and its stockholders and the
lessor of the Leased Real Property), and (iii) take any actions reasonably
required by any third party, in each case in connection with the matters
contemplated by this Agreement.
4.10 Operation of Business. During the period from the date
hereof to the Closing Date, the Company shall operate the Business only in the
usual and ordinary course of business consistent with past custom and practice
and in accordance with all Laws and will preserve the goodwill and organization
of the Business and the relationships with its customers, suppliers, employees
and other Persons having business relations with the Company. Without limiting
the generality of the foregoing, prior to the Closing, without the prior written
consent of the Purchaser, the Company covenants that:
(a) the Company shall not, directly or indirectly, except as
expressly contemplated by this Agreement, take or omit to take any action that
would require disclosure under Section 2.17 hereof or that would otherwise
result in a breach of any of the representations, warranties or covenants made
by the Company in this Agreement; and
(b) the Company will use its commercially reasonable best
efforts to (1) preserve intact the organization and goodwill of the Company, (2)
keep available the services of each of its officers, employees and sales
representatives, and (3) maintain satisfactory relationships with each of its
material suppliers and customers.
(c) the Company shall not sell, assign, transfer, lease,
license, or abandon any of its assets, tangible or intangible, except in the
ordinary course of business consistent with past custom and practice for a fair
consideration.
4.11 Press Release and Announcements. No Party shall make any
public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of the other Parties. The
foregoing notwithstanding, any such public announcement may be made if required
by applicable Law or a securities exchange rule, provided that, the Party
required to make such public announcement shall confer with the other Parties
concerning the timing and content of such public announcement before the same is
made.
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4.12 Compliance with Agreements and Laws. The Company shall
(i) comply with all material obligations pursuant to any Material Contract,
whether oral or written, express or implied and (ii) comply in all material
respects with all applicable Laws.
4.13 Registrations. The Purchaser will obtain a PST
registration and a GST registration prior to the Closing.
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING
5.1 Conditions Precedent to the Obligations of the Purchaser
to Complete the Closing. The obligations of the Purchaser to enter into and
complete the Closing are subject to the fulfillment on or prior to the Closing
Date of the following conditions, any one or more of which may be waived by the
Purchaser:
(a) Representations, Warranties and Covenants. The
representations and warranties of each of the Company and Brauer contained in
this Agreement shall be true, complete and correct in all material respects on
and as of the Closing Date with the same force and effect as though made on and
as of the Closing Date. Each of the Company and Brauer shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it or him on or prior to the
Closing Date.
(b) Opinion of the Company's Counsel. The Purchaser shall have
received from Miller Thomson an opinion with respect to the matters set forth in
Exhibit D attached hereto, which shall be addressed to the Purchaser and dated
as of the Closing Date.
(c) Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
or that would reasonably be expected to have a Material Adverse Effect, and no
injunction, judgment, order, decree or ruling with respect thereto shall be in
effect.
(d) Consents and Approvals. The Company shall have made all
filings and shall have obtained and delivered to the Purchaser all governmental
and/or third party permits, authorizations, consents and approvals required to
be obtained by the Company to consummate the transactions contemplated by this
Agreement (the "Consents") as set forth on the Schedule 2.4 and the Purchaser
shall have received any governmental and/or third party consents, orders or
approvals required to be obtained in connection with the transactions
contemplated hereby, including the consents of Serta and its stockholders, the
lessor of the Leased Real Property and the Canadian Minister of Finance pursuant
to the Bank Act (Canada).
(e) Escrow Agreement. Each of the Company, the Purchaser and
the Escrow Agent will have executed and delivered the Escrow Agreement and the
Escrow Agreement shall be in full force and effect as of the Closing and shall
not have been amended or modified.
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(f) Material Adverse Change. Since December 31, 1998, there
shall not have occurred any material adverse change, including any litigation,
in the business, assets, condition (financial or otherwise), results of
operations, cash flows, or prospects of the Business.
(g) Due Diligence. The Purchaser shall be satisfied in its
reasonable discretion with the results of its business, legal, environmental and
accounting due diligence review of the Business.
(h) Employment and Noncompetition Arrangement. The Purchaser
shall have entered into an employment and noncompetition agreement with Brauer
in form and substance satisfactory to Brauer and the Purchaser, and such
employment and noncompetition arrangement shall be in full force and effect as
of the Closing and shall not have been amended or modified.
(i) Workers' Compensation Certificate. On or prior to Closing,
the Company shall deliver to the Purchaser a Purchase Certificate issued from
the Workplace Safety and Insurance Board (Ontario) confirming that as of the
Closing, there are no amounts outstanding and owing to the Workplace Safety and
Insurance Board in respect of the employees of Business.
(j) Real Estate Matters.
(i) A title insurance company selected by the Purchaser
(the "Title Company") shall be willing to insure at standard rates the
Purchaser's or its Affiliate's leasehold estate in any financeable Leased Real
Property (a "Financeable Leasehold"), and the Purchaser's lender's ("Lender")
mortgage lien on the Financeable Leasehold, in each case free and clear of all
Liens (other than Permitted Liens) and including such endorsements and
affirmative coverages as the Purchaser and Lender shall reasonably require. The
Company shall, at the Purchaser's expense, provide all such affidavits and
indemnities as the Title Company reasonably shall require in order to afford
such coverages.
(ii) The Purchaser shall have obtained an up-to-date
survey of the Leased Real Property, certified to the Company, the Lender, the
Purchaser and the Title Company and showing no Liens except for Permitted Liens.
(iii) the Purchaser shall have received from the landlord
under the Real Property Lease, in form and substance reasonably satisfactory to
the Purchaser, written consent to:
(1) the registration of the Real Property Lease in
the appropriate land registry office;
(2) the mortgage by the Purchaser or its Affiliate
of the leasehold interest under the Real Property Lease; and
(3) the assignment of the Real Property Lease by the
Company to the Purchaser or its Affiliate and the exercise by the Purchaser or
its Affiliate of the term extension
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option under the Real Property Lease, notwithstanding any language to the
contrary contained in the Real Property Lease.
(iv) The Leased Real Property shall be in substantially
the same condition and repair as that on the date of this Agreement, reasonable
wear and tear excepted.
(v) The Purchaser shall have received from each mortgagee
and ground lessor of the Leased Real Property, at the Purchaser's expense, a
nondisturbance agreement in form and substance reasonably satisfactory to the
Purchaser and the Lender.
(k) Closing Documents. At the Closing, the Company shall have
delivered to the Purchaser all of the following:
(i) certified copies of the Articles of Amalgamation
(including any amendments thereto), the by-laws and a Secretary's Certificate of
the Company certifying all authorizing resolutions (including directors and
shareholders and any committees of the foregoing) and the incumbency of the
directors and officers of the Company executing this Agreement and the Related
Documents;
(ii) a certificate of an officer of the Company, dated as
of the Closing Date stating that the conditions specified in Sections 5.1(a),
(c), (d), (f) and (o) have been fully satisfied;
(iii) all Books and Records of the Company that relate to
the Business or the Subject Assets (other than the Tax Returns and related and
supporting materials and Corporate Records of the Company);
(iv) a Certificate of Status from the Ministry of Consumer
and Commercial Relations of Ontario, in each case dated within 5 days prior to
the Closing Date;
(v) A certificate of payment issued by the Minister of
Finance (Ontario) under Section 6 of the Retail Sales Tax Act (Ontario) to the
effect that, as of the Closing Date, all requisite taxes under such Act and
similar legislation relating to the Subject Assets (other than relating to the
conveyance and transfer of the Subject Assets to the Purchaser) have been paid
by the Company;
(vii) The duly executed elections referred to in Section
1.8 in respect of (1) the sale of the Accounts Receivable pursuant to Section 22
on the Income Tax Act (Canada), and (2) the joint election pursuant to Section
167 of the Excise Tax Act (Canada);
(viii) An estoppel certificate or landlord's
acknowledgment from the lessor under the Real Property Lease, confirming the
matters set forth in Section 2.13, copies of any non-disturbance agreements with
secured creditors of the landlord;
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(ix) A Bill of Sale to transfer the Subject Assets to the
Purchaser with a good title, free and clear of all Liens other than Permitted
Liens;
(x) copies of all Consents; and
(xi) such other documents relating to the transactions
contemplated by this Agreement as the Purchaser or its special counsel may
reasonably request in a timely manner.
(l) Financing. The Purchaser and/or Sleepmaster shall have
received at least $25.75 million of cash proceeds of the financing transactions
in order to consummate the transactions contemplated hereby and to fund the
ongoing working capital needs of the Business, all on terms and conditions
satisfactory to the Purchaser.
(m) Release of Liens. The Company shall have obtained releases
of all Liens (other than any Permitted Liens) relating to the assets and
properties of the Company and shall have delivered satisfactory evidence, as
determined by the Purchaser, of such releases to the Purchaser.
(n) Transactions with Affiliates. All transactions, agreements
or other arrangements with the Company, Brauer or any of their respective
Affiliates to which any of the Subject Assets is subject, other than this
Agreement and the Brauer Employment Agreement, shall have been terminated.
(o) Injunction, etc. At the Closing, there shall not be any
Order outstanding against any Party or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Business or the Subject Assets.
(p) Conveyancing Documents. The Company shall have executed
and delivered to the Purchaser an assignment and assumption agreement (an
"Assignment and Assumption Agreement") in the form of Exhibit E hereto, and a
Bill of Sale (a "Bill of Sale") in the form of Exhibit F hereto.
(q) Waiver. Any condition specified in this Section 2 may be
waived if consented to in writing by the Purchaser.
5.2 Conditions Precedent to the Obligations of the Company and
Brauer to Complete the Closing. The obligations of the Company and Brauer to
enter into and complete the Closing are subject to the fulfillment on or prior
to the Closing Date, of the following conditions, any one or more of which may
be waived by the Company and Brauer:
(a) Representations, Warranties and Covenants. The
representations, warranties and covenants of each of the Purchaser and
Sleepmaster shall be true, complete and correct in all material respects as of
the Closing Date with the same force and effect as though made on and as of
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the Closing Date. Each of the Purchaser and Sleepmaster shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by such Person on or prior to
the Closing Date.
(b) Escrow Agreement. Each of the Purchaser, the Company and
the Escrow Agent will have executed and delivered the Escrow Agreement, and the
Escrow Agreement shall be in full force and effect as of the Closing and shall
not have been amended or modified.
(c) Employment Agreement. The Purchaser and Sleepmaster shall
have entered into the Brauer Employment Agreement in form and substance
satisfactory to the Purchaser and Brauer and such employment agreement shall be
in full force and effect as of the Closing and shall not have been amended or
modified.
(d) Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
and no injunction, judgment, order, decree or ruling with respect thereto shall
be in effect.
(e) Opinion of the Purchaser's Counsel. The Company and Brauer
shall have received from Stikeman, Elliot, special Ontario counsel to the
Purchaser, Shanley & Fisher, special New Jersey counsel to the Purchaser and
Stewart McKelvey Stirling Scales, special New Brunswick counsel to the
Purchaser, an opinion with respect to the matters set forth in the attached
Exhibit G-1, G-2 and G-3, respectively, which shall be addressed to the Company
and Brauer and dated as of the Closing Date.
(f) Closing Documents. At the Closing, the Purchaser shall
have delivered to the Company all of the following:
(i) a certificate of an officer of the Purchaser and
Sleepmaster, dated as of the Closing Date, stating that the conditions specified
in Section 5.2(a), (d), (g) and (h) shall have been fully satisfied;
(ii) certified copies of the Articles of Organization
(including any amendments thereto) of the Purchaser;
(iii) the by-laws of the Purchaser;
(iv) a Secretary's Certificate of the Purchaser and
Sleepmaster certifying all authorizing resolutions and the incumbency of the
officers of such Person executing this Agreement and the Related Documents; and
(v) the Assignment and Assumption Agreement executed by
the Purchaser.
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(g) Consents and Approvals. The consent of the Canadian
Minister of Finance pursuant to the Bank Act shall have been obtained in
connection with the transactions.
(h) Injunction, etc. At the Closing, there shall not be any
Order outstanding against any Party or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Business or the Subject Assets.
(i) Conveyancing Documents. The Purchaser shall have executed
and delivered to the Company the Assignment and Assumption Agreement and the
Bill of Sale.
(j) Waiver. Any condition specified in this Section 5.2 may be
waived if consented to in writing by the Company.
ARTICLE VI
POST-CLOSING COVENANTS
The Parties covenant to take the following actions after the
Closing Date:
6.1 Further Information; Assistance. (a) Following the
Closing, each Party will afford to the other Parties, their counsel and
accountants, during normal business hours, reasonable access to the Books and
Records and other data relating to the Business, the Subject Assets, the
Excluded Assets, the Assumed Liabilities or the Excluded Liabilities in its
possession with respect to periods prior to the Closing and the right to make
copies and extracts therefrom, to the extent that such access may be reasonably
required by the requesting Party (i) to facilitate the investigation, litigation
and final disposition of any claims which may have been or may be made against
any Party or its Affiliates and (ii) for any other reasonable business purposes,
including the preparation of Tax Returns.
(b) The Company, on the one hand, and the Purchaser, on the
other hand, will provide each other with such assistance as may reasonably be
requested in connection with the preparation of any Tax Return, any audit or
other examination by any taxing authority, or any judicial or administrative
proceedings relating to liability for Taxes, and each will retain and provide
the requesting party with any records or information that may be reasonably
relevant to such return, audit or examination, proceedings or determination. The
Party requesting assistance shall reimburse the other Party for reasonable
out-of-pocket expenses (other than salaries or wages of any employees of the
Parties) incurred in providing such assistance. Any information obtained
pursuant to this Section 6.1 or pursuant to any other Section hereof providing
for the sharing of information or the review of any Tax Return or other Schedule
relating to Taxes shall be kept confidential by the Parties hereto.
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6.2 Record Retention. Each Party agrees that for a period of
not less than seven (7) years following the Closing Date, it shall not destroy
or otherwise dispose of any of the Books and Records relating to the Business,
the Subject Assets, the Assumed Liabilities, the Excluded Assets or the Excluded
Liabilities in its possession with respect to periods prior to the Closing. Each
Party shall have the right to destroy all or part of such Books and Records
after the seventh anniversary of the Closing Date or, at an earlier time by
giving each other Party hereto thirty (30) days prior written notice of such
intended disposition and by offering to deliver to the other Party, at the other
Party's expense, custody of such Books and Records as such Party may intend to
destroy.
6.3 Post-Closing Transfer Taxes. The Purchaser agrees to pay
all sales, use, transfer, real property transfer, recording, gains, stock
transfer, value added and other similar taxes and fees ("Transfer Taxes")
arising out of or in connection with the transactions effected pursuant to this
Agreement.
6.4 Accounts Receivable; Mail.
(a) In the event that any payment of the accounts receivable
or other asset included in the Subject Assets is received by the Company after
the Closing Date, the Company will hold such amounts received or paid as trustee
for and remit such payments to the Purchaser by wire transfer of immediately
available funds as soon as practicable (and in any event within two (2) Business
Days following receipt thereof).
(b) The Company authorizes and empowers the Purchaser from and
after the Closing Date (i) to receive and open mail addressed to the Company and
(ii) to deal with the contents thereof in any manner the Purchaser sees fit;
provided, in the case of clause (ii), such mail and the contents thereof relate
to the Subject Assets or otherwise to the Business or to any of the Assumed
Liabilities. Each Party agrees to deliver to the relevant Party promptly upon
receipt of any mail, checks or documents which it receives to which it is not
entitled by reason of this Agreement or otherwise and to which that other Party
is entitled.
6.5 No Assignment Causing Breach. Notwithstanding anything in
this Agreement, neither this Agreement nor any document or instrument delivered
pursuant hereto shall constitute an assignment of any claim, contract, Business
License, Business Contract, lease, commitment, sales order or purchase order or
any claim or right or any benefit arising thereunder or resulting therefrom if
an attempted assignment thereof without the consent of any other Person would
constitute a breach thereof or in any way adversely affect the rights to be
assigned. Until such consent is obtained, or if an attempted assignment
thereunder would be ineffective or would affect the rights of the Company
thereunder so that the Purchaser would not in fact receive all such rights, each
of the Company and the Purchaser will cooperate with each other to provide the
Purchaser the benefits of, and to permit the Purchaser to assume all liabilities
under, any such claim, contract, Business License, Business Contract, lease,
commitment, sales order or purchase order, including enforcement at the request
and expense of the Purchaser for the benefit of the Purchaser of any and all
rights of the Company against a third party thereto arising out of the breach or
cancellation thereof by such third party; and any transfer or assignment to the
Purchaser by the Company of any
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property or property rights or any contract or agreement which shall require the
consent or approval of any third party shall be made subject to such consent or
approval being obtained.
6.6 Insurance Coverage. If any of the insurance policies
listed on Schedule 2.23 cannot be assigned to the Purchaser on the date hereof,
at the Purchaser's request and expense, including payment of all premiums,
before or after the date hereof, the Company shall use reasonable efforts to
have the Purchaser named as an additional insured and loss payee, as its
interest may appear, on all such current insurance policies maintained by the
Company covering time periods beginning prior to the date hereof and extending
beyond the date hereof, until the expiration date of such policy or policies.
With respect to any liabilities of the Company which the Purchaser has agreed to
assume pursuant to this Agreement or to indemnify the Company pursuant to
Section 7.2 or any other liabilities to which the Purchaser may become subject
for pre-Closing occurrences, in each case to the extent such liabilities may be
covered by insurance maintained by the Company or as to which the Company is an
additional insured, the Company agrees, at the Purchaser's request, to prosecute
diligently any insurance claims which may be asserted in respect thereof and to
promptly notify the Purchaser of the assertion of each such claim. From and
after the date hereof in the event that the Company recovers insurance proceeds
in respect of any amounts in respect of the liabilities described in the
preceding sentence, the Company shall promptly remit such proceeds to the
Purchaser and the Purchaser shall pay such liabilities with such proceeds.
6.7 Employee Matters.
(a) The Company agrees to provide the Purchaser with an
up-to-date list of the names of all unionized and non-unionized employees of the
Company employed in the Business (collectively, the "Employees" and individually
the "Unionized Employees" and the "Non-Unionized Employees") at least two
Business Days and not more than five Business Days prior to the Closing Date.
(b) The Purchaser shall offer employment, effective as of the
Closing Date, to all Non-Unionized Employees on terms and conditions of
employment which are substantially similar in the aggregate to the terms and
conditions of employment as are then applicable to the Non-Unionized Employees
(except Brauer, whose employment shall be pursuant to the terms and conditions
of the Brauer Employment Agreement).
(c) The Purchaser will be the successor to the Company under
the collective agreement disclosed on Schedule 2.20 and applicable to the
Unionized Employees pursuant to the provision of applicable labor legislation
and on and after the Closing Date will be bound by and observe all of the terms,
conditions, rights and obligations of the Company under the collective
agreement.
(d) The Non-Unionized Employees who accept and commence
employment with the Purchase and the Unionized Employees shall be referred to
herein as "Transferred Employees".
(e) The Purchaser will provide Transferred Employees with
benefits under the Purchaser's employee plans which are substantially similar in
the aggregate to those provided to such
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Transferred Employees pursuant to the Employee Plans of the Company set forth in
Schedule 2.21 and will provide Unionized Employees with such benefits as shall
be required under the terms of any applicable collective agreement.
(f) Except as otherwise provided in this Section 6.7 or as
required by the terms of the collective agreement, the terms of the Transferred
Employee's employment shall be on such terms and conditions as the Purchaser, in
its sole discretion, shall determine. The Purchaser will recognize, to the
extent previously recognized by the Company, the service of the Transferred
Employees for all purposes, including eligibility to participate in any of the
Purchaser's employee plans, vesting in such plans, determination of benefits and
entitlement to notice of termination of employment or pay in lieu thereof.
(g) Except for any of the following to the extent they are
accrued liabilities on the Closing Balance Sheet, the Company will be
responsible for and shall indemnify the Purchaser for (i) any liabilities for
salary, wages, bonuses, commissions, vacation pay and other compensation payable
to or in respect of the Employees of the Company for the period immediately
preceding the Closing Date; (ii) all costs in respect of the termination of any
Employee of the Company (other than Transferred Employees) including all
severance payments, damages for wrongful dismissal and all related costs and for
greater certainty, all such costs in respect of the termination by the Company
of the employment of any Non-Unionized Employee who does not accept the
Purchaser's offer of employment; (iii) all premiums and contributions owing to
the Employee Plans relating to employment of the Employees and all benefit
claims incurred by the Employees and their dependants prior to the Closing Date.
In addition, the Company shall retain responsibility for claims under the
Employee Plans with respect to Employees who are not Transferred Employees or
who are former employees of the Company, whether such claims are incurred before
or after the Closing Date. For purposes hereof, a disability or sickness benefit
claim will be deemed to be incurred on the date of the relevant service or
supply was purchased or received.
6.8 Noncompete; Nonsolicitation.
(a) For a period of three (3) years following the Closing Date
(the "Noncompete Period"), neither the Company nor Brauer shall directly or
indirectly own, operate, lease, manage, control, participate in, consult with,
advise, permit his name to be used by, provide services for, or in any manner
engage in (x) any business (including by himself or in association with any
person, firm, corporate or other business organization or through any other
entity) that manufactures any product or provides any service that may be used
as a substitute for or otherwise compete with any product or service of the
Business or (y) any business in competition with, or potential competition with,
the Businesses of the Purchaser, within any geographical area in which any of
Sleepmaster and its Subsidiaries has obtained or is in the process of obtaining
a Serta license at any time during the Noncompete Period. For the avoidance of
doubt, Brauer acknowledges that, in addition to his obligations pursuant to this
Section 6.8, he has agreed to be bound by the provisions of Section 5 of the
Brauer Employment Agreement.
(b) During the Noncompete Period, neither the Company nor
Brauer shall directly or indirectly (x) induce or attempt to induce any employee
of the Purchaser to leave the employ of
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the Purchaser, or in any way interfere with the relationship between the
Purchaser and any employee thereof, including, inducing or attempting to induce
any union, employee or group of employees to interfere with the business or
operations of the Purchaser, (y) hire any person who was an employee of the
Purchaser, or (z) induce or attempt to induce any customer, supplier,
distributor, franchisee, licensee or other business relation of the Business to
cease doing business with the Purchaser, or in any way interfere with the
relationship between any such customer, supplier, distributor, franchisee,
licensee or business relation and the Purchaser, provided that the foregoing
shall not prohibit Brauer from hiring members of his family during the
Noncompete Period if Brauer is no longer employed by the Purchaser.
(c) Each of the Company and Brauer agrees and acknowledges
that: (i) the covenants set forth in this Section 6.8 are reasonably limited in
both time and geographical scope and in all other respects, (ii) the covenants
set forth in this Section 6.8 are reasonably necessary for the protection of the
Purchaser, (iii) the Purchaser would not have entered into this Agreement but
for the covenants of the Company and Brauer contained herein, and (iv) the
covenants contained herein have been made in order to induce the Purchaser to
enter into this Agreement.
(d) If, at the time of enforcement of this Section 6.8, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under the circumstances then existing, the Parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) Each of the Company and Brauer recognizes and affirms that
in the event of his breach of any provision of this Section 6.8, money damages
would be inadequate and the Purchaser would have no adequate remedy at law.
Accordingly, the Company agrees that in the event of a breach or a threatened
breach by either of the Company or Brauer of any of the provisions of this
Section 6.8, the Purchaser, in addition and supplementary to other rights and
remedies existing in their favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security).
6.9 Further Assurances. From and after the Closing, each of
the Purchaser and the Company will, and will cause its respective Affiliates to,
execute and deliver such further instruments of sale, conveyance, transfer,
assignment, assumption and delivery and such consents, assurances, powers of
attorney and other instruments and take such other action as reasonably may be
necessary to in order to vest in the Purchaser all right, title and interest of
the Company in and to the Subject Assets and to otherwise further effectuate and
carry out the transactions contemplated by this Agreement and the Related
Documents, including the retention by the Company of the Excluded Liabilities
and the assumption by the Purchaser of the Assumed Liabilities. The Purchaser
agrees to make the appropriate post-closing notification pursuant to the
Investment Canada Act.
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ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival of Representations and Warranties. The
representations and warranties in this Agreement and the Schedules and Exhibits
attached hereto shall survive the Closing as follows:
(a) the representations and warranties in Section 2.10 (Tax
Matters) shall terminate on the sixtieth (60th) day following the expiration of
the applicable statutes of limitations (after giving effect to any extensions or
waivers thereof);
(b) the representations and warranties in Sections 2.2
(Capitalization; Title to Securities), Sections 2.3 and 3.2 (Authorization; No
Breach), Sections 2.30 and 3.4 (Brokers), Section 2.14 (Transactions with
Affiliates), Section 2.18 (Tangible Property), Section 2.25 (Title; Liens), and
Section 2.27 (Sufficiency of Subject Assets) shall terminate on the fourth
anniversary of the Closing Date;
(c) all other representations and warranties in this Agreement
and the Schedules and Exhibits attached hereto shall terminate on the second
anniversary of the Closing Date; provided, that any representation or warranty
in respect of which indemnity may be sought under Section 7.2, and the indemnity
with respect thereto, shall survive the time at which it would otherwise
terminate pursuant to this Section 7.1 if a notice setting out in reasonable
detail the inaccuracy or breach or potential inaccuracy or breach thereof giving
rise to such right or potential right of indemnity shall have been given to the
Party against whom such indemnity may be sought prior to such time.
7.2 General Indemnification.
(a) Indemnification for the Benefit of the Purchaser by each
of the Company and Brauer. Following the Closing and subject to the provisions
of this Article VII, each of the Company and Brauer jointly and severally, shall
indemnify the Purchaser and its Affiliates, shareholders, partners, officers,
directors, employees, agents, representatives, successors and permitted assigns
(collectively, the "Company Indemnified Parties") and save and hold each of them
harmless against and pay on behalf of or reimburse such Company Indemnified
Parties as and when incurred for any direct or indirect loss, liability, demand,
claim, action, cause of action, cost, damage (excluding consequential damages
and damages for lost profits), deficiency, Tax, penalty, fine or expense,
whether or not arising out of third party claims (including interest, penalties,
reasonable attorneys', consultants' and experts' fees and expenses and all
amounts paid in investigation, defense or settlement of any of the foregoing)
(collectively, "Losses"), which any such Company Indemnified Party may suffer,
sustain or become subject to, as a result of, in connection with, relating or
incidental to or by virtue of: (i) any facts or circumstances which constitute a
breach of any representation or warranty of any of the Company and Brauer under
this Agreement, or in any of the certificates or other instruments or documents
furnished by any of the Company and Brauer pursuant to this Agreement; (ii) any
nonfulfillment or breach of any covenant, agreement or other provision
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by any of the Company and Brauer under this Agreement or (iii) any Excluded
Liabilities. If and to the extent any provision of this Section 7.2 is
unenforceable for any reason, each of the Parties hereby agrees to make the
maximum contribution to the payment and satisfaction of any Loss for which
indemnification is provided for in this Section 7.2 which would be enforceable
under applicable Law.
(b) Indemnification for the Benefit of each of the Company and
Brauer by each of the Purchaser and Sleepmaster. Following the Closing, the
Purchaser and Sleepmaster shall indemnify the Company and Brauer and their
respective Affiliates, shareholders, officers, directors, employees, agents,
representatives, successors and permitted assigns (collectively, the "Purchaser
Indemnified Parties") and save and hold them harmless against any Losses which
the Purchaser Indemnified Parties may suffer, sustain or become subject to, as a
result of, in connection with, relating or incidental to or by virtue of: (i)
any facts or circumstances which constitute a breach of any representation or
warranty of the Purchaser or Sleepmaster under this Agreement, or in any of the
certificates or other instruments or documents furnished by the Purchaser or
Sleepmaster pursuant to this Agreement; (ii) any nonfulfillment or breach of any
covenant, agreement or other provision by the Purchaser and Sleepmaster under
this Agreement; or (iii) any Assumed Liabilities or Transfer Taxes.
(c) Manner of Payment.
(i) Subject to Section 7.2(f), any indemnification
obligations of each of the Company and Brauer pursuant to Section 7.2(a) shall
be satisfied out of the Indemnity Escrow Fund or, following the release of all
or any portion of the Indemnity Escrow Fund to the Company or Brauer, shall be
paid by wire transfer of immediately available funds to an account designated in
writing by the applicable Company Indemnified Party within 15 days after the
determination thereof.
(ii) Any indemnification obligations of the Purchaser or
Sleepmaster pursuant to Section 7.2(b) shall be paid by wire transfer of
immediately available funds to an account designated in writing by the
applicable Purchaser Indemnified Party within 15 days after the determination
thereof.
(d) Instructions to Escrow Agent. In the event of a
determination that a payment is due to any Company Indemnified Party, the
Purchaser and the Company shall issue joint written instructions to the Escrow
Agent to distribute a portion of the Indemnity Escrow Fund equal to such
payment.
(e) Defense of Third Party Claims. Any Person making a claim
for indemnification under this Section 7.2(e) (an "Indemnitee") shall notify the
indemnifying party (an "Indemnitor") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; provided, that the
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder unless the Indemnitor shall be actually prejudiced by such
failure to so notify. Any Indemnitor shall be entitled to participate in the
defense of such action, lawsuit, proceeding, investigation or other claim giving
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rise to an Indemnitee's claim for indemnification at such Indemnitor's expense,
and at its option (subject to the limitations set forth below) shall be entitled
to assume the defense thereof by appointing a reputable counsel reasonably
acceptable to the Indemnitee to be the lead counsel in connection with such
defense; provided, that prior to the Indemnitor assuming control of such defense
it shall first demonstrate to the Indemnitee in writing such Indemnitor's
financial ability to provide full indemnification to the Indemnitee with respect
to such action, lawsuit, proceeding, investigation or other claim giving rise to
such claim for indemnification hereunder; and provided further, that:
(i) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such purpose;
provided, that the fees and expenses of such separate counsel shall be borne by
the Indemnitee (other than any fees and expenses of such separate counsel that
are incurred prior to the date the Indemnitor effectively assumes control of
such defense which, notwithstanding the foregoing, shall be borne by the
Indemnitor);
(ii) the Indemnitor shall not be entitled to assume
control of such defense and shall pay the fees and expenses of counsel retained
by the Indemnitee if: (1) the claim for indemnification relates to or arises in
connection with any criminal proceeding, action, indictment, allegation or
investigation; (2) the Indemnitee reasonably believes an adverse determination
with respect to the action, lawsuit, investigation, proceeding or other claim
giving rise to such claim for indemnification would be severely detrimental to
or materially injurious to the Indemnitee's reputation or future business
prospects; (3) the claim seeks an injunction or equitable relief against the
Indemnitee; (4) a conflict of interest exists between the Indemnitor and the
Indemnitee (other than the mere existence of the Indemnitor's obligation to
indemnify the Indemnitee pursuant to this Section 7.2) which renders the
Indemnitor incapable of defending against any such claim or prevents the fair
representation of the Indemnitee; or (5) the Indemnitor failed or is failing to
vigorously prosecute or defend such claim;
(iii) if the Indemnitor shall control the defense of any
such claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee before entering into any settlement of a claim or ceasing to defend
such claim if, pursuant to or as a result of such settlement or cessation,
injunctive or other equitable relief will be imposed against the Indemnitee or
if such settlement does not expressly and unconditionally release the Indemnitee
from all liabilities and obligations with respect to such claim, without
prejudice; and
(iv) if the claim for Indemnification relates to Taxes,
the Indemnitor's rights to control the defense of such matter shall extend only
to the specific issue for which indemnification is claimed (and not the entire
return or taxable period).
(f) Limitations on Indemnification. Notwithstanding any
provision herein to the contrary, the maximum liability of the Company and
Brauer, together, with respect to any and all Losses suffered by the Company
Indemnified Parties as a result of any facts or circumstances which constitute a
breach of any representation or warranty contained in this Agreement shall be an
aggregate amount equal to $1,000,000; provided, that each of the Company and
Brauer will only be required to indemnify the Company Indemnified Parties for
any breaches of the representations and
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warranties described in Section 7.1(c) if such Losses in the aggregate exceed
$100,000 (the "Basket Amount") and then only to the extent such Losses exceed
the Basket Amount up to the maximum amount.
(g) Other Indemnification Provisions. The provisions of
Section 7 shall be the exclusive remedy and procedure for all claims for breach
or indemnification pursuant to this Agreement or the Schedules hereto; provided,
however that any (i) finding by a court of competent jurisdiction for common law
fraud, or (ii) suit for specific performance with respect to matters addressed
in Sections 4.7 or 6.8, shall not be subject to the limitations set forth in
this Section 7.2.
ARTICLE VIII
TERMINATION OF AGREEMENT
8.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(i) by the mutual written consent of the Parties;
(ii) by the Purchaser if the Purchaser shall have received
notice of a breach of the representations and warranties set forth in Article II
or a breach of a covenant hereunder which in either case renders the condition
in Section 5.1(a) incapable of being satisfied; or
(iii) by the Company if the Company shall have received
notice of a breach of the representations and warranties set forth in Article
III or a breach of a covenant hereunder which in either case renders the
condition in Section 5.2(a) incapable of being satisfied; or
(iv) by the Purchaser on the one hand, or the Company on
the other hand, if the transactions contemplated hereby have not been
consummated by June 30, 1999; provided, that the reason for the delay beyond
June 30, 1999 shall not have been caused by the Party initiating such
termination.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided above:
(a) this Agreement shall forthwith become void and of no
further force and effect, except that the covenants and agreements set forth in
the second to last sentence of Section 4.7 and in Sections 4.1(b), 10.1, 10.5,
10.6, 10.8, 10.10, 10.11, 10.15, and 10.16 shall survive such termination
indefinitely, and except that nothing in this Section 8.2 shall be deemed to
release any Party from any liability for any breach by such Party of the terms
and provisions of this Agreement or to impair the right of any Party to compel
specific performance by another Party of its obligations under this Agreement;
and
(b) the Purchaser and the Company shall be deemed to have
issued joint written instructions to Miller Thomson instructing it to deliver
the total amount of the Deposits to
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the Company; provided, that the reason for termination shall not have been
caused by any act or failure to act of the Company, in which case the Deposits
shall be returned to the Purchaser.
ARTICLE IX
CERTAIN DEFINITIONS
9.1 Certain Definitions. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
"Accounts Receivable" has the meaning specified in Section
1.1(c).
"Accounting Principles" has the meaning specified in Section
1.6(b).
"Acquisition Proposal" has the meaning specified in Section
4.7.
"Action or Proceeding" means any action, suit, proceeding or
arbitration by any Person or any investigation or audit by any Governmental or
Regulatory Body.
"Affiliate" of any Person means (i) any other Person directly
or indirectly, through one or more intermediaries, controlling, controlled by or
under common control with such first Person and includes (a) any partner,
shareholder, officer, director or employee of a particular Person, and (b) any
individual related by blood, marriage or adoption to a Person or any partner,
shareholder, officer, director or employee of a particular Person, or (ii) any
Person in which any of the foregoing owns a beneficial interest. For purposes of
this definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlled" and "controlling" have
meanings correlative thereto.
"Agreement" means this Asset Purchase Agreement.
"Assignment and Assumption Agreement" has the meaning
specified in Section 5.1(p).
"Associate" means, with respect to any Person, any corporation
or other business organization of which such Person is an officer or partner or
is the beneficial owner, directly or indirectly, of ten percent (10%) or more of
any class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or any child or
sibling of such Person or such Person's spouse.
"Assumed Liabilities" has the meaning specified in Section
1.3.
"Base Rate" means the rate of interest announced from time to
time by Citibank N.A. at its principal office in New York, New York as its prime
commercial lending rate.
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"Bill of Sale" has the meaning specified in Section 5.l(p).
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business, operations,
conditions of (financial or other), results of operations and assets and
properties of such Person, including financial statements, Tax Returns and
related work papers and letters from accountants, budgets, pricing guidelines,
ledgers, journals, deeds, title policies, Corporate Records, contracts and other
agreements, customer lists, computer files and programs, retrieval programs,
operating data and plans and environmental studies and plans.
"Brauer Employment Agreement" means the Employment Agreement
by and among the Purchaser, Brauer, and Sleepmaster L.L.C., dated as of the date
hereof, attached as Exhibit H hereto.
"Burrell" means Burrell Bedding Limited.
"Business Contracts" has the meaning specified in Section
1.1(f).
"Business Day" means any day other than a Saturday, Sunday or
day on which commercial banks are authorized or required by law to close in New
York, New York or Toronto, Ontario.
"Business Licenses" has the meaning specified in Section
1.1(i).
"Cash Payment" has the meaning specified in Section 1.5(a).
"Closing" has the meaning specified in Section 1.9.
"Closing Balance Sheet" has the meaning specified in Section
1.6(b).
"Closing Date" has the meaning specified in Section 1.9.
"Company Group" has the meaning specified in Section 4.7.
"contracts and other agreements" means all executory
contracts, agreements, indentures, notes, bonds, loans, instruments, leases,
mortgages, franchises, licenses, commitments or other legally binding
arrangements.
"Corporate Records" of any Person means the corporate records
of such Person, including, without limitation, all constating documents and
by-laws, all minutes of meetings and resolutions of shareholders and directors
(and any committees), and the share certificate books, securities register,
register of transfers and register of directors.
"Deposits" has the meaning specified in Section 1.5(b).
"$ or Dollars" shall mean Canadian Dollars.
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"Employee Plans" means all the employee benefit, fringe
benefit, supplemental unemployment benefit, bonus, incentive, profit sharing,
termination, change of control, pension, retirement, stock option, stock
purchase, stock appreciation, health, welfare, medical, dental, disability, life
insurance and similar plans, programs, arrangements or practices relating to the
current or former employees, officers of directors of the Company maintained,
sponsored or funded by the Company, whether written or oral, funded or unfunded,
insured or self-insured, registered or unregistered.
"Environmental Law" means any and all applicable Laws
pertaining to the protection of land, water, air, health, safety or the
environment in force on the date hereof and on the Closing Date.
"Escrow Agreement" means the Escrow Agreement by and among the
Purchaser, the Company, and the Escrow Agent substantially in the form of
Exhibit C attached hereto.
"Excluded Assets" has the meaning specified in Section 1.2.
"Excluded Liabilities" has the meaning specified in Section
1.4.
"GAAP" means at any time, accounting principles generally
accepted in Canada as recommended in the Handbook of the Canadian Institute of
Chartered Accountants at the relevant time applied on a consistent basis.
"Governmental or Regulatory Body" means any multinational,
federal, provincial, state, municipal, local or other governmental or public
department, central bank, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any subdivision or authority of any of
the foregoing, or any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of any of
the above.
"Guarantee" means any guarantee of the payment or performance
of any Indebtedness or other obligation and any other arrangement whereby credit
is extended to one obligor on the basis of any promise of such Person, whether
that promise is expressed in terms of an obligation to pay the Indebtedness of
such obligor, to provide reimbursement, or to purchase an obligation owed by
such obligor, or to purchase goods and services from such obligor pursuant to a
take-or-pay contract, or to maintain the capital, working capital, solvency or
general financial condition of such obligor, whether or not any such arrangement
is listed in the balance sheet of such Person, or referred to in a footnote
thereto, but shall not include endorsements of items for collection in the
ordinary course of business consistent with past custom and practice.
"Hazardous Material" means (A) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation and transformers
or other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials or
substances which are defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic
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substances," "toxic pollutants" or words of similar import under any
Environmental Law; and (C) any other chemical or other material or substance,
exposure to which is now or hereafter prohibited, limited or regulated by any
Governmental or Regulatory Body under any Environmental Law.
"Income Tax Act (Canada)" means the Income Tax Act, R.S.C.,
1985, 5th Supplement, as amended from time to time.
"Indebtedness" means at a particular time, without
duplication, (i) any obligations under any indebtedness for borrowed money
(including all principal, interest premiums, penalties, fees, expenses and
brokerage costs), (ii) any obligations for deferred compensation, (iii) any
obligations to pay the deferred purchase price of property or services (except
for accounts payable in the ordinary course of business consistent with past
custom and practice), (iv) any indebtedness evidenced by any note, bond,
debenture or other debt security, (v) any commitment by which a Person assures a
creditor against loss (including contingent reimbursement obligations with
respect to letters of credit), (vi) any indebtedness pursuant to a Guarantee,
(vii) any obligations under capitalized leases or with respect to which a Person
is liable, contingently or otherwise, as obligor, guarantor or otherwise, or
with respect to which obligations a Person assures a creditor against loss, and
(viii) any indebtedness secured by a Lien on a Person's assets, but, in each
case, excludes any liabilities included in the calculation of Closing Net
Working Capital.
"Intellectual Property" means all (i) patents, patent
applications and patent disclosures, as well as any reissues, continuations,
continuations-in-part, divisional applications, extensions or reexaminations
thereof, (ii) trademarks, service marks, trade dress, trade, business, corporate
and brand names, Internet domain names, logos and registrations and applications
for registration thereof, together with all of the goodwill associated
therewith, (iii) copyrights and copyrightable works (including any performing,
author or moral rights) and registrations and applications for registration
thereof, (iv) industrial designs, design patents and other designs and all
registrations and applications for registration thereof, (v) mask works and
registrations and applications for registration thereof, (vi) computer software,
data, data bases and documentation thereof, (vii) franchises, trade secrets and
all other confidential or proprietary information (including ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial and marketing plans and
customer and supplier lists and information) and (viii) all other intellectual
and industrial property.
"Inventory" has the meaning specified in Section 1.1(b).
"knowledge" of the Company means the actual knowledge of Cecil
Brauer and Cyril Brenman.
"Latest Balance Sheet" has the meaning as set forth in Section
2.7(a).
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"Law" means any and all applicable laws including all
statutes, codes, ordinances, municipal by-laws, judicial or arbitral or
administrative or ministerial or departmental or regulatory judgments, orders,
decisions, rulings, awards, decrees, rules, regulations, or other
pronouncements, policies or guidelines and general principles of common and
civil law and equity having the force and effect of law of Canada, any relevant
foreign country or any domestic or relevant foreign state, country, city or
other political subdivision or of any applicable Governmental or Regulatory
Body.
"Lien" or "Liens" means any mortgage, pledge, hypothecation,
security interest, encumbrance, assignment, encroachment, claim, lease, right of
possession, other defect in title or lien, statutory or otherwise, or charge of
any kind (including any conditional sale or other title retention agreement or
lease in the nature thereof in respect of the Subject Assets or the Business),
any sale of receivables with recourse against the Company, any filing or
agreement to file a financing statement as debtor under the Personal Property
Security Act (Ontario) or any similar statute (other than to reflect ownership
by a third party of property leased to the Company under a lease which is not in
the nature of a conditional sale or title retention agreement), or any
subordination arrangement in favor of another Person.
"Losses" has the meaning specified in Section 7.2.
"Material Adverse Effect" means, in the case of any Person,
any change or changes or effect or effects that individually or in the aggregate
are materially adverse to (i) the business, assets, properties, operations,
income, prospects, condition (financial or otherwise) or customer, employee,
distributor or supplier relations of such Person or the transactions
contemplated by this Agreement or (ii) the ability of such Person to perform its
obligations under this Agreement.
"Material Contracts" has the meaning specified in Section
2.12(b).
"Net Sales" means the Company's sales less returns.
"Net Working Capital" means the excess of the current assets
(other than cash and cash equivalents) of the Company as of the close of
business on the date of determination over the consolidated current liabilities
of the Company as of the close of business on the date of determination
determined in accordance with GAAP on a basis consistent with the Company's
consolidated audited financial statements as of December 31, 1998, except as
adjusted below. Current assets will include (a) net accounts receivable; (b)
inventories of raw materials, work in progress, finished goods and goods for
resale; (c) prepaid assets (including point of purchase materials under the
current advertising campaign and including deposits, to the extent
transferable), except prepaid income taxes and deferred tax assets; and (d)
other current assets. Current liabilities will include (i) trade accounts
payable, (ii) accrued employee bonuses, payroll, benefit plan liabilities and
vacation pay, (iii) accrued liabilities in the ordinary course of business
consistent with past custom and practice, including, without limitation,
accruals for customer allowances for rebates and advertising and customer
deposits. Cash and cash equivalents, prepaid income taxes, deferred income Tax
assets and liabilities, income Tax liabilities, Excluded Assets and Excluded
Liabilities shall be excluded from the calculation of Net Working Capital.
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"Order" means any order, writ, judgment, decree, injunction or
similar order of any Canadian or United States Governmental or Regulatory Body,
as applicable, in each case whether preliminary or final.
"Permits" has the meaning specified in Section 2.24.
"Permitted Liens" means (i) Liens for Taxes or assessments and
similar charges, which are not delinquent, (ii) mechanics', materialmen's or
contractors' Liens or encumbrances or any similar statutory Lien or restriction;
provided, that such Liens are related to obligations not due or delinquent, are
not registered against title to any Subject Assets and in respect of which
adequate hold backs are being maintained as required by applicable Law for
amounts not yet due and payable, (iii) zoning, building and other land use
regulations imposed by governmental agencies having jurisdiction over the Leased
Real Property which are not violated by the current occupation, use and
operation of the Leased Real Property, and (iv) covenants, conditions,
restrictions, easements and other similar matters currently of record affecting
title to the Leased Real Property which do not materially impair the occupancy
or use, value or marketability of the parcel of Leased Real Property which they
encumber for the purposes for which it is currently used in connection with the
Business of the Company.
"Person" means any individual, corporation, partnership, firm,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental or Regulatory Body or other
entity.
"Personal Property Leases" has the meaning specified in
Section 1.1(e).
"Premises" has the meaning specified in Section 1.1.
"Real Property Lease" has the meaning specified in Section
1.1(a).
"Related Documents" means all documents and instruments to be
executed by the Company in connection herewith, including the Subordinated
Promissory Note, the Brauer Employment Agreement, the Escrow Agreement, the Bill
of Sale and the Assignment and Assumption Agreement.
"Release" means any seeping, spilling, leaking, pumping,
pouring, migrating, emitting, discharging, injecting, escaping, leaching,
dumping, disposing, or the releasing of Hazardous Materials into the environment
or migrating to or from the Leased Real Property.
"Senior Sub Notes" means the Senior Subordinated Notes of
Sleepmaster, L.L.C. to be purchased by qualified institutional buyers through
Merrill Lynch.
"Subordinated Note" has the meaning specified in Section
1.5(a).
"Tangible Property" has the meaning specified in Section 2.18.
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<PAGE> 56
"Target Net Working Capital" means $1.25 million.
"Tax Return" means any return, report, information return,
election, designation or other document (including any related or supporting
information) filed or required to be filed with any federal, state, provincial,
local, or foreign governmental entity or other authority in connection with the
determination, assessment or collection of any Tax or the administration of any
laws, regulations or administrative requirements relating to any Tax.
"Tax" and "Taxes" means all taxes, charges, fees, levies or
other assessments imposed by any federal, state, provincial, local or foreign
taxing authority, whether disputed or not, including income, capital, estimated,
excise, goods and services, business, property, sales, transfer, value added,
withholding, employment, payroll, and franchise taxes and such terms shall
include any interest, penalties or additions attributable to or imposed on or
with respect to such assessments.
"Third Party Acquisition" has the meaning specified in Section
4.7.
"Transfer Taxes" has the meaning specified in Section 6.3.
"Unionized Employees" has the meaning specified in Section 6.7
ARTICLE X
MISCELLANEOUS
10.1 Fees and Expenses. Except as otherwise set forth herein,
each Party will be responsible for all of its own costs and expenses incurred in
connection with the negotiation, preparation and entry into this Agreement and
the consummation of the transactions contemplated hereby.
10.2 Remedies. Any Party having any rights under any provision
of this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by Law
in accordance with the terms and conditions of this Agreement. All such rights
and remedies shall be cumulative and non-exclusive, and may be exercised
singularly or concurrently. One or more successive actions may be brought
against a Party, either in the same action or in separate actions, as often as a
Party deems advisable, until all of the obligations to such Party are paid and
performed in full in accordance with the terms and conditions of this Agreement.
10.3 Consent to Amendments; Waivers. This Agreement may be
amended, or any provision of this Agreement may be waived upon the approval, in
a writing, executed by the Parties. No course of dealing between or among the
Parties shall be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any such Party or such holder under or
by reason of this Agreement.
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<PAGE> 57
10.4 Successors and Assigns.
(a) This Agreement and all covenants and agreements contained
herein and rights, interests or obligations hereunder, by or on behalf of any of
the Parties hereto, shall bind and inure to the benefit of the respective
successors and permitted assigns of the Parties hereto whether so expressed or
not, except that neither this Agreement nor any of the covenants and agreements
herein or rights, interests or obligations hereunder may be assigned or
delegated by the Company prior to the Closing, without the prior written consent
of the Purchaser and except as otherwise provided by Section 10.4(b) below,
neither this Agreement nor any of the covenants and agreements herein or rights,
interests or obligations hereunder may be assigned or delegated by the Purchaser
or Sleepmaster without the prior written consent of the Company.
(b) The Purchaser may assign this Agreement and its rights and
obligations hereunder to an Affiliate of Sleepmaster and to its lenders for
collateral assignment purposes; provided, that no such assignment shall relieve
the Purchaser or Sleepmaster from its obligations hereunder. Following the
Closing Date, each of the Purchaser and Sleepmaster may assign this Agreement
and its rights and obligations hereunder in connection with a merger or
consolidation involving the Purchaser or in connection with a sale of all or
substantially all of the stock or assets of the Purchaser; provided, that no
such assignment shall relieve the Purchaser or Sleepmaster from its obligations
hereunder.
10.5 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable Law or rule in any respect by a court
of competent jurisdiction, such provision shall be ineffective only to the
extent of such prohibition, illegality or unenforceability, without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
10.6 Counterparts. This Agreement may be executed in
counterparts (including by means of telecopied signature pages), any one of
which need not contain the signatures of more than one Party, but all such
counterparts taken together shall constitute one and the same agreement.
10.7 Descriptive Headings; Interpretation. The headings and
captions used in this Agreement and the table of contents to this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized terms used in any Schedule or
Exhibit attached hereto and not otherwise defined therein shall have the
meanings set forth in this Agreement. The use of the word "including" herein
shall mean "including without limitation."
10.8 Entire Agreement. This Agreement and the Related
Documents contain the entire agreement and understanding among the Parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, whether written or oral, relating to such subject matter in any
way, including the letter of agreement dated January 8, 1999 by and among the
Company and the Purchaser.
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<PAGE> 58
10.9 No Third-Party Beneficiaries. Except as provided in
Sections 7.2(a) and 7.2(b), this Agreement is for the sole benefit of the
Parties and their permitted successors and assigns and nothing herein expressed
or implied shall give or be construed to give any Person, other than the Parties
and such permitted successors and assigns, any legal or equitable rights
hereunder. The Company is and shall be deemed to be acting as agent or trustee
on behalf of and for the benefit of each of the Purchaser Indemnified Parties
and the Purchaser is and shall be deemed to be acting as agent or trustee on
behalf of and for the benefit of each of the Company Indemnified Parties.
10.10 Schedules and Exhibits. All Schedules and Exhibits
attached hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein.
10.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO AND THE
FEDERAL LAWS OF CANADA APPLICABLE THEREIN.
10.12 Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient or when sent by facsimile followed by delivery by
reputable overnight courier service, one day after being sent to the recipient
by reputable overnight courier service (charges prepaid) or five days after
being mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Parties at the addresses indicated below or to such other
address or to the attention of such other person as the recipient Party has
specified by prior written notice to the sending Party. All notices, demands and
other communications hereunder may be given by any other means (including
telecopy or electronic mail), but shall not be deemed to have been duly given
unless and until it is actually received by the intended recipient.
The Company:
Star Bedding Products (1986) Limited
53 Courtland Avenue
Concord, Ontario
L4K 3T2 Canada
Attention: Mr. Cecil Brauer
Facsimile: (905) 761-8230
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<PAGE> 59
with copies to:
(which shall not constitute notice to the Company)
Miller Thomson
20 Queen West
Suite 2500
Toronto Canada
M5H 3S1
Attention: Brian Levett, Esq.
Facsimile: (416) 595-8695
The Purchaser:
Sleepmaster L.L.C.
c/o Serta Mattress Company
2001 Lower Road
Linden, NJ 07036-6520
Attention: Mr. Charles Schweitzer
Facsimile: (732) 381-4455
with a copy to:
(which shall not constitute notice to the Purchaser)
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kimberly P. Taylor, Esq.
Facsimile: (212) 446-4900
10.13 Jurisdiction and Venue. Each of the Parties irrevocably
attorn and submit to the non-exclusive jurisdiction of the Ontario Court
(General Division).
10.14 WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY AND THE
PURCHASER HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY
IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING
OUT OF THIS AGREEMENT, ANY OTHER AGREEMENT CONTEMPLATED HEREBY OR THEREBY OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
10.15 No Strict Construction. The Parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties, and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement.
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<PAGE> 60
10.16 Dispute Resolution.
(a) Arbitration. In the event of disputes between the Parties
with respect to the terms and conditions of this Agreement (other than disputes
with respect to Section 1.6), such disputes may be resolved by and through an
arbitration proceeding to be conducted under the auspices of the International
Commercial Arbitration Act and subject to the UNCITRAL Arbitration Rules thereof
(or any like organization successor thereto). Such arbitration proceeding shall
be conducted in as expedited a manner as is practical, and the arbitrator or
arbitrators in any such arbitration (an "Arbitration") shall be persons who are
expert in the subject of the dispute in the context of mergers and acquisitions.
Both the foregoing agreement of the Parties to arbitrate any and all such
claims, and the results, determination, finding, judgment and/or award rendered
through such Arbitration, shall be final and binding on the Parties hereto and
may be specifically enforced by legal proceedings. The Parties agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any Party may, in its sole discretion,
ask for specific performance and/or injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
(b) Procedure. The Arbitration shall be conducted before a
panel of arbitrators selected in accordance with the UNCITRAL Arbitration Rules.
Each Party shall bear separately the cost of their respective attorneys,
witnesses and experts in connection with such arbitration. Time is of the
essence of this arbitration procedure, and the arbitrators shall be instructed
and required to render their decision within ten (10) days following completion
of the Arbitration.
* * * * *
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<PAGE> 61
IN WITNESS WHEREOF, the Parties hereto have executed this
Asset Purchase Agreement on the date first written above.
STAR BEDDING PRODUCTS (1986) LIMITED
By:_________________________________
Name:
Title:
____________________________________
CECIL BRAUER
STAR BEDDING PRODUCTS LIMITED
By:_________________________________
Name:
Title:
SLEEPMASTER L.L.C.
By:_________________________________
Name:
Title:
<PAGE> 62
EXHIBIT A
Exceptions to GAAP
No provision is made for warranties or returns.
The Parties agree that the allowance for doubtful accounts on the Closing
Balance Sheet shall be $50,000.
Because of the Company's stated vacation policy for non-unionized employees of
"use it or lose it," no vacation accrual has historically been required at the
Company's year end, December 31, and the Company has historically not recorded
any accrual during any interim period. In accordance with GAAP, the Closing
Balance Sheet shall include an accrual for vacation pay.
A - 1
<PAGE> 63
EXHIBIT B
Subordinated Note
B - 1
<PAGE> 64
EXHIBIT C
Escrow Agreement
C - 1
<PAGE> 65
EXHIBIT D
Opinion of the Company's Counsel
D - 1
<PAGE> 66
EXHIBIT E
Assignment and Assumption Agreement
E - 1
<PAGE> 67
EXHIBIT F
Bill of Sale
F - 1
<PAGE> 68
EXHIBIT G
Opinions of Counsel to the Purchaser
G - 1
<PAGE> 69
May 18, 1999
First Union National Bank, as Agent
for the Lenders
and
The Lenders which are parties to the
Credit Agreement
Re: $25,000,000 Credit Agreement dated as of the date hereof (the
"Credit Agreement") among Sleepmaster L.L.C. (the "Borrower"),
Sleepmaster Holdings L.L.C. (the "Parent") and certain
subsidiaries of the Borrower identified therein as guarantors
(together with the Parent, the "Guarantors"), the lenders
identified therein (the "Lenders") and First Union National
Bank, as Lender and as Administrative Agent for the Lenders
(the "Agent").
Ladies and Gentlemen:
We have acted as counsel to the Borrower and the Guarantors in
connection with the execution and delivery by each of them of the Credit
Agreement and the other Loan Documents (as defined below), as applicable.
This opinion is given in accordance with the requirements of
Section 4.1(c) of the Credit Agreement. Capitalized terms used but not otherwise
defined herein shall have the meanings provided in the Credit Agreement. The
Borrower and the Guarantors are collectively referred to herein as the "Company
Parties" and each individually as a "Company Party".
In addition to the Credit Agreement, we have reviewed (a) the
Revolving Note dated the date hereof issued by the Borrower to the Agent (the
"Revolving Note"), (b) the Security Agreement among the Agent, the Borrower and
the Guarantors of even date herewith (the "Security Agreement"), (c) the Pledge
Agreement among the Agent, the Borrower and the Guarantors of even date herewith
(the "Pledge Agreement"), (d) the Mortgage Instruments of even date herewith
(the "Mortgages"). The Credit Agreement, the Revolving Note, the Security
Agreement, the Pledge Agreement and the Mortgages, are referred to herein
collectively as the "Loan Documents."
<PAGE> 70
First Union National Bank
May 18, 1999
Page 2
We have also examined originals or copies of the Certificate
of Formation and the limited liability company agreement of each of the
Borrower, the Parent and Lower Road Associates, LLC (collectively, the "LLC
Agreements"), and the Certificates or Articles of Incorporation and ByLaws of
each of PBBC, Herr Manufacturing Company and Sleepmaster Finance Corporation
(collectively, the "Charter Documents").
Subject to the assumptions, qualifications, exclusions and
other limitations which are identified in this opinion letter and in the
schedules attached to this opinion letter, it is our opinion that:
1. Borrower is a limited liability company active and in good standing
under the Limited Liability Company Act of the State of New Jersey. For
purposes of the foregoing opinion in this paragraph, we have relied
exclusively upon the certificates issued by the governmental
authorities in the State of New Jersey, and such opinion is not
intended to provide any conclusion or assurance beyond that conveyed by
such certificates.
2. Parent is a limited liability company active and in good standing under
the Limited Liability Company Act of the State of New Jersey. For
purposes of the foregoing opinion in this paragraph, we have relied
exclusively upon the certificates issued by the governmental
authorities in the State of New Jersey, and such opinion is not
intended to provide any conclusion or assurance beyond that conveyed by
such certificates.
3. Lower Road Associates, L.L.C. ("LRA") is a limited liability company
active and in good standing under the Limited Liability Company Act of
the State of New Jersey. For purposes of the foregoing opinion in this
paragraph, we have relied exclusively upon the certificates issued by
the governmental authorities in the State of New Jersey, and such
opinion is not intended to provide any conclusion or assurance beyond
that conveyed by such certificates.
4. PBBC is a corporation existing, and in good standing under the General
Corporation Act of the State of Florida. For purposes of the foregoing
opinion in this paragraph, we have relied exclusively upon the
certificates issued by the governmental authorities in the State of
Florida and such opinion is not intended to provide any conclusion or
assurance beyond that conveyed by such certificates.
5. Herr Manufacturing Company ("Herr") is a subsisting association under
the Pennsylvania Corporation Law of the Commonwealth of Pennsylvania.
For purposes of the foregoing opinion in this paragraph, we have relied
conclusively upon the certificates issued by the governmental
authorities in the Commonwealth of Pennsylvania, and such opinion is
not intended to provide any conclusion or assurance beyond that
conveyed by such certificates.
<PAGE> 71
First Union National Bank
May 18, 1999
Page 3
6. Sleepmaster Finance Corporation ("Sleepmaster Finance") is a
corporation existing and in good standing under the General Corporation
Law of the State of Delaware. For purposes of the foregoing opinion in
this paragraph, we have relied conclusively upon the certificates
issued by the governmental authorities in the State of Delaware, and
such opinion is not intended to provide any conclusion or assurance
beyond that conveyed by such certificates.
7. Each Company Party has the corporate or limited liability company power
(as the case may be) to execute and deliver the Loan Documents to which
it is party, to borrow money under the Credit Agreement (in the case of
Borrower), to pledge and grant or convey security interests in and
liens upon its assets as collateral as required under the Loan
Documents to which it is a party, and to perform its obligations under
the Loan Documents to which it is party.
8. The Board of Advisors of Borrower has authorized Borrower's execution
and delivery of the Loan Documents to which it is a party and
performance of the Loan Documents to which it is a party. The Managing
Member of Parent has authorized Parent's execution and delivery of the
Loan Documents to which it is a party and performance of the Loan
Documents to which it is a party. The Board of Advisors of LRA has
authorized LRA's execution and delivery of the Loan Documents to which
it is a party and performance of the Loan Documents to which it is a
party. The Board of Directors of each of PBBC, Herr and Sleepmaster
Finance has adopted by requisite vote the resolutions necessary to
authorize such Company Party's execution and delivery of the Loan
Documents to which it is a party and the performance of the Loan
Documents to which it is a party.
9. Each Loan Document (other than the Mortgages) to which any Company
Party is a party has been duly executed and delivered by an authorized
officer of such Company Party.
10. Each of the Loan Documents (other than the Mortgages) is a valid and
binding obligation of each Company Party that is a party thereto and is
enforceable against such Company Party in accordance with its terms.
11. The execution and delivery, to occur on or prior to the date hereof, by
each of the Company Parties of the Loan Documents to which it is a
party and the consummation of the transactions contemplated thereby in
accordance with their respective terms will not (a) based upon existing
facts of which we are aware, constitute a violation by such Company
Party of any applicable provision of any Law or (b) constitute a
violation of any agreement listed on the Schedule of Specified
Agreements attached hereto (the "Specified Agreements") (except that we
express no opinion with respect to violations under cross-default or
cross-acceleration provisions referring to or based upon agreements
that are not included in the Specified Agreements or with respect to
compliance with financial covenants or tests). The term "Laws" means
laws not excluded from the coverage of this opinion. The execution and
<PAGE> 72
First Union National Bank
May 18, 1999
Page 4
delivery by each of the Company Parties of the Loan Documents to which
it is a party and the consummation of the transactions contemplated
thereby to occur on or prior to the date hereof in accordance with
their respective terms will not constitute a violation of the LLC
Agreement or Charter Documents of such Company Party.
12. Each of the Pledge Agreement and the Security Agreement creates valid
security interests in your favor in the Collateral therein respectively
described which constitutes property in which a security interest can
be granted under Article 9 of the Uniform Commercial Code as enacted in
the State of New York (the "New York UCC"). Such Collateral is referred
to herein as the "Code Collateral."
13. The Uniform Commercial Code financing statements (Form UCC-1) which
have been signed by representatives of each of the respective Company
Parties in connection with the transactions specified in the Loan
Documents (the "Financing Statements") have been duly executed and
delivered by each of the respective Company Parties.
14. Under Section 9-103 of the New York UCC, the perfection and effect of
perfection of your security interests in the Code Collateral will be
governed by laws other than those of the State of New York. Although we
express no opinion as to such laws, we have reviewed the Commerce
Clearing House, Inc. Secured Transactions Guide as supplemented through
May 18, 1999 (the "Guide") and, based solely on such review, it appears
that when the appropriate financing statements executed by the
respective Company Party are duly filed or recorded, as appropriate, in
the filing offices in the states set forth on Annex I attached hereto
under the name of the respective Company Party set forth thereon, the
security interests of the Agent under the Security Agreement in such
remaining Code Collateral owned by such Company Party described therein
presently located or deemed located in such state set forth on Annex
III, will be perfected to the extent such security interests can be
perfected by the filing of financing statements in such other states.
15. Assuming (in addition to all other assumptions upon which this letter
is based) that you have taken and are retaining possession in the State
of New York of the certificates representing the securities (within the
meaning of Section 8-102(a)(15) of the New York UCC) identified on
Annex I hereto and which are certificated and pledged pursuant to the
Pledge Agreement (the "Pledged Securities"), duly endorsed to you or in
blank by an effective endorsement (within the meaning of Section
8-102(a)(11) of the New York UCC), your security interest in such
Pledged Securities (the creation of which is addressed in paragraph 12
above) is perfected by "control" under the New York UCC; and assuming
further (in addition to all other assumptions upon which this letter is
based) that you have taken possession of such Pledged Securities and
such accompanying endorsements without notice (actual or constructive),
at or prior to the time of delivery of such Pledged Securities and
endorsements to you, of any adverse claim within the meaning of Section
8-102(a)(1) of the New York
<PAGE> 73
First Union National Bank
May 18, 1999
Page 5
UCC, you have acquired your security interest in such Pledged
Securities, free of any such adverse claims.
16. No consent, approval, authorization or order of any United States
Federal or State of New York governmental authority (except for actions
and filings required in connection with the conduct in the ordinary
course by any Company Party of its respective businesses or the
ownership or operation by any Company Party of its respective assets,
actions and filings required under any of the laws, regulations or
governmental requirements set forth on Schedule C hereto (as to which
matters we express no opinion), actions and filings required to release
existing liens and to perfect security interests in your favor and any
actions or filings that may be required by any banking, insurance or
other regulatory statute to which you may be subject (as to which
matters we express no opinion except as expressly set forth in
paragraphs 14 and 15 above)), is presently required by any Law to be
obtained by any Company Party to obtain the right to enter into any of
the Loan Documents or is otherwise required to take any of the actions
to be taken by the Company Parties (i) today in connection with the
consummation by any Company Party of the lending transactions
contemplated by the Loan Documents to occur on the date hereof (except
those which have been obtained on or prior to the date hereof) and (ii)
to borrow, repay and secure the loans contemplated under the Loan
Documents (except those which have been obtained on or prior to the
date hereof).
17. No Company Party is an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
18. The consummation on the date hereof of the making and borrowing of
Loans as provided under the Loan Documents will not violate or result
in a violation of Regulation T, U or X of the Board of Governors of the
Federal Reserve System.
19. We do not have actual knowledge that any provision in any Court Order
would be breached or otherwise violated by any Company Party's
execution or delivery of the Loan Documents or by any Company Party's
performance of any of its agreements in the Loan Documents to which it
is a party. For purposes of this letter, the term "Court Order" means a
court or administrative order, writ, judgment or decree that names any
of the Company Parties and is specifically directed to any of the
Company Parties or its property. For purposes of this letter, our
Designated Transaction Lawyers (as defined below) have not undertaken
any investigation to identify Court Orders to which any Company Party
may be subject.
20. To our actual knowledge, no litigation which on the date of this letter
is pending against the Company Parties with a court seeks to enjoin or
obtain damages by reason of the Company Parties' execution or delivery
of any of the Loan Documents or the performance by any of
<PAGE> 74
First Union National Bank
May 18, 1999
Page 6
the Company Parties of any of its agreements in the Loan Documents. For
purposes of this letter, our Designated Transaction Lawyers have not
undertaken any investigation to identify any litigation which is
pending or threatened against the Company Parties.
While we have not conducted any independent investigation to
determine facts upon which our opinions are based or to obtain information about
which this opinion letter advises you, we confirm that we do not have any actual
knowledge which has caused us to conclude that our reliance and assumptions
cited in the preceding paragraph are unwarranted or that any information
supplied in this opinion letter is wrong. The term "actual knowledge" whenever
it is used in this opinion letter with respect to our firm means conscious
awareness at the time this opinion letter is delivered on the date it bears by
the following Kirkland & Ellis lawyers who have had significant involvement with
negotiation or preparation of the Credit Agreement (herein called "our
Designated Transaction Lawyers"): Kimberly Taylor, Heidi Matterfis, Robert
Frances, Marion Annau and Steven Clemens.
Each opinion in this opinion letter is subject to the General
Qualifications that are recited in Schedule A to this opinion letter to the
extent relevant to such opinion. In preparing this opinion letter we have relied
without any independent verification upon the assumptions recited in Schedule B
to this opinion letter and upon: (i) information contained in certificates
obtained from governmental authorities; (ii) factual information represented to
be true in the Credit Agreement and the other Loan Documents; (iii) factual
information provided to us by the Company Parties including without limitation,
the information set forth in a Support Certificate provided to us by the Company
Parties in connection with this opinion letter; and (iv) factual information we
have obtained from such other sources as we have deemed reasonable. We have
assumed without investigation that there has been no relevant change or
development between the dates as of which the information cited in the preceding
sentence was given and the date of this opinion letter and that the information
upon which we have relied is accurate and does not omit disclosures necessary to
prevent such information from being misleading.
Our advice on every legal issue addressed in this opinion
letter is based exclusively on such federal law of the United States and such
law of the State of New York which is in our experience normally applicable to
general business corporations, partnerships and limited liability companies not
engaged in regulated business activities and to transactions of the type
contemplated in the Loan Documents between the Company Parties, on the one hand,
and you on the other hand (but without our having made any special investigation
as to any other laws), except that we express no opinion or advice as to any law
(i) the violation of which would not have any material adverse effect on the
Company Parties, (ii) which might be violated by any misrepresentation or
omission or a fraudulent act, (iii) to which any Company Party may be subject as
a result of your legal or regulatory status, your sale or transfer of the Loans
or interests therein or your (as opposed to any other lender's) involvement in
the transactions contemplated by the Loan Documents, or (iv) identified on
Schedule C, and except that (x) the opinions in paragraphs 1 - 6 are based as
<PAGE> 75
First Union National Bank
May 18, 1999
Page 7
applicable exclusively on the Limited Liability Company Act of the State of New
Jersey, the General Corporation Act of the State of Florida, the Pennsylvania
Corporation Law of the Commonwealth of Pennsylvania, the General Corporation Law
of the State of Delaware, (y) the opinion in paragraph 14 is based exclusively
on our review of the Guide to the extent provided therein, and (z) the opinions
in paragraphs 1 - 6 are based solely on the certificates referenced in such
paragraphs. We advise you that some issues addressed by this opinion letter may
be governed in whole or in part by other laws, but we express no opinion as to
whether any relevant difference exists between the laws upon which our opinions
are based and any other laws which may actually govern. Our opinions are subject
to all qualifications in Schedule A and do not cover or otherwise address any
law or legal issue which is identified in the attached Schedule C or any
provision in the Credit Agreement or any of the other Loan Documents of any type
identified in Schedule D. Provisions in the Loan Documents which are not
excluded by Schedule D or any other part of this opinion letter or its
attachments are called the "Relevant Agreement Terms."
Our advice on each legal issue addressed in this letter
represents our opinion as to how that issue would be resolved were it to be
considered by the highest court of the jurisdiction upon whose law our opinion
on that issue is based. The manner in which any particular issue would be
treated in any actual court case would depend in part on facts and circumstances
particular to the case, and this letter is not intended to guarantee the outcome
of any legal dispute which may arise in the future. It is possible that some
Relevant Agreement Terms may not prove enforceable for reasons other than those
cited in this letter should an actual enforcement action be brought, but
(subject to all the exceptions, qualifications, exclusions and other limitations
contained in this letter) such unenforceability would not in our opinion prevent
you from realizing the principal benefits purported to be provided by such
Relevant Agreement Terms.
This opinion letter speaks as of the time of its delivery on
the date it bears. We do not assume any obligation to provide you with any
subsequent opinion or advice by reason of any fact about which our Designated
Transaction Lawyers did not have actual knowledge at that time, by reason of any
change subsequent to that time in any law covered by any of our opinions, or for
any other reason. The attached schedules are an integral part of this opinion
letter, and any term defined in this opinion letter or any schedule has that
defined meaning wherever it is used in this opinion letter or in any schedule to
this opinion letter.
The Agent and the Lenders may rely upon this letter only for
the purpose served by the provision in the Credit Agreement cited in the initial
paragraph of this opinion letter in response to which it has been delivered.
Without our written consent: (i) no person other than the Agent and the Lenders
(and their permitted assignees under the Credit Agreement) may rely on this
opinion letter for any purpose; (ii) this opinion letter may not be cited or
quoted in any financial statement, prospectus, private placement memorandum or
other similar document; (iii) this opinion letter may not be cited or quoted in
any other document or communication which might encourage reliance
<PAGE> 76
First Union National Bank
May 18, 1999
Page 8
upon this opinion letter by any person or for any purpose excluded by the
restrictions in this paragraph; and (iv) copies of this opinion letter may not
be furnished to anyone for purposes of encouraging such reliance.
Sincerely,
Kirkland & Ellis
<PAGE> 77
SCHEDULE A
GENERAL QUALIFICATIONS
All of our opinions ("our opinions") in the opinion letter to
which this Schedule A is attached ("our letter") are subject to each of the
following qualifications:
1. Bankruptcy and Insolvency Exception. Each of our opinions in our letter
is subject to the effect of bankruptcy, insolvency, reorganization,
receivership, moratorium and other similar laws. This exception
includes:
a. the Federal Bankruptcy Code and thus comprehends, among
others, matters of turnover, automatic stay, avoiding powers,
fraudulent transfer, preference, discharge, conversion of a
non-recourse obligation into a recourse claim, limitations on
ipso facto and anti-assignment clauses and the coverage of
pre-petition security agreements applicable to property
acquired after a petition is filed;
b. all other Federal and state bankruptcy, insolvency,
reorganization, receivership, moratorium, arrangement and
assignment for the benefit of creditors laws that affect the
rights of creditors generally or that have reference to or
affect only creditors of specific types of debtors;
c. state fraudulent transfer and conveyance laws; and
d. judicially developed doctrines in this area, such as
substantive consolidation of entities and equitable
subordination.
2. Equitable Principles Limitation. Each of our opinions is subject to the
effect of general principles of equity, whether applied by a court of
law or equity. This limitation includes principles:
a. governing the availability of specific performance, injunctive
relief or other equitable remedies, which generally place the
award of such remedies, subject to certain guidelines, in the
discretion of the court to which application for such relief
is made;
b. affording equitable defenses (e.g., waiver, laches and
estoppel) against a party seeking enforcement;
c. requiring good faith and fair dealing in the performance and
enforcement of a contract by the party seeking its
enforcement;
d. requiring reasonableness in the performance and enforcement of
an agreement by the party seeking enforcement of the contract;
e. requiring consideration of the materiality of (i) a breach and
(ii) the consequences of the breach to the party seeking
enforcement;
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f. requiring consideration of the impracticability or
impossibility of performance at the time of attempted
enforcement; and
g. affording defenses based upon the unconscionability of the
enforcing party's conduct after the parties have entered into
the contract.
3. Other Common Qualifications. Each of our opinions is subject to the
effect of rules of law that:
a. limit or affect the enforcement of provisions of a contract
that purport to waive, or to require waiver of, the
obligations of good faith, fair dealing, diligence and
reasonableness;
b. provide that forum selection clauses in contracts are not
necessarily binding on the court(s) in the forum selected;
c. limit the availability of a remedy under certain circumstances
where another remedy has been elected;
d. provide a time limitation after which a remedy may not be
enforced;
e. limit the right of a creditor to use force or cause a breach
of the peace in enforcing rights;
f. relate to the sale or disposition of collateral or the
requirements of a commercially reasonable sale;
g. limit the enforceabilty of provisions releasing, exculpating
or exempting a party from, or requiring indemnification of a
party for, liability for its own action or inaction, to the
extent the action or inaction involves negligence,
recklessness, willful misconduct, unlawful conduct, violation
of public policy or litigation against another party
determined adversely to such party;
h. may, where less than all of a contract may be unenforceable,
limit the enforceabilty of the balance of the contract to
circumstances in which the unenforceable portion is not an
essential part of the agreed exchange;
i. govern and afford judicial discretion regarding the
determination of damages and entitlement to attorneys' fees
and other costs;
j. may permit a party that has materially failed to render or
offer performance required by the contract to cure that
failure unless (i) permitting a cure would unreasonably hinder
the aggrieved party from making substitute arrangements for
performance, or (ii) it was important in the circumstances to
the aggrieved party that performance occur by the date stated
in the contract;
k. may render guarantees or similar instruments or agreements
unenforceable under circumstances where your actions, failures
to act or waivers, amendments or
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or replacement of the Loan Documents so radically change the
essential nature of the terms and conditions of the guaranteed
obligations and the related transactions that, in effect, a
new relationship has arisen between you and any Company Party
or the person issuing such guarantee or similar promise which
is substantially and materially different from that presently
contemplated by the Loan Documents; and/or
l. we express no opinion with respect to the adequacy of waivers
set forth in any guaranty insofar as they might not be broad
enough for all situations which might arise for which you
would find a waiver desirable, and we express no opinion as to
whether the guaranty would remain enforceable if you release
the primary obligor either directly or by electing a remedy
which precludes you from proceeding directly against the
obligor.
4. Referenced Provision Qualifications. In addition, our opinions, insofar
as they relate to the validity, binding effect or enforceabilty of a
provision in any of the Loan Documents requiring any Company Party to
perform its obligations under, or to cause any other person to perform
its obligations under, any provision (a "Referenced Provision") of such
Loan Documents or of any of the other Loan Documents or stating that
any action will be taken as provided in or in accordance with any
provision (also a "Referenced Provision") of any other Loan Document,
are subject to the same qualifications as the corresponding opinion in
this letter relating to the validity, binding effect and enforceabilty
of such Referenced Provision. Requirements in the Loan Documents that
provisions therein may only be waived or amended in writing may not be
enforceable to the extent that an oral agreement or an implied
agreement by trade practice or course of conduct has been created
modifying any such provision.
5. The opinions and advice contained in our letter are subject to the
following qualifications:
a. certain rights of debtors and duties of secured parties
referred to in Sections l-102(3) and 9-501(3) of the New York
UCC may not be waived, released, varied or disclaimed by
agreement prior to a default;
b. our opinions are subject to the effect of (i) the limitations
on the existence and perfection of security interests in
proceeds resulting from the operation of Section 9-306,
Section 9-115 or Section 8-321(l) [1977 version] of any
applicable Uniform Commercial Code; (ii) the limitations in
favor of buyers imposed by Sections 9-307 and 9-308 of any
applicable Uniform Commercial Code; (iii) the limitations with
respect to documents, instruments and securities imposed by
Section 9-309 and 8-302 [1977 version] or 8-303 [1994 version]
of any applicable Uniform Commercial Code; (iv) other rights
of persons in possession of money, instruments and proceeds
constituting certificated or uncertificated securities; and
(v) section 547 of the Bankruptcy Code with respect to
preferential transfers and section 552 of the Bankruptcy Code
with respect to any Collateral acquired by any Company Party;
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<PAGE> 80
c. Article 9 of each applicable Uniform Commercial Code requires
the filing of continuation statements within specified periods
in order to maintain the effectiveness of the filings referred
to in our letter;
d. Additional filings may be necessary if any Company Party
changes its name, identity or corporate structure or if the
jurisdiction in which any of their (i) places of business,
(ii) chief executive offices, or (iii) Collateral is located;
e. your security interest in certain of the Code Collateral may
not be perfected by the filing of financing statements under
the applicable Uniform Commercial Code;
f. we express no opinion regarding the perfection of any security
interest except as specifically set forth in our letter or
regarding the continued perfection of any security interest in
any Collateral upon or following the removal of such
Collateral to another jurisdiction;
g. the assignment of any contract, lease, license, or permit may
require the approval of the issuer thereof or the other
parties thereto;
h. we express no opinion with respect to any self-help remedies
to the extent they vary from those available under the New
York UCC or with respect to any remedies otherwise
inconsistent with the New York UCC to the extent that the New
York UCC is applicable thereto;
i. a substantial body of case law treats guarantors as "debtors"
under the New York UCC, thereby according guarantors rights
and remedies of debtors established by the New York UCC;
j. we express no opinion with respect to the adequacy of the
waivers set forth in any guaranty insofar as they might not be
broad enough for all situations which might arise for which
you would find a waiver desirable, and we express no opinion
as to whether the guarantee would remain enforceable if you
release the primary obligor either directly or by electing a
remedy which precludes you from proceeding directly against
the primary obligor;
k. We express no opinion regarding the priority of any security
interest or, to the extent that the enforceabilty of any
security interest is dependent upon the priority thereof, the
enforceabilty of such security interest except the limited
opinion set forth in paragraph 15 regarding the acquisition of
certain security interests free of adverse claims;
l. We express no opinion regarding the creation, perfection or
enforceabilty of security interests in property in which it is
illegal or violative of governmental rules or regulations to
grant a security interest, general intangibles which terminate
or become terminable if a security interest is granted
therein, property subject to negative pledge clauses of which
you have knowledge, vehicles, ships, vessels, barges, boats,
railroad cars, locomotives or other rolling stock, aircraft,
aircraft engines, propellers and related parts, or other
property for which a state or federal statute or treaty
provides
A-4
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for registration or certification of title or which specifies
a place a filing different than that specified in Section
9-401 of any applicable Uniform Commercial Code, cash which is
not in your possession, uncertificated securities, crops,
timber to be cut, fixtures, accounts subject to subsection (5)
of Section 9-103 of any applicable Uniform Commercial Code,
consumer goods, farm products, equipment used in farming
operations, accounts or general intangibles arising from or
relating to the sale of farm products by a farmer, property
identified to a contract with, or in the possession of, the
United States of America or any state, county, city,
municipality or other governmental body or agency, goods for
which a negotiable document of title has been issued, FCC
licenses, franchise agreements and copyrights, other literary
property rights, service marks, know-how, processes, trade
secrets, undocumented computer software, unrecorded and
unwritten data and information, and rights and licenses
thereunder;
m. we express no opinion with respect to the enforceabilty of any
security interest in any accounts, chattel paper, documents,
instruments or general intangibles with respect to which the
account debtor or obligor is the United States of America, any
state, county, city, municipality or other governmental body,
or any department, agency or instrumentality thereof;
n. the Agent's remedies with regard to the sale or after the sale
of any securities or other Collateral subject to any security
interest are subject to compliance with state and federal
securities laws, the Federal Communications Act of 1934, as
amended and the respective rules and regulations thereunder
and thereof and any other federal, state and local laws, rules
and regulations of other regulatory or governmental bodies
(including, without limitation, any municipality that has
issued any franchise to a Company Party or any of its
Subsidiaries) applicable to or having jurisdiction over the
Company Parties (or any entity under the control of the
Company Parties);
o. we express no opinion regarding the characterization of a
transaction as one involving the creation of a lien on real
property, the characterization of a contract as one in a form
sufficient to create a lien or a security interest in real
property, the creation, perfection, priority or enforcement of
a lien on real property or matters involving ownership or
title to any real property;
p. we express no opinion regarding the enforceabilty of any
pre-default waiver of redemption rights;
q. we express no opinion regarding the enforceabilty of any
provisions asserting that collateral is owned by or is
property of a secured party prior to such secured party's
foreclosure of such collateral in accordance with the
applicable Uniform Commercial Code or, in the case of cash
collateral, the application of such cash collateral in payment
of the secured obligations; and
r. our opinions in paragraph 10, as to the validity, binding
effect and enforceabilty of the Loan Documents specified
therein do not constitute opinions as to the creation,
existence or perfection of any security interest. Such
opinions are given only to the extent set forth in opinion
paragraphs 12, 14 and 15, and are subject to the
A-5
<PAGE> 82
assumptions, qualifications and limitations applicable to such
opinions set forth in this letter and the accompanying
attachments.
6. Usury Qualifications. We express no opinion with regard to usury or
other laws limiting or regulating the maximum amount of interest that
may be charged, collected, received or contracted for other than the
internal laws of the State of New York and the Federal laws of the
United States, and without limited the foregoing, we expressly disclaim
any opinion as to the usury or other such laws of any other
jurisdiction (including laws of other states made applicable through
principles of Federal preemption or otherwise) which may be applicable
to the transactions contemplated by the Loan Documents.
A-6
<PAGE> 83
SCHEDULE B
ASSUMPTIONS
For purposes of the letter to which this Schedule B is
attached ("our letter"), we have relied, without investigation, upon each of the
following assumptions:
1. Each Company Party (i) has the requisite title and rights to any
property involved in the transactions effected under the Loan Documents
(herein called the "Transactions") including without limiting the
generality of the foregoing, each item of Collateral existing on the
date hereof and (ii) will have the requisite title and rights to each
item and Collateral arising after the date hereof.
2. Each natural person who is executing any Loan Document on behalf of any
Company Party has sufficient legal capacity to enter into such Loan
Document, and we have no actual knowledge of any such incapacity.
3. Each document submitted to us for review is accurate and complete, each
such document that is an original is authentic, each such document that
is a copy conforms to an authentic original and all signatures (other
than those of or on behalf of any Company Party) on each such document
are genuine.
4. Each certificate obtained from a governmental authority relied on by us
is accurate, complete and authentic and all relevant official public
records to which each such certificate relates are accurate and
complete.
5. There has not been any mutual mistake of fact or misunderstanding,
fraud, duress or undue influence.
6. You are existing and in good standing in your jurisdiction of
organization.
7. You have full power and authority (including without limitation under
the laws of your jurisdiction of organization) to execute, deliver and
to perform your obligations under each of the Loan Documents and each
of the Loan Documents has been duly authorized by all necessary action
on your part and has been duly executed and duly delivered by you.
8. The Loan Documents constitute valid and binding obligations of yours
and are enforceable against you in accordance with their terms (subject
to qualifications, exclusions and other limitations similar to those
applicable to our letter).
9. You have satisfied those legal requirements that are applicable to you
to the extent necessary to make the Loan Documents enforceable against
you.
10. You have complied with all legal requirements pertaining to your status
as such status relates to your rights to enforce the Loan Documents
against the respective Company Party.
11. All statutes, judicial and administrative decisions, and rules and
regulations of governmental agencies, in each of the jurisdictions upon
whose law our opinions are based are generally
B-1
<PAGE> 84
available (i.e., in terms of access and distribution following
publication or other release) to lawyers practicing in that
jurisdiction, and are in a format that makes legal research reasonably
feasible.
12. The constitutionality or validity of a relevant statute, rule,
regulation or agency action is not in issue.
13. Each Company Party will obtain all third party or governmental
consents, permits and approvals required in the future, and will take
all actions similarly required, relevant to the subsequent consummation
of the transactions effected under the Loan Documents (herein called
the "Transactions") or performance of the Loan Documents.
14. All parties to the Transactions (other than the Company Parties) will
act in accordance with, and will refrain from taking any action that is
forbidden by, the terms and conditions of the Loan Documents.
15. Any information required to be disclosed to the Company Parties or
their governing bodies in connection with any matter relevant to any
legal issue covered by our opinions has been fully and fairly disclosed
to such Persons and no such disclosure contains any relevant error or
omission.
16. Insofar as any security interest is the subject of any of our opinions,
the grantor of such security interest has rights in the Collateral
subject to such security interest sufficient to support such security
interest, "value" (as defined in applicable Uniform Commercial Code)
has been given by you to the grantor of such security interest for such
security interest and the description of the Collateral subject to such
security interest in any Loan Document (including without limitation
any Uniform Commercial Code financing statement) reasonably describes
such Collateral.
17. The conduct of the parties to the Loan Documents has complied with any
requirement of good faith, fair dealing and conscionability.
18. You have acted in good faith and without notice of any defense against
the enforcement of any rights created by, or adverse claim to any
property or security interest transferred or created as part of, the
Transactions.
19. There are no agreements or understandings among the parties, written or
oral (other than the Loan Documents), and there is no usage of trade or
course of prior dealing among the parties that would, in either case,
define, supplement or qualify the terms of the Credit Agreement or any
of the other Loan Documents.
20. All agreements other than the Loan Documents (if any) with respect to
which we have provided an opinion or advice in our letter or reviewed
in connection with our letter would be enforced as written.
21. The constitutionality or validity of a relevant statute, rule,
regulation or agency action is not in issue.
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<PAGE> 85
22. We have assumed with respect to any provisions in the Loan Documents
providing that any Company Party will submit to jurisdiction in state
or federal courts in North Carolina, or arbitration located in North
Carolina, that courts in fact have appropriate jurisdiction over such
Company Party and with respect to the disputes arising under the Loan
Documents.
23. All parties to the Loan Documents will not in the future take any
discretionary action (including a decision not to act) permitted under
the Loan Documents that would result in a violation of law or
constitute a breach or default under any other agreements or court
orders to which the Company Parties may be subject.
24. Each Company Party's LLC Agreement, Charter Document or equivalent
document, all amendments to that LLC Agreement, Charter Document or
equivalent document, all resolutions adopted establishing classes or
series of stock or other equity interest under that LLC Agreement,
Charter Document or equivalent document and all amendments to such LLC
Agreement, Charter Document or equivalent document have been adopted in
accordance with all applicable legal requirements (except that this
assumption is limited to those of the preceding items with respect to
the adoption of which we did not have involvement).
25. The representations made by each Company Party in the Loan Documents to
which it is a party with respect to its chief executive office and
location of equipment and inventory are and will remain true and
correct.
26. Other than with respect to our opinions as to execution and delivery in
paragraphs 9 and 13, each person who has taken any action relevant to
any of our opinions in the capacity of director or officer was duly
elected to that director or officer position and held that position
when such action was taken.
27. The transactions contemplated by the Transaction Documents (other than
the Loan Documents) have been consummated in accordance with all
applicable law and the Transaction Documents (other than the Loan
Documents).
B-3
<PAGE> 86
SCHEDULE C
EXCLUDED LAW AND LEGAL ISSUES
None of the opinions or advice contained in the letter to
which this Schedule C is attached (herein called "our letter") covers or
otherwise addresses any of the following legal issues:
1. Federal securities laws and regulations administered by the Securities
and Exchange Commission (excluding, solely to the extent of our
opinions set forth in paragraph 17 of our letter, the Investment
Company Act of 1940), state "Blue Sky" laws and regulations, and laws
and regulations relating to commodity (and other) futures and indices
and other similar instruments;
2. pension and employee benefit laws and regulations (e.g., ERISA);
3. Federal and state antitrust and unfair competition laws and regulations
(other than Hart-Scott-Rodino compliance);
4. Except to the extent provided in paragraph 14 of our opinion, Federal
Reserve Board margin regulations;
5. any laws, regulations, directives and executive orders that prohibit or
limit the enforceability of obligations based on attributes of the
party seeking enforcement (e.g., the Trading with the Enemy Act and the
International Emergency Economic Powers Act);
6. Federal and state laws and regulations concerning filing and notice
requirements (other than requirements applicable to charter-related
documents such as a certificate of formation of a limited liability
company and, to the extent specifically provided in paragraph 13 of our
opinion letter, filings to perfect security interests);
7. compliance with fiduciary duty requirements;
8. the statutes and ordinances, the administrative decisions and the rules
and regulations of counties, towns, municipalities and special
political subdivisions and judicial decisions to the extent that they
deal with any of the foregoing;
9. fraudulent transfer and fraudulent conveyance laws;
10. Federal and state environmental laws and regulations;
11. Federal and state tax laws and regulations;
12. Federal patent, copyright and trademark, state trademark, and other
Federal and state intellectual property laws and regulations;
13. Federal and state health and safety laws and regulations (e.g., OSHA);
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<PAGE> 87
14. Federal and state labor laws and regulations;
15. Communications Act of 1934, as amended, the Cable Communications Policy
Act of 1984, as amended, the Cable Television Consumer Protection and
Competition Act of 1992, as amended, the Telecommunications Act of
1996, as amended, all rules and regulations promulgated under any of
the foregoing statutes, the rules, regulations and policies of the
Federal Communications Commission and all other federal, state and
local laws, orders, regulations, licensing requirements and policies
relating to the ownership, operation and provision of, or otherwise
regulating, cable television and telecommunication services;
16. Federal and state laws, regulations and policies concerning (i)
national and local emergency, (ii) possible judicial deference to acts
of sovereign states, and (iii) criminal and civil forfeiture laws;
17. other Federal and state statutes of general application to the extent
they provide for criminal prosecution (e.g., mail fraud and wire fraud
statutes);
18. the effect of any law, regulation or order which hereafter becomes
effective;
19. title to any property;
20. Federal and state racketeering laws and regulations (e.g., RICO);
21. the effect of any law, regulation or order which hereafter becomes
effective; and
22. the PBBC Industrial Development Bonds, the PBBC Bond Indenture and
related documents (other than the Credit Agreement).
We have not undertaken any research for purposes of
determining whether any Company Party or any of the Transactions which may occur
in connection with any of the Loan Documents is subject to any law or other
governmental requirement other than to those laws and requirements which in our
experience would generally be recognized as applicable in the absence of
research by lawyers in New York, and none of our opinions covers any such law or
other requirement unless (i) one of our Designated Transaction Lawyers had
actual knowledge of its applicability at the time our letter was delivered on
the date it bears and (ii) it is not excluded from coverage by other provisions
in our letter or in any Schedule to our letter.
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SCHEDULE D
EXCLUDED PROVISIONS
None of the opinions in the letter to which this Schedule D is
attached covers or otherwise addresses any of the following types of provisions
which may be contained in the Loan Documents:
1. Choice-of-law provisions.
2. Indemnification for negligence, willful misconduct or other wrongdoing
or strict product liability or any indemnification for liabilities
arising under securities laws.
3. Provisions mandating contribution towards judgments or settlements
among various parties.
4. Waivers of (i) legal or equitable defenses, (ii) rights to damages,
(iii) rights to counter claim or set off, (iv) statutes of limitations,
(v) rights to notice, (vi) the benefits of statutory, regulatory, or
constitutional rights, unless and to the extent the statute,
regulation, or constitution explicitly allows waiver, (vii) broadly or
vaguely stated rights, and (viii) other benefits to the extent they
cannot be waived under applicable law.
5. Provisions providing for forfeitures or the recovery of amounts deemed
to constitute penalties, or for liquidated damages, acceleration of
future amounts due (other than principal) without appropriate discount
to present value, late charges and prepayment charges, interest upon
interest, and increased interest rates upon default.
6. Time-is-of-the-essence clauses.
7. Provisions which provide a time limitation after which a remedy may not
be enforced.
8. Confession of judgment clauses.
9. Agreements to submit to the jurisdiction of any particular court or
other governmental authority (either as to personal jurisdiction and
subject matter jurisdiction); provisions restricting access to courts;
waiver of the right to jury trial; waiver of service of process
requirements which would otherwise be applicable; and provisions
otherwise purporting to affect the jurisdiction and venue of courts.
10. Provisions that attempt to change or waive rules of evidence or fix the
method or quantum of proof to be applied in litigation or similar
proceedings.
11. Provisions appointing one party as an attorney-in-fact for an adverse
party or providing that the decision of any particular person will be
conclusive or binding on others.
12. Provisions purporting to limit rights of third parties who have not
consented thereto or purporting to grant rights to third parties.
13. Provisions which purport to award attorneys' fees solely to one party.
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<PAGE> 89
14. Arbitration agreements.
15. Provisions purporting to create a trust or constructive trust without
compliance with applicable trust law.
16. Provisions relating to the application of condemnation awards.
17. Provisions that provide for the appointment of a receiver.
18. Provisions or agreements regarding proxies, shareholders agreements,
shareholder voting rights, voting trusts, and the like.
19. Confidentiality agreements.
20. Provisions in any of the Loan Documents requiring any Company Party to
perform its obligations under, or to cause any other person to perform
its obligations under, or stating that any action will be taken as
provided in or in accordance with, any agreement or other document that
is not a Loan Document.
21. Provisions, if any, which are contrary to the public policy of any
jurisdiction.
22. The enforceability of any provision of any Loan Document which purports
to authorize you to sign or file financing statements or other
documents without the signature of the debtor (except to the extent a
secured party may execute and file financing statements without the
signature of the debtor under Section 9-402(2) of the applicable
Uniform Commercial Code).
23. The enforceability of any provision of any Loan Document which purports
to authorize you to purchase at a private sale collateral which is not
subject to widely distributed standard price quotations or sold on a
recognized market.
24. Provisions of the Loan Documents insofar as they authorize you or your
affiliates to set off and apply any deposits at any time held, and any
other indebtedness at any time owing, by you to or for the account of
any Company Party.
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<PAGE> 90
ANNEX I
Financing Statements
See attached schedule.
Annex I, Page 1
<PAGE> 91
ANNEX II
PLEDGED SECURITIES
See attached Schedule 2(a) of the Pledge Agreement.
Annex II, Page 1
<PAGE> 92
SCHEDULE OF SPECIFIED AGREEMENTS
1. License Agreement dated, January 12, 1995, between Sleepmaster L.L.C.
and Serta, Inc., covering certain territories in Northern New Jersey,
New York and Connecticut, as amended.
2. License Agreement, dated January 12, 1995, between Sleepmaster L.L.C.
and Serta, Inc. covering certain territories in Pennsylvania, New
Jersey, Maryland and Delaware, as amended.
3. Memorandum of Agreement, dated January 12, 1995, between Sleepmaster
L.L.C. and Serta, Inc. relating to the License Agreement described in
Item No. 1 above, as amended.
4. Memorandum of Agreement, dated January 12, 1995, between Sleepmaster
L.L.C. and Serta, Inc. relating to the License Agreement described in
Item No. 2 above, as amended.
5. License Agreement dated November 4, 1989, between Palm Beach Bedding
Company and Serta, Inc., covering certain territories in Florida, as
amended.
6. Memorandum of Agreement, dated November 4, 1989, between Palm Beach
Bedding Company and Serta, Inc. relating to License Agreement described
in Item No. 5 above, as amended.
7. License Agreement dated November 4, 1989, between Herr Manufacturing
Co. and Serta, Inc. covering certain territories in Pennsylvania, New
York and New Jersey, as amended.
8. Memorandum of Agreement, dated December 1, 1969 between Herr
Manufacturing Co. and Serta Associates, Inc. relating to License
Agreement described in Item No. 7 above, as amended.
9. Indenture.
10. Asset Purchase Agreement dated as of April 8, 1999 by and among
Borrower, Star Bedding Products (1986) Limited, Star Bedding Products
Limited and Cecil Brauer.
11. Subordinated Promissory Note of Sleepmaster Holding LLC issued to Sleep
Investor LLC dated as of November 14, 1996, as may be amended.
12. Junior Subordinated Note of Sleepmaster Holdings LLC issued to Star
Bedding Products (1986) Limited to be renamed Nancourt Inc. dated May
18, 1999.
13. Employment Agreement among Sleepmaster LLC, Sleepmaster Holdings LLC
and Charles Schweitzer dated November 14, 1996.
14. Employment Agreement among Sleepmaster LLC, Sleepmaster Holdings LLC
and James Koscica dated November 14, 1996.
Sch. of Spec. Agts. - i
<PAGE> 1
EXHIBIT 10.35
CREDIT AGREEMENT
among
SLEEPMASTER L.L.C.,
as Borrower,
SLEEPMASTER HOLDINGS, L.L.C.,
the Parent
and
THE DOMESTIC SUBSIDIARIES
OF THE BORROWER
FROM TIME TO TIME PARTIES HERETO
as Guarantors,
THE LENDERS PARTIES HERETO
and
FIRST UNION NATIONAL BANK,
as Administrative Agent
Dated as of May 18, 1999
FIRST UNION CAPITAL MARKETS CORP.,
as Sole Arranger
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS............................................................................................. 1
Section 1.1 Defined Terms................................................................................ 1
Section 1.2 Other Definitional Provisions................................................................ 23
Section 1.3 Accounting Terms............................................................................. 23
ARTICLE II THE LOANS; AMOUNT AND TERMS............................................................................ 24
Section 2.1 Loans........................................................................................ 24
Section 2.2 Letter of Credit Subfacility................................................................. 26
Section 2.3 Fees......................................................................................... 30
Section 2.4 Commitment Reductions........................................................................ 31
Section 2.5 Prepayments.................................................................................. 31
Section 2.6 Minimum Principal Amount of Tranches......................................................... 33
Section 2.7 Default Rate and Payment Dates............................................................... 33
Section 2.8 Conversion Options........................................................................... 33
Section 2.9 Computation of Interest and Fees............................................................. 34
Section 2.10 Pro Rata Treatment and Payments............................................................. 34
Section 2.11 Non-Receipt of Funds by the Administrative Agent............................................ 36
Section 2.12 Inability to Determine Interest Rate........................................................ 37
Section 2.13 Illegality.................................................................................. 37
Section 2.14 Requirements of Law......................................................................... 38
Section 2.15 Indemnity................................................................................... 39
Section 2.16 Taxes....................................................................................... 40
Section 2.17 Indemnification; Nature of Issuing Lender's Duties.......................................... 42
Section 2.18 Replacement of Lenders...................................................................... 43
ARTICLE III REPRESENTATIONS AND WARRANTIES........................................................................ 43
Section 3.1 Financial Condition.......................................................................... 44
Section 3.2 No Change.................................................................................... 44
Section 3.3 Corporate Existence; Compliance with Law..................................................... 44
Section 3.4 Corporate Power; Authorization; Enforceable Obligations; No Consents......................... 44
Section 3.5 No Legal Bar; No Default..................................................................... 45
Section 3.6 No Material Litigation....................................................................... 45
Section 3.7 Investment Company Act....................................................................... 45
Section 3.8 Margin Regulations........................................................................... 45
Section 3.9 ERISA........................................................................................ 46
Section 3.10 Environmental Matters....................................................................... 46
Section 3.11 Use of Proceeds............................................................................. 47
Section 3.12 Subsidiaries................................................................................ 47
Section 3.13 Ownership................................................................................... 48
Section 3.14 Indebtedness................................................................................ 48
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 3.15 Taxes....................................................................................... 48
Section 3.16 Intellectual Property....................................................................... 48
Section 3.17 Solvency.................................................................................... 48
Section 3.18 Investments................................................................................. 49
Section 3.19 Security Documents.......................................................................... 49
Section 3.20 Location of Collateral...................................................................... 49
Section 3.21 No Burdensome Restrictions.................................................................. 49
Section 3.22 Brokers' Fees............................................................................... 49
Section 3.23 Labor Matters............................................................................... 49
Section 3.24 Accuracy and Completeness of Information.................................................... 50
Section 3.25 Year 2000 Issue............................................................................. 50
ARTICLE IV CONDITIONS PRECEDENT................................................................................... 50
Section 4.1 Conditions to Closing Date and Initial Loans................................................. 50
Section 4.2 Conditions to All Extensions of Credit....................................................... 56
ARTICLE V AFFIRMATIVE COVENANTS................................................................................... 57
Section 5.1 Financial Statements......................................................................... 57
Furnish to the Administrative Agent and each of the Lenders:............................................ 57
Section 5.2 Certificates; Other Information.............................................................. 58
Section 5.3 Payment of Obligations....................................................................... 60
Section 5.4 Conduct of Business and Maintenance of Existence............................................. 60
Section 5.5 Maintenance of Property; Insurance........................................................... 60
Section 5.6 Inspection of Property; Books and Records; Discussions....................................... 61
Section 5.7 Notices...................................................................................... 61
Section 5.8 Environmental Laws........................................................................... 62
Section 5.9 Financial Covenants.......................................................................... 63
Section 5.10 Additional Subsidiary Guarantors............................................................ 65
Section 5.11 Compliance with Law......................................................................... 65
Section 5.12 Pledged Assets.............................................................................. 65
Section 5.13 Year 2000 Compliance........................................................................ 65
Section 5.14 Further Assurances.......................................................................... 66
ARTICLE VI NEGATIVE COVENANTS..................................................................................... 66
Section 6.1 Indebtedness................................................................................. 66
Section 6.2 Liens........................................................................................ 67
Section 6.3 Guaranty Obligations......................................................................... 68
Section 6.4 Nature of Business........................................................................... 68
Section 6.5 Consolidation, Merger, Sale of Assets, Permitted Acquisitions, etc........................... 68
Section 6.6 Advances, Investments and Loans.............................................................. 69
Section 6.7 Transactions with Affiliates................................................................. 69
Section 6.8 Ownership of Subsidiaries; Restrictions...................................................... 69
Section 6.9 Fiscal Year; Organizational Documents; Material Contracts.................................... 69
Section 6.10 Limitation on Restricted Actions............................................................ 70
Section 6.11 Restricted Payments......................................................................... 70
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 6.12 Prepayments of Indebtedness, etc............................................................ 71
Section 6.13 Sale Leasebacks............................................................................. 71
Section 6.14 No Further Negative Pledges................................................................. 71
Section 6.15 Consolidated Capital Expenditures........................................................... 72
Section 6.16 Subordinated Debt........................................................................... 72
Section 6.17 Operating Leases............................................................................ 72
Section 6.18 Parent Holding Company and Sleepmaster Finance Corporation.................................. 72
Section 6.19 Serta Licenses.............................................................................. 72
ARTICLE VII EVENTS OF DEFAULT..................................................................................... 73
Section 7.1 Events of Default............................................................................ 73
Section 7.2 Acceleration; Remedies....................................................................... 75
ARTICLE VIII THE AGENT............................................................................................ 76
Section 8.1 Appointment.................................................................................. 76
Section 8.2 Delegation of Duties......................................................................... 76
Section 8.3 Exculpatory Provisions....................................................................... 76
Section 8.4 Reliance by Administrative Agent............................................................. 77
Section 8.5 Notice of Default............................................................................ 77
Section 8.6 Non-Reliance on Administrative Agent and Other Lenders....................................... 78
Section 8.7 Indemnification.............................................................................. 78
Section 8.8 Administrative Agent in Its Individual Capacity.............................................. 79
Section 8.9 Successor Administrative Agent............................................................... 79
Section 8.10 Release of Collateral....................................................................... 79
ARTICLE IX MISCELLANEOUS.......................................................................................... 80
Section 9.1 Amendments and Waivers....................................................................... 80
Section 9.2 Notices...................................................................................... 81
Section 9.3 No Waiver; Cumulative Remedies............................................................... 82
Section 9.4 Survival of Representations and Warranties................................................... 82
Section 9.5 Payment of Expenses and Taxes................................................................ 82
Section 9.6 Successors and Assigns; Participations; Purchasing Lenders................................... 83
Section 9.7 Adjustments; Set-off......................................................................... 85
Section 9.8 Table of Contents and Section Headings....................................................... 87
Section 9.9 Counterparts................................................................................. 87
Section 9.10 Effectiveness............................................................................... 87
Section 9.11 Severability................................................................................ 87
Section 9.12 Integration................................................................................. 87
Section 9.13 Governing Law............................................................................... 87
Section 9.14 Consent to Jurisdiction and Service of Process.............................................. 88
Section 9.15 Arbitration................................................................................. 88
Section 9.16 Confidentiality............................................................................. 89
Section 9.17 Acknowledgments............................................................................. 90
Section 9.18 Waivers of Jury Trial....................................................................... 90
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE X GUARANTY................................................................................................ 90
Section 10.1 The Guaranty................................................................................ 90
Section 10.2 Bankruptcy.................................................................................. 91
Section 10.3 Nature of Liability......................................................................... 91
Section 10.4 Independent Obligation...................................................................... 92
Section 10.5 Authorization............................................................................... 92
Section 10.6 Reliance.................................................................................... 92
Section 10.7 Waiver...................................................................................... 92
Section 10.8 Limitation on Enforcement................................................................... 94
Section 10.9 Confirmation of Payment..................................................................... 94
</TABLE>
iv
<PAGE> 6
Schedules
Schedule 1.1(a) Account Designation Letter
Schedule 2.1(a) Schedule of Lenders and Commitments
Schedule 2.1(b)(i) Form of Notice of Borrowing
Schedule 2.1(e) Form of Note
Schedule 2.8 Form of Notice of Conversion/Extension
Schedule 2.16 Section 2.16 Certificate
Schedule 3.6 Litigation
Schedule 3.9 ERISA
Schedule 3.10 Environmental Matters
Schedule 3.12 Subsidiaries
Schedule 3.16 Material Intellectual Property
Schedule 3.20(a) Location of Real Property
Schedule 3.20(b) Location of Collateral
Schedule 3.20(c) Chief Executive Offices
Schedule 3.23 Labor Matters
Schedule 4.1(b) Form of Secretary's Certificate
Schedule 4.1(i) Form of Solvency Certificate
Schedule 5.5(b) Insurance
Schedule 5.10 Form of Joinder Agreement
Schedule 6.1(b) Indebtedness
Schedule 6.7 Agreements with Affiliates
Schedule 9.2 Notices/Lending Offices
Schedule 9.6(c) Form of Commitment Transfer Supplement
v
<PAGE> 7
CREDIT AGREEMENT, dated as of May 18, 1999, among SLEEPMASTER L.L.C., a
New Jersey limited liability company (the "Borrower"), SLEEPMASTER HOLDINGS
L.L.C., a New Jersey limited liability company (the "Parent") and those Domestic
Subsidiaries of the Borrower identified as a "Guarantor" on the signature pages
hereto and such other Domestic Subsidiaries of the Borrower as may from time to
time become a party hereto (together with the Parent, collectively, the
"Guarantors"), the several banks and other financial institutions as may from
time to time become parties to this Agreement (collectively, the "Lenders"; and
individually, a "Lender"), and FIRST UNION NATIONAL BANK, a national banking
association, as administrative agent for the Lenders hereunder (in such
capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders make loans and
other financial accommodations to the Borrower in the amount of up to
$25,000,000, as more particularly described herein;
WHEREAS, the Lenders have agreed to make such loans and other financial
accommodations to the Borrower on the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms.
As used in this Agreement, terms defined in the preamble to this
Agreement have the meanings therein indicated, and the following terms have the
following meanings:
"Account Designation Letter" shall mean the Notice of Account
Designation Letter dated the Closing Date from the Borrower to the
Administrative Agent substantially in the form attached hereto as Schedule
1.1(a).
"Acquisition" shall mean the purchase of the assets of Star Bedding
Products (1986) Limited pursuant to that Asset Purchase Agreement dated as of
April 8, 1999 by and among the Borrower, Star Bedding Products Limited, Star
Bedding Products (1986) Limited and Cecil Brauer, as parties thereto.
<PAGE> 8
"Additional Credit Party" shall mean each Person that becomes a
Guarantor by execution of a Joinder Agreement in accordance with Section 5.10.
"Administrative Agent" shall have the meaning set forth in the first
paragraph of this Agreement and any successors in such capacity.
"Affiliate" shall mean as to any Person, any other Person (excluding
any Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, a Person shall be deemed to be "controlled by" a Person if such
Person possesses, directly or indirectly, power either (a) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such Person or (b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as amended, modified or
supplemented from time to time in accordance with its terms.
"Alternate Base Rate" shall mean, for any day, a rate per annum equal
to the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof:
"Prime Rate" shall mean, at any time, the rate of interest per annum publicly
announced from time to time by First Union at its principal office in Charlotte,
North Carolina as its prime rate. Each change in the Prime Rate shall be
effective as of the opening of business on the day such change in the Prime Rate
occurs. The parties hereto acknowledge that the rate announced publicly by First
Union as its Prime Rate is an index or base rate and shall not necessarily be
its lowest or best rate charged to its customers or other banks; and "Federal
Funds Effective Rate" shall mean, for any day, the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not so
published on the next succeeding Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from three
federal funds brokers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive in the absence of manifest error) that it is unable to ascertain the
Federal Funds Effective Rate, for any reason, including the inability or failure
of the Administrative Agent to obtain sufficient quotations in accordance with
the terms thereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition, as appropriate, until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective on the opening of business on the date of such
change.
"Alternate Base Rate Loans" shall mean Loans that bear interest at an
interest rate based on the Alternate Base Rate.
"Applicable Percentage" shall mean, for any day, the rate per annum set
forth below opposite the applicable Level then in effect, it being understood
that the Applicable Percentage
2
<PAGE> 9
for (i) Loans which are Alternate Base Rate Loans shall be the percentage set
forth under the column "Alternate Base Rate Margin ", (ii) Loans which are LIBOR
Rate Loans shall be the percentage set forth under the column "LIBOR Rate Margin
for Loans and Letter of Credit Fee", (iii) the Letter of Credit Fee shall be the
percentage set forth under the column "LIBOR Rate Margin for Loans and Letter of
Credit Fee"; and (iv) the Commitment Fee shall be the percentage set forth under
the column "Commitment Fee":
<TABLE>
<CAPTION>
LIBOR Rate
Alternate Margin for
Base Rate Loans
Leverage Margin and Letter of Commitment
Level Ratio Credit Fee Fee
<S> <C> <C> <C> <C>
- ------------ ----------------- ------------------- -------------------- ----------------------
I => 5.00 to 1.0 1.75% 3.00% 0.50%
- ------------ ----------------- ------------------- -------------------- ----------------------
II < 5.00 to 1.0 1.50% 2.75% 0.50%
but => 4.50 to
1.0
- ------------ ----------------- ------------------- -------------------- ----------------------
III < 4.50 to 1.0 1.25% 2.50% 0.50%
but => 4.00 to
1.0
- ------------ ----------------- ------------------- -------------------- ----------------------
IV < 4.00 to 1.0 1.00% 2.25% 0.50%
but => 3.00 to
1.0
- ------------ ----------------- ------------------- -------------------- ----------------------
V < 3.00 to 1.0 0.75% 2.00% 0.50%
- ------------ ----------------- ------------------- -------------------- ----------------------
</TABLE>
The Applicable Percentage shall, in each case, be determined and
adjusted quarterly on the date five (5) Business Days after the date on which
the Administrative Agent has received from the Borrower the quarterly financial
information and certifications required to be delivered to the Administrative
Agent and the Lenders in accordance with the provisions of Sections 5.1(b) and
5.2(b) (each an "Interest Determination Date"). Such Applicable Percentage shall
be effective from such Interest Determination Date until the next such Interest
Determination Date. The initial Applicable Percentages shall be based on Level I
until the first Interest Determination Date occurring after September 30, 1999.
After the Closing Date, if the Borrower shall fail to provide the quarterly
financial information and certifications in accordance with the provisions of
Sections 5.1(b) and 5.2(b), the Applicable Percentage from such Interest
Determination Date shall, on the date five (5) Business Days after the date by
which the Borrower was so required to provide such financial information and
certifications to the Administrative Agent and the Lenders, be based on Level I
until such time as such information and certifications are provided, whereupon
the Level shall be determined by the then current Leverage Ratio.
3
<PAGE> 10
"Asset Disposition" shall mean the disposition (other than as a result
of a Recovery Event) of any or all of the assets (including, without limitation,
the Capital Stock of a Subsidiary or any ownership interest in a joint venture)
of any Credit Party, whether by sale, lease, transfer or otherwise. The term
"Asset Disposition" shall not include (i) Specified Sales, (ii) the sale, lease
or transfer of assets (including licensing of Intellectual Property) permitted
by Section 6.5(a)(iii) or (iv), or (iii) any Equity Issuance.
"Bankruptcy Code" shall mean the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from time to
time.
"Borrower" shall have the meaning set forth in the first paragraph of
this Agreement.
"Borrowing Date" shall mean, in respect of any Loan, the date such Loan
is made.
"Business" shall have the meaning set forth in Section 3.10.
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in Charlotte, North Carolina or New York, New York
are authorized or required by law to close; provided, however, that when used in
connection with a rate determination, borrowing or payment in respect of a LIBOR
Rate Loan, the term "Business Day" shall also exclude any day on which banks in
London, England are not open for dealings in Dollar deposits in the London
interbank market.
"Capital Lease" shall mean any lease of property, real or personal, the
obligations with respect to which are required to be capitalized on a balance
sheet of the lessee in accordance with GAAP.
"Capital Lease Obligations" shall mean the capitalized lease
obligations relating to a Capital Lease determined in accordance with GAAP.
"Capital Stock" shall mean (i) in the case of a corporation, capital
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of capital stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
company, membership interests and (v) 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" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than twelve months from the date of acquisition ("Government Obligations"), (ii)
U.S. dollar denominated (or foreign currency fully hedged) time deposits,
certificates of deposit, Eurodollar time deposits and Eurodollar certificates of
deposit of (y) any domestic commercial bank of recognized standing having
capital and surplus in excess of $250,000,000 or (z) any bank whose short-term
commercial paper rating from S&P is at least A-
4
<PAGE> 11
1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Bank"), in each case with maturities
of not more than 364 days from the date of acquisition, (iii) commercial paper
and variable or fixed rate notes issued by any Approved Bank (or by the parent
company thereof) or any variable rate notes issued by, or guaranteed by any
domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or
P-1 (or the equivalent thereof) or better by Moody's and maturing within six
months of the date of acquisition, (iv) repurchase agreements with a bank or
trust company (including a Lender) or a recognized securities dealer having
capital and surplus in excess of $500,000,000 for direct obligations issued by
or fully guaranteed by the United States of America, (v) obligations of any
state of the United States or any political subdivision thereof for the payment
of the principal and redemption price of and interest on which there shall have
been irrevocably deposited Government Obligations maturing as to principal and
interest at times and in amounts sufficient to provide such payment, and (vi)
auction preferred stock rated in the highest short-term credit rating category
by S&P or Moody's.
"Casualty Event" shall mean any theft, loss, physical destruction or
damage, taking or similar event with respect to any property or assets.
"Change of Control" means (i) a sale of a majority of the consolidated
assets of the Parent and its Subsidiaries, in a single transaction or a series
of related transactions to any Person or two or more Persons acting in concert,
(ii) (A) prior to an initial public offering, the failure of Citicorp Venture
Capital, Inc. or one or more of its Affiliates and management shareholders
existing as of the Closing Date (together with their Permitted Transferees (as
such term is defined in the Securityholders Agreement referred to on Schedule
6.7)), collectively to own (directly or indirectly) at least 45% of the Voting
Stock on a fully diluted as if converted basis of the Parent, and (B) following
an initial public offering, the failure Citicorp Venture Capital, Inc. or one or
more of its Affiliates and management shareholders existing as of the Closing
Date (together with their Permitted Transferees (as such term is defined in the
Securityholders Agreement referred to on Schedule 6.7)), to own (directly or
indirectly) at least 33% of the Voting Stock on a fully diluted as if converted
basis of the Parent and management shareholders existing as of the Closing Date
to own (directly or indirectly) at least 10% of the Voting Stock on a fully
diluted as if converted basis of the Parent or (iii) the Borrower shall cease to
be a wholly-owned subsidiary of the Parent or (iv) any Person or two or more
Persons acting in concert shall have acquired beneficial ownership, directly or
indirectly, or shall have acquired by contract or otherwise control over, Voting
Stock of the Parent, representing (i) prior to an initial public offering, an
amount equal to or greater than the amount of Voting Stock of the Parent then
owned by Citicorp Venture Capital, Inc. or one or more of its Affiliates and
management shareholders on a fully diluted as if converted basis and (ii)
following an initial public offering, an amount representing 25% or more of all
Voting Stock of the Parent on a fully diluted as if converted basis or (v)
Continuing Directors shall cease for any reason to constitute a majority of the
members of the board of directors of the Parent then in office. As used herein,
"beneficial ownership" shall have the meaning provided in Rule 13d-3 of the
Securities and Exchange Commission promulgated under the Securities Exchange Act
of 1934.
"Closing Date" shall mean the date of this Agreement.
5
<PAGE> 12
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean a collective reference to the collateral which
is identified in, and at any time will be covered by, the Security Documents.
"Commitment" shall mean the Revolving Commitment and the LOC
Commitment, individually or collectively, as appropriate.
"Commitment Fee" shall have the meaning set forth in Section 2.3(a).
"Commitment Percentage" shall mean the Revolving Commitment Percentage
and/or the LOC Commitment Percentage, as appropriate.
"Commitment Period" shall mean the period from and including the
Closing Date to but not including the Maturity Date.
"Commitment Transfer Supplement" shall mean a Commitment Transfer
Supplement, substantially in the form of Schedule 9.6(c).
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Parent within the meaning
of Section 4001 of ERISA or is part of a group which includes the Parent and
which is treated as a single employer under Section 414 of the Code.
"Consolidated Capital Expenditures" means, for any period, all capital
expenditures of the Parent and its Subsidiaries on a consolidated basis for such
period, as determined in accordance with GAAP. The term "Consolidated Capital
Expenditures" shall not include capital expenditures in respect of the
reinvestment of proceeds derived from Recovery Events received by the Parent and
its Subsidiaries to the extent that such reinvestment is permitted under the
Credit Documents.
"Consolidated EBITDA" means, for any period, the sum of (i)
Consolidated Net Income for such period, plus (ii) an amount which, in the
determination of Consolidated Net Income for such period, has been deducted for
(A) Consolidated Interest Expense, plus (B) total federal, state, local and
foreign income, franchise, value added and other taxes, plus (C) depreciation,
amortization expense and other non-cash charges, all as determined in accordance
with GAAP, plus (D) losses (or minus gains) from sales or other dispositions of
assets (other than sales of inventory in the ordinary course of business) plus
(E) Permitted Adjustments plus (F) Transaction Costs.
"Consolidated Interest Expense" means, for any period, all
interest expense (excluding pay-in kind interest) of the Parent and its
Subsidiaries on a consolidated basis including the interest component under
Capital Leases, as determined in accordance with GAAP.
6
<PAGE> 13
"Consolidated Net Income" means, for any period, net income
(excluding extraordinary items) after taxes for such period of the Parent and
its Subsidiaries on a consolidated basis, as determined in accordance with GAAP.
"Continuing Directors" means during any period of up to 24 consecutive
months commencing after the Closing Date, individuals who at the beginning of
such 24 month period were directors of the Parent (together with any new
director whose election by the Parent board of directors or whose nomination for
election by the Parent's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election was
previously so approved).
"Contractual Obligation" shall mean, as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Credit Documents" shall mean this Agreement, each of the Notes, any
Joinder Agreement, the Letters of Credit, the LOC Documents, the Reimbursement
Agreement and the Security Documents.
"Credit Party" shall mean any of the Borrower or the Guarantors.
"Credit Party Obligations" shall mean, without duplication, (i) all of
the obligations of the Credit Parties to the Lenders (including the Issuing
Lender) and the Administrative Agent, whenever arising, under this Agreement,
the Notes or any of the other Credit Documents (including, but not limited to,
any interest accruing after the occurrence of a filing of a petition of
bankruptcy under the Bankruptcy Code with respect to any Credit Party,
regardless of whether such interest is an allowed claim under the Bankruptcy
Code) and (ii) all liabilities and obligations, whenever arising, owing from any
Credit Party to any Lender, or any Affiliate of a Lender, arising under any
Hedging Agreement.
"Debt Issuance" shall mean the issuance of any Indebtedness for
borrowed money by any Credit Party (excluding, for purposes hereof, any Equity
Issuance or any Indebtedness of the Parent and its Subsidiaries permitted to be
incurred pursuant to Section 6.1).
"Default" shall mean any of the events specified in Section 7.1,
whether or not any requirement for the giving of notice or the lapse of time, or
both, or any other condition, has been satisfied.
"Defaulting Lender" shall mean, at any time, any Lender that, at such
time (a) has failed to make a Loan required pursuant to the term of this Credit
Agreement, including the funding of a Participation Interest in accordance with
the terms hereof, (b) has failed to pay to the Administrative Agent or any
Lender an amount owed by such Lender pursuant to the terms of this Credit
Agreement, or (c) has been deemed insolvent or has become subject to a
bankruptcy or insolvency proceeding or to a receiver, trustee or similar
official.
7
<PAGE> 14
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Domestic Lending Office" shall mean, initially, the office of each
Lender designated as such Lender's Domestic Lending Office shown on Schedule
9.2; and thereafter, such other office of such Lender as such Lender may from
time to time specify to the Administrative Agent and the Borrower as the office
of such Lender at which Alternate Base Rate Loans of such Lender are to be made.
"Domestic Subsidiary" shall mean any Subsidiary that is organized and
existing under the laws of the United States or any state or commonwealth
thereof or under the laws of the District of Columbia.
"Earnout Payments" shall mean any payments which any Credit Party is or
shall be legally obligated to make to Cecil Brauer pursuant to the terms of
Section 2(c)(iv) of that certain Employment Agreement dated as of the Closing
Date by and among Star Bedding Products Limited, Cecil Brauer and Sleepmaster
L.L.C.
"Environmental Laws" shall mean any and all applicable foreign,
Federal, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority or other
Requirement of Law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of human health or the
environment, as now or may at any time be in effect during the term of this
Agreement.
"Equity Issuance" shall mean any issuance by any Credit Party to any
Person which is not a Credit Party of (a) shares of its Capital Stock, (b) any
shares of its Capital Stock pursuant to the exercise of options or warrants or
(c) any shares of its Capital Stock pursuant to the conversion of any debt
securities to equity. The term "Equity Issuance" shall not include (i) any Asset
Disposition, (ii) any Debt Issuance, (iii) issuances to members of management
pursuant to stock option plans of the Credit Parties as in effect on the Closing
Date, or (iv) issuances of equity for all or a portion of the purchase price of
Permitted Acquisitions.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurodollar Reserve Percentage" shall mean for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or emergency reserves) in
respect of Eurocurrency liabilities, as defined in Regulation D of such Board as
in effect from time to time, or any similar category of liabilities for a member
bank of the Federal Reserve System in New York City.
"Event of Default" shall mean any of the events specified in Section
7.1; provided, however, that any requirement for the giving of notice or the
lapse of time, or both, or any other condition, has been satisfied.
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<PAGE> 15
"Existing Letter of Credit" shall mean that irrevocable direct pay
letter of credit issued by First Union to Branch Banking and Trust Company as
Credit Facility Trustee pursuant to the Reimbursement Agreement in the amount of
$6,900,000 to support the PBBC Industrial Development Bonds.
"Existing Seller Debt" shall mean (i) those certain Junior Subordinated
Notes each dated as of November 14, 1996 as may be amended or exchanged from
time to time in an initial aggregate principal amount of $7,000,000 of the
Parent together with the pay-in-kind interest notes issued thereon and (ii) the
Retroactive Notes.
"Extension of Credit" shall mean, as to any Lender, the making of a
Loan by such Lender or the issuance of, or participation in, a Letter of Credit
by such Lender.
"Federal Funds Effective Rate" shall have the meaning set forth in the
definition of "Alternate Base Rate".
"Fee Letter" shall mean the letter agreement dated April 22, 1999
addressed to the Borrower from the Administrative Agent, as amended, modified or
otherwise supplemented.
"First Union" shall mean First Union National Bank, a national banking
association.
"Fixed Charge Coverage Ratio" shall mean, as of the end of each fiscal
quarter of the Parent, for the Parent and its Subsidiaries on a consolidated
basis for the four consecutive quarters ending on such date, without
duplication, the ratio of (i) Consolidated EBITDA for the applicable period
minus Consolidated Capital Expenditures for the applicable period to (ii) the
sum of Consolidated Interest Expense for the applicable period plus taxes paid
in cash during the applicable period plus dividend payments or other
distributions made during the applicable period plus Scheduled Funded Debt
Payments for the applicable period.
"Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic
Subsidiary.
"Funded Debt" shall mean, with respect to any Person, without
duplication, (a) all Indebtedness of such Person other than Indebtedness of the
types referred to in clauses (e), (f) and (i) of the definition of
"Indebtedness" set forth in this Section 1.1, (b) all Funded Debt of others of
the type referred to in clause (a) above secured by (or for which the holder of
such Funded Debt has an existing right, contingent or otherwise, to be secured
by) any Lien on, or payable out of the proceeds of production from, property
owned or acquired by such Person, whether or not the obligations secured thereby
have been assumed, (c) all Guaranty Obligations of such Person with respect to
Funded Debt of the type referred to in clause (a) above of another Person, (d)
Funded Debt of the type referred to in clause (a) above of any partnership or
unincorporated joint venture in which such Person is legally obligated or has a
reasonable expectation of being liable with respect thereto, and (e) all Earnout
Payments capitalized on any Credit Party's balance sheet in accordance with
GAAP.
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"GAAP" shall mean generally accepted accounting principles in effect in
the United States of America applied on a consistent basis, subject, however, in
the case of determination of compliance with the financial covenants set out in
Section 5.9 to the provisions of Section 1.3.
"Government Acts" shall have the meaning set forth in Section 2.17.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection)
guaranteeing or intended to guarantee any Indebtedness of any other Person in
any manner, whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (i) to purchase any such Indebtedness or
any property constituting security therefor, (ii) to advance or provide funds or
other support for the payment or purchase of any such Indebtedness or to
maintain working capital, solvency or other balance sheet condition of such
other Person (including without limitation keep well agreements, maintenance
agreements, comfort letters or similar agreements or arrangements) for the
benefit of any holder of Indebtedness of such other Person, (iii) to lease or
purchase Property, securities or services primarily for the purpose of assuring
the holder of such Indebtedness, or (iv) to otherwise assure or hold harmless
the holder of such Indebtedness against loss in respect thereof. The amount of
any Guaranty Obligation hereunder shall (subject to any limitations set forth
therein) be deemed to be an amount equal to the outstanding principal amount (or
maximum principal amount, if larger) of the Indebtedness in respect of which
such Guaranty Obligation is made.
"Guarantor" shall mean (a) the Parent, (b) any of the Domestic
Subsidiaries identified as a "Guarantor" on the signature pages hereto and (c)
the Additional Credit Parties which execute a Joinder Agreement, together with
their successors and permitted assigns.
"Guaranty" shall mean the guaranty of the Guarantors set forth in
Article X.
"Hedging Agreements" shall mean, with respect to any Person, any
agreement entered into to protect such Person against fluctuations in interest
rates, or currency or raw materials values, including, without limitation, any
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more counterparties, any foreign currency exchange agreement,
currency protection agreements, commodity purchase or option agreements or other
interest or exchange rate or commodity price hedging agreements.
"Indebtedness" shall mean, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to Property purchased by such Person (other than customary
reservations or retentions of
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<PAGE> 17
title under agreements with suppliers entered into in the ordinary course of
business), (d) all obligations of such Person issued or assumed as the deferred
purchase price of Property or services purchased by such Person (other than
trade debt incurred in the ordinary course of business and due within six months
of the incurrence thereof) which would appear as liabilities on a balance sheet
of such Person, (e) all obligations of such Person under take-or-pay or similar
arrangements or under commodities agreements, (f) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on, or payable out of the
proceeds of production from, Property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed, (g) all Guaranty
Obligations of such Person with respect to Indebtedness of another Person, (h)
the principal portion of all obligations of such Person under Capital Leases,
(i) all obligations of such Person under Hedging Agreements, (j) the maximum
amount of all standby letters of credit issued or bankers' acceptances
facilities created for the account of such Person and, without duplication, all
drafts drawn thereunder (to the extent unreimbursed), (k) all preferred Capital
Stock issued by such Person and which by the terms thereof could be (at the
request of the holders thereof or otherwise) subject to mandatory sinking fund
payments, redemption (prior to the Maturity Date) or other acceleration, (l) the
principal balance outstanding under any synthetic lease, tax retention operating
lease, off-balance sheet loan or similar off-balance sheet financing product,
and (m) the Indebtedness of any partnership or unincorporated joint venture in
which such Person is a general partner or a joint venturer.
"Indenture" shall mean that certain Indenture in respect of the
Subordinated Notes dated as of May 18, 1999.
"Insolvency" shall mean, with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of such term as used in
Section 4245 of ERISA.
"Insolvent" shall mean being in a condition of Insolvency.
"Intellectual Property" shall have the meaning set forth in Section
3.16.
"Interest Coverage Ratio" means, with respect to the Parent and its
Subsidiaries on a consolidated basis for the twelve month period ending on the
last day of any fiscal quarter of the Parent and its Subsidiaries, the ratio of
(a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
"Interest Payment Date" shall mean (a) as to any Alternate Base Rate
Loan, the last day of each March, June, September and December and on the
Maturity Date, (b) as to any LIBOR Rate Loan having an Interest Period of three
months or less, the last day of such Interest Period, and (c) as to any LIBOR
Rate Loan having an Interest Period longer than three months, each day which is
three months after the first day of such Interest Period and the last day of
such Interest Period.
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<PAGE> 18
"Interest Period" shall mean, with respect to any LIBOR Rate Loan,
(i) initially, the period commencing on the Borrowing Date or
conversion date, as the case may be, with respect to such LIBOR Rate
Loan and ending one, two, three or six months thereafter, as selected by
the Borrower in the notice of borrowing or notice of conversion given
with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such LIBOR Rate
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower by irrevocable notice to the Administrative Agent not
less than three Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided that the foregoing provisions are subject to the
following:
(A) if any Interest Period pertaining to a LIBOR Rate
Loan would otherwise end on a day that is not a Business Day,
such Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately
preceding Business Day;
(B) any Interest Period pertaining to a LIBOR Rate
Loan that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of the relevant calendar
month;
(C) if the Borrower shall fail to give notice as
provided above, the Borrower shall be deemed to have selected
an Alternate Base Rate Loan to replace the affected LIBOR Rate
Loan;
(D) any Interest Period in respect of any Loan that
would otherwise extend beyond the Maturity Date shall end on
the Maturity Date; and
(E) no more than five (5) LIBOR Tranches may be in
effect at any time. For purposes hereof, LIBOR Rate Loans with
different Interest Periods shall be considered as separate
LIBOR Tranches, even if they shall begin on the same date and
have the same duration, although borrowings, extensions and
conversions may, in accordance with the provisions hereof, be
combined at the end of existing Interest Periods to constitute
a new LIBOR Tranche.
"Issuing Lender" shall mean First Union.
"Issuing Lender Fees" shall have the meaning set forth in Section
2.3(c).
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"Joinder Agreement" shall mean a Joinder Agreement substantially in the
form of Schedule 5.10, executed and delivered by an Additional Credit Party in
accordance with the provisions of Section 5.10.
"Lender" shall have the meaning set forth in the first paragraph of
this Agreement.
"Letters of Credit" shall mean (i) the Existing Letter of Credit, and
(ii) any new letter of credit issued by the Issuing Lender pursuant to the terms
hereof, as such Letters of Credit may be amended, modified, extended, renewed or
replaced from time to time.
"Letter of Credit Fee" shall have the meaning set forth in Section 2.3
(b).
"Leverage Ratio" shall mean, as of the end of each fiscal quarter of
the Parent, for the Parent and its Subsidiaries on a consolidated basis for the
four consecutive quarters ending on such date, the ratio of (a) Funded Debt of
the Parent and its Subsidiaries on a consolidated basis on the last day of such
period to (b) Consolidated EBITDA for such period.
"LIBOR" shall mean, for any LIBOR Rate Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
A.M. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "LIBOR" shall mean, for any LIBOR Rate Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 A.M.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, however, if more than
one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates (rounded upwards, if necessary, to the
nearest 1/100 of 1%). If, for any reason, neither of such rates is available,
then "LIBOR" shall mean the rate per annum at which, as determined by the
Administrative Agent, Dollars in an amount comparable to the Loans then
requested are being offered to leading banks at approximately 11:00 A.M. London
time, two (2) Business Days prior to the commencement of the applicable Interest
Period for settlement in immediately available funds by leading banks in the
London interbank market for a period equal to the Interest Period selected.
"LIBOR Lending Office" shall mean, initially, the office of each Lender
designated as such Lender's LIBOR Lending Office shown on Schedule 9.2; and
thereafter, such other office of such Lender as such Lender may from time to
time specify to the Administrative Agent and the Borrower as the office of such
Lender at which the LIBOR Rate Loans of such Lender are to be made.
"LIBOR Rate" shall mean a rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) determined by the Administrative
Agent pursuant to the following formula:
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<PAGE> 20
LIBOR Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
"LIBOR Rate Loan" shall mean Loans the rate of interest applicable to
which is based on the LIBOR Rate.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
Capital Lease having substantially the same economic effect as any of the
foregoing).
"Loans" shall have the meaning set forth in Section 2.1.
"LOC Commitment" shall mean the commitment of the Issuing Lender to
issue new Letters of Credit and with respect to each Lender, the commitment of
such Lender to purchase participation interests in the Letters of Credit up to
the excess of (i) the LOC Committed Amount over (ii) the aggregate outstanding
face amount of the Existing Letters of Credit, such Lender's LOC Committed
Amount as specified in Schedule 2.1(a), as such amount may be reduced from time
to time in accordance with the provisions hereof.
"LOC Commitment Percentage" shall mean, for each Lender, the percentage
identified as its LOC Commitment Percentage on Schedule 2.1(a), as such
percentage may be modified in connection with any assignment made in accordance
with the provisions of Section 9.6(c).
"LOC Committed Amount" shall mean, collectively, the aggregate amount
of all of the LOC Commitments of the Lenders to issue and participate in Letters
of Credit as referenced in Section 2.2 and, individually, the amount of each
Lender's LOC Commitment as specified in Schedule 2.1(a).
"LOC Documents" shall mean, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in connection
therewith, any application therefor, and any agreements, instruments, guarantees
or other documents (whether general in application or applicable only to such
Letter of Credit) governing or providing for (i) the rights and obligations of
the parties concerned or (ii) any collateral security for such obligations.
"LOC Obligations" shall mean, at any time, the sum of (i) the maximum
amount which is, or at any time thereafter may become, available to be drawn
under Letters of Credit then outstanding, assuming compliance with all
requirements for drawings referred to in such Letters of Credit plus (ii) the
aggregate amount of all drawings under Letters of Credit honored by the Issuing
Lender but not theretofore reimbursed.
"Mandatory Borrowing" shall have the meaning set forth in Section
2.2(e).
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<PAGE> 21
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, operations, property, condition (financial or otherwise) or
prospects of the Parent and its Subsidiaries taken as a whole, (b) the ability
of the Borrower or any Guarantor to perform its obligations, when such
obligations are required to be performed, under this Agreement, any of the Notes
or any other Credit Document or (c) the validity or enforceability of this
Agreement, any of the Notes or any of the other Credit Documents or the rights
or remedies of the Administrative Agent or the Lenders hereunder or thereunder.
"Material Contract" shall mean any contract or other arrangement,
whether written or oral, to which the Borrower or any of its Subsidiaries is a
party as to which the breach, nonperformance, cancellation or failure to renew
by any party thereto could reasonably be expected to have a Material Adverse
Effect.
"Materials of Environmental Concern" shall mean any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Maturity Date" shall mean May 18, 2005.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage Instruments" shall have the meaning set forth in Section
4.1(e).
"Mortgage Policies" shall have the meaning set forth in Section 4.1(e).
"Mortgaged Properties" shall have the meaning set forth in Section
4.1(e).
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" shall mean the aggregate cash proceeds received by
any Credit Party in respect of any Asset Disposition, Equity Issuance or Debt
Issuance, net of (a) direct costs (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and (b) taxes
paid or payable as a result thereof; it being understood that "Net Cash
Proceeds" shall include, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received by any Credit Party in
any Asset Disposition, Equity Issuance or Debt Issuance.
"Note" or "Notes" shall mean the promissory notes of the Borrower in
favor of each of the Lenders evidencing the Loans provided pursuant to Section
2.1(e), individually or collectively, as appropriate, as such promissory notes
may be amended, modified, supplemented, extended, renewed or replaced from time
to time.
"Notice of Borrowing" shall mean the written notice of borrowing as
referenced and defined in Section 2.1(b)(i).
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<PAGE> 22
"Notice of Conversion" shall mean the written notice of extension or
conversion as referenced and defined in Section 2.8.
"Obligations" shall mean, collectively, Loans and LOC Obligations.
"Parent" shall have the meaning set forth in the first paragraph of
this Agreement.
"Participant" shall have the meaning set forth in Section 9.6(b).
"Participation Interest" shall mean the purchase by a Lender of a
participation interest in Letters of Credit as provided in Section 2.2.
"PBBC" shall mean Palm Beach Bedding Company, a Florida corporation and
a wholly-owned subsidiary of the Borrower.
"PBBC Industrial Development Bonds" shall mean the Variable Rate Demand
Industrial Development Prime Bonds (Palm Beach Bedding Company Project), Series
1996 in the original aggregate principal amount of $7,650,000 issued pursuant to
the PBBC Bond Indenture.
"PBBC Bond Indenture" shall mean that certain Trust Indenture dated as
of April 2, 1996, among the Palm Beach County, Florida, as Issuer, Branch
Banking and Trust Company, as Credit Facility Trustee and First Union National
Bank, as Bond Trustee.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Acquisition" shall mean so long as no Default or Event of
Default shall have occurred and be continuing or would result therefrom on an
actual or pro forma basis, the acquisition by the Borrower or any of its
Subsidiaries of all or a majority of the Capital Stock or other ownership
interest in (or all or a substantial portion of the assets, property and/or
operations of) any Person (i) in a similar or related line of business, (ii)
which shall not have been rejected initially or thereafter by such Person's
board of directors, (iii) which shall have had earnings before the deduction of
interest, taxes, depreciation and amortization expense for the two immediately
preceding fiscal quarters in an amount greater than $0 and (iv) which, in an
aggregate amount for all such acquisitions, shall not exceed $5,000,000 in any
fiscal year.
"Permitted Adjustments" shall mean adjustments to Consolidated EBITDA
for the periods and in the amounts set forth on Schedule 1.1(c).
"Permitted Investments" shall mean:
(i) cash and Cash Equivalents;
(ii) receivables owing to the Borrower or any of its
Subsidiaries or any receivables and advances to suppliers, in each case
if created, acquired or made in the
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<PAGE> 23
ordinary course of business and payable or dischargeable in accordance
with customary trade terms;
(iii) investments in and loans to any Credit Parties;
(iv) loans and advances to officers, directors, employees and
Affiliates in an aggregate amount not to exceed $100,000 at any time
outstanding;
(v) investments (including debt obligations) received in
connection with the bankruptcy or reorganization of suppliers and
customers and in settlement of delinquent obligations of, and other
disputes with, customers and suppliers arising in the ordinary course
of business;
(vi) investments, acquisitions or transactions permitted under
Section 6.5(b); and
(vii) additional loan advances and/or investments of a nature
not contemplated by the foregoing clauses hereof, provided that such
loans, advances and/or investments made pursuant to this clause (vii)
shall not exceed an aggregate amount of $100,000.
As used herein, "investment" means all investments, in cash or by
delivery of property made, directly or indirectly in, to or from any Person,
whether by acquisition of shares of Capital Stock, property, assets,
indebtedness or other obligations or securities or by loan advance, capital
contribution or otherwise.
"Permitted Liens" shall mean:
(i) Liens created by or otherwise existing, under or in
connection with this Agreement or the other Credit Documents in favor
of the Lenders;
(ii) Liens in favor of a Lender hereunder in connection with
Hedging Agreements, but only (A) to the extent such Liens secure
obligations under Hedging Agreements with any Lender, or any Affiliate
of a Lender, (B) to the extent such Liens are on the same collateral as
to which the Administrative Agent on behalf of the Lenders also has a
Lien and (C) if such provider and the Lenders shall share pari passu in
the collateral subject to such Liens;
(iii) purchase money Liens securing purchase money
indebtedness (and refinancings thereof) to the extent permitted under
Section 6.1(c);
(iv) Liens for taxes, assessments, charges or other
governmental levies not yet due or as to which the period of grace (not
to exceed 60 days), if any, related thereto has not expired or which
are being contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on the books
of the Borrower or its Subsidiaries, as the case may be, in conformity
with GAAP (or, in the
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<PAGE> 24
case of Subsidiaries with significant operations outside of the United
States of America, generally accepted accounting principles in effect
from time to time in their respective jurisdictions of incorporation);
(v) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings;
(vi) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;
(vii) deposits to secure the performance of bids, trade
contracts, (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(viii) any extension, renewal or replacement (or successive
extensions, renewals or replacements) , in whole or in part, of any
Lien referred to in the foregoing clauses; provided that such
extension, renewal or replacement Lien shall be limited to all or a
part of the property which secured the Lien so extended, renewed or
replaced (plus improvements on such property);
(ix) Liens arising in connection with judgments to the extent
not resulting in an Event of Default under Section 7.1(f);
(x) other Liens existing from time to time in an aggregate
amount not to exceed $250,000; and
(xi) Liens existing on the Closing Date and set forth on
Schedule 1.1(b); provided, that (a) no such Lien shall at any time be
extended to cover property or assets other than the property or assets
subject thereto on the Closing Date and (b) the principal amount of the
Indebtedness secured by such Liens shall not be extended, renewed,
refunded or refinanced.
"Permitted Seller Debt" shall mean that certain Junior Subordinated
Note dated as of the Closing Date executed by the Parent in favor of Star
Bedding Products (1986) Limited (to be renamed Nancourt Inc.) in an aggregate
principal amount of $1,000,000 Canadian dollars.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"Plan" shall mean, at any particular time, any employee benefit plan
which is covered by Title IV of ERISA and in respect of which the Borrower or a
Commonly Controlled Entity is (or,
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<PAGE> 25
if such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreement" shall mean the Pledge Agreement dated as of the
Closing Date to be executed in favor of the Administrative Agent by the Borrower
and each of the other Credit Parties, as amended, modified, restated or
supplemented from time to time.
"Prime Rate" shall have the meaning set forth in the definition of
Alternate Base Rate.
"Properties" shall have the meaning set forth in Section 3.10(a).
"Purchasing Lenders" shall have the meaning set forth in Section
9.6(c).
"Recovery Event" shall mean the receipt by the Parent or any of its
Subsidiaries of any cash insurance proceeds or condemnation award resulting from
a Casualty Event payable by reason of theft, loss, physical destruction or
damage, taking or similar event with respect to any of their respective property
or assets.
"Register" shall have the meaning set forth in Section 9.6(d).
"Reimbursement Agreement" shall mean the Reimbursement Agreement, dated
as of April 1, 1996 between Palm Beach Bedding Company, a Florida corporation
and First Union as amended by the Amendment to Reimbursement Agreement, dated
March 3, 1998 pursuant to which an irrevocable direct pay letter of credit was
issued to PBBC to enhance the security and marketability of the Industrial
Development Bonds.
"Reorganization" shall mean, with respect to any Multiemployer Plan,
the condition that such Plan is in reorganization within the meaning of such
term as used in Section 4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the thirty-day notice
period is waived under PBGC Reg. Section 4043.
"Required Lenders" shall mean (a) if First Union holds 50% or more of
the Commitments (and Participation Interests therein) or, if the Commitments
have terminated, of outstanding Loans and Participation Interests (including the
Participation Interests of the Issuing Lender in any Letters of Credit), Lenders
holding in the aggregate not less than 66 and 2/3% of such Commitments and
Participation Interests therein or outstanding Loans and Participation Interests
(including the Participation Interests of the Issuing Lender in any Letters of
Credit), as the case may be, and (b) if First Union holds less than 50% of
Commitments (and Participation Interests therein) or, if the Commitments have
terminated, of outstanding Loans and Participation Interests (including the
Participation Interests of the Issuing Lender in any Letters of Credit), Lenders
holding in the aggregate not less than 50% of such Commitments and Participation
Interests therein or outstanding Loans and Participation Interests (including
the Participation Interests of
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the Issuing Lender in any Letters of Credit), as the case may be, provided,
however, that if any Lender shall be a Defaulting Lender at such time, then
there shall be excluded from the determination of Required Lenders, Obligations
(including Participation Interests) owing to such Defaulting Lender and such
Defaulting Lender's Commitments, or after termination of the Commitments, the
principal balance of the Obligations owing to such Defaulting Lender.
"Requirement of Law" shall mean, as to any Person, the Certificate of
Incorporation and Bylaws or other organizational or governing documents of such
Person, and each law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer" shall mean, as to (a) the Borrower, the President
and Chief Executive Officer or the Chief Financial Officer or (b) any other
Credit Party, any duly authorized officer thereof.
"Restricted Payment" shall mean (a) any dividend or other distribution,
direct or indirect, on account of any shares of any class of Capital Stock of
the Borrower or any of its Subsidiaries, now or hereafter outstanding, (b) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of Capital
Stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding,
(c) any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Capital
Stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding,
or (d) except as permitted by Section 6.16, any payment or prepayment of
principal of, premium, if any, or interest on, redemption, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Subordinated
Debt.
"Retroactive Notes" shall mean those certain Junior Subordinated Notes
of the Parent each dated on or following May 18, 1999 in an initial aggregate
principal amount not to exceed $600,000.
"Revolving Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make Loans in an aggregate principal amount at any
time outstanding up to such Lender's Revolving Committed Amount as specified in
Schedule 2.1(a), as such amount may be reduced from time to time in accordance
with the provisions hereof.
"Revolving Commitment Percentage" shall mean, for each Lender, the
percentage identified as its Revolving Commitment Percentage on Schedule 2.1(a),
as such percentage may be modified in connection with any assignment made in
accordance with the provisions of Section 9.6(c).
"Revolving Committed Amount" shall mean, collectively, the aggregate
amount of all Revolving Commitments as referenced in Section 2.1(a), as such
amount may be reduced from time to time in accordance with the provisions
hereof, and, individually, the amount of each Lender's Revolving Commitment as
specified on Schedule 2.1(a).
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"S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc.
"Scheduled Funded Debt Payments" shall mean, as of any date of
determination for the Parent and its Subsidiaries, the sum of all scheduled
payments of principal on Funded Debt for the applied period ending on the date
of determination (including the principal component of payments due on Capital
Leases during the applicable period ending on the date of determination).
"Security Agreement" shall mean the Security Agreement dated as of the
Closing Date given by the Borrower and the other Credit Parties to the
Administrative Agent, as amended, modified or supplemented from time to time in
accordance with its terms.
"Security Documents" shall mean the Security Agreement, the Pledge
Agreement, the Mortgage Instruments and such other documents executed and
delivered in connection with the attachment and perfection of the Administrative
Agent's security interests and liens arising thereunder, including, without
limitation, UCC financing statements.
"Serta Consent" shall mean consent of the board of directors or
stockholders of Serta, Inc. in accordance with the applicable terms of any Serta
Licenses or the By-laws of Serta, Inc., as applicable, which provide, under
certain circumstances, that such consent shall not be unreasonably withheld.
"Serta Licenses" shall mean, collectively, (a) the two Standard License
Agreements and the two Memoranda of Agreement, dated January 12, 1995, between
the Borrower and Serta, Inc. covering certain territories in Pennsylvania, New
Jersey, New York, Connecticut, Maryland and Delaware, (b) the Standard License
Agreement and the Memoranda of Agreement, each dated November 4, 1989 between
Palm Beach Bedding Company and Serta Inc. covering a certain territory in
Florida, (c) the Standard License Agreement dated November 4, 1989, and the
Memoranda of Agreement dated December 1, 1969, between Herr Manufacturing
Company and Serta, Inc. covering certain territories in Pennsylvania, New York
and New Jersey, and (d) all additional Standard License Agreements and Memoranda
of Agreement entered into between any Credit Party and Serta, Inc.
"Single Employer Plan" shall mean any Plan which is not a Multiemployer
Plan.
"Solvent" shall mean, with respect to the Borrower, the Parent and
their Subsidiaries on a particular date, that any such Person (a) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage and is able to pay its debts as they
mature, (b) owns property having a value, both at fair valuation and at present
fair saleable value, greater than the amount required to pay its probable
liabilities (including contingencies), and (c) does not believe that it will
incur debts or liabilities beyond its ability to pay such debts or liabilities
as they mature.
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"Specified Sales" shall mean (a) the sale, transfer or other
disposition of inventory, materials and licensing of Intellectual Property in
the ordinary course of business and (b) the sale, transfer or other disposition
of Permitted Investments described in clause (i) of the definition thereof.
"Subordinated Debt" shall mean (i) the Subordinated Notes and (ii) any
other Indebtedness incurred by any Credit Party which by its terms is
specifically subordinated in right of payment to the prior payment of the Credit
Party Obligations.
"Subordinated Notes" shall mean those certain 11% senior subordinated
notes in an aggregate principal amount of $115,000,000 due 2009 of the Borrower
and Sleepmaster Finance Corporation issued pursuant to the Indenture.
"Subsidiary" shall mean, as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.
"Taxes" shall have the meaning set forth in Section 2.16.
"Tranche" shall mean the collective reference to LIBOR Rate Loans whose
Interest Periods begin and end on the same day. A Tranche may sometimes be
referred to as a "LIBOR Tranche".
"Transaction Costs" shall mean all costs and expenses incurred by the
Credit Parties in connection with the transactions closing as of the Closing
Date to the extent not capitalized on the balance sheet of the Parent in an
aggregate amount not to exceed $4,000,000.
"Transfer Effective Date" shall have the meaning set forth in each
Commitment Transfer Supplement.
"2.16 Certificate" shall have the meaning set forth in Section 2.16.
"Type" shall mean, as to any Loan, its nature as an Alternate Base Rate
Loan or LIBOR Rate Loan, as the case may be.
"Voting Stock" means, with respect to any Person, Capital Stock issued
by such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to vote
has been suspended by the happening of such a contingency.
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"Year 2000 Compliant" shall have the meaning set forth in Section 3.25.
Section 1.2 Other Definitional Provisions.
(a) Unless otherwise specified therein, all terms defined in
this Agreement shall have the defined meanings when used in the Notes
or other Credit Documents or any certificate or other document made or
delivered pursuant hereto.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and Section, Subsection, Schedule and Exhibit references are
to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
Section 1.3 Accounting Terms.
Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP applied on a basis consistent with the most recent audited
consolidated financial statements of the Borrower delivered to the Lenders;
provided that, if the Borrower notifies the Administrative Agent that it wishes
to amend any covenant in Section 5.9 (or the defined terms used therein) to
eliminate the effect of any change in GAAP on the operation of such covenant (or
if the Administrative Agent notifies the Borrower that the Required Lenders wish
to amend Section 5.9 for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Lenders.
The Borrower shall deliver to the Administrative Agent and each Lender
at the same time as the delivery of any annual or quarterly financial statements
given in accordance with the provisions of Section 5.1, (i) a description in
reasonable detail of any material change in the application of accounting
principles employed in the preparation of such financial statements from those
applied in the most recently preceding quarterly or annual financial statements
as to which no objection shall have been made in accordance with the provisions
above and (ii) a reasonable estimate of the effect on the financial statements
on account of such changes in application.
The parties hereto acknowledge and agree that, for purposes of all
calculations made under the financial covenants set forth in Section 5.9
(including without limitation for purposes of the definition of "Applicable
Percentage" hereunder), (i) in connection with any Asset Disposition as
contemplated by Section 6.5, (A) income statement items (whether positive or
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negative) attributable to the Property disposed of shall be excluded to the
extent relating to any period occurring prior to the date of such transaction
and (B) Indebtedness which is retired shall be excluded and deemed to have been
retired as of the first day of the applicable period and (ii) in connection with
any acquisition, merger or consolidation as referred to in Section 6.5, income
statement items (whether positive or negative) attributable to any Person or
Property so acquired shall, to the extent not otherwise included in such income
statements items for the Parent and its Subsidiaries on a consolidated basis in
accordance with GAAP or in accordance with any defined terms set forth herein,
be included to the extent relating to any period applicable in such calculations
and be deemed to have been included as of the first day of the applicable
period.
ARTICLE II
THE LOANS; AMOUNT AND TERMS
Section 2.1 Loans.
(a) Revolving Commitment. During the Commitment Period,
subject to the terms and conditions hereof, each Lender severally agrees to make
revolving credit loans ("Loans") to the Borrower from time to time for the
purposes hereinafter set forth; provided, however, that (i) with regard to each
Lender individually, the sum of such Lender's share of outstanding Loans plus
such Lender's LOC Commitment Percentage of outstanding LOC Obligations shall not
exceed such Lender's Revolving Commitment Percentage of the aggregate Revolving
Committed Amount, and (ii) with regard to the Lenders collectively, the sum of
the aggregate amount of outstanding Loans plus outstanding LOC Obligations shall
not exceed the Revolving Committed Amount. For purposes hereof, the aggregate
amount available hereunder shall be TWENTY-FIVE MILLION DOLLARS ($25,000,000)
(as such aggregate maximum amount may be reduced from time to time as provided
in Section 2.4, the "Revolving Committed Amount"). Loans may consist of
Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the
Borrower may request, and may be repaid and reborrowed in accordance with the
provisions hereof; provided that no more than five (5) separate LIBOR Tranches
shall be outstanding at any one time. LIBOR Rate Loans shall be made by each
Lender at its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic
Lending Office.
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(b) Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a
Loan borrowing by written notice (or telephone notice promptly
confirmed in writing which confirmation may be by fax) to the
Administrative Agent not later than 11:00 A.M. (Charlotte,
North Carolina time) on the Business Day prior to the date of
requested borrowing in the case of Alternate Base Rate Loans,
and on the third Business Day prior to the date of the
requested borrowing in the case of LIBOR Rate Loans. Each such
request for borrowing shall be irrevocable and shall specify
(A) that a Loan is requested, (B) the date of the requested
borrowing (which shall be a Business Day), (C) the aggregate
principal amount to be borrowed, (D) whether the borrowing
shall be comprised of Alternate Base Rate Loans, LIBOR Rate
Loans or a combination thereof, and if LIBOR Rate Loans are
requested, the Interest Period(s) therefor. A form of Notice
of Borrowing (a "Notice of Borrowing") is attached as Schedule
2.1(b)(i). If the Borrower shall fail to specify in any such
Notice of Borrowing (I) an applicable Interest Period in the
case of a LIBOR Rate Loan, then such notice shall be deemed to
be a request for an Interest Period of one month, or (II) the
type of Loan requested, then such notice shall be deemed to be
a request for an Alternate Base Rate Loan hereunder. The
Administrative Agent shall give notice to each Lender promptly
upon receipt of each Notice of Borrowing, the contents thereof
and each such Lender's share thereof. All Loans made on the
Closing Date shall bear interest at the Alternate Base Rate
until the earlier of (i) the completion of the syndication of
the Commitments to financial institutions which shall become
Lenders hereunder or (ii) thirty days from the Closing Date.
(ii) Minimum Amounts. Each Loan borrowing shall be in
a minimum aggregate amount of (A) with respect to LIBOR Rate
Loans, $1,000,000 and integral multiples of $250,000 in excess
thereof (or the remaining amount of the Revolving Committed
Amount, if less) or (B) with respect to Alternate Base Rate
Loans, $500,000 and integral multiples of $100,000 in excess
thereof (or the remaining amount of the Revolving Committed
Amount, if less).
(iii) Advances. Each Lender will make its Revolving
Commitment Percentage of each Loan borrowing available to the
Administrative Agent for the account of the Borrower at the
office of the Administrative Agent specified in Schedule 9.2,
or at such other office as the Administrative Agent may
designate in writing, by 1:00 P.M. (Charlotte, North Carolina
time) on the date specified in the applicable Notice of
Borrowing in Dollars and in funds immediately available to the
Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent by
crediting the account of the Borrower on the books of such
office with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
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(c) Repayment. The principal amount of all Loans shall be due
and payable in full on the Maturity Date.
(d) Interest. Subject to the provisions of Section 2.9, Loans
shall bear interest as follows:
(i) Alternate Base Rate Loans. During such periods as
Loans shall be comprised of Alternate Base Rate Loans, each
such Alternate Base Rate Loan shall bear interest at a per
annum rate equal to the sum of the Alternate Base Rate plus
the Applicable Percentage; and
(ii) LIBOR Rate Loans. During such periods as Loans
shall be comprised of LIBOR Rate Loans, each such LIBOR Rate
Loan shall bear interest at a per annum rate equal to the sum
of the LIBOR Rate plus the Applicable Percentage.
Interest on Loans shall be payable in arrears on each Interest Payment
Date.
(e) Notes. Each Lender's Revolving Commitment Percentage of
the Loans shall be evidenced by a duly executed promissory note of the
Borrower to such Lender in substantially the form of Schedule 2.1(e).
Section 2.2 Letter of Credit Subfacility.
(a) Issuance. The Issuing Lender has heretofore issued the
Existing Letter of Credit. Subject to the terms and conditions hereof and of the
LOC Documents, if any, and any other terms and conditions which the Issuing
Lender may reasonably require, during the Commitment Period the Issuing Lender
shall issue, and the Lenders shall participate in, Letters of Credit for the
account of the Borrower from time to time upon request in a form acceptable to
the Issuing Lender; provided, however, that (i) the aggregate amount of LOC
Obligations shall not at any time exceed EIGHT MILLION DOLLARS ($8,000,000) (the
"LOC Committed Amount"), (ii) the sum of the aggregate amount of Loans
outstanding plus LOC Obligations outstanding shall not at any time exceed the
Revolving Committed Amount, (iii) all Letters of Credit shall be denominated in
U.S. Dollars and (iv) Letters of Credit shall be issued for the purpose of
supporting tax-advantaged variable rate demand note financing and for other
lawful corporate purposes and may be issued as standby letters of credit,
including in connection with workers' compensation and other insurance programs,
and trade letters of credit. Except as otherwise expressly agreed upon by all
the Lenders, no Letter of Credit shall have an original expiry date more than
twelve (12) months from the date of issuance; provided, however, so long as no
Default or Event of Default has occurred and is continuing and subject to the
other terms and conditions to the issuance of Letters of Credit hereunder, the
expiry dates of Letters of Credit may be extended annually or periodically from
time to time on the request of the Borrower or by operation of the terms of the
applicable Letter of Credit to a date not more than twelve (12) months from the
date of extension; provided, further, that no Letter of Credit, as originally
issued or as extended, shall have an expiry date extending beyond the Maturity
Date. Each Letter of
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Credit shall comply with the related LOC Documents. The issuance and expiry date
of each Letter of Credit shall be a Business Day. Any Letters of Credit issued
hereunder shall be in a minimum original face amount of $50,000. First Union
shall be the Issuing Lender on all Letters of Credit issued after the Closing
Date.
(b) Notice and Reports. The request for the issuance of a
Letter of Credit shall be submitted to the Issuing Lender at least five
(5) Business Days prior to the requested date of issuance. The Issuing
Lender will promptly upon request provide to the Administrative Agent
for dissemination to the Lenders a detailed report specifying the
Letters of Credit which are then issued and outstanding and any
activity with respect thereto which may have occurred since the date of
any prior report, and including therein, among other things, the
account party, the beneficiary, the face amount, expiry date as well as
any payments or expirations which may have occurred. The Issuing Lender
will further provide to the Administrative Agent promptly upon request
copies of the Letters of Credit. The Issuing Lender will provide to the
Administrative Agent promptly upon request a summary report of the
nature and extent of LOC Obligations then outstanding.
(c) Participations. Each Lender upon issuance of a Letter of
Credit (or, with respect to the Existing Letter of Credit,
automatically, without any action by an Person, as of the Closing Date)
shall be deemed to have purchased without recourse a risk participation
from the Issuing Lender in such Letter of Credit and the obligations
arising thereunder and any collateral relating thereto, in each case in
an amount equal to its LOC Commitment Percentage of the obligations
under such Letter of Credit and shall absolutely, unconditionally and
irrevocably assume, as primary obligor and not as surety, and be
obligated to pay to the Issuing Lender therefor and discharge when due,
its LOC Commitment Percentage of the obligations arising under such
Letter of Credit. Without limiting the scope and nature of each
Lender's participation in any Letter of Credit, to the extent that the
Issuing Lender has not been reimbursed as required hereunder or under
any LOC Document, each such Lender shall pay to the Issuing Lender its
LOC Commitment Percentage of such unreimbursed drawing in same day
funds on the day of notification by the Issuing Lender of an
unreimbursed drawing pursuant to the provisions of subsection (d)
hereof. The obligation of each Lender to so reimburse the Issuing
Lender shall be absolute and unconditional and shall not be affected by
the occurrence of a Default, an Event of Default or any other
occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of the Borrower to reimburse the
Issuing Lender under any Letter of Credit, together with interest as
hereinafter provided.
(d) Reimbursement. In the event of any drawing under any
Letter of Credit, the Issuing Lender will promptly notify the Borrower
and the Administrative Agent. The Borrower shall reimburse the Issuing
Lender on the day of drawing under any Letter of Credit (with the
proceeds of a Loan obtained hereunder or otherwise) in same day funds
as provided herein or in the LOC Documents. If the Borrower shall fail
to reimburse the Issuing Lender as provided herein, the unreimbursed
amount of such drawing shall bear interest at a per annum rate equal to
the Alternate Base Rate plus two percent (2%). Unless the Borrower
shall immediately notify the Issuing Lender and the Administrative
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Agent of its intent to otherwise reimburse the Issuing Lender, the
Borrower shall be deemed to have requested a Loan in the amount of the
drawing as provided in subsection (e) hereof, the proceeds of which
will be used to satisfy the reimbursement obligations. The Borrower's
reimbursement obligations hereunder shall be absolute and unconditional
under all circumstances irrespective of any rights of set-off,
counterclaim or defense to payment the Borrower may claim or have
against the Issuing Lender, the Administrative Agent, the Lenders, the
beneficiary of the Letter of Credit drawn upon or any other Person,
including without limitation any defense based on any failure of the
Borrower to receive consideration or the legality, validity, regularity
or unenforceability of the Letter of Credit. The Issuing Lender will
promptly notify the other Lenders of the amount of any unreimbursed
drawing and each Lender shall promptly pay to the Administrative Agent
for the account of the Issuing Lender in Dollars and in immediately
available funds, the amount of such Lender's LOC Commitment Percentage
of such unreimbursed drawing. Such payment shall be made on the day
such notice is received by such Lender from the Issuing Lender if such
notice is received at or before 2:00 P.M. (Charlotte, North Carolina
time), otherwise such payment shall be made at or before 12:00 Noon
(Charlotte, North Carolina time) on the Business Day next succeeding
the day such notice is received. If such Lender does not pay such
amount to the Issuing Lender in full upon such request, such Lender
shall, on demand, pay to the Administrative Agent for the account of
the Issuing Lender interest on the unpaid amount during the period from
the date of such drawing until such Lender pays such amount to the
Issuing Lender in full at a rate per annum equal to, if paid within two
(2) Business Days of the date of drawing, the Federal Funds Effective
Rate and thereafter at a rate equal to the Alternate Base Rate. Each
Lender's obligation to make such payment to the Issuing Lender, and the
right of the Issuing Lender to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance whatsoever and
without regard to the termination of this Agreement or the Commitments
hereunder, the existence of a Default or Event of Default or the
acceleration of the Credit Party Obligations hereunder and shall be
made without any offset, abatement, withholding or reduction
whatsoever.
(e) Repayment with Loans. On any day on which the Borrower
shall have requested, or been deemed to have requested, a Loan to
reimburse a drawing under a Letter of Credit, the Administrative Agent
shall give notice to the Lenders that a Loan has been requested or
deemed requested in connection with a drawing under a Letter of Credit,
in which case a Loan borrowing comprised entirely of Alternate Base
Rate Loans (each such borrowing, a "Mandatory Borrowing") shall be
immediately made (without giving effect to any termination of the
Commitments pursuant to Section 7.2) pro rata based on each Lender's
respective Revolving Commitment Percentage (determined before giving
effect to any termination of the Commitments pursuant to Section 7.2)
and the proceeds thereof shall be paid directly to the Issuing Lender
for application to the respective LOC Obligations. Each Lender hereby
irrevocably agrees to make such Loans immediately upon any such request
or deemed request on account of each Mandatory Borrowing in the amount
and in the manner specified in the preceding sentence and on the same
such date notwithstanding (i) the amount of Mandatory Borrowing may not
comply with the minimum amount for borrowings of Loans otherwise
required
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hereunder, (ii) whether any conditions specified in Section 4.2 are
then satisfied, (iii) whether a Default or an Event of Default then
exists, (iv) failure for any such request or deemed request for a Loan
to be made by the time otherwise required in Section 2.1(b), (v) the
date of such Mandatory Borrowing, or (vi) any reduction in the
Revolving Committed Amount after any such Letter of Credit may have
been drawn upon; provided, however, that in the event any such
Mandatory Borrowing should be less than the minimum amount for
borrowings of Loans otherwise provided in Section 2.1(b)(ii), the
Borrower shall pay to the Administrative Agent for its own account an
administrative fee of $500. In the event that any Mandatory Borrowing
cannot for any reason be made on the date otherwise required above
(including, without limitation, as a result of the commencement of a
proceeding under the Bankruptcy Code with respect to the Borrower),
then each such Lender hereby agrees that it shall forthwith fund (as of
the date the Mandatory Borrowing would otherwise have occurred, but
adjusted for any payments received from the Borrower on or after such
date and prior to such purchase) its Participation Interests in the
outstanding LOC Obligations; provided, further, that in the event any
Lender shall fail to fund its Participation Interest on the day the
Mandatory Borrowing would otherwise have occurred, then the amount of
such Lender's unfunded Participation Interest therein shall bear
interest payable to the Issuing Lender upon demand, at the rate equal
to, if paid within two (2) Business Days of such date, the Federal
Funds Effective Rate, and thereafter at a rate equal to the Alternate
Base Rate.
(f) Modification, Extension. The issuance of any supplement,
modification, amendment, renewal, or extension to any Letter of Credit
shall, for purposes hereof, be treated in all respects the same as the
issuance of a new Letter of Credit hereunder.
(g) Uniform Customs and Practices. The Issuing Lender shall
have the Letters of Credit be subject to The Uniform Customs and
Practice for Documentary Credits, as published as of the date of issue
by the International Chamber of Commerce (the "UCP"), in which case the
UCP may be incorporated therein and deemed in all respects to be a part
thereof.
(h) Conflict with LOC Documents. In the event of any conflict
between this Credit Agreement and any LOC Document (including any
letter of credit application), this Credit Agreement shall control. The
Reimbursement Agreement is and shall be deemed amended such that the
representations and warranties, covenants and events of default (and
definitions related thereto) set out in the Reimbursement Agreement
(the "Existing Provisions"), except to the extent they relate
specifically to the relevant bonds or relevant remarketing program,
conform with the representations and warranties, covenants and events
of default (and definitions related thereto) set out in this Credit
Agreement (the "Incorporated Provisions"). So long as any obligations
remain outstanding under the PBBC Industrial Development Bonds or any
documentation related thereto, such amendments shall survive (i) the
payment in full of all obligations due the Lenders by the Borrower
under this Credit Agreement, (ii) the termination (for any reason) of
this Credit Agreement, (iii) the sale or participation (in whole or in
part) of a Lender's interest in this Credit Agreement, or (iv) any
other event which has an effect to
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terminate the obligations of the Borrower to the Lenders under this
Credit Agreement. Upon the happening of one of the events set forth in
the immediately preceding sentence, PBBC agrees to promptly execute a
modification of the Reimbursement Agreement to confirm such amendment.
Notwithstanding the preceding sentence or the failure of any such
modification to be executed, the Credit Parties, to the extent
applicable, must remain in compliance with the Incorporated Provisions
as if set forth in the Reimbursement Agreement. Any future modification
of or amendment to the Incorporated Provisions shall be a modification
of or amendment to the relevant Reimbursement Agreements for purposes
of compliance with such agreements. Likewise, if First Union grants a
waiver of compliance of the Incorporated Provisions for any period,
such waiver shall be deemed to be a waiver of compliance of the
relevant Reimbursement Agreement for the limited period of time for
which the waiver was granted.
(i) Designation of Credit Parties as Account Parties.
Notwithstanding anything to the contrary set forth in this Credit
Agreement, including without limitation Section 2.2(a), a Letter of
Credit issued hereunder may contain a statement to the effect that such
Letter of Credit is issued for the account of a Credit Party other than
the Borrower, provided that notwithstanding such statement, the
Borrower shall be the actual account party for all purposes of the
Credit Agreement for such Letter of Credit and such statement shall not
affect the Borrower's reimbursement obligations hereunder with respect
to such Letter of Credit.
Section 2.3 Fees.
(a) Commitment Fee. In consideration of the Revolving
Commitment, the Borrower agrees to pay to the Administrative Agent for the
ratable benefit of the Lenders a commitment fee (the "Commitment Fee") in an
amount equal to the Applicable Percentage per annum on the average daily unused
amount of the aggregate Revolving Committed Amount. The Commitment Fee shall be
payable quarterly in arrears on the 15th day following the last day of each
calendar quarter for the prior calendar quarter.
(b) Letter of Credit Fees. In consideration of the LOC
Commitments, the Borrower agrees to pay to the Issuing Lender a fee
(the "Letter of Credit Fee") equal to the Applicable Percentage per
annum on the average daily maximum amount available to be drawn under
each Letter of Credit from the date of issuance to the date of
expiration. In addition to such Letter of Credit Fee, the Issuing
Lender may charge, and retain for its own account without sharing by
the other Lenders, an additional facing fee of one-eighth of one
percent (1/8%) per annum on the average daily maximum amount available
to be drawn under each such Letter of Credit issued by it. The Issuing
Lender shall promptly pay over to the Administrative Agent for the
ratable benefit of the Lenders (including the Issuing Lender) the
Letter of Credit Fee. The Letter of Credit Fee shall be payable
quarterly in arrears on the 15th day following the last day of each
calendar quarter for the prior calendar quarter.
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(c) Issuing Lender Fees. In addition to the Letter of Credit
Fees payable pursuant to subsection (b) hereof, the Borrower shall pay
to the Issuing Lender for its own account without sharing by the other
Lenders the reasonable and customary charges from time to time of the
Issuing Lender with respect to the amendment, transfer, administration,
cancellation and conversion of, and drawings under, such Letters of
Credit (collectively, the "Issuing Lender Fees").
(d) Administrative Fee. The Borrower agrees to pay to the
Administrative Agent the annual administrative fee as described in the
Fee Letter.
Section 2.4 Commitment Reductions.
(a) Voluntary Reductions. The Borrower shall have the right to
terminate or permanently reduce the unused portion of the Revolving Committed
Amount at any time or from time to time upon not less than three (3) Business
Days' prior notice to the Administrative Agent (which shall notify the Lenders
thereof as soon as practicable) of each such termination or reduction, which
notice shall specify the effective date thereof and the amount of any such
reduction which shall be in a minimum amount of $500,000 or a whole multiple of
$250,000 in excess thereof (or the remaining amount of the Loans, if less) and
shall be irrevocable and effective upon receipt by the Administrative Agent,
provided that no such reduction or termination shall be permitted if after
giving effect thereto, and to any prepayments of the Loans made on the effective
date thereof, the sum of the then outstanding aggregate principal amount of the
Loans plus outstanding LOC Obligations would exceed the Revolving Committed
Amount.
(b) Mandatory Reductions. On any date that the Loans are
required to be prepaid pursuant to the terms of Section 2.5(b) (ii),
(iii) and (iv), the Revolving Committed Amount shall be automatically
permanently reduced by the amount of such required prepayment and/or
reduction.
(c) Maturity Date. The Revolving Commitment and the LOC
Commitment shall automatically terminate on the Maturity Date.
Section 2.5 Prepayments.
(a) Optional Prepayments. The Borrower shall have the right to
prepay Loans in whole or in part from time to time; provided, however, that each
partial prepayment of Loans shall be in a minimum principal amount of $1,000,000
and integral multiples of $250,000 in excess thereof with respect to LIBOR Rate
Loans, and $500,000 and integral multiples of $100,000 in excess thereof with
respect to Alternate Base Rate Loans. The Borrower shall give three Business
Days' irrevocable notice in the case of LIBOR Rate Loans and one Business Day's
irrevocable notice in the case of Alternate Base Rate Loans, to the
Administrative Agent (which shall notify the Lenders thereof as soon as
practicable). Amounts prepaid under this Section 2.5(a) shall be applied first
to Alternate Base Rate Loans and then to LIBOR Rate Loans in direct order of
Interest Period maturities. All prepayments under this Section 2.5(a) shall be
subject to Section 2.15, but otherwise without premium or penalty. Interest on
the principal amount prepaid
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shall be payable on the next occurring Interest Payment Date that would have
occurred had such loan not been prepaid or, at the request of the Administrative
Agent, interest on the principal amount prepaid shall be payable on any date
that a prepayment is made hereunder through the date of prepayment. Amounts
prepaid on the Loans may be reborrowed in accordance with the terms hereof.
(b) Mandatory Prepayments.
(i) Revolving Committed Amount. If at any time after
the Closing Date, the sum of the aggregate principal amount of
outstanding Loans plus outstanding LOC Obligations shall
exceed the Revolving Committed Amount, the Borrower
immediately shall prepay the Loans and (after all Loans have
been repaid) cash collateralize the LOC Obligations, in an
amount sufficient to eliminate such excess.
(ii) Asset Dispositions. Promptly following any Asset
Disposition in excess of $250,000 in any fiscal year, the
Borrower shall notify the Administrative Agent thereof and
prepay the Loans in an aggregate amount equal to one hundred
percent (100%) of the Net Cash Proceeds derived from such
Asset Disposition (such prepayment to be applied as set forth
in clause (v) below); provided, however, that such Net Cash
Proceeds shall not be required to be so applied to the extent
the Borrower delivers to the Administrative Agent a
certificate that it intends to use such Net Cash Proceeds to
acquire fixed or capital assets in replacement of the disposed
assets within 90 days of the receipt of such Net Cash
Proceeds, it being expressly agreed that any Net Cash Proceeds
not so reinvested shall be applied to repay the Loans.
(iii) Issuances. Immediately upon receipt by any
Credit Party of proceeds from (A) any Debt Issuance, the
Borrower shall notify the Administrative Agent thereof and
prepay the Loans in an aggregate amount equal to one-hundred
percent (100%) of the Net Cash Proceeds of such Debt Issuance
to the Lenders (such prepayment to be applied as set forth in
clause (v) below) or (B) any Equity Issuance the Borrower
shall notify the Administrative Agent thereof and prepay the
Loans in an aggregate amount equal to one hundred percent
(100%) of the Net Cash Proceeds of such Equity Issuance to the
Lenders (such prepayment to be applied as set forth in clause
(v) below).
(iv) Recovery Event. To the extent of cash proceeds
received in connection with a Recovery Event which are not
applied in accordance with Section 6.5(a)(ii), immediately
following the 180th day occurring after the receipt by a
Credit Party of such cash proceeds, the Borrower shall notify
the Administrative Agent thereof and prepay the Loans in an
aggregate amount equal to one-hundred percent (100%) of such
cash proceeds to the Lenders (such prepayment to be applied as
set forth in clause (v) below).
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(v) Application of Mandatory Prepayments. All amounts
required to be paid pursuant to this Section 2.5(b) shall be
applied first to the Loans and (after all Loans have been
repaid) to a cash collateral account in respect of LOC
Obligations. Within the parameters of the applications set
forth above, prepayments shall be applied first to Alternate
Base Rate Loans and then to LIBOR Rate Loans in direct order
of Interest Period maturities. All prepayments under this
Section 2.5(b) shall be subject to Section 2.15 and be
accompanied by interest on the principal amount prepaid
through the date of prepayment.
Section 2.6 Minimum Principal Amount of Tranches.
All borrowings, payments and prepayments in respect of the Loans shall
be in such amounts and be made pursuant to such elections so that after giving
effect thereto the aggregate principal amount of the Loans comprising any
Tranche shall not be less than (i) with respect to LIBOR Rate Loans, $1,000,000
or a whole multiple of $250,000 in excess thereof and (ii) with respect to Base
Rate Loans, $500,000 or a whole multiple of $100,000 in excess thereof.
Section 2.7 Default Rate and Payment Dates.
Upon the occurrence, and during the continuance, of an Event of
Default, the principal of and, to the extent permitted by law, interest on the
Loans and any other amounts owing hereunder or under the other Credit Documents
shall bear interest, payable on demand, at a per annum rate 2% greater than the
rate which would otherwise be applicable (or if no rate is applicable, whether
in respect of interest, fees or other amounts, then the Alternate Base Rate plus
2%).
Section 2.8 Conversion Options.
(a) The Borrower may elect from time to time to convert
Alternate Base Rate Loans to LIBOR Rate Loans, by giving the Administrative
Agent irrevocable written notice of such election not later than 11:00 a.m.
(Charlotte, North Carolina time) on the date which is three Business Days prior
to the requested date of conversion. A form of Notice of Conversion/ Extension
is attached as Schedule 2.8. If the date upon which an Alternate Base Rate Loan
is to be converted to a LIBOR Rate Loan is not a Business Day, then such
conversion shall be made on the next succeeding Business Day and during the
period from such last day of an Interest Period to such succeeding Business Day
such Loan shall bear interest as if it were an Alternate Base Rate Loan. All or
any part of outstanding Alternate Base Rate Loans may be converted as provided
herein, provided that (i) no Loan may be converted into a LIBOR Rate Loan when
any Default or Event of Default has occurred and is continuing and (ii) partial
conversions shall be in an aggregate principal amount of $500,000 or a whole
multiple of $100,000 in excess thereof.
(b) Any LIBOR Rate Loans may be continued as such upon the
expiration of an Interest Period with respect thereto by compliance by
the Borrower with the notice provisions contained in Section 2.8(a);
provided, that no LIBOR Rate Loan may be continued as such when any
Default or Event of Default has occurred and is continuing,
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in which case such Loan shall be automatically converted to an
Alternate Base Rate Loan at the end of the applicable Interest Period
with respect thereto. If the Borrower shall fail to give timely notice
of an election to continue a LIBOR Rate Loan, or the continuation of
LIBOR Rate Loans is not permitted hereunder, such LIBOR Rate Loans
shall be automatically converted to Alternate Base Rate Loans at the
end of the applicable Interest Period with respect thereto.
Section 2.9 Computation of Interest and Fees.
(a) Interest payable hereunder with respect to Alternate Base
Rate Loans shall be calculated on the basis of a year of 365 days (or
366 days, as applicable) for the actual days elapsed. All other fees,
interest and all other amounts payable hereunder shall be calculated on
the basis of a 360 day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower
and the Lenders of each determination of a LIBOR Rate on the Business
Day of the determination thereof. Any change in the interest rate on a
Loan resulting from a change in the Alternate Base Rate shall become
effective as of the opening of business on the day on which such change
in the Alternate Base Rate shall become effective. The Administrative
Agent shall as soon as practicable notify the Borrower and the Lenders
of the effective date and the amount of each such change.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall
be conclusive and binding on the Borrower and the Lenders in the
absence of manifest error. The Administrative Agent shall, at the
request of the Borrower, deliver to the Borrower a statement showing
the computations used by the Administrative Agent in determining any
interest rate.
Section 2.10 Pro Rata Treatment and Payments.
(a) Each borrowing of Loans and any reduction of the Revolving
Commitments shall be made pro rata according to the respective Commitment
Percentages of the Lenders. Each payment under this Agreement or any Note shall
be applied, first, to any fees then due and owing by the Borrower pursuant to
Section 2.3, second, to interest then due and owing in respect of the Notes of
the Borrower and, third, to principal then due and owing hereunder and under the
Notes of the Borrower. Each payment on account of any fees pursuant to Section
2.3 shall be made pro rata in accordance with the respective amounts due and
owing (except as to the portion of the Letter of Credit retained by the Issuing
Lender and the Issuing Lender Fees). Each optional prepayment on account of
principal of the Loans shall be applied to such of the Loans as the Borrower may
designate (to be applied pro rata among the Lenders); provided, that prepayments
made pursuant to Section 2.13 shall be applied in accordance with such section.
Each mandatory prepayment on account of principal of the Loans shall be applied
in accordance with Section 2.5(b). All payments (including prepayments) to be
made by the Borrower on account of principal, interest and fees shall be made
without defense, set-off or counterclaim (except as provided in Section 2.16(b))
and shall be made to the Administrative Agent for the account of the Lenders at
the Administrative Agent's office specified on Schedule 9.2 in Dollars and in
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immediately available funds not later than 1:00 P.M. (Charlotte, North Carolina
time) on the date when due. The Administrative Agent shall distribute such
payments to the Lenders entitled thereto promptly upon receipt in like funds as
received. If any payment hereunder (other than payments on the LIBOR Rate Loans)
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day, and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension. If any payment on a LIBOR Rate Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day.
(b) Allocation of Payments After Event of Default. Notwithstanding any
other provisions of this Agreement to the contrary, after the occurrence and
during the continuance of an Event of Default, all amounts collected or received
by the Administrative Agent or any Lender on account of the Credit Party
Obligations or any other amounts outstanding under any of the Credit Documents
or in respect of the Collateral shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs
and expenses (including without limitation reasonable attorneys' fees)
of the Administrative Agent in connection with enforcing the rights of
the Lenders under the Credit Documents and any protective advances made
by the Administrative Agent with respect to the Collateral under or
pursuant to the terms of the Security Documents;
SECOND, to payment of any fees owed to the Administrative
Agent;
THIRD, to the payment of all reasonable out-of-pocket costs
and expenses (including without limitation, reasonable attorneys' fees)
of each of the Lenders in connection with enforcing its rights under
the Credit Documents or otherwise with respect to the Credit Party
Obligations owing to such Lender;
FOURTH, to the payment of all of the Credit Party Obligations
consisting of accrued fees and interest;
FIFTH, to the payment of the outstanding principal amount of
the Credit Party Obligations (including the payment or cash
collateralization of the outstanding LOC Obligations);
SIXTH, to all other Credit Party Obligations and other
obligations which shall have become due and payable under the Credit
Documents or otherwise and not repaid pursuant to clauses "FIRST"
through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may
be lawfully entitled to receive such surplus.
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In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to
the next succeeding category; (ii) each of the Lenders shall receive an
amount equal to its pro rata share (based on the proportion that the
then outstanding Loans and LOC Obligations held by such Lender bears to
the aggregate then outstanding Loans and LOC Obligations) of amounts
available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH"
and "SIXTH" above; and (iii) to the extent that any amounts available
for distribution pursuant to clause "FIFTH" above are attributable to
the issued but undrawn amount of outstanding Letters of Credit, such
amounts shall be held by the Administrative Agent in a cash collateral
account and applied (A) first, to reimburse the Issuing Lender from
time to time for any drawings under such Letters of Credit and (B)
then, following the expiration of all Letters of Credit, to all other
obligations of the types described in clauses "FIFTH" and "SIXTH" above
in the manner provided in this Section 2.10(b).
Section 2.11 Non-Receipt of Funds by the Administrative Agent.
(a) Unless the Administrative Agent shall have been
notified in writing by a Lender prior to the date a Loan is to be made
by such Lender (which notice shall be effective upon receipt) that such
Lender does not intend to make the proceeds of such Loan available to
the Administrative Agent, the Administrative Agent may assume that such
Lender has made such proceeds available to the Administrative Agent on
such date, and the Administrative Agent may in reliance upon such
assumption (but shall not be required to) make available to the Borrower
a corresponding amount. If such corresponding amount is not in fact made
available to the Administrative Agent, the Administrative Agent shall be
able to recover such corresponding amount from such Lender. If such
Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent will
promptly notify the Borrower, and the Borrower shall immediately pay
such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover from the Lender
or the Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount
was made available by the Administrative Agent to the Borrower to the
date such corresponding amount is recovered by the Administrative Agent
at a per annum rate equal to (i) from the Borrower at the applicable
rate for the applicable borrowing pursuant to the Notice of Borrowing
and (ii) from a Lender at the Federal Effective Funds Rate.
(b) Unless the Administrative Agent shall have been notified
in writing by the Borrower, prior to the date on which any payment is
due from it hereunder (which notice shall be effective upon receipt)
that the Borrower does not intend to make such payment, the
Administrative Agent may assume that such Borrower has made such
payment when due, and the Administrative Agent may in reliance upon
such assumption (but shall not be required to) make available to each
Lender on such payment date an amount equal to the portion of such
assumed payment to which such Lender is entitled hereunder, and if the
Borrower has not in fact made such payment to the Administrative Agent,
such Lender shall, on demand, repay to the Administrative Agent the
amount made available
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to such Lender. If such amount is repaid to the Administrative Agent on
a date after the date such amount was made available to such Lender,
such Lender shall pay to the Administrative Agent on demand interest on
such amount in respect of each day from the date such amount was made
available by the Administrative Agent to such Lender to the date such
amount is recovered by the Administrative Agent at a per annum rate
equal to the Federal Funds Effective Rate.
(c) A certificate of the Administrative Agent submitted to the
Borrower or any Lender with respect to any amount owing under this
Section 2.11 shall be conclusive in the absence of manifest error.
Section 2.12 Inability to Determine Interest Rate.
Notwithstanding any other provision of this Agreement, if (i) the
Administrative Agent shall reasonably determine (which determination shall be
conclusive and binding absent manifest error) that, by reason of circumstances
affecting the relevant market, reasonable and adequate means do not exist for
ascertaining LIBOR for such Interest Period, or (ii) the Required Lenders shall
reasonably determine (which determination shall be conclusive and binding absent
manifest error) that the LIBOR Rate does not adequately and fairly reflect the
cost to such Lenders of funding LIBOR Rate Loans that the Borrower has requested
be outstanding as a LIBOR Tranche during such Interest Period, the
Administrative Agent shall forthwith give telephone notice of such
determination, confirmed in writing, to the Borrower, and the Lenders at least
two Business Days prior to the first day of such Interest Period. Unless the
Borrower shall have notified the Administrative Agent upon receipt of such
telephone notice that it wishes to rescind or modify its request regarding such
LIBOR Rate Loans, any Loans that were requested to be made as LIBOR Rate Loans
shall be made as Alternate Base Rate Loans and any Loans that were requested to
be converted into or continued as LIBOR Rate Loans shall be converted into
Alternate Base Rate Loans. Until any such notice has been withdrawn by the
Administrative Agent, no further Loans shall be made as, continued as, or
converted into, LIBOR Rate Loans for the Interest Periods so affected.
Section 2.13 Illegality.
Notwithstanding any other provision of this Agreement, if the adoption
of or any change in any Requirement of Law or in the interpretation or
application thereof by the relevant Governmental Authority to any Lender shall
make it unlawful for such Lender or its LIBOR Lending Office to make or maintain
LIBOR Rate Loans as contemplated by this Agreement or to obtain in the interbank
eurodollar market through its LIBOR Lending Office the funds with which to make
such Loans, (a) such Lender shall promptly notify the Administrative Agent and
the Borrower thereof, (b) the commitment of such Lender hereunder to make LIBOR
Rate Loans or continue LIBOR Rate Loans as such shall forthwith be suspended
until the Administrative Agent shall give notice that the condition or situation
which gave rise to the suspension shall no longer exist, and (c) such Lender's
Loans then outstanding as LIBOR Rate Loans, if any, shall be converted on the
last day of the Interest Period for such Loans or within such earlier period as
required by law as Alternate Base Rate Loans. The Borrower hereby agrees
promptly to pay any
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Lender, upon its demand, any additional amounts necessary to compensate such
Lender for actual and direct costs (but not including anticipated profits)
reasonably incurred by such Lender in making any repayment in accordance with
this Section including, but not limited to, any interest or fees payable by such
Lender to lenders of funds obtained by it in order to make or maintain its LIBOR
Rate Loans hereunder. A certificate as to any additional amounts payable
pursuant to this Section submitted by such Lender, through the Administrative
Agent, to the Borrower shall be conclusive in the absence of manifest error.
Each Lender agrees to use reasonable efforts (including reasonable efforts to
change its LIBOR Lending Office) to avoid or to minimize any amounts which may
otherwise be payable pursuant to this Section; provided, however, that such
efforts shall not cause the imposition on such Lender of any additional costs or
legal or regulatory burdens deemed by such Lender in its sole discretion to be
material.
Section 2.14 Requirements of Law.
(a) If the adoption of or any change in any Requirement of Law
or in the interpretation or application thereof or compliance by any
Lender with any request or directive (whether or not having the force
of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject such Lender to any tax of any kind
whatsoever with respect to any Letter of Credit or any
application relating thereto, any LIBOR Rate Loan made by it,
or change the basis of taxation of payments to such Lender in
respect thereof (except for (A) changes in the rate of tax on
the overall net income of such Lender or (B) any changes in or
additions to the rate or basis of taxation imposed on such
Lender by either its jurisdiction or formation or the
jurisdiction in which its lending office is located);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by,
any office of such Lender which is not otherwise included in
the determination of the LIBOR Rate hereunder; or
(iii) shall impose on such Lender any other
condition;
and the result of any of the foregoing is to increase the cost to such
Lender of making or maintaining LIBOR Rate Loans or the Letters of
Credit or to reduce any amount receivable hereunder or under any Note,
then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such
Lender for such additional cost or reduced amount receivable which such
Lender reasonably deems to be material as determined by such Lender
with respect to its LIBOR Rate Loans or Letters of Credit. A
certificate as to any additional amounts payable pursuant to this
Section submitted by such Lender, through the Administrative Agent, to
the Borrower shall be conclusive in the absence of manifest error. Each
Lender agrees to use reasonable efforts (including reasonable efforts
to change its Domestic
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Lending Office or LIBOR Lending Office, as the case may be) to avoid or
to minimize any amounts which might otherwise be payable pursuant to
this paragraph of this Section; provided, however, that such efforts
shall not cause the imposition on such Lender of any additional costs
or legal or regulatory burdens deemed by such Lender to be material.
(b) If any Lender shall have reasonably determined that the
adoption of or any change in any Requirement of Law regarding capital
adequacy or in the interpretation or application thereof or compliance
by such Lender or any corporation controlling such Lender with any
request or directive regarding capital adequacy (whether or not having
the force of law) from any central bank or Governmental Authority made
subsequent to the date hereof does or shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which
such Lender or such corporation could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's
or such corporation's policies with respect to capital adequacy) by an
amount reasonably deemed by such Lender to be material, then from time
to time, within fifteen (15) days after demand by such Lender, the
Borrower shall pay to such Lender such additional amount as shall be
certified by such Lender as being required to compensate it for such
reduction. Such a certificate as to any additional amounts payable
under this Section submitted by a Lender (which certificate shall
include a description of the basis for the computation), through the
Administrative Agent, to the Borrower shall be conclusive absent
manifest error.
(c) The agreements in this Section 2.14 shall survive the
termination of this Agreement and payment of the Notes and all other
amounts payable hereunder.
Section 2.15 Indemnity.
The Borrower hereby agrees to indemnify each Lender and to hold such
Lender harmless from any funding loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in payment of the
principal amount of or interest on any Loan by such Lender in accordance with
the terms hereof, (b) default by the Borrower in accepting a borrowing after the
Borrower has given a notice in accordance with the terms hereof, (c) default by
the Borrower in making any prepayment after the Borrower has given a notice in
accordance with the terms hereof, and/or (d) the making by the Borrower of a
prepayment of a Loan, or the conversion thereof, on a day which is not the last
day of the Interest Period with respect thereto, in each case including, but not
limited to, any such loss or expense arising from interest or fees payable by
such Lender to lenders of funds obtained by it in order to maintain its Loans
hereunder. A certificate as to any additional amounts payable pursuant to this
Section submitted by any Lender, through the Administrative Agent, to the
Borrower (which certificate must be delivered to the Administrative Agent within
thirty days following such default, prepayment or conversion) shall be
conclusive in the absence of manifest error. The agreements in this Section
shall survive termination of this Agreement and payment of the Notes and all
other amounts payable hereunder.
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Section 2.16 Taxes.
(a) All payments made by the Borrower hereunder or under any
Note will be, except as provided in Section 2.16(b), made free and
clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any Governmental
Authority or by any political subdivision or taxing authority thereof
or therein with respect to such payments (but excluding any tax imposed
on or measured by the net income or profits of a Lender pursuant to the
laws of the jurisdiction in which it is organized or the jurisdiction
in which the principal office or applicable lending office of such
Lender is located or any subdivision thereof or therein) and all
interest, penalties or similar liabilities with respect thereto (all
such non-excluded taxes, levies, imposts, duties, fees, assessments or
other charges being referred to collectively as "Taxes"). If any Taxes
are so levied or imposed, the Borrower agrees to pay the full amount of
such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this Agreement or under any
Note, after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein or in such Note.
The Borrower will furnish to the Administrative Agent as soon as
practicable after the date the payment of any Taxes is due pursuant to
applicable law certified copies (to the extent reasonably available and
required by law) of tax receipts evidencing such payment by the
Borrower. The Borrower agrees to indemnify and hold harmless each
Lender, and reimburse such Lender upon its written request, for the
amount of any Taxes so levied or imposed and paid by such Lender.
(b) Each Lender that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) agrees to deliver
to the Borrower and the Administrative Agent on or prior to the Closing
Date, or in the case of a Lender that is an assignee or transferee of
an interest under this Agreement pursuant to Section 9.6(d) (unless the
respective Lender was already a Lender hereunder immediately prior to
such assignment or transfer), on the date of such assignment or
transfer to such Lender, (i) if the Lender is a "bank" within the
meaning of Section 881(c)(3)(A) of the Code, two accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001
(or successor forms) certifying such Lender's entitlement to a complete
exemption from United States withholding tax with respect to payments
to be made under this Agreement and under any Note, or (ii) if the
Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of
the Code, either Internal Revenue Service Form 1001 or 4224 as set
forth in clause (i) above, or (x) a certificate substantially in the
form of Schedule 2.16 (any such certificate, a "2.16 Certificate") and
(y) two accurate and complete original signed copies of Internal
Revenue Service Form W-8 (or successor form) certifying such Lender's
entitlement to an exemption from United States withholding tax with
respect to payments of interest to be made under this Agreement and
under any Note. In addition, each Lender agrees that it will deliver
upon the Borrower's request updated versions of the foregoing, as
applicable, whenever the previous certification has become obsolete or
inaccurate in any material respect, together with such other forms as
may be required in order to confirm or establish the entitlement of
such Lender to a continued exemption
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from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note. Notwithstanding anything to
the contrary contained in Section 2.16(a), but subject to the
immediately succeeding sentence, (x) each Borrower shall be entitled,
to the extent it is required to do so by law, to deduct or withhold
Taxes imposed by the United States (or any political subdivision or
taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Lender which is not a
United States person (as such term is defined in Section 7701(a)(30) of
the Code) for U.S. Federal income tax purposes to the extent that such
Lender has not provided to the Borrower U.S. Internal Revenue Service
Forms that establish a complete exemption from such deduction or
withholding and (y) the Borrower shall not be obligated pursuant to
Section 2.16(a) to gross-up payments to be made to a Lender in respect
of Taxes imposed by the United States if (I) such Lender has not
provided to the Borrower the Internal Revenue Service Forms required to
be provided to the Borrower pursuant to this Section 2.16(b) or (II) in
the case of a payment, other than interest, to a Lender described in
clause (ii) above, to the extent that such Forms do not establish a
complete exemption from withholding of such Taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or
elsewhere in this Section 2.16, the Borrower agrees to pay additional
amounts and to indemnify each Lender in the manner set forth in Section
2.16(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in respect of any amounts deducted or
withheld by it as described in the immediately preceding sentence as a
result of any changes after the Closing Date in any applicable law,
treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of
Taxes.
(c) Each Lender agrees to use reasonable efforts (including
reasonable efforts to change its Domestic Lending Office or LIBOR
Lending Office, as the case may be) to avoid or to minimize any amounts
which might otherwise be payable pursuant to this Section; provided,
however, that such efforts shall not cause the imposition on such
Lender of any additional costs or legal or regulatory burdens deemed by
such Lender in its sole discretion to be material.
(d) If the Borrower pays any additional amount pursuant to
this Section 2.16 with respect to a Lender, such Lender shall use
reasonable efforts to obtain a refund of tax or credit against its tax
liabilities on account of such payment; provided that such Lender shall
have no obligation to use such reasonable efforts if either (i) it is
in an excess foreign tax credit position or (ii) it believes in good
faith, in its sole discretion, that claiming a refund or credit would
cause adverse tax consequences to it. In the event that such Lender
receives such a refund or credit, such Lender shall pay to the Borrower
an amount that such Lender reasonably determines is equal to the net
tax benefit obtained by such Lender as a result of such payment by the
Borrower. In the event that no refund or credit is obtained with
respect to the Borrower's payments to such Lender pursuant to this
Section 2.16, then such Lender shall upon request provide a
certification that such Lender has not received a refund or credit for
such payments. Nothing contained in this Section 2.16 shall require a
Lender to disclose or detail the basis of its calculation of the
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amount of any tax benefit or any other amount or the basis of its
determination referred to in the proviso to the first sentence of this
Section 2.16 to the Borrower or any other party.
(e) The agreements in this Section 2.16 shall survive the
termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
Section 2.17 Indemnification; Nature of Issuing Lender's
Duties.
(a) In addition to its other obligations under Section 2.4,
the Borrower hereby agrees to protect, indemnify, pay and save each
Issuing Lender harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that the Issuing Lender may incur or be
subject to as a consequence, direct or indirect, of (i) the issuance of
any Letter of Credit or (ii) the failure of the Issuing Lender to honor
a drawing under a Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de
facto government or governmental authority (all such acts or omissions,
herein called "Government Acts").
(b) As between the Borrower and the Issuing Lender, the
Borrower shall assume all risks of the acts, omissions or misuse of any
Letter of Credit by the beneficiary thereof. The Issuing Lender shall
not be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of any Letter of
Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, that may
prove to be invalid or ineffective for any reason; (iii) for failure of
the beneficiary of a Letter of Credit to comply fully with conditions
required in order to draw upon a Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not
they be in cipher; (v) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under a Letter of Credit
or of the proceeds thereof; and (vii) for any consequences arising from
causes beyond the control of the Issuing Lender, including, without
limitation, any Government Acts. None of the above shall affect,
impair, or prevent the vesting of the Issuing Lender's rights or powers
hereunder.
(c) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted
by the Issuing Lender, under or in connection with any Letter of Credit
or the related certificates, if taken or omitted in good faith, shall
not put such Issuing Lender under any resulting liability to the
Borrower. It is the intention of the parties that this Agreement shall
be construed and applied to protect and indemnify the Issuing Lender
against any and all risks involved in the issuance of the Letters of
Credit, all of which risks are hereby assumed by the Borrower,
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including, without limitation, any and all risks of the acts or
omissions, whether rightful or wrongful, of any Government Authority.
The Issuing Lender shall not, in any way, be liable for any failure by
the Issuing Lender or anyone else to pay any drawing under any Letter
of Credit as a result of any Government Acts or any other cause beyond
the control of the Issuing Lender.
(d) Nothing in this Section 2.17 is intended to limit the
reimbursement obligation of the Borrower contained in Section 2.2(d)
hereof. The obligations of the Borrower under this Section 2.17 shall
survive the termination of this Agreement. No act or omissions of any
current or prior beneficiary of a Letter of Credit shall in any way
affect or impair the rights of the Issuing Lender to enforce any right,
power or benefit under this Agreement.
(e) Notwithstanding anything to the contrary contained in this
Section 2.17, the Borrower shall have no obligation to indemnify any
Issuing Lender in respect of any liability incurred by such Issuing
Lender arising out of the gross negligence or willful misconduct of the
Issuing Lender (including action not taken by an Issuing Lender), as
determined by a court of competent jurisdiction.
Section 2.18 Replacement of Lenders.
If any Lender delivers a notice pursuant to Section 2.13, 2.14 or 2.16
(hereinafter any such Lender shall be referred to as a "Replaced Lender"), then
in such case, the Borrower may, upon at least five (5) Business Days' notice to
the Administrative Agent and such Replaced Lender, designate a replacement
lender (a "Replacement Lender") acceptable to the Administrative Agent in its
reasonable discretion, to which such Replaced Lender shall, subject to its
receipt (unless a later date for the remittance thereof shall be agreed upon by
the Borrower and the Replaced Lender) of all amounts owed to such Replaced
Lender hereunder, assign all (but not less than all) of its rights and
obligations hereunder. Upon any assignment by any Lender pursuant to this
Section 2.18 becoming effective, the Replacement Lender shall thereupon be
deemed to be a "Lender" for all purposes of this Agreement and such Replaced
Lender shall thereupon cease to be a "Lender" for all purposes of this Agreement
and shall have no further rights or obligations hereunder (other than pursuant
to Sections 2.12, 2.13, 2.14 or 9.5 while such Replaced Lender was a Lender).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the
Extensions of Credit herein provided for, the Credit Parties hereby represent
and warrant to the Administrative Agent and to each Lender that:
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Section 3.1 Financial Condition.
The balance sheets and the related statements of income and of cash
flows of the Parent for fiscal year 1997 and fiscal year 1998 audited by
PricewaterhouseCoopers L.L.P. are complete and correct and present fairly the
financial condition of the Parent and its Subsidiaries as of such dates.
Additionally, the company-prepared pro forma balance sheets and the six-year
projections have been prepared in good faith based upon reasonable assumptions.
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as disclosed therein).
Section 3.2 No Change.
Since December 31, 1998 (and after delivery of annual audited financial
statements in accordance Section 5.1(a), from the date of the most recently
delivered annual audited financial statements) there has been no development or
event which has had or could reasonably be expected to have a Material Adverse
Effect.
Section 3.3 Corporate Existence; Compliance with Law.
Each of the Credit Parties (a) is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization, (b) has
the requisite power and authority and the legal right to own and operate all its
material property, to lease the material property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified to
conduct business and in good standing under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of its business
requires such qualification except to the extent that the failure to so qualify
or be in good standing could not, in the aggregate, reasonably be expected to
have a Material Adverse Effect and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Section 3.4 Corporate Power; Authorization; Enforceable
Obligations; No Consents.
Each of the Borrower and the other Credit Parties has full power and
authority and the legal right to make, deliver and perform the Credit Documents
to which it is party and has taken all necessary limited liability company or
corporate action to authorize the execution, delivery and performance by it of
the Credit Documents to which it is party. No consent or authorization of,
filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the borrowings
hereunder or with the execution, delivery or performance of any Credit Document
by the Borrower or the other Credit Parties (other than those which have been
obtained) or with the validity or enforceability of any Credit Document against
the Borrower or the other Credit Parties (except such filings as are necessary
in connection with the perfection of the Liens created by such Credit
Documents). Each Credit Document to which it is a party
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has been duly executed and delivered on behalf of the Borrower or the other
Credit Parties, as the case may be. Each Credit Document to which it is a party
constitutes a legal, valid and binding obligation of the Borrower or the other
Credit Parties, as the case may be, enforceable against the Borrower or such
other Credit Party, as the case may be, in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
Section 3.5 No Legal Bar; No Default.
The execution, delivery and performance of the Credit Documents, the
borrowings thereunder and the use of the proceeds of the Loans will not violate
any Requirement of Law, any organizational document or any Contractual
Obligation of any Credit Party (except those as to which waivers or consents
have been obtained), and will not result in, or require, the creation or
imposition of any Lien on any of its or their respective properties or revenues
pursuant to any Requirement of Law or Contractual Obligation other than the
Liens arising under or contemplated in connection with the Credit Documents.
Neither the Borrower, nor any Credit Party is in default under or with respect
to any of its Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.
Section 3.6 No Material Litigation.
Except as set forth in Schedule 3.6, no litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the best knowledge of the Borrower, threatened by or against the Borrower or
any other Credit Party or against any of its or their respective properties or
revenues (a) with respect to the Credit Documents or any Loan or any of the
transactions contemplated hereby, or (b) which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect.
Section 3.7 Investment Company Act.
Neither the Borrower nor any Credit Party is an "investment company",
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
Section 3.8 Margin Regulations.
No part of the proceeds of any Loan hereunder will be used directly or
indirectly for any purpose which violates, or which would be inconsistent with,
the provisions of Regulation T, U or X of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect. The Credit
Parties taken as a group do not own "margin stock" except as identified in the
financial statements referred to in Section 3.1 and the aggregate value of all
"margin stock" owned by the Credit Parties taken as a group does not exceed 25%
of the value of their assets.
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Section 3.9 ERISA.
Except as set forth in Schedule 3.9, neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of Section 412 of the Code
or Section 302 of ERISA) has occurred during the five-year period prior to the
date on which this representation is made or deemed made with respect to any
Plan, and each Plan has complied in all material respects with the applicable
provisions of ERISA and the Code, except to the extent that any such occurrence
or failure to comply would not reasonably be expected to have a Material Adverse
Effect. No termination of a Single Employer Plan has occurred resulting in any
liability that has remained underfunded, and no Lien in favor of the PBGC or a
Plan has arisen, during such five-year period which could reasonably be expected
to have a Material Adverse Effect. The present value of all accrued benefits
under each Single Employer Plan (based on those assumptions used to fund such
Plans) did not, as of the last annual valuation date prior to the date on which
this representation is made or deemed made, exceed the value of the assets of
such Plan allocable to such accrued benefits by an amount which, as determined
in accordance with GAAP, could reasonably be expected to have a Material Adverse
Effect. Neither the Borrower nor any Commonly Controlled Entity is currently
subject to any liability for a complete or partial withdrawal from a
Multiemployer Plan which could reasonably be expected to have a Material Adverse
Effect.
Section 3.10 Environmental Matters.
Except as set forth on Schedule 3.10 which, in the aggregate, could not
be reasonably expected to have a Material Adverse Effect:
(a) The facilities and properties owned, leased or operated by
the Credit Parties (the "Properties") do not contain any Materials of
Environmental Concern in amounts or concentrations which (i) constitute
a violation of, or (ii) could give rise to liability under, any
Environmental Law.
(b) The Properties and all operations of the Borrower and the
other Credit Parties at the Properties are in compliance, and have in
the last five years been in compliance, in all material respects with
all applicable Environmental Laws, and there is no contamination at,
under or about the Properties or violation of any Environmental Law
with respect to the Properties or the business operated by the Borrower
and the other Credit Parties (the "Business").
(c) Neither the Borrower nor any other Credit Party has
received any written or actual notice of violation, alleged violation,
non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard
to any of the Properties or the Business, nor does the Borrower nor any
other Credit Party have knowledge or reason to believe that any such
notice will be received or is being threatened.
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(d) Materials of Environmental Concern have not been
transported or disposed of from the Properties in violation of, or in a
manner or to a location which could give rise to liability under any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the
Properties in violation of, or in a manner that could give rise to
liability under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower, or any other Credit
Party, is or will be named as a party with respect to the Properties or
the Business, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any
Environmental Law with respect to the Properties or the Business.
(f) There has been no release or threat of release of
Materials of Environmental Concern at or from the Properties, or
arising from or related to the operations of the Borrower, or any other
Credit Party, in connection with the Properties or otherwise in
connection with the Business, in violation of or in amounts or in a
manner that could give rise to liability under Environmental Laws.
Section 3.11 Use of Proceeds.
The proceeds of the Loans hereunder shall be used solely by the
Borrower to (i) provide for working capital, capital expenditures and other
general corporate purposes and (ii) finance acquisitions as permitted by the
terms hereof. The Letters of Credit shall be used only as referred to in Section
2.2 and for or in connection with appeal bonds, reimbursement obligations
arising in connection with surety and reclamation bonds, reinsurance, domestic
or international trade transactions and obligations not otherwise aforementioned
relating to transactions entered into by the applicable account party in the
ordinary course of business.
Section 3.12 Subsidiaries.
Set forth on Schedule 3.12 is a complete and accurate list of all
Subsidiaries of the Credit Parties. Information on the attached Schedule
includes state of incorporation; the number of shares of each class of Capital
Stock or other equity interests outstanding; the number and percentage of
outstanding shares of each class of stock; and the number and effect, if
exercised, of all outstanding options, warrants, rights of conversion or
purchase and similar rights. The outstanding Capital Stock and other equity
interests of all such Subsidiaries are validly issued, fully paid and
non-assessable and are owned, free and clear of all Liens (other than those
arising under or contemplated in connection with the Credit Documents).
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Section 3.13 Ownership.
Each of the Credit Parties is the owner of, and has sufficient and
legal title to, all of its respective assets, except as may be permitted
pursuant to Section 6.13 hereof, and none of such assets is subject to any Lien
other than Permitted Liens.
Section 3.14 Indebtedness.
Except as otherwise permitted under Section 6.1, the Credit Parties
have no Indebtedness.
Section 3.15 Taxes.
Each of the Credit Parties has filed, or caused to be filed, all tax
returns (federal, state, local and foreign) required to be filed and paid (a)
all amounts of taxes shown thereon to be due (including interest and penalties)
and (b) all other taxes, fees, assessments and other governmental charges
(including mortgage recording taxes, documentary stamp taxes and intangibles
taxes) owing by it, except for such taxes (i) which are not yet delinquent or
(ii) that are being contested in good faith and by proper proceedings, and
against which adequate reserves are being maintained in accordance with GAAP.
Neither the Borrower, nor any other Credit Party is aware as of the Closing Date
of any proposed tax assessments against it or any of its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect.
Section 3.16 Intellectual Property.
Each of the Credit Parties owns, or has the legal right to use, all
trademarks, tradenames, copyrights, technology, know-how and processes
("Intellectual Property") necessary for each of them to conduct its business as
currently conducted. Set forth on Schedule 3.16 is a list of all registered
Intellectual Property and all other material unregistered Intellectual Property
owned by each of the Credit Parties or that any Credit Party has the right to
use pursuant to a written license. Except as provided on Schedule 3.16, no claim
has been asserted and is pending by any Person challenging or questioning the
use of any such Intellectual Property or the validity or effectiveness of any
such Intellectual Property, nor does any Credit Party know of any such claim,
and, to the knowledge of the Credit Parties, the use of such Intellectual
Property by such Credit Party does not infringe on the rights of any Person,
except for such claims and infringements that in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. Schedule 3.16 may be
updated from time to time by the Borrower to include new Intellectual Property
by giving written notice thereof to the Administrative Agent.
Section 3.17 Solvency.
After giving effect to its rights and obligations hereunder (including
rights of contribution), the fair saleable value of each Credit Party's assets,
measured on a going concern basis, exceeds all probable liabilities, including
those to be incurred pursuant to this Agreement. None of the Credit Parties (a)
has unreasonably small capital in relation to the business in which it is or
proposes to be engaged or (b) has incurred, or believes that it will incur after
giving effect
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to the transactions contemplated by this Agreement, debts beyond its ability to
pay such debts as they become due.
Section 3.18 Investments.
All Investments of each of the Credit Parties are Permitted
Investments.
Section 3.19 Security Documents.
The Security Documents create valid security interests in, and Liens
on, the Collateral purported to be covered thereby, which security interests and
Liens are currently (or will be, upon the filing of appropriate financing
statements in favor of First Union, as Collateral Agent for the Lenders)
perfected security interests and Liens, prior to all other Liens other than
Permitted Liens.
Section 3.20 Location of Collateral.
Set forth on Schedule 3.20(a) is a list of the Properties of the Credit
Parties with street address, county and state where located. Set forth on
Schedule 3.20(b) is a list of all locations where any tangible personal property
of the Credit Parties is located, including county and state where located. Set
forth on Schedule 3.20(c) is the chief executive office and principal place of
business of each of the Credit Parties. Schedules 3.20(a), 3.20(b) and 3.20(c)
may be updated from time to time by the Borrower to include new properties or
locations by giving written notice thereof to the Administrative Agent.
Section 3.21 No Burdensome Restrictions.
Neither the Borrower nor any other Credit Party is a party to any
agreement or instrument or subject to any other obligation or any charter or
corporate restriction or any provision of any applicable law, rule or regulation
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
Section 3.22 Brokers' Fees.
Neither the Borrower nor any other Credit Party has any obligation to
any Person in respect of any finder's, broker's, investment banking or other
similar fee in connection with any of the transactions contemplated under the
Credit Documents other than the closing and other fees payable pursuant to this
Agreement.
Section 3.23 Labor Matters.
There are no collective bargaining agreements or Multiemployer Plans
covering the employees of the Borrower or any other Credit Party as of the
Closing Date, other than as set forth in Schedule 3.23 hereto, and neither the
Borrower nor any other Credit Party (i) has suffered any strikes, walkouts, work
stoppages or other material labor difficulty within the last
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five years, other than as set forth in Schedule 3.23 hereto or (ii) has
knowledge of any potential or pending strike, walkout or work stoppage.
Section 3.24 Accuracy and Completeness of Information.
All written information furnished by the Borrower or any other Credit
Party to the Administrative Agent or any Lender for purposes of or in connection
with this Agreement or any other Credit Document, or any transaction
contemplated hereby or thereby, is or will be true and accurate in all material
respects and not incomplete by omitting to state any material fact necessary to
make such information not misleading. There is no fact now known to any Credit
Party which has, or could reasonably be expected to have, a Material Adverse
Effect which fact has not been set forth herein, in the financial statements of
the Credit Parties furnished to the Administrative Agent and/or the Lenders, or
in any certificate, opinion or other written statement made or furnished by the
Borrower to the Administrative Agent and/or the Lenders.
Section 3.25 Year 2000 Issue.
Any reprogramming and related testing required to permit the
proper functioning of the computer systems of the Borrower and any
other Credit Party (excluding the Serta, Inc. EDI systems which the
Borrower believes will be Year 2000 Compliant (as defined below) on or
before September 1, 1999) in and following the year 2000 will be
completed in all material respects prior to September 1, 1999 (that is,
the Borrower and the other Credit Parties will be "Year 2000
Compliant"), and the cost to the Borrower and its Subsidiaries of such
reprogramming and testing will not result in a Default or Event of
Default or a Material Adverse Effect. Except for such reprogramming
referred to in the preceding sentence as may be necessary, the computer
and management information systems of the Borrower are and, with
ordinary course upgrading and maintenance, will continue for the term
of this Agreement to be, adequate for the conduct of its business as
permitted hereunder.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Conditions to Closing Date and Initial Loans.
This Agreement shall become effective upon, and the obligation of each
Lender to make the initial Loans on the Closing Date is subject to, the
satisfaction of the following conditions precedent:
(a) Execution of Agreement. The Administrative Agent shall
have received (i) counterparts of this Agreement, executed by a duly
authorized officer of each party hereto, (ii) Notes for the account of
each Lender, (iii) counterparts of the Security Agreement and the
Pledge Agreement, in each case conforming to the requirements of
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this Agreement and executed by duly authorized officers of the Credit
Parties, and (iv) all other Credit Documents, each in form and
substance reasonably acceptable to the Administrative Agent and the
Arranger in their reasonable discretion.
(b) Authority Documents. The Administrative Agent shall have
received the following:
(i) Organizational Documents. Copies of the limited
liability company operating agreement, articles of
incorporation or other organizational documents, as
applicable, of each Credit Party certified to be true and
complete as of a recent date by the appropriate governmental
authority of the state of its organization.
(ii) Resolutions. Copies of resolutions of the
managing member (or, if required, of all members) or board of
directors or advisors of each Credit Party approving and
adopting the Credit Documents, the transactions contemplated
therein and authorizing execution and delivery thereof,
certified by an officer of such Credit Party as of the Closing
Date to be true and correct and in force and effect as of such
date.
(iii) Bylaws. A copy of the bylaws of each Credit
Party, if applicable, certified by an officer of such Credit
Party as of the Closing Date to be true and correct and in
force and effect as of such date.
(iv) Good Standing. Copies of (i) certificates of
good standing, existence or its equivalent with respect to the
each Credit Party certified as of a recent date by the
appropriate governmental authorities of the state of
incorporation and each other state in which the failure to so
qualify and be in good standing could reasonably be expected
to have a Material Adverse Effect on the business or
operations of the Credit Parties in such state and (ii) a
certificate indicating payment of all corporate franchise
taxes certified as of a recent date by the appropriate
governmental taxing authorities.
(v) Incumbency. An incumbency certificate of each
Credit Party certified by a secretary or assistant secretary
to be true and correct as of the Closing Date.
(c) Legal Opinions of Counsel. The Administrative Agent shall
have received an opinion of (i) Kirkland & Ellis, counsel for the
Credit Parties, (ii) Shanley & Fisher, New Jersey counsel to the Credit
Parties, (iii) Salvo, Russell & Fichter, Pennsylvania counsel to the
Credit Parties and (iv) Greenberg, Traurig, Florida counsel to the
Credit Parties, each of the foregoing to be dated as of the Closing
Date and addressed to the Administrative Agent and the Lenders, in form
and substance acceptable to the Administrative Agent.
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(d) Personal Property Collateral. The Administrative Agent
shall have received, in form and substance satisfactory to the
Administrative Agent:
(i) searches of Uniform Commercial Code ("UCC")
filings in the jurisdiction of the chief executive office of
each Credit Party and each jurisdiction where any Collateral
is located or where a filing would need to be made in order to
perfect the Administrative Agent's security interest in the
Collateral, copies of the financing statements on file in such
jurisdictions and evidence that no Liens exist other than
Permitted Liens;
(ii) duly executed UCC financing statements for each
appropriate jurisdiction as is necessary, in the
Administrative Agent's sole discretion, to perfect the
Administrative Agent's security interest in the Collateral;
(iii) duly executed consents as are necessary, in the
Administrative Agent's sole discretion, to perfect the
Lenders' security interest in the Collateral; and
(iv) in the case of any personal property Collateral
located at premises leased by a Credit Party, such estoppel
letters, consents and waivers from the landlords on such real
property as may be required by the Administrative Agent.
(e) Real Property Collateral. The Agent shall have received,
in form and substance satisfactory to the Agent:
(i) fully executed and notarized mortgages, deeds of
trust or deeds to secure debt (each, as the same may be
amended, modified, restated or supplemented from time to time,
a "Mortgage Instrument" and collectively the "Mortgage
Instruments") encumbering the fee interest in the properties
listed in Schedule 3.20(a) as properties owned by the Credit
Parties (each a "Mortgaged Property" and collectively the
"Mortgaged Properties");
(ii) a title report obtained by the Credit Parties in
respect of each of the Mortgaged Properties;
(iii) With respect to each Mortgaged Property, an
ALTA mortgagee title insurance policies issued by Chicago
Title Insurance Company (the "Mortgage Policies"), in amounts
not less than the respective amounts designated in Schedule
3.20(a) with respect to any particular Mortgaged Property,
assuring the Agent that each of the Mortgage Instruments
creates a valid and enforceable first priority mortgage lien
on the applicable Mortgaged Property, free and clear of all
defects and encumbrances except Permitted Liens, which
Mortgage Policies shall be in form and substance reasonably
satisfactory to the Agent and shall provide for affirmative
insurance and such reinsurance as the Agent may
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reasonably request, all of the foregoing in form and substance
reasonably satisfactory to the Agent;
(iv) evidence as to (A) whether any Mortgaged
Property is in an area designated by the Federal Emergency
Management Agency as having special flood or mud slide hazards
(a "Flood Hazard Property") and (B) if any Mortgaged Property
is a Flood Hazard Property, (1) whether the community in which
such Mortgaged Property is located is participating in the
National Flood Insurance Program, (2) the applicable Credit
Party's written acknowledgment of receipt of written
notification from the Agent (a) as to the fact that such
Mortgaged Property is a Flood Hazard Property and (b) as to
whether the community in which each such Flood Hazard Property
is located is participating in the National Flood Insurance
Program and (3) copies of insurance policies or certificates
of insurance of the Borrowers and their Subsidiaries
evidencing flood insurance reasonably satisfactory to the
Agent and naming the Agent as sole loss payee on behalf of the
Lenders; and
(v) maps or plats of an as-built survey of the sites
of the Mortgaged Properties certified to the Agent and the
Title Insurance Company in a manner reasonably satisfactory to
them, dated a date satisfactory to each of the Agent and the
Title Insurance Company by an independent professional
licensed land surveyor reasonably satisfactory to each of the
Agent and the Title Insurance Company, which maps or plats and
the surveys on which they are based shall be sufficient to
delete any standard printed survey exception contained in the
applicable title policy and be made in accordance with the
Minimum Standard Detail Requirements for Land Title Surveys
jointly established and adopted by the American Land Title
Association and the American Congress on Surveying and Mapping
in 1992, and, without limiting the generality of the
foregoing, there shall be surveyed and shown on such maps,
plats or surveys the following: (A) the locations on such
sites of all the buildings, structures and other improvements
and the established building setback lines; (B) the lines of
streets abutting the sites and width thereof; (C) all access
and other easements appurtenant to the sites necessary to use
the sites; (D) all roadways, paths, driveways, easements,
encroachments and overhanging projections and similar
encumbrances affecting the site, whether recorded, apparent
from a physical inspection of the sites or otherwise known to
the surveyor; (E) any encroachments on any adjoining property
by the building structures and improvements on the sites; and
(F) if the site is described as being on a filed map, a legend
relating the survey to said map;
(f) Liability and Casualty Insurance. The Administrative Agent
shall have received copies of insurance policies or certificates of
insurance evidencing liability and casualty insurance meeting the
requirements set forth herein or in the Security Documents. The
Administrative Agent shall be named as loss payee and additional
insured on all such insurance policies for the benefit of the Lenders.
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(g) Fees. The Administrative Agent shall have received all
fees, if any, owing pursuant to the Fee Letter and Section 2.3.
(h) Litigation. There shall not exist any pending litigation,
investigation, injunction, order or claim affecting or relating to the
Borrower, any other Credit Party, this Agreement or the other Credit
Documents that in the reasonable judgment of the Administrative Agent
could materially adversely affect on such Person, this Agreement or the
other Credit Documents, that has not been settled, dismissed, vacated,
discharged or terminated prior to the Closing Date.
(i) Solvency Evidence. The Administrative Agent shall have
received an officer's certificate for each Credit Party prepared by the
chief financial officer of each such Credit Party as to the financial
condition, solvency and related matters of each such Credit Party, in
each case after giving effect to the initial borrowings under the
Credit Documents, in substantially the form of Schedule 4.1(i) hereto.
(j) Account Designation Letter. The Administrative Agent shall
have received the executed Account Designation Letter in the form of
Schedule 1.1(a) hereto.
(k) Ownership Structure. The capital and ownership structure
of the Credit Parties (after giving effect to the transactions
contemplated hereby) shall be as described in Schedule 3.12. The
Administrative Agent shall be satisfied with management structure,
legal structure, voting control, liquidity, total leverage and total
capitalization of the Borrower as of the Closing Date.
(l) Senior Notes. The Borrower shall have received gross
proceeds in an amount not less than $115,000,000 from the issuance of
the Senior Notes on the terms and conditions reasonably satisfactory to
the Administrative Agent.
(m) Consents. The Administrative Agent shall have received
evidence that all governmental, shareholder and material third party
consents and approvals necessary in connection with the financings and
other transactions contemplated hereby have been obtained and all
applicable waiting periods have expired without any action being taken
by any authority or third party that could restrain, prevent or impose
any material adverse conditions on such transactions or that could seek
or threaten any of the foregoing.
(n) Compliance with Laws. The financings and other
transactions contemplated hereby shall be in compliance with all
applicable laws and regulations (including all applicable securities
and banking laws, rules and regulations).
(o) Bankruptcy. There shall be no bankruptcy or insolvency
proceedings with respect to any Credit Party or any of its
Subsidiaries.
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(p) Material Adverse Effect. No material adverse change shall
have occurred since December 31, 1998 in the business, properties,
operations, conditions (financial or otherwise) or prospects of the
Credit Parties taken as a whole.
(q) Minimum Consolidated EBITDA. The Administrative Agent
shall have reviewed satisfactory evidence that (i) the Consolidated
EBITDA of the Borrower and its Subsidiaries together with Permitted
Adjustments for the twelve month period ended December 31, 1998 was not
less than $21,600,000 and (ii) the Consolidated EBITDA of the Star
Bedding Products (1986) Limited and its Subsidiaries for the twelve
month period ended December 31, 1998 was not less than $2,500,000.
(r) Financial Statements. The Administrative Agent shall have
received copies of all of the financial statements referred to in
Section 3.1, each in form and substance satisfactory to it.
(s) Due Diligence. The Administrative Agent and the Arranger
shall have completed, in form and scope satisfactory thereto, their due
diligence on the Credit Parties.
(t) Environmental Reports. The Administrative Agent shall have
received satisfactory environmental reviews of all real property owned
by the Credit Parties.
(u) Termination of Existing Indebtedness. All existing
Indebtedness for borrowed money of the Credit Parties (other than the
Indebtedness listed on Schedule 6.1(b)) shall have been repaid in full
and all Liens relating thereto terminated.
(v) Officer's Certificates. The Administrative Agent shall
have received a certificate or certificates executed by a responsible
officer of the Borrower as of the Closing Date stating that (i) no
action, suit, investigation or proceeding is pending or, to the
knowledge of any Credit Party, threatened in any court or before any
arbitrator or governmental instrumentality that purports to affect any
Credit Party or any transaction contemplated by the Credit Documents,
if such action, suit, investigation or proceeding could reasonably be
expected to have a Material Adverse Effect and (ii) immediately after
giving effect to this Credit Agreement, the other Credit Documents and
all the transactions contemplated therein to occur on such date, (A) no
Default or Event of Default exists, (B) all representations and
warranties contained herein and in the other Credit Documents are true
and correct in all material respects, and (C) the Credit Parties are in
compliance with each of the financial covenants set forth in Section
5.9.
(w) Acquisition. The Acquisition shall have been consummated
in accordance with the terms of the documentation related thereto. .
(x) Financial Covenant Compliance Certificate. The
Administrative Agent shall have received a certificate in substantially
the form of Schedule 4.1(x) executed by a
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responsible officer of the Borrower as of the Closing Date
demonstrating compliance with the financial covenants set forth in
Section 5.9.
(y) Additional Matters. All other documents and legal matters
in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in form and substance to the
Administrative Agent and its counsel.
Section 4.2 Conditions to All Extensions of Credit.
The obligation of each Lender to make any Extension of Credit hereunder
is subject to the satisfaction of the following conditions precedent on the date
of making such Extension of Credit:
(a) Representations and Warranties. The representations and
warranties made by the Credit Parties herein, in the Security Documents
or which are contained in any certificate furnished at any time under
or in connection herewith and taking into account any amendments to the
Schedules or Exhibits hereto, except as such relate explicitly to an
earlier date, shall be true and correct in all material respects on and
as of the date of such Extension of Credit as if made on and as of such
date.
(b) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on such date or after
giving effect to the Extension of Credit to be made on such date unless
such Default or Event of Default shall have been waived in accordance
with this Agreement.
(c) Compliance with Commitments. Immediately after giving
effect to the making of any such Extension of Credit (and the
application of the proceeds thereof), (i) the sum of the aggregate
principal amount of outstanding Loans plus outstanding LOC Obligations
shall not exceed the Revolving Committed Amount and (ii) the
outstanding LOC Obligations shall not exceed the LOC Committed Amount.
(d) Additional Conditions to Loans. If such Loan is made
pursuant to Section 2.1, all conditions set forth in such Section shall
have been satisfied.
(e) Additional Conditions to Letters of Credit. If such
Extension of Credit is made pursuant to Section 2.2, all conditions set
fort in such Section shall have been satisfied.
Each request for an Extension of Credit and each acceptance by the
Borrower of any such Extension of Credit shall be deemed to constitute a
representation and warranty by the Borrower as of the date of such Extension of
Credit that the applicable conditions in paragraphs (a) through (f) of this
Section have been satisfied.
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ARTICLE V
AFFIRMATIVE COVENANTS
The Credit Parties hereby covenant and agree that on the Closing Date,
and thereafter for so long as this Agreement is in effect and until the
Commitments have terminated, no Note remains outstanding and unpaid and the
Credit Party Obligations, together with interest, Commitment Fees and all other
amounts then due and owing to the Administrative Agent or any Lender hereunder,
are paid in full, the Credit Parties shall, and shall cause each of their
Subsidiaries (other than in the case of Sections 5.1, 5.2 or 5.7 hereof), to:
Section 5.1 Financial Statements.
Furnish to the Administrative Agent and each of the Lenders:
(a) Annual Financial Statements. As soon as available, but in
any event within ninety (90) days after the end of each fiscal year of
the Parent, a copy of the consolidated and consolidating balance sheet
of the Parent and its consolidated Subsidiaries and for the Borrower
and its consolidated Subsidiaries as at the end of such fiscal year and
the related consolidated and consolidating statements of income and
retained earnings and of cash flows of the Parent and its consolidated
Subsidiaries and for the Borrower and its consolidated Subsidiaries for
such year, audited by a firm of independent certified public
accountants of nationally recognized standing reasonably acceptable to
the Required Lenders, setting forth in each case in comparative form
the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification
indicating that the scope of the audit was inadequate to permit such
independent certified public accountants to certify such financial
statements without such qualification;
(b) Quarterly Financial Statements. As soon as available and
in any event within forty-five (45) days after the end of each of the
fiscal quarters of the Parent, a company-prepared consolidated balance
sheet and a company-prepared consolidating balance sheet of the Parent
and its consolidated Subsidiaries and of the Borrower and its
consolidated Subsidiaries as at the end of such period and related
company-prepared statements of income and retained earnings and of cash
flows for the Parent and its consolidated subsidiaries and for the
Borrower and its consolidated Subsidiaries for such quarterly period
and for the portion of the fiscal year ending with such period, in each
case setting forth in comparative form consolidated and consolidating
figures for the corresponding period or periods of the preceding fiscal
year (subject to normal recurring year-end audit adjustments); and
(c) Monthly Financial Statements. As soon as available and in
any event within thirty (30) days after the end of each month (other
than at the end of a fiscal quarter, in which case 45 days after the
end thereof), a company-prepared consolidated balance sheet of the
Parent and its consolidated Subsidiaries and for the Borrower and its
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consolidated Subsidiaries as at the end of such period and related
company-prepared statements of income and retained earnings and of cash
flows for the Parent and its consolidated Subsidiaries and for the
Borrower and its consolidated Subsidiaries for such monthly period and
for the portion of the fiscal year ending with such period, in each
case setting forth in comparative form consolidated and consolidating
figures for the corresponding period or periods of the preceding fiscal
year (subject to normal recurring year-end audit adjustments and the
absence of footnotes);
(d) Annual Budget Plan. As soon as available, but in any event
within thirty (30) days after the end of each fiscal year, a copy of
the detailed annual budget or plan of the Borrower for the next fiscal
year on a month-by-month basis, in form and detail reasonably
acceptable to the Administrative Agent and the Required Lenders,
together with a summary of the material assumptions made in the
preparation of such annual budget or plan;
all such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal recurring
year-end audit adjustments and, with respect to the monthly financial
statements, the absence of footnotes) and to be prepared in reasonable detail
and, in the case of the annual and quarterly financial statements provided in
accordance with subsections (a) and (b) above, in accordance with GAAP applied
consistently throughout the periods reflected therein and further accompanied by
a description of, and an estimation of the effect on the financial statements on
account of, a change, if any, in the application of accounting principles as
provided in Section 1.3.
Section 5.2 Certificates; Other Information.
Furnish to the Administrative Agent:
(a) concurrently with the delivery of the financial statements
referred to in Section 5.1(a) above, a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate;
(b) concurrently with the delivery of the financial statements
referred to in Sections 5.1(a), 5.1(b) and 5.1(c) above, a certificate
of a Responsible Officer stating that, to the best of such Responsible
Officer's knowledge, each of the Credit Parties during such period
observed or performed in all material respects all of its covenants and
other agreements, and satisfied in all material respects every
condition, contained in this Agreement to be observed, performed or
satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified in
such certificate and such certificate shall include the calculations in
reasonable detail required to indicate compliance with Section 5.9 as
of the last day of such period;
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(c) promptly after the same are sent, copies of all reports
(other than those otherwise provided pursuant to Section 5.1 and those
which are of a promotional nature) and other financial information
which the Borrower sends to its members, and within thirty days after
the same are filed, copies of all financial statements and
non-confidential reports which the Borrower may make to, or file with
the Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(d) within ninety (90) days after the end of each fiscal year
of the Borrower, a certificate containing information regarding the
amount of all Asset Dispositions, Debt Issuances, and Equity Issuances
that were made during the prior fiscal year and amounts received in
connection with any Recovery Event during the prior fiscal year;
(e) promptly upon receipt thereof, a copy of any other report
or "management letter" submitted by independent accountants to the
Borrower or any other Credit Party in connection with any annual,
interim or special audit of the books of such Person;
(f) within ninety (90) days after the end of each fiscal year
of the Borrower a certificate signed by the chief financial officer of
each Borrower that summarizes the insurance policies, including,
without limitation, key-man life insurance, if requested by the
Administrative Agent, carried by the Borrower and each Subsidiary of
the Borrower (such certificate to be in form and substance reasonably
satisfactory to Administrative Agent), and written notification 30 days
prior to any cancellation or material change of any such insurance by
the Borrower or any Subsidiary, as the case may be, within 10 days
after receipt of any notice (whether formal or informal) of
cancellation, reduction in coverage, shortening of policy period or
material adverse change by any of such Person's insurers;
(g) within ten (10) Business Days after each anniversary of
the Closing Date, a complete list of the officers and directors (or
members of the board of advisors or other similar governing body) of
the Borrower, and within fifteen (15) Business Days after any change in
the information provided pursuant to the foregoing clause, written
notice of such change;
(h) within thirty (30) days after the filing thereof, copies
of all income tax returns filed by the Parent with any Federal or state
taxing authority and within thirty (30) days after receipt thereof by
the Borrower, evidence of payment of property taxes by the Borrower;
and
(i) promptly, such additional financial and other information
regarding the business, properties, prospects or financial condition of
the Borrower as the Administrative Agent, on behalf of any Lender, may
from time to time reasonably request.
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Section 5.3 Payment of Obligations.
Pay, discharge or otherwise satisfy at or before maturity or
before they become delinquent, as the case may be, in accordance with
industry and historical company practice (subject, where applicable, to
specified grace periods) all its material obligations (including,
without limitation, all taxes) of whatever nature and any additional
costs that are imposed as a result of any failure to so pay, discharge
or otherwise satisfy such obligations, except when the amount or
validity of such obligations and costs is currently being contested in
good faith by appropriate proceedings and reserves, if applicable, in
conformity with GAAP with respect thereto have been provided on the
books of the Borrower or any other Credit Party, as the case may be.
Section 5.4 Conduct of Business and Maintenance of Existence.
Continue to engage in business of the same general type as now
conducted by it on the Closing Date and preserve, renew and keep in
full force and effect its existence as a corporation or limited
liability company, as applicable, and take all reasonable action to
maintain all rights, privileges and franchises material to its
business; comply with all Contractual Obligations and Requirements of
Law applicable to it except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Section 5.5 Maintenance of Property; Insurance.
(a) Maintain all material property in good working order and
condition (ordinary wear and tear and obsolescence excepted) and in
accordance with past practices;
(b) (i) Maintain such insurance as may be required by law, by
the Security Documents or otherwise by the Required Lenders, all to
such extent and against such hazards and liabilities, as is maintained
by such Person on the Closing Date, (ii) maintain a sufficient amount
of insurance so that no Credit Party and no Subsidiary of any Credit
Party nor the Administrative Agent or any Lender will be considered a
co-insurer or co-insurers, (iii) with respect to each liability
insurance policy, (A) cause such policy to provide, pursuant to
endorsements in form and substance reasonably satisfactory to the
Administrative Agent, that the Administrative Agent and "Lenders" are
identified as additional insureds and (B) notify the Administrative
Agent within 5 days after obtaining any new policy, or increasing
coverage under any existing policy, describing in detail in such notice
any such new policy or increase, and (iv) with respect to each physical
damage or casualty policy and each life insurance policy, (A) cause
such policy to provide, pursuant to endorsements in form and substance
reasonably satisfactory to the Administrative Agent, that
Administrative Agent is named as a loss payee as to personal property
and a mortgagee as to real property, (B) cause such policy to provide,
pursuant to endorsements in form and substance satisfactory to the
Administrative Agent, that the insurance shall not be invalidated as
against the Administrative Agent or any Lender by
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any action or inaction of such Person other than the Administrative
Agent or such Lender, regardless of any breach or violation of any
warranty, declaration or condition contained in such policy, (C) as
against the Administrative Agent and Lenders, the insurers shall waive
any rights of subrogation to the extent that the named insured has
waived such rights (and each Credit Party hereby irrevocably and
unconditionally waives any right of subrogation against the
Administrative Agent and Lenders, except for claims arising out of the
gross negligence or willful misconduct of the Administrative Agent or
Lenders), and (D) notify the Administrative Agent within 5 days of
obtaining any new policy or increasing coverage under any existing
policy, describing in detail in such notice any such new policy or
increase. The present insurance coverage of the Credit Parties is
outlined as to carrier, policy number, expiration date, type and amount
on Schedule 5.5(b); and
(c) In case of any material loss, damage to or destruction of
the Collateral of any Credit Party or any part thereof, such Credit
Party shall promptly give written notice thereof to the Administrative
Agent generally describing the nature and extent of such damage or
destruction. In case of any loss, damage to or destruction of the
Collateral of any Credit Party or any part thereof, such Credit Party,
whether or not the insurance proceeds, if any, received on account of
such damage or destruction shall be sufficient for that purpose, at
such Credit Party's cost and expense, will promptly repair or replace
the Collateral (or similar assets or property in replacement thereof)
of such Credit Party so lost, damaged or destroyed.
Section 5.6 Inspection of Property; Books and Records;
Discussions.
Keep proper books of records and account containing entries correct in
all material respects and in conformity with GAAP and all material Requirements
of Law concerning all dealings and transactions in relation to its businesses
and activities, and permit, during regular business hours and upon reasonable
notice by the Administrative Agent or any Lender, the Administrative Agent or
any Lender to visit and inspect any of its properties and examine and make
abstracts from any of its books and records (other than materials protected by
the attorney-client privilege and materials which the Borrower may not disclose
without violation of a confidentiality obligation binding upon it) at any
reasonable time and as often as may reasonably be desired, and to discuss the
business, operations, properties and financial and other condition of the Credit
Parties with officers and employees of the Credit Parties and with its
independent certified public accountants; provided, however, that so long as no
Default or Event of Default shall have occurred or be continuing, there shall be
not more than one visit to or inspection of the properties of the Credit Parties
per fiscal quarter of the Borrower.
Section 5.7 Notices.
Give notice in writing to the Administrative Agent (which shall
promptly transmit such notice to each Lender) of:
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(a) promptly, but in any event within two (2) Business Days
after the Borrower knows or has reason to know thereof, the occurrence
of any Default or Event of Default;
(b) promptly, any default or event of default under any
Contractual Obligation of any Credit Party which could reasonably be
expected to have a Material Adverse Effect;
(c) promptly, any litigation, or any investigation or
proceeding (including, without limitation, any governmental or
environmental proceeding) known to the Borrower, affecting any Credit
Party which, if adversely determined, could reasonably be expected to
have a Material Adverse Effect;
(d) as soon as possible and in any event within thirty (30)
days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect
to any Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC (other than a Permitted Lien)
or a Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the
Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the terminating, Reorganization
or Insolvency of, any Plan; and
(e) promptly, any other development or event which could
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto. In
the case of any notice of a Default or Event of Default, the Borrower shall
specify that such notice is a Default or Event of Default notice on the face
thereof.
Section 5.8 Environmental Laws.
(a) Comply in all material respects with, and ensure
compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws and obtain and comply in
all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations
or permits required by applicable Environmental Laws except to the
extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect;
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with
all lawful orders and directives of all
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Governmental Authorities regarding Environmental Laws except to the
extent that the same are being contested in good faith by appropriate
proceedings or the pendency of such proceedings could not reasonably be
expected to have a Material Adverse Effect; and
(c) Defend, indemnify and hold harmless the Administrative
Agent and the Lenders, and their respective employees, agents, officers
and directors, from and against any and all claims, demands, penalties,
fines, liabilities, settlements, damages, costs and expenses of
whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable
to the operations of the Borrower or any of its Subsidiaries or the
Properties, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable
attorney's and consultant's fees, investigation and laboratory fees,
response costs, court costs and litigation expenses, except to the
extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor. The
agreements in this paragraph shall survive repayment of the Notes and
all other amounts payable hereunder.
Section 5.9 Financial Covenants.
Commencing on the day immediately following the Closing Date, the
Credit Parties shall comply with the following financial covenants:
(a) Leverage Ratio. The Leverage Ratio, as of the last day of
each fiscal quarter occurring during the periods indicated below, shall
be less than or equal to the following:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through and including 5.75 to 1.0
September 30, 1999
October 1, 1999 through and including
December 31, 1999 5.25 to 1.0
January 1, 2000 through and including
December 31, 2000 5.00 to 1.0
January 1, 2001 through and including
December 31, 2001 4.75 to 1.0
January 1, 2002 through and including
December 31, 2002 4.50 to 1.0
</TABLE>
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<TABLE>
<S> <C>
January 1, 2003 through and including
December 31, 2003 4.00 to 1.0
January 1, 2004 and thereafter 3.75 to 1.0
</TABLE>
(b) Interest Coverage Ratio. The Interest Coverage Ratio, as
of the last day of each fiscal quarter occurring during the periods
indicated below, shall be greater than or equal to the following:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through and including
December 31, 1999 1.50 to 1.0
January 1, 2000 through and
including December 31, 2000 1.75 to 1.0
January 1, 2001 through and including
December 31, 2001 2.00 to 1.0
January 1, 2002 through and including
December 31, 2002 2.25 to 1.0
January 1, 2003 through and including
December 31, 2003 2.50 to 1.0
January 1, 2004 and thereafter 2.75 to 1.0
</TABLE>
(c) Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio, as of the last day of each fiscal quarter occurring during the
periods set forth below, shall be greater than or equal to the
following:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through and including 1.00 to 1.0
September 30, 1999
October 1, 1999 through and including
December 31, 1999 1.15 to 1.0
January 1, 2000 and thereafter 1.25 to 1.0
</TABLE>
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Section 5.10 Additional Subsidiary Guarantors.
The Credit Parties will cause each of their Domestic Subsidiaries,
whether newly formed, after acquired or otherwise existing, to promptly become a
Guarantor hereunder by way of execution of a Joinder Agreement. The guaranty
obligations of any such Additional Credit Party shall be secured by, among other
things, the Collateral of the Additional Credit Party.
Section 5.11 Compliance with Law.
Each Credit Party will, and will cause each of its Subsidiaries to,
comply with all laws, rules, regulations and orders, and all applicable
restrictions imposed by all Governmental Authorities, applicable to it and its
property (including, without limitation, all ERISA laws and regulations) except
to the extent that noncompliance with any such law, rule, regulation, order or
restriction could not reasonably be expected to have a Material Adverse Effect.
Section 5.12 Pledged Assets.
(a) Each Credit Party will be, and will cause each of its
Subsidiaries to be, subject at all times to a first priority, perfected
Lien with respect to all of such Credit Party's property and assets
(subject in each case to Permitted Liens) in favor of the
Administrative Agent pursuant to the terms and conditions of the
Security Documents or such other security documents as the
Administrative Agent shall reasonably request. Each Credit Party shall,
and shall cause each of its Subsidiaries to, adhere to the covenants
regarding the location of personal property as set forth in the
Security Documents.
(b) Each Credit Party shall, and shall cause each of its
Subsidiaries to, take such action at its own expense as requested by
the Agent (including, without limitation, any of the actions described
in Section 4.1(d) or (e) hereof) to ensure that the Agent has a first
priority perfected Lien to secure the Credit Party Obligations in (i)
all personal property of the Credit Parties located in the United
States, (ii) all real property of the Credit Parties located in the
United States and (iii) to the extent deemed to be material by the
Agent or the Required Lenders in its or their sole reasonable
discretion, all other personal and real property of the Credit Parties,
subject in each case only to Permitted Liens.
Section 5.13 Year 2000 Compliance.
Each Credit Party will promptly notify the Administrative Agent in the
event any Credit Party discovers or determines that any computer application
(including those of its key suppliers and vendors) that is material to its or
any of its Subsidiaries' business and operations will not be Year 2000
Compliant, except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect.
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Section 5.14 Further Assurances.
(a) As soon as practicable, but in any event within 15
Business Days following the Closing Date, the Credit Parties shall have
provided the Administrative Agent with a survey relating to the
Mortgaged Property located at 3774 Interstate Park Road North in
Riviera, Florida in form and content satisfactory to the Administrative
Agent in its sole discretion.
(b) As soon as practicable, but in any event within 30 days
following the Closing Date, the Credit Parties shall have used their
best efforts on a commercially reasonable basis to obtain consent to
the assignment of a security interest in favor of the Administrative
Agent under each of (i) the Agreement dated as of December 31, 1998 by
and between Oracle Corporation and the Borrower and (ii) the Program
Product License Agreement dated as of December 15, 1996 by and between
OHM Systems, Inc. and the Borrower.
(c) As soon as practicable, but in any event within 15 days
following the Closing Date, the Borrower shall have presented
documentation to the Administrative Agent evidencing flood insurance
coverage satisfactory to the Administrative Agent in its sole
discretion.
ARTICLE VI
NEGATIVE COVENANTS
The Credit Parties hereby covenant and agree that on the Closing Date,
and thereafter for so long as this Agreement is in effect and until the
Commitments have terminated, no Note remains outstanding and unpaid and the
Credit Party Obligations, together with interest, Commitment Fees and all other
amounts then due and owing to the Administrative Agent or any Lender hereunder,
are paid in full that:
Section 6.1 Indebtedness.
The Credit Parties will not, nor will they permit any Subsidiary to,
contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising or existing under this Agreement and
the other Credit Documents;
(b) Indebtedness of the Credit Parties existing as of or
incurred on the Closing Date as referenced in the financial statements
referenced in Section 3.1 (and set out more specifically in Schedule
6.1(b)) and renewals, refinancings or extensions thereof in a principal
amount not in excess of that outstanding as of the date of such
renewal, refinancing or extension;
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(c) Indebtedness of the Borrower and its Subsidiaries incurred
after the Closing Date consisting of Capital Leases or Indebtedness
incurred to provide all or a portion of the purchase price or cost of
construction of an asset provided that (i) such Indebtedness when
incurred shall not exceed the purchase price or cost of construction of
such asset; (ii) no such Indebtedness shall be refinanced for a
principal amount in excess of the principal balance outstanding thereon
at the time of such refinancing; and (iii) the total amount of all such
Indebtedness shall not exceed $750,000 at any time outstanding;
(d) Unsecured intercompany Indebtedness among the Credit
Parties, provided that any such Indebtedness shall be fully
subordinated to the Credit Party Obligations hereunder on terms
reasonably satisfactory to the Administrative Agent;
(e) Indebtedness and obligations owing under Hedging
Agreements relating to the Loans hereunder and other Hedging Agreements
entered into in order to manage existing or anticipated interest rate,
exchange rate or commodity price risks and not for speculative
purposes;
(f) Indebtedness and obligations of Credit Parties owing under
documentary letters of credit for the purchase of goods or other
merchandise generally (but not under standby, direct pay or other
letters of credit except for the Letters of Credit hereunder);
(g) Indebtedness of the Credit Parties in respect of the
Subordinated Notes in an aggregate amount not to exceed $115,000,000;
(h) Indebtedness in respect of judgment liens not resulting in
an Event of Default pursuant to Section 7.1(f);
(i) Indebtedness in respect of trade payables incurred in the
ordinary course of business;
(j) Unsecured Indebtedness owing in respect of the performance
bonus in favor of Cecil Brauer pursuant to Section 2(c)(ii) of that
certain Employment Agreement date as of the Closing Date by and among
Star Bedding Products Limited, Cecil Brauer and the Borrower; and
(k) other Indebtedness of the Borrower and its Subsidiaries
which does not exceed $750,000 in the aggregate at any time
outstanding.
Section 6.2 Liens.
The Credit Parties will not, nor will they permit any Subsidiary to,
contract, create, incur, assume or permit to exist any Lien with respect to any
of its property or assets of any kind
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(whether real or personal, tangible or intangible), whether now owned or
hereafter acquired, except for Permitted Liens.
Section 6.3 Guaranty Obligations.
The Credit Parties will not, nor will they permit any Subsidiary to,
enter into or otherwise become or be liable in respect of any Guaranty
Obligations (excluding specifically therefrom endorsements in the ordinary
course of business of negotiable instruments for deposit or collection) other
than (i) those in favor of the Lenders in connection herewith and (ii) Guaranty
Obligations of Indebtedness permitted under Section 6.1(g).
Section 6.4 Nature of Business.
The Credit Parties will not, nor will they permit any Subsidiary to,
alter the character of its business in any material respect from that conducted
as of the Closing Date other than logical extensions thereof.
Section 6.5 Consolidation, Merger, Sale of Assets, Permitted
Acquisitions, etc.
The Credit Parties will not, nor will they permit any Subsidiary to,
(a) dissolve, liquidate or wind up its affairs, sell,
transfer, lease or otherwise voluntarily dispose of its property or
assets or agree to do so at a future time except the following, without
duplication, shall be expressly permitted:
(i) Specified Sales; and
(ii) the sale, transfer, lease or other disposition
of property or assets (a) to an unrelated party not in the
ordinary course of business (other than Specified Sales),
where and to the extent that they are the result of a Casualty
Event or (b) the sale, lease, transfer or other disposition of
machinery, parts and equipment no longer used or useful in the
conduct of the business of such Credit Party or any of its
Subsidiaries, as appropriate, in its reasonable discretion, so
long as and the net proceeds therefrom are used to repair,
replace or relocate damaged property or to purchase or
otherwise acquire new assets or property;
(iii) the sale, lease or transfer of property or
assets (at fair value) between the Borrower and any Guarantor;
(iv) the sale, lease or transfer of property or
assets (at fair value) from a Credit Party other than the
Borrower to another Credit Party; and
(v) the sale, lease or transfer of property or assets
not to exceed $100,000 in the aggregate in any fiscal year;
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provided, that in each case at least 75% of the consideration received
therefor by any Credit Party is in the form of cash or Cash
Equivalents; provided, further, that with respect to sales of assets
permitted hereunder only, the Administrative Agent shall, without the
consent of the Required Lenders, release its Liens relating to the
particular assets sold;
(b) enter into any transaction of merger or consolidation,
except for the merger or consolidation of a Credit Party with and into
another Credit Party, provided that if the Borrower is a party thereto,
the Borrower will be the surviving corporation; and
(c) enter into any transaction or series of transactions for
the purposes of acquiring all or a substantial portion of the assets,
property and/or Capital Stock of any Person other than Permitted
Acquisitions.
Section 6.6 Advances, Investments and Loans.
The Credit Parties will not, nor will they permit any Subsidiary to,
lend money or extend credit or make advances to any Person, or purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, any Person except for Permitted Investments.
Section 6.7 Transactions with Affiliates.
Except (i) with respect to the agreements listed on Schedule 6.7 as
such are in existence on the Closing Date and (ii) as permitted in subsection
(iv) of the definition of Permitted Investments, the Credit Parties will not,
nor will they permit any Subsidiary to, enter into any transaction or series of
transactions, whether or not in the ordinary course of business, with any
officer, director, shareholder or Affiliate other than on terms and conditions
substantially as favorable as would be obtainable in a comparable arm's-length
transaction with a Person other than an officer, director, shareholder or
Affiliate.
Section 6.8 Ownership of Subsidiaries; Restrictions.
The Credit Parties will not, nor will they permit any Subsidiary to,
create, form or acquire any Subsidiaries, except for Domestic Subsidiaries which
are joined as Additional Credit Parties in accordance with the terms hereof. The
Credit Parties will not sell, transfer, pledge or otherwise dispose of any
Capital Stock or other equity interests in any of their Subsidiaries, nor will
they permit any of their Subsidiaries to issue, sell, transfer, pledge or
otherwise dispose of any of their Capital Stock or other equity interests,
except in a transaction permitted by Section 6.5.
Section 6.9 Fiscal Year; Organizational Documents; Material
Contracts.
The Credit Parties will not, nor will they permit any of their
Subsidiaries to, change their fiscal year. The Credit Parties will not, nor will
they permit any Subsidiary to, amend, modify or
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change their limited liability company operating agreement or articles of
incorporation, as applicable (or corporate charter or other similar
organizational document) or bylaws (or other similar document) in any way that
could reasonably be expected to have an adverse effect on the Lenders without
the prior written consent of the Required Lenders. The Credit Parties will not,
nor will they permit any of their Subsidiaries to, without the prior written
consent of the Administrative Agent, amend, modify, cancel or terminate or fail
to renew or extend or permit the amendment, modification, cancellation or
termination of any of the Material Contracts, except in the event that such
amendments, modifications, cancellations or terminations could not reasonably be
expected to have a Material Adverse Effect.
Section 6.10 Limitation on Restricted Actions.
The Credit Parties will not, nor will they permit any Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any such Person to
(a) pay dividends or make any other distributions to any Credit Party on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, (b) pay any Indebtedness or other obligation owed to
any Credit Party, (c) make loans or advances to any Credit Party, (d) sell,
lease or transfer any of its properties or assets to any Credit Party, or (e)
act as a Guarantor and pledge its assets pursuant to the Credit Documents or any
renewals, refinancings, exchanges, refundings or extension thereof, except (in
respect of any of the matters referred to in clauses (a)-(d) above) for such
encumbrances or restrictions existing under or by reason of (i) this Agreement
and the other Credit Documents, (ii) applicable law, (iii) any document or
instrument governing Indebtedness incurred pursuant to Section 6.1(c), provided
that any such restriction contained therein relates only to the asset or assets
constructed or acquired in connection therewith, (iv) any Permitted Lien or any
document or instrument governing any Permitted Lien, provided that any such
restriction contained therein relates only to the asset or assets subject to
such Permitted Lien or (v) indebtedness incurred pursuant to Section 6.1(b) and
6.1(g).
Section 6.11 Restricted Payments.
The Credit Parties will not, nor will they permit any Subsidiary to,
directly or indirectly, declare, order, make or set apart any sum for or pay any
Restricted Payment, except (a) to make dividends payable solely in the same
class of Capital Stock of such Person, (b) to make dividends or other
distributions payable to any Credit Party other than the Parent (directly or
indirectly through Subsidiaries), and (c) provided that no Default or Event of
Default has occurred and is continuing at such time or would be directly or
indirectly caused as a result thereof and provided that the Borrower is in pro
forma compliance with all provisions of this Agreement before and after giving
effect thereto, the Borrower may pay cash distributions to the Parent (i) in an
amount not to exceed $1,500,000 in the aggregate per fiscal year (plus in the
first fiscal year only, $500,000 for payments in respect of the Retroactive
Notes) to provide the Parent with funds sufficient to make payments in respect
of obligations arising under the Existing Seller Debt and the Permitted Seller
Debt, (ii) to repurchase membership interests held by management in an aggregate
amount not to exceed $1,000,000 in the aggregate during the term of this
Agreement, (iii) to pay taxes of the Credit Parties to the extent actually
incurred and/or due and payable, (iv)
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to pay other expenses of the Parent in an aggregate amount not to exceed
$50,000, and (v) to pay cash interest expense as required under the Existing
Seller Debt in an aggregate amount not to exceed 6% of the principal amount of
the Existing Seller Debt per annum; provided that if the Consolidated Fixed
Charge Coverage Ratio (as such term is defined in the Indenture) shall exceed
2.00 to 1.0 as of the end of the immediately preceding fiscal quarter, then the
Borrower may make distributions to the Parent to pay cash interest expense in an
aggregate amount not to exceed 12% of the principal amount of the Existing
Seller Debt per annum and (v) to make payments owing under the Permitted Seller
Debt.
Section 6.12 Prepayments of Indebtedness, etc.
Following the Closing Date, the Credit Parties will not, nor will they
permit any Subsidiary to, after the issuance thereof, amend or modify (or permit
the amendment or modification of) any of the terms of any Indebtedness if such
amendment or modification would add or change any terms in a manner adverse to
the issuer of such Indebtedness, or shorten the final maturity or average life
to maturity or require any payment to be made sooner than originally scheduled
or increase the interest rate applicable thereto or change any subordination
provision thereof.
Section 6.13 Sale Leasebacks.
The Credit Parties will not, nor will they permit any Subsidiary to,
directly or indirectly, become or remain liable as lessee or as guarantor or
other surety with respect to any lease, whether an operating lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired in excess of $100,000 in the aggregate on an annual basis,
(a) which any Credit Party or any Subsidiary has sold or transferred or is to
sell or transfer to a Person which is not the Borrower or any Subsidiary or (b)
which any Credit Party or any Subsidiary intends to use for substantially the
same purpose as any other property which has been sold or is to be sold or
transferred by any Credit Party or any Subsidiary to another Person which is not
a Credit Party or a Subsidiary in connection with such lease.
Section 6.14 No Further Negative Pledges.
The Credit Parties will not, nor will they permit any Subsidiary to,
enter into, assume or become subject to any agreement (other than the Indenture
and the PBBC Bond Indenture as in effect on the Closing Date) prohibiting or
otherwise restricting the creation or assumption of any Lien upon their
properties or assets, whether now owned or hereafter acquired, or requiring the
grant of any security for such obligation if security is given for some other
obligation, except (a) pursuant to this Agreement and the other Credit
Documents, (b) pursuant to any document or instrument governing Indebtedness
incurred pursuant to Section 6.1(c), provided that any such restriction
contained therein relates only to the asset or assets constructed or acquired in
connection therewith and (c) in connection with any Permitted Lien or any
document or instrument governing any Permitted Lien, provided that any such
restriction contained therein relates only to the asset or assets subject to
such Permitted Lien.
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Section 6.15 Consolidated Capital Expenditures.
The Parent will not, nor will it permit any Subsidiary to permit
Consolidated Capital Expenditures as of the end of any fiscal year of the Parent
to exceed $4,500,000 for all such persons in the aggregate during the 1999
fiscal year and $2,500,000 for each fiscal year occurring thereafter; provided,
however, that 50% of any amounts not utilized during any fiscal year may be
carried forward to the immediately following fiscal year only.
Section 6.16 Subordinated Debt.
No Credit Party will (i) make or offer to make any payments with
respect to any Subordinated Debt, (ii) redeem or offer to redeem any
Subordinated Debt, or (iii) deposit any funds intended to discharge or defease
any or all any Subordinated Debt; provided, however, that so long as no Default
or Event of Default shall have occurred or be continuing or would occur on an
actual or pro forma basis as a result thereof, the (i) Borrower may make
payments in respect of interest obligations owing under the Subordinated Notes
in an aggregate amount not to exceed $13,000,000 during any fiscal year and (ii)
the Parent may make payments in respect of the Existing Seller Debt and the
Permitted Seller Debt in the amount set forth in Section 6.11(c)(i). No
Subordinated Debt may be amended or modified in any material manner without the
prior written consent of the Required Lenders, it being specifically understood
and agreed that no amendment to Article X or Article XIII of the Indenture shall
be made without the prior written consent of the Required Lenders.
Section 6.17 Operating Leases.
The Credit Parties will not, nor will they permit any Subsidiary to,
incur or permit to exist any obligations in respect of operating leases which
require rental payments in excess of $3,500,000 in the aggregate for all such
Persons in the aggregate during any fiscal year.
Section 6.18 Parent Holding Company and Sleepmaster Finance
Corporation.
The Parent will not engage in any activities or operations whatsoever
(exclusive of general administrative and other functions required by law) other
than owning 99% of the Borrower's membership interests and obligations related
thereto and otherwise permitted hereunder, including, without limitation, being
obligated under the Existing Seller Notes and the Permitted Seller Debt,
entering into this Agreement and the other Credit Documents and performing its
obligations hereunder and thereunder. Sleepmaster Finance Corporation will not
engage in any activities or operations whatsoever other than as set forth in the
Indenture and the Subordinated Notes and entering into this Agreement and the
other Credit Documents and performing its obligations hereunder and thereunder.
Section 6.19 Serta Licenses.
The Credit Parties will not, nor will they permit any Subsidiary to,
enter into or permit to exist any Serta License not in existence on the Closing
Date, without (i) the express prior written
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consent of the Required Lenders thereto (which consent will not be unreasonably
withheld), (ii) the delivery to the Administrative Agent of a copy thereof, a
new Serta Consent covering such new Serta License, all documentation required by
the Administrative Agent to effect the grant to the Administrative Agent for the
benefit of the Administrative Agent and Lenders of a first priority, perfected
security interest therein, and such other documentation required by the
Administrative Agent in its reasonable discretion in connection therewith.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) The Borrower shall fail to pay any principal on any Note
when due in accordance with the terms thereof or hereof; or the
Borrower shall fail to reimburse the Issuing Lender for any LOC
Obligations when due in accordance with the terms hereof; or the
Borrower shall fail to pay any interest on any Note or any fee or other
amount payable hereunder when due in accordance with the terms thereof
or hereof and such failure shall continue unremedied for three (3)
Business Days (or any Guarantor shall fail to pay on the Guaranty in
respect of any of the foregoing or in respect of any other Guaranty
Obligations thereunder); or
(b) Any representation or warranty made or deemed made herein,
in the Security Documents or in any of the other Credit Documents or
which is contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this
Agreement shall prove to have been false, misleading or incorrect in
any material respect on or as of the date made or deemed made; or
(c) (i) Any Credit Party shall fail to perform, comply with or
observe any term, covenant or agreement applicable to it contained in
Section 5.7(a), Section 5.9 or Article VI hereof; or (ii) any Credit
Party shall fail to comply with any other covenant, contained in this
Credit Agreement or the other Credit Documents or any other agreement,
document or instrument among any Credit Party, the Administrative Agent
and the Lenders or executed by any Credit Party in favor of the
Administrative Agent or the Lenders (other than as described in
Sections 7.1(a) or 7.1(c)(i) above), and in the event such breach or
failure to comply is capable of cure, is not cured within thirty (30)
days of its occurrence; or
(d) Any Credit Party shall (i) default in any payment of
principal of or interest on any Indebtedness (other than the Notes) in
a principal amount outstanding of at least $250,000 in the aggregate
for the Credit Parties beyond the period of grace (not to exceed
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30 days), if any, provided in the instrument or agreement under which
such Indebtedness was created; or (ii) default (after giving effect to
any applicable period of grace) in the observance or performance of any
other agreement or condition relating to any Indebtedness in a
principal amount outstanding of at least $250,000 in the aggregate for
the Credit Parties or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity; or
(e) (i) Any Credit Party shall commence any case, proceeding
or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any substantial part of its assets, or any Credit
Party shall make a general assignment for the benefit of its creditors;
or (ii) there shall be commenced against any Credit Party any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced
against any Credit Party any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) any Credit Party shall take any action
in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) any Credit Party shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(f) One or more judgments or decrees shall be entered against
any Credit Party involving in the aggregate a liability (to the extent
not paid when due or covered by insurance) of $200,000 or more and all
such judgments or decrees shall not have been paid and satisfied,
vacated, discharged, stayed or bonded pending appeal within 10 days
from the entry thereof; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
(other than a Permitted Lien) shall arise on the assets of the Borrower
or any Commonly Controlled Entity, (iii) a Reportable Event shall occur
with respect to, or proceedings
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shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or commencement of proceedings or appointment of
a Trustee is, in the reasonable opinion of the Required Lenders, likely
to result in the termination of such Plan for purposes of Title IV of
ERISA, (iv) any Single Employer Plan shall terminate for purposes of
Title IV of ERISA, (v) any Credit Party or any Commonly Controlled
Entity shall, or in the reasonable opinion of the Required Lenders is
likely to, incur any liability in connection with a withdrawal from, or
the Insolvency or Reorganization of, any Multiemployer Plan or (vi) any
other similar event or condition shall occur or exist with respect to a
Plan; and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any,
could have a Material Adverse Effect; or
(h) There shall occur a Change of Control; or
(i) The Guaranty or any provision thereof shall cease to be in
full force and effect or any Guarantor or any Person acting by or on
behalf of any Guarantor shall deny or disaffirm any Guarantor's
obligations under the Guaranty; or
(j) Any other Credit Document shall fail to be in full force
and effect or to give the Administrative Agent and/or the Lenders the
security interests, liens, rights, powers and privileges purported to
be created thereby (except as such documents may be terminated or no
longer in force and effect in accordance with the terms thereof, other
than those indemnities and provisions which by their terms shall
survive);
(k) Any Serta License is terminated, assigned or deemed
assigned;
(l) An event of default occurs under the Palm Beach Bedding
Company Bond Indenture or any of the other "Bond Documents" (as such
term is defined therein); or
(m) (i) Any Governmental Authority with applicable
jurisdiction determines that the Lenders are not holders of Designated
Senior Indebtedness (as defined in the Indenture) or (ii) the
subordination provisions creating the Subordinated Notes shall, in
whole or in part, terminate, cease to be effective or cease to be
legally valid, binding and enforceable as to any holder of the
Subordinated Notes.
Section 7.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, then, and in any such
event, (a) if such event is an Event of Default specified in Section 7.1(e)
above, automatically the Commitments shall immediately terminate and the Loans
(with accrued interest thereon), and all other amounts under the Credit
Documents (including without limitation the maximum amount of all contingent
liabilities under Letters of Credit) shall immediately become due and payable,
and (b) if such event is any other Event of Default, either or both of the
following actions may be taken: (i) the Administrative Agent may, or upon the
written request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrower declare the Commitments to be terminated
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forthwith, whereupon the Commitments shall immediately terminate; and (ii) with
the written consent of the Required Lenders, the Administrative Agent may, or
upon the written request of the Required Lenders, the Administrative Agent
shall, by notice of default to the Borrower, declare the Loans (with accrued
interest thereon) and all other amounts owing under this Agreement and the Notes
to be due and payable forthwith and direct the Borrower to pay to the
Administrative Agent cash collateral as security for the LOC Obligations for
subsequent drawings under then outstanding Letters of Credit an amount equal to
the maximum amount of which may be drawn under Letters of Credit then
outstanding, whereupon the same shall immediately become due and payable.
ARTICLE VIII
THE AGENT
Section 8.1 Appointment.
Each Lender hereby irrevocably designates and appoints First Union
National Bank as the Administrative Agent of such Lender under this Agreement,
and each such Lender irrevocably authorizes First Union National Bank, as the
Administrative Agent for such Lender, to take such action on its behalf under
the provisions of this Agreement and to exercise such powers and perform such
duties as are expressly delegated to the Administrative Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Administrative Agent.
Section 8.2 Delegation of Duties.
The Administrative Agent may execute any of its duties under this
Agreement by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible for the negligence or misconduct
of any agents or attorneys-in-fact selected by it with reasonable care. Without
limiting the foregoing, the Administrative Agent may appoint one of its
affiliates as its agent to perform the functions of the Administrative Agent
hereunder relating to the advancing of funds to the Borrower and distribution of
funds to the Lenders and to perform such other related functions of the
Administrative Agent hereunder as are reasonably incidental to such functions.
Section 8.3 Exculpatory Provisions.
Neither the Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any
action lawfully taken or omitted to be
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taken by it or such Person under or in connection with this Agreement (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained in this Agreement or in any certificate, report, statement or other
document referred to or provided for in, or received by the Administrative Agent
under or in connection with, this Agreement or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of any of the Credit
Documents or for any failure of the Borrower to perform its obligations
hereunder or thereunder. The Administrative Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance by the Borrower of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of the
Borrower.
Section 8.4 Reliance by Administrative Agent.
The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it in
good faith to be genuine and correct and to have been signed, sent or made by
the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless (a) a written notice of assignment, negotiation
or transfer thereof shall have been filed with the Administrative Agent and (b)
the Administrative Agent shall have received the written agreement of such
assignee to be bound hereby as fully and to the same extent as if such assignee
were an original Lender party hereto, in each case in form satisfactory to the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
any of the Credit Documents in accordance with a request of the Required Lenders
or all of the Lenders, as may be required under this Agreement, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Notes.
Section 8.5 Notice of Default.
The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or the Borrower referring
to this Agreement, describing such Default or Event of Default and stating on
the face thereof that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give prompt notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided, however, that unless and
until the Administrative Agent shall have
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received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders except to the extent that this Credit Agreement
expressly requires that such action be taken, or not taken, only with the
consent or upon the authorization of the Required Lenders, or all of the
Lenders, as the case may be.
Section 8.6 Non-Reliance on Administrative Agent and Other
Lenders.
Each Lender expressly acknowledges that neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates has made any representation or warranty to it and that no act by
the Administrative Agent hereinafter taken, including any review of the affairs
of the Borrower, shall be deemed to constitute any representation or warranty by
the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make
its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
Section 8.7 Indemnification.
The Lenders agree to indemnify the Administrative Agent in its capacity
hereunder (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their respective
Commitment Percentages in effect on the date on which indemnification is sought
under this Section, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Notes) be imposed on,
incurred by or asserted against the Administrative Agent in any way relating to
or arising out of any Credit Document or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided, however, that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
to the extent resulting from the
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Administrative Agent's gross negligence or willful misconduct, as determined by
a court of competent jurisdiction. The agreements in this Section 8.7 shall
survive the termination of this Agreement and payment of the Notes and all other
amounts payable hereunder.
Section 8.8 Administrative Agent in Its Individual Capacity.
The Administrative Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Borrower as
though the Administrative Agent were not the Administrative Agent hereunder.
With respect to its Loans made or renewed by it and any Note issued to it, the
Administrative Agent shall have the same rights and powers under this Agreement
as any Lender and may exercise the same as though it were not the Administrative
Agent, and the terms "Lender" and "Lenders" shall include the Administrative
Agent in its individual capacity.
Section 8.9 Successor Administrative Agent.
The Administrative Agent may resign as Administrative Agent upon 30
days' prior notice to the Borrower and the Lenders. If the Administrative Agent
shall resign as Administrative Agent under this Agreement and the Notes, then
the Required Lenders shall appoint from among the Lenders a successor agent for
the Lenders, which successor agent shall be acceptable to the Borrower,
whereupon such successor agent shall succeed to the rights, powers and duties of
the Administrative Agent, and the term "Administrative Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Administrative Agent's rights, powers and duties as Administrative Agent shall
be terminated, without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this Agreement or any
holders of the Notes. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Section 8.9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
Section 8.10 Release of Collateral.
Each Lender hereby irrevocably authorizes the Administrative Agent, as
its option and in its discretion, to release any Lien granted to or held by the
Administrative Agent upon any property covered by this Agreement or the other
Credit Documents (i) upon termination of the Commitments and payment and
satisfaction of all Obligations then due and payable, (ii) constituting property
being sold or disposed of if Borrower certifies to the Administrative Agent that
the sale or disposition is made in compliance with the provisions of this
Agreement (and the Administrative Agent may rely in good faith conclusively on
any such certificate, without further inquiry); or (iii) constituting property
leased to Borrower under a lease which has expired or been terminated in a
transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by Borrower to be, renewed or extended.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Amendments and Waivers.
Neither this Agreement, nor any of the Notes, nor any of the other
Credit Documents, nor any terms hereof or thereof may be amended, supplemented,
waived or modified except in accordance with the provisions of this Section nor
may be released except as specifically provided herein or in the Security
Documents or in accordance with the provisions of this Section 9.1. The Required
Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with the Borrower
written amendments, supplements or modifications hereto and to the other Credit
Documents for the purpose of adding any provisions to this Agreement or the
other Credit Documents or changing in any manner the rights of the Lenders or of
the Borrower hereunder or thereunder or (b) waive, on such terms and conditions
as the Required Lenders may specify in such instrument, any of the requirements
of this Agreement or the other Credit Documents or any Default or Event of
Default and its consequences; provided, however, that no such waiver and no such
amendment, waiver, supplement, modification or release shall:
(i) reduce the amount or extend the scheduled date of maturity
of any Loan or Note or any installment thereon, or reduce the
stated rate of any interest or fee payable hereunder (other
than interest at the increased post-default rate) or extend
the scheduled date of any payment thereof or increase the
amount or extend the expiration date of any Lender's
Commitment, in each case without the written consent of each
Lender directly affected thereby, or
(ii) amend, modify or waive any provision of this Section 9.1
or reduce the percentage specified in the definition of
Required Lenders, without the written consent of all the
Lenders, or
(iii) amend, modify or waive any provision of Article VIII
without the written consent of the then Administrative Agent,
or
(iv) release any of the Guarantors from their obligations
under the Guaranty, without the written consent of all of the
Lenders, or
(v) release all or substantially all of the Collateral,
without the written consent of all of the Lenders, or
(vi) amend, modify or waive any provision of the Credit
Documents requiring consent, approval or request of the
Required Lenders or all Lenders, without the written consent
of all of the Required Lenders or Lenders as appropriate and,
provided, further, that no amendment, waiver or consent
affecting the rights or duties of the Administrative Agent or
the Issuing Lender under any Credit
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Document shall in any event be effective, unless in writing
and signed by the Administrative Agent and/or the Issuing
Lender, as applicable, in addition to the Lenders required
hereinabove to take such action.
Any such waiver, any such amendment, supplement or modification and any
such release shall apply equally to each of the Lenders and shall be binding
upon the Borrower, the other Credit Parties, the Lenders, the Administrative
Agent and all future holders of the Notes. In the case of any waiver, the
Borrower, the other Credit Parties, the Lenders and the Administrative Agent
shall be restored to their former position and rights hereunder and under the
outstanding Loans and Notes and other Credit Documents, and any Default or Event
of Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
Notwithstanding any of the foregoing to the contrary, the consent of
the Borrower shall not be required for any amendment, modification or waiver of
the provisions of Article VIII (other than the provisions of Section 8.9);
provided, however, that the Administrative Agent will provide written notice to
the Borrower of any such amendment, modification or waiver. In addition, the
Borrower and the Lenders hereby authorize the Administrative Agent to modify
this Credit Agreement by unilaterally amending or supplementing Schedule 2.1(a)
from time to time in the manner requested by the Borrower, the Administrative
Agent or any Lender in order to reflect any assignments or transfers of the
Loans as provided for hereunder; provided, however, that the Administrative
Agent shall promptly deliver a copy of any such modification to the Borrower and
each Lender.
Notwithstanding the fact that the consent of all the Lenders is
required in certain circumstances as set forth above, (x) each Lender is
entitled to vote as such Lender sees fit on any bankruptcy reorganization plan
that affects the Loans, and each Lender acknowledges that the provisions of
Section 1126(c) of the Bankruptcy Code supersede the unanimous consent
provisions set forth herein and (y) the Required Lenders may consent to allow a
Credit Party to use cash collateral in the context of a bankruptcy or insolvency
proceeding.
Section 9.2 Notices.
Except as otherwise provided in Article II, all notices, requests and
demands to or upon the respective parties hereto to be effective shall be in
writing (including by telecopy), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made (a) when delivered by
hand, (b) when transmitted via telecopy (or other facsimile device) to the
number set out herein, (c) the day following the day on which the same has been
delivered prepaid to a reputable national overnight air courier service, or (d)
the third Business Day following the day on which the same is sent by certified
or registered mail, postage prepaid, in each case, addressed to each such party
at the address set forth on Schedule 9.2, or to such other address as may be
hereafter notified by the respective parties hereto and any future holders of
the Notes.
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Section 9.3 No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the
Administrative Agent or any Lender, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
Section 9.4 Survival of Representations and Warranties.
All representations and warranties made hereunder and in any document,
certificate or written statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
Notes and the making of the Loans, provided that all such representations and
warranties shall terminate on the date upon which the Commitments have been
terminated and all amounts owing hereunder and under any Notes have been paid in
full.
Section 9.5 Payment of Expenses and Taxes.
The Borrower agrees (a) to pay or reimburse the Administrative Agent
for all its reasonable out-of-pocket costs and expenses incurred in connection
with the preparation, negotiation, printing and execution of, and any amendment,
supplement or modification to, this Agreement and the other Credit Documents and
any other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby, together with the reasonable fees and disbursements of counsel to the
Administrative Agent, (b) to pay or reimburse each Lender and the Administrative
Agent for all its costs and expenses incurred in connection with the enforcement
or preservation of any rights under, or defense against any actions arising out
of, this Agreement, the Notes and any such other documents, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent and to the Lenders (including reasonable allocated costs of
in-house legal counsel), and (c) on demand, to pay, indemnify, and hold each
Lender and the Administrative Agent harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, stamp, excise and other similar taxes, if any, which may be
payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, the Credit Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the
Administrative Agent and their Affiliates harmless from and against, any and all
other liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of the Credit Documents and any such other documents and the use,
or proposed use, of proceeds of the Loans (all of the foregoing, collectively,
the "indemnified liabilities"); provided, however, that the Borrower shall not
have any obligation hereunder to the Administrative Agent or any Lender with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of the Administrative Agent or
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any such Lender, as determined by a court of competent jurisdiction. The
agreements in this Section 9.5 shall survive repayment of the Loans, Notes and
all other amounts payable hereunder.
Section 9.6 Successors and Assigns; Participations; Purchasing
Lenders.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrower, the Lenders, the Administrative Agent, all
future holders of the Notes and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its
rights or obligations under this Agreement or the other Credit
Documents without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held
by such Lender, any Commitment of such Lender, or any other interest of
such Lender hereunder. In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations
under this Agreement to the other parties to this Agreement shall
remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such
Note for all purposes under this Agreement, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations
under this Agreement. No Lender shall transfer or grant any
participation under which the Participant shall have rights to approve
any amendment to or waiver of this Agreement or any other Credit
Document except to the extent such amendment or waiver would (i) extend
the scheduled maturity of any Loan or Note or any installment thereon
in which such Participant is participating, or reduce the stated rate
or extend the time of payment of interest or fees thereon (except in
connection with a waiver of interest at the increased post-default
rate) or reduce the principal amount thereof, or increase the amount of
the Participant's participation over the amount thereof then in effect
(it being understood that a waiver of any Default or Event of Default
shall not constitute a change in the terms of such participation, and
that an increase in any Commitment or Loan shall be permitted without
consent of any participant if the Participant's participation is not
increased as a result thereof), (ii) release any of the Guarantors from
their obligations under the Guaranty, (iii) release all or
substantially all of the Collateral, or (iv) consent to the assignment
or transfer by the Borrower of any of its rights and obligations under
this Agreement. In the case of any such participation, the Participant
shall not have any rights under this Agreement or any of the other
Credit Documents (the Participant's rights against such Lender in
respect of such participation to be those set forth in the agreement
executed by such Lender in favor of the Participant relating thereto)
and all amounts payable by the Borrower hereunder shall be determined
as if such Lender had not sold such participation, provided that each
Participant shall be entitled to the benefits of Sections 2.14, 2.15,
2.16 and 9.5 with respect to its participation in the Commitments and
the Loans outstanding from time to time; provided, that no Participant
shall be entitled to receive any greater amount pursuant to such
Sections than
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the transferor Lender would have been entitled to receive in respect of
the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time,
sell or assign to any Lender or any affiliate thereof and with the
consent of the Administrative Agent and, so long as no Default or Event
of Default has occurred and is continuing, the Borrower (in each case,
which consent shall not be unreasonably withheld), to one or more
additional banks or financial institutions ("Purchasing Lenders"), all
or any part of its rights and obligations under this Agreement and the
Notes in minimum amounts of $5,000,000 with respect to its Revolving
Commitment and its Loans (or, if less, the entire amount of such
Lender's obligations), pursuant to a Commitment Transfer Supplement,
executed by such Purchasing Lender and such transferor Lender (and, in
the case of a Purchasing Lender that is not then a Lender or an
affiliate thereof, the Administrative Agent and, so long as no Default
or Event of Default has occurred and is continuing, the Borrower), and
delivered to the Administrative Agent for its acceptance and recording
in the Register (the recording in the Register a condition to such
transfer); provided, however, that any sale or assignment to an
existing Lender shall not require the consent of the Administrative
Agent or the Borrower nor shall any such sale or assignment be subject
to the minimum assignment amounts specified herein. Upon such
execution, delivery, acceptance and recording, from and after the
Transfer Effective Date specified in such Commitment Transfer
Supplement, (x) the Purchasing Lender thereunder shall be a party
hereto and, to the extent provided in such Commitment Transfer
Supplement, have the rights and obligations of a Lender hereunder with
a Commitment as set forth therein, and (y) the transferor Lender
thereunder shall, to the extent provided in such Commitment Transfer
Supplement, be released from its obligations under this Agreement (and,
in the case of a Commitment Transfer Supplement covering all or the
remaining portion of a transferor Lender's rights and obligations under
this Agreement, such transferor Lender shall cease to be a party
hereto). Such Commitment Transfer Supplement shall be deemed to amend
this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting
adjustment of Commitment Percentages arising from the purchase by such
Purchasing Lender of all or a portion of the rights and obligations of
such transferor Lender under this Agreement and the Notes. On or prior
to the Transfer Effective Date specified in such Commitment Transfer
Supplement, the Borrower, at its own expense, shall execute and deliver
to the Administrative Agent in exchange for the Notes delivered to the
Administrative Agent pursuant to such Commitment Transfer Supplement
new Notes to the order of such Purchasing Lender in an amount equal to
the Commitment assumed by it pursuant to such Commitment Transfer
Supplement and, unless the transferor Lender has not retained a
Commitment hereunder, new Notes to the order of the transferor Lender
in an amount equal to the Commitment retained by it hereunder. Such new
Notes shall be dated the Closing Date and shall otherwise be in the
form of the Notes replaced thereby. The Notes surrendered by the
transferor Lender shall be returned by the Administrative Agent to the
Borrower marked "canceled".
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(d) The Administrative Agent shall maintain at its address
referred to in Section 9.2 a copy of each Commitment Transfer
Supplement delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Administrative
Agent and the Lenders may treat each Person whose name is recorded in
the Register as the owner of the Loan recorded therein for all purposes
of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(e) Upon its receipt of a duly executed Commitment Transfer
Supplement, together with payment to the Administrative Agent by the
transferor Lender or the Purchasing Lender, as agreed between them, of
a registration and processing fee of $3,000.00 for each Purchasing
Lender listed in such Commitment Transfer Supplement and the Notes
subject to such Commitment Transfer Supplement, the Administrative
Agent shall (i) accept such Commitment Transfer Supplement, (ii) record
the information contained therein in the Register and (iii) give prompt
notice of such acceptance and recordation to the Lenders and the
Borrower.
(f) The Borrower authorizes each Lender to disclose to any
Participant or Purchasing Lender (each, a "Transferee") and any
prospective Transferee any and all financial information in such
Lender's possession concerning the Borrower and its Affiliates which
has been delivered to such Lender by or on behalf of the Borrower
pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower in connection with such Lender's credit
evaluation of the Borrower and its Affiliates prior to becoming a party
to this Agreement, in each case subject to Section 9.16.
(g) At the time of each assignment pursuant to this Section
9.6 to a Person which is not already a Lender hereunder and which is
not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for Federal income tax purposes, the
respective assignee Lender shall provide to the Borrower and the
Administrative Agent the appropriate Internal Revenue Service Forms
(and, if applicable, a 2.16 Certificate) described in Section 2.16.
(h) Nothing herein shall prohibit any Lender from pledging or
assigning any of its rights under this Agreement (including, without
limitation, any right to payment of principal and interest under any
Note) to any Federal Reserve Bank in accordance with applicable laws.
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Section 9.7 Adjustments; Set-off.
(a) Each Lender agrees that if any Lender (a "benefited
Lender") shall at any time receive any payment of all or part of its
Loans, or interest thereon, or receive any collateral in respect
thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in Section 7.1(e), or
otherwise) in a greater proportion than any such payment to or
collateral received by any other Lender, if any, in respect of such
other Lender's Loans, or interest thereon, such benefited Lender shall
purchase for cash from the other Lenders a participating interest in
such portion of each such other Lender's Loan, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such benefited Lender to share
the excess payment or benefits of such collateral or proceeds ratably
with each of the Lenders; provided, however, that if all or any portion
of such excess payment or benefits is thereafter recovered from such
benefited Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but
without interest. The Borrower agrees that each Lender so purchasing a
portion of another Lender's Loans may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such
portion as fully as if such Lender were the direct holder of such
portion.
(b) In addition to any rights and remedies of the Lenders
provided by law (including, without limitation, other rights of
set-off), each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the
extent permitted by applicable law, upon the occurrence of any Event of
Default, to setoff and appropriate and apply any and all deposits
(general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such
Lender or any branch or agency thereof to or for the credit or the
account of the Borrower, or any part thereof in such amounts as such
Lender may elect, against and on account of the obligations and
liabilities of the Borrower to such Lender hereunder and claims of
every nature and description of such Lender against the Borrower, in
any currency, whether arising hereunder, under the Notes or under any
documents contemplated by or referred to herein or therein, as such
Lender may elect, whether or not such Lender has made any demand for
payment and although such obligations, liabilities and claims may be
contingent or unmatured. The aforesaid right of set-off may be
exercised by such Lender against the Borrower or against any trustee in
bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver or execution, judgment or attachment creditor of
the Borrower, or against anyone else claiming through or against the
Borrower or any such trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, receiver, or execution, judgment
or attachment creditor, notwithstanding the fact that such right of
set-off shall not have been exercised by such Lender prior to the
occurrence of any Event of Default. Each Lender agrees promptly to
notify the Borrower and the Administrative Agent after any such set-off
and application made by such Lender; provided, however,
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that the failure to give such notice shall not affect the validity of
such set-off and application.
Section 9.8 Table of Contents and Section Headings.
The table of contents and the Section and subsection headings herein
are intended for convenience only and shall be ignored in construing this
Agreement.
Section 9.9 Counterparts.
This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. A set
of the copies of this Agreement signed by all the parties shall be lodged with
the Borrower and the Administrative Agent.
Section 9.10 Effectiveness.
This Credit Agreement shall become effective on the date on which all
of the parties have signed a copy hereof (whether the same or different copies)
and shall have delivered the same to the Administrative Agent pursuant to
Section 9.2 or, in the case of the Lenders, shall have given to the
Administrative Agent written, telescoped or telex notice (actually received) at
such office that the same has been signed and mailed to it.
Section 9.11 Severability.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 9.12 Integration.
This Agreement and the Notes represent the agreement of the Borrower,
the Administrative Agent and the Lenders with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties
by the Administrative Agent, the Borrower or any Lender relative to the subject
matter hereof not expressly set forth or referred to herein or in the Notes and
this Agreement supersedes the Commitment Letter dated April 22, 1999.
Section 9.13 Governing Law.
This Agreement and the Notes and the rights and obligations of the
parties under this Agreement and the Notes shall be governed by, and construed
and interpreted in accordance with, the law of the State of North Carolina.
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Section 9.14 Consent to Jurisdiction and Service of Process.
All judicial proceedings brought against the Borrower and/or any other
Credit Party with respect to this Agreement, any Note or any of the other Credit
Documents may be brought in any state or federal court of competent jurisdiction
in the State of North Carolina, and, by execution and delivery of this
Agreement, each of the Borrower and the other Credit Parties accepts, for itself
and in connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be
bound by any final judgment rendered thereby in connection with this Agreement
from which no appeal has been taken or is available. Each of the Borrower and
the other Credit Parties irrevocably agrees that all service of process in any
such proceedings in any such court may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to it at its address set forth in Section 9.2 or at such other
address of which the Administrative Agent shall have been notified pursuant
thereto, such service being hereby acknowledged by the each of the Borrower and
the other Credit Parties to be effective and binding service in every respect.
Each of the Borrower, the other Credit Parties, the Administrative Agent and the
Lenders irrevocably waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non conveniens
which it may now or hereafter have to the bringing of any such action or
proceeding in any such jurisdiction. Nothing herein shall affect the right to
serve process in any other manner permitted by law or shall limit the right of
any Lender to bring proceedings against the Borrower or the other Credit Parties
in the court of any other jurisdiction.
Section 9.15 Arbitration.
(a) Notwithstanding the provisions of Section 9.14 to the
contrary, upon demand of any party hereto, whether made before or
within three (3) months after institution of any judicial proceeding,
any dispute, claim or controversy arising out of, connected with or
relating to this Agreement and other Credit Documents ("Disputes")
between or among parties to this Agreement shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by
a party does not waive the right of that party to demand arbitration
hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to
arbitration, claims brought as class actions, claims arising from
Credit Documents executed in the future, or claims arising out of or
connected with the transaction reflected by this Agreement.
Arbitration shall be conducted under and governed by the
Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in Charlotte, North Carolina. A
hearing shall begin within 90 days of demand for arbitration and all
hearings shall be concluded within 120 days of demand for arbitration.
These time limitations may not be extended unless a party shows cause
for extension and then no more than a total extension of 60 days. The
expedited procedures set forth in Rule 51 et seq. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000. All
applicable statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court having
jurisdiction. Arbitrators shall be licensed attorneys selected
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from the Commercial Financial Dispute Arbitration Panel of the AAA with
expertise in corporate finance. The parties hereto do not waive
applicable Federal or state substantive law except as provided herein.
Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to Hedging Agreements.
(b) Notwithstanding the preceding binding arbitration
provisions, the Administrative Agent, the Lenders, the Borrower and the
other Credit Parties agree to preserve, without diminution, certain
remedies that the Administrative Agent on behalf of the Lenders may
employ or exercise freely, independently or in connection with an
arbitration proceeding or after an arbitration action is brought. The
Administrative Agent on behalf of the Lenders shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise
or prosecute the following remedies, as applicable (i) all rights to
foreclose against any real or personal property or other security by
exercising a power of sale granted under Credit Documents or under
applicable law or by judicial foreclosure and sale, including a
proceeding to confirm the sale; (ii) all rights of self-help including
peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining
provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable,
a judgment by confession of judgment. Preservation of these remedies
does not limit the power of an arbitrator to grant similar remedies
that may be requested by a party in a Dispute.
(c) The parties hereto agree that they shall not have a remedy
of punitive or exemplary damages against the other in any Dispute and
hereby waive any right or claim to punitive or exemplary damages they
have now or which may arise in the future in connection with any
Dispute whether the Dispute is resolved by arbitration or judicially.
(d) By execution and delivery of this Agreement, each of the
parties hereto accepts, for itself and in connection with its
properties, generally and unconditionally, the non-exclusive
jurisdiction relating to any arbitration proceedings conducted under
the Arbitration Rules in Charlotte, North Carolina and irrevocably
agrees to be bound by any final judgment rendered thereby in connection
with this Agreement from which no appeal has been taken or is
available.
Section 9.16 Confidentiality.
The Administrative Agent and each of the Lenders agrees that it will
use its best efforts not to disclose without the prior consent of the Borrower
(other than to its employees, affiliates, auditors or counsel or to another
Lender) any information with respect to the Credit Parties which is furnished
pursuant to this Agreement, any other Credit Document or any documents
contemplated by or referred to herein or therein and which is designated by the
Borrower to the Lenders in writing as confidential or as to which it is
otherwise reasonably clear such information is not public, except that any
Lender may disclose any such information (a) as has become generally available
to the public other than by a breach of this Section 9.16, (b) as may
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be required or appropriate in any report, statement or testimony submitted to
any municipal, state or federal regulatory body having or claiming to have
jurisdiction over such Lender or to the Federal Reserve Board or the Federal
Deposit Insurance Corporation or the OCC or the NAIC or similar organizations
(whether in the United States or elsewhere) or their successors, (c) as may be
required or appropriate in response to any summons or subpoena or any law,
order, regulation or ruling applicable to such Lender, (d) to any prospective
Participant or assignee in connection with any contemplated transfer pursuant to
Section 9.6, provided that such prospective transferee shall have been made
aware of this Section 9.16 and shall have agreed to be bound by its provisions
as if it were a party to this Agreement or (e) to Gold Sheets and other similar
bank trade publications, such information to consist of deal terms and other
information regarding the credit facilities evidenced by this Credit Agreement
customarily found in such publications.
Section 9.17 Acknowledgments.
The Borrower and the other Credit Parties each hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of each Credit Document;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower or any other Credit
Party arising out of or in connection with this Agreement and the
relationship between Administrative Agent and Lenders, on one hand, and
the Borrower and the other Credit Parties, on the other hand, in
connection herewith is solely that of debtor and creditor; and
(c) no joint venture exists among the Lenders or among the
Borrower or the other Credit Parties and the Lenders.
Section 9.18 Waivers of Jury Trial.
THE BORROWER, THE OTHER CREDIT PARTIES, THE ADMINISTRATIVE AGENT AND
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
ARTICLE X
GUARANTY
Section 10.1 The Guaranty.
In order to induce the Lenders to enter into this Agreement and to
extend credit hereunder and in recognition of the direct benefits to be received
by the Guarantors from the Extensions of
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Credit hereunder, each of the Guarantors hereby agrees with the Administrative
Agent and the Lenders as follows: the Guarantor hereby unconditionally and
irrevocably jointly and severally guarantees as primary obligor and not merely
as surety the full and prompt payment when due, whether upon maturity, by
acceleration or otherwise, of any and all Obligations of the Borrower to the
Administrative Agent and the Lenders. If any or all of the Obligations of the
Borrower to the Administrative Agent and the Lenders becomes due and payable
hereunder, each Guarantor unconditionally promises to pay such indebtedness to
the Administrative Agent and the Lenders, on order, or demand, together with any
and all reasonable expenses which may be incurred by the Administrative Agent or
the Lenders in collecting any of the Obligations.
Notwithstanding any provision to the contrary contained herein or in
any other of the Credit Documents, to the extent the obligations of a Guarantor
shall be adjudicated to be invalid or unenforceable for any reason (including,
without limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers) then the obligations of each such Guarantor
hereunder shall be limited to the maximum amount that is permissible under
applicable law (whether federal or state and including, without limitation, the
Bankruptcy Code).
Section 10.2 Bankruptcy.
Additionally, each of the Guarantors unconditionally and irrevocably
guarantees jointly and severally the payment of any and all indebtedness of the
Borrower to the Lenders whether or not due or payable by the Borrower upon the
occurrence of any of the events specified in Section 7.1(e), and unconditionally
promises to pay such Obligations to the Administrative Agent for the account of
the Lenders, or order, on demand, in lawful money of the United States. Each of
the Guarantors further agrees that to the extent that the Borrower or a
Guarantor shall make a payment or a transfer of an interest in any property to
the Administrative Agent or any Lender, which payment or transfer or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
or otherwise is avoided, and/or required to be repaid to the Borrower or a
Guarantor, the estate of the Borrower or a Guarantor, a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such avoidance or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
Section 10.3 Nature of Liability.
The liability of each Guarantor hereunder is exclusive and independent
of any security for or other guaranty of the indebtedness of the Borrower
whether executed by any such Guarantor, any other guarantor or by any other
party, and no Guarantor's liability hereunder shall be affected or impaired by
(a) any direction as to application of payment by the Borrower or by any other
party, or (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the indebtedness of the
Borrower, or (c) any payment on or in reduction of any such other guaranty or
undertaking, or (d) any dissolution, termination or increase, decrease or change
in personnel by the Borrower, or (e) any payment made to the Administrative
Agent or the Lenders on the indebtedness which the Administrative Agent or such
Lenders repay the Borrower pursuant to court order in any bankruptcy,
reorganization,
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arrangement, moratorium or other debtor relief proceeding, and each of the
Guarantors waives any right to the deferral or modification of its obligations
hereunder by reason of any such proceeding.
Section 10.4 Independent Obligation.
The obligations of each Guarantor hereunder are independent of the
obligations of any other guarantor or the Borrower, and a separate action or
actions may be brought and prosecuted against each Guarantor whether or not
action is brought against any other guarantor or the Borrower and whether or not
any other Guarantor or the Borrower is joined in any such action or actions.
Section 10.5 Authorization.
Each of the Guarantors authorizes the Administrative Agent and each
Lender without notice or demand (except as shall be required by applicable
statute and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to (a) renew, compromise, extend, increase,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of the indebtedness or any part thereof in accordance with this Agreement,
including any increase or decrease of the rate of interest thereon, (b) take and
hold security from any guarantor or any other party for the payment of this
Guaranty or the indebtedness and exchange, enforce waive and release any such
security, (c) apply such security and direct the order or manner of sale thereof
as the Administrative Agent and the Lenders in their discretion may determine
and (d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligors.
Section 10.6 Reliance.
It is not necessary for the Administrative Agent or the Lenders to
inquire into the capacity or powers of the Borrower or the officers, directors,
members, partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
Section 10.7 Waiver.
(a) Each of the Guarantors waives any right (except as shall
be required by applicable statute and cannot be waived) to require the
Administrative Agent or any Lender to (i) proceed against the Borrower,
any other guarantor or any other party, (ii) proceed against or exhaust
any security held from the Borrower, any other guarantor or any other
party, or (iii) pursue any other remedy in the Administrative Agent's
or any Lender's power whatsoever. Each of the Guarantors waives any
defense based on or arising out of any defense of the Borrower, any
other guarantor or any other party other than payment in full of the
indebtedness, including without limitation any defense based on or
arising out of the disability of the Borrower, any other guarantor or
any other party, or the unenforceability of the indebtedness or any
part thereof from any cause, or the
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cessation from any cause of the liability of the Borrower other than
payment in full of the indebtedness. Without limiting the generality of
the provisions of this Article X, each of the Guarantors hereby
specifically waives the benefits of N.C. Gen. Stat. Section 26-7
through 26-9, inclusive. The Administrative Agent or any of the Lenders
may, at their election, foreclose on any security held by the
Administrative Agent or a Lender by one or more judicial or nonjudicial
sales, whether or not every aspect of any such sale is commercially
reasonable (to the extent such sale is permitted by applicable law), or
exercise any other right or remedy the Administrative Agent and any
Lender may have against the Borrower or any other party, or any
security, without affecting or impairing in any way the liability of
any Guarantor hereunder except to the extent the indebtedness has been
paid. Each of the Guarantors waives any defense arising out of any such
election by the Administrative Agent and each of the Lenders, even
though such election operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of the Guarantors
against the Borrower or any other party or any security.
(b) Each of the Guarantors waives all presentments, demands
for performance, protests and notices, including without limitation
notices of nonperformance, notice of protest, notices of dishonor,
notices of acceptance of this Guaranty, and notices of the existence,
creation or incurring of new or additional indebtedness. Each Guarantor
assumes all responsibility for being and keeping itself informed of the
Borrower's financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the indebtedness
and the nature, scope and extent of the risks which such Guarantor
assumes and incurs hereunder, and agrees that neither the
Administrative Agent nor any Lender shall have any duty to advise such
Guarantor of information known to it regarding such circumstances or
risks.
(c) Each of the Guarantors hereby agrees it will not exercise
any rights of subrogation which it may at any time otherwise have as a
result of this Guaranty (whether contractual, under Section 509 of the
U.S. Bankruptcy Code, or otherwise) to the claims of the Lenders
against the Borrower or any other guarantor of the indebtedness of the
Borrower owing to the Lenders (collectively, the "Other Parties") and
all contractual, statutory or common law rights of reimbursement,
contribution or indemnity from any Other Party which it may at any time
otherwise have as a result of this Guaranty until such time as the
Loans hereunder shall have been paid and the Commitments have been
terminated. Each of the Guarantors hereby further agrees not to
exercise any right to enforce any other remedy which the Administrative
Agent and the Lenders now have or may hereafter have against any Other
Party, any endorser or any other guarantor of all or any part of the
indebtedness of the Borrower and any benefit of, and any right to
participate in, any security or collateral given to or for the benefit
of the Lenders to secure payment of the indebtedness of the Borrower
until such time as the Loans hereunder shall have been paid and the
Commitments have been terminated.
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Section 10.8 Limitation on Enforcement.
The Lenders agree that this Guaranty may be enforced only by the action
of the Administrative Agent acting upon the instructions of the Required Lenders
and that no Lender shall have any right individually to seek to enforce or to
enforce this Guaranty, it being understood and agreed that such rights and
remedies may be exercised by the Administrative Agent for the benefit of the
Lenders under the terms of this Agreement. The Lenders further agree that this
Guaranty may not be enforced against any director, officer, employee or
stockholder of the Guarantors.
Section 10.9 Confirmation of Payment.
The Administrative Agent and the Lenders will, upon request after
payment of the indebtedness and obligations which are the subject of this
Guaranty and termination of the Commitments relating thereto, confirm to the
Borrower, the Guarantors or any other Person that the such indebtedness and
obligations have been paid and the Commitments relating thereto terminated,
subject to the provisions of Section 10.2.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by its proper and duly authorized officers as of the
day and year first above written.
BORROWER: SLEEPMASTER L.L.C.,
a New Jersey limited liability company
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
GUARANTORS: SLEEPMASTER HOLDINGS L.L.C.,
a New Jersey limited liability company,
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
LOWER ROAD ASSOCIATES, LLC
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
PALM BEACH BEDDING COMPANY, a
Florida corporation
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
HERR MANUFACTURING COMPANY,
a Pennsylvania corporation
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
SLEEPMASTER FINANCE CORPORATION
a Delaware corporation
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
<PAGE> 102
AGENT AND LENDERS: FIRST UNION NATIONAL BANK,
as Administrative Agent and as a Lender
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
<PAGE> 1
Exhibit 10.36
10.66c
DATE: JANUARY 1, 1999
ATTENDANCE PROGRAM
In the interest of fairness to all employees, we have amended the attendance
program as follows:
In order to service our customers, Serta Mattress Company expects proper
attendance from its employees. Because of this commitment to our customers, we
have developed a "No-Fault" system.
Jury duty, bereavement, military service, work related injury and
hospitalization will be treated as a leave of absence. All other incidences will
be considered and scheduled accordingly. Any tardiness, early departure or
absence will be counted under this program.
A total of two (2) points will be allowed in a rolling 90 day period. Absence
with a doctor note or tardiness or early departure initiated by an employee will
result in a half (1/2) point assessment. Any absence, excluding the above
mentioned, will result in a one (1) point assessment with an additional half
(1/2) point assessment for failing to notify the company of the absence, at
least 30 minutes after the start of shift.
If an employee misses more than one consecutive work day and complies with the
attendance program, including presenting a doctors note upon return, the
incident will be considered as a single occurrence worth half (1/2) point.
However, failure to call in on three consecutive working days will result in an
immediate dismissal.
Disciplinary procedures for excessive absenteeism are as follows :
Two (2) points - written warning
Three (3) points - one (1) day suspension without pay
Four (4) points - 3 day suspension without pay
Five (5) points - dismissal
Remember, coming to work is your responsibility and as long as you stay within
the guidelines, no questions are asked.
<PAGE> 2
1997 - 1999
COLLECTIVE AGREEMENT
BETWEEN :
STAR BEDDING PRODUCTS (1986) LIMITED
- AND -
UNITED STEELWORKERS OF AMERICA
LOCAL 400
<PAGE> 3
INDEX
Article Page
1 Purpose of Agreement 3
2 Recognition and Coverage 3
3 Management Rights 5
4 Union Rights 5
5 Union Security 6
6 Union Dues Check-Off 6
7 Representation 7
8 Grievance Procedure 10
9 Arbitration 11
10 Discharge Cases and Suspensions 12
11 General 13
12 Strikes and Lock-Outs 14
13 Seniority 15
14 Loss of Seniority 18
15 Curtailment Procedure 19
16 Stand-By Pay 20
17 Wages 21
18 Cost of Living Bonus 23
19 Time Study 24
20 Job Posting 27
21 Hours of Work 27
22 Overtime 29
23 Statutory Holidays 29
24 Vacations With Pay 30
25 Rest Periods 32
26 Jury Duty 32
27 Leave of Absence 33
28 Bereavement Leave 35
29 Key Man 35
30 UIU Health and Welfare Fund 35
<PAGE> 4
INDEX CONTINUED - PAGE 2
Article Page
31 Pension Plan 36
32 Bulletin Board 36
33 Safety and Health 36
34 Correspondence 37
35 Technological Change 38
36 Credit Union Check-Off 38
37 Copies of Agreement 38
38 Medical Certificate 39
39 Minute of Silence 39
40 Renewal - Amendment - Termination 39
Schedule "A" - Job Classifications and Hourly & Base Rates of Pay
Letter of Understanding - truck driver
Letter of Understanding - new hiree
<PAGE> 5
- 3 -
THIS AGREEMENT entered into this day of , 19
B E T W E E N :
STAR BEDDING PRODUCTS (1986) LIMITED
(hereinafter called "the Employer")
- - and -
UNITED STEELWORKERS OF AMERICA,
LOCAL 400
(hereinafter called "the Union")
ARTICLE 1 - PURPOSE OF AGREEMENT
(a) The parties agree that the purpose of this Agreement is to provide
orderly collective bargaining relations between the Employer and the
Union, to secure a prompt and equitable disposition of grievances and
to eliminate interruption of the Employer's business.
ARTICLE 2 - RECOGNITION AND COVERAGE
(a) The Employer recognizes the Union as the sole collective bargaining
agent for all hourly-rated and piece-work employees, including those on
salary, who are engaged in production, shippers and truck drivers, save
and except foremen those above the status of foreman and office staff.
<PAGE> 6
- 4 -
ARTICLE 2 - CONTINUED
(b) The word "employee" or "employees" whenever used in this Agreement
shall mean any or all employees, male or female, in the bargaining unit
as defined above, except as hereinafter provided.
(c) Foremen Working Persons not covered by the scope of the bargaining unit
will not perform work normally performed by members of the bargaining
unit except for purposes of instruction, training, when emergencies
arise or when bargaining unit employees are not present or available.
(d) Should any of the present operations be moved to a location or
locations in Ontario within one hundred and twenty five (125)
kilometers of the boundary of Metropolitan Toronto this Agreement shall
be extended to cover such locations.
(e) Subcontracting The Union acknowledges that it does not object to the
kind of subcontracting which has been done by the Employer.
As for subcontracting additional kinds of work, the parties wish to
avoid subcontracting such work. If work currently being performed by employees
in the bargaining unit is to be subcontracted, and if such subcontracting could
result in a lay-off of employees from the bargaining unit, the matter will be
discussed with the Union.
<PAGE> 7
- 5 -
ARTICLE 3 - MANAGEMENT RIGHTS
(a) The Union recognizes the right of the Employer to hire, promote and
demote, transfer, suspend or otherwise discipline and discharge any
employee subject to the terms of this Agreement. However, the Employer
shall notify the Service Representative of the Union before discharging
or suspending any employee in order to give the Union an opportunity to
investigate the case before the actual discharge or suspension takes
place.
(b) The Union further recognizes the undisputed right of the Employer to
operate its business in all respects in accordance with its commitments
and responsibilities. The location of equipment, the products to be
manufactured, the schedule of production, the methods, processes and
means of manufacturing are exclusively the responsibility of the
Employer.
ARTICLE 4 - UNION RIGHTS
(a) It is agreed that there will be no collection of dues or other
activities on the premises of the Employer during working hours, except
as permitted by this Agreement. It is further agreed that meetings
respecting the Union or its activities shall be held on the premises of
the Employer only with the prior approval of the Employer with the
exception of meetings of the Union Shop Committee concerning
grievances.
<PAGE> 8
- 6 -
ARTICLE 5 - UNION SECURITY
(a) The Employer agrees that all employees in the bargaining unit who have
served a probationary period of sixty (60) days worked shall become and
remain members of the Union in good standing as a condition of
employment.
(b) Members of the Union herein shall have preference whenever possible
when hiring additional employees.
(c) When requested, the Employer will provide the Union with an up-to-date
list of employees but not oftener than twice per year. Such list will
be mailed to the Union's Toronto Area Office and will contain the
employee's latest address, phone number, postal code and social
insurance number on file with the Employer.
ARTICLE 6 - UNION DUES CHECK-OFF
(a) The Employer shall deduct from the pay of each member of the bargaining
unit, weekly, such Union dues, fees and assessments as prescribed by
the Constitution of the Union.
(b) The Employer shall remit the amounts so deducted, prior to the
fifteenth (15th) day of the month following, by cheque, as directed by
the Toronto Area Office, payable to the International Treasurer, P.O.
Box 13083, Postal Station "A", Toronto, Ontario, M5W 1V7.
<PAGE> 9
- 7 -
ARTICLE 6 - CONTINUED
(c) The monthly remittance shall be accompanied by a statement showing the
name of each employee from whose pay deductions have been made and the
total amount deducted for the month. Such statements shall also list
the names of the employees from whom no deductions have been made and
the reasons why, along with Union Form R115.
(d) The Union agrees to indemnify and save the Employer harmless against
all claims or other forms of liability that may arise out of or by
reason of deductions made or payments made in accordance with this
Article.
(e) The Employer agrees to record the total amount of annual Union dues
paid by an employee on his or her T4 Income Tax slip.
ARTICLE 7 - REPRESENTATION
(a) The Union may appoint and the Employer shall recognize a Committee
composed of three (3) employees, one (1) of whom shall be the Chairman
of the Committee.
(b) Each Committeeman, at the time of his appointment, shall have at least
one (1) year of seniority with the Company.
<PAGE> 10
- 8 -
ARTICLE 7 - CONTINUED
(c) The Union shall notify the Employer in writing from time to time of the
names of the Committeemen and the effective dates of their respective
appointments, the names of the former Committeemen who are being
replaced, and the name of the Chairman of the Union Shop Committee.
(d) A Committeeman, with the approval of the Employer, shall be permitted
during regular working hours, without loss of time at his regular rate
of pay, to leave his regular duties for a reasonable period of time to
adjust and present grievances. Stewards and Shop Chairman will be
afforded reasonable freedom of the shop to properly carry out their
duties as the Shop Committee.
(i) Payment for Negotiating Committee - During negotiations for
the renewal of this Collective Agreement the Employer agrees
to contribute fifty percent (50%) towards the wages of the
Negotiating Committee for negotiation meetings between the
parties, up to but not including conciliation and
post-conciliation meetings. The Employer will pay the employee
the Union's share and bill the Union, and the Union agrees to
remit payment to the Employer promptly.
(e) It is hereby agreed and understood that no person is authorized to act
as or be deemed to be an authorized agent of any party to this
Agreement unless the party appointing such authorized agent has first
notified the other in writing of such appointment and the scope of
authority of such an agent.
<PAGE> 11
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ARTICLE 7 - CONTINUED
(f) It is hereby agreed and understood that the following persons only
shall be deemed the authorized agents of the respective parties for the
purpose of performing the terms of this Agreement :
Duly authorized agents of the Union shall be :
(i) The Service Representative of Local 400, and
(ii) Any other person especially authorized by the United
Steelworkers of America whose identity and scope of authority
is made known to the Employer by written communication by the
United Steelworkers of America.
(iii) No Agent of the Union is authorized by the International Union
to breach or cause a breach of this Agreement or to call or
institute a work stoppage of any type, unless same has been
authorized in writing by the International President of the
Union.
Duly authorized agents of the Employer shall be :
(i) The Manager and/or Superintendent of the plant.
(ii) Any other person authorized by the Employer to act as his
agent whose identity and scope of authority has been made
known to the International Union and to the Local Union by
written communication from said Employer.
<PAGE> 12
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ARTICLE 8 - GRIEVANCE PROCEDURE
(a) It is the mutual desire of the parties hereto that complaints shall be
adjusted as quickly as possible, and it is understood that no employee
has any grievance until he has first given his foreman an opportunity
of adjusting his complaint.
(b) Should any employee have a complaint that he has been unable to settle
with the foreman, the matter may be taken up in writing, within two (2)
full working days by the aggrieved employee who shall be accompanied by
a steward with the Factory Manager.
(c) Failing settlement of the grievance, with the Factory Manager, the
matter may be taken up within ten (10) working days between the Union
Shop Committee and the General Manager.
(d) A duly authorized officer or representative of the Union shall have the
right of access to the workers at any time for the purpose of
discussing Union business provided he first identifies himself at the
office of the Company and provided also that the work in the plant is
not thereby interfered with by such access.
(e) Any difference or grievance arising directly between the Employer and
the Union may be submitted at a meeting between representatives of the
Employer and the Union, called by either party on five (5) days notice
for that purpose.
<PAGE> 13
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ARTICLE 8 - CONTINUED
(f) At any stage of the grievance procedure, including arbitrations, the
conferring parties may have the assistance of the employee or employees
concerned and any necessary witnesses, and all reasonable arrangements
will be made to permit the conferring parties to have access to the
plant to view disputed operations and to confer with the necessary
witnesses.
(g) Any and all time limits set forth in this Article and Article 9 may, at
any time, be extended by mutual agreement between the parties hereto.
ARTICLE 9 - ARBITRATION
(a) Failing settlement under the grievance procedure of any difference
concerning the interpretation or alleged violation of this Agreement,
the matter in dispute may be taken to arbitration provided that if no
written request is received within ten (10) days after the final
decision is given under the grievance procedure, it shall be deemed to
have been settled or abandoned.
(b) When either party requests arbitration as hereinafter provided, it
shall make such request in writing. The arbitrator shall be selected in
accordance with the provisions of the Ontario Labour Relations Act.
(c) No matter may be submitted to arbitration which has not been properly
carried through the grievance procedure.
<PAGE> 14
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ARTICLE 9 - CONTINUED
(d) The arbitrator shall not be authorized to make any decision
inconsistent with the provisions of this Agreement or to alter, modify
or amend any part of this Agreement.
(e) The proceedings of the arbitrator will be expedited by the parties
hereto and the decision of the arbitrator shall be final and binding
upon the parties hereto.
(f) The parties hereto will each bear one-half (1/2) of the expenses of the
arbitrator appointed by them.
ARTICLE 10 - DISCHARGE CASES AND SUSPENSIONS
(a) New employees shall be considered as probationary employees for the
first sixty (60) days worked of their employment.
(b) A claim by a seniority employee that he has been unjustly discharged
shall be treated as a grievance provided a written statement of such
grievance is lodged with the Employer within five (5) days after the
employee ceased to work for the Employer.
(c) Such grievance shall be settled by confirming the Employer's action in
dismissing the employee, or by reinstating the employee with full
compensation for time lost or by any other arrangement which is just
and equitable.
<PAGE> 15
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ARTICLE 11 - GENERAL
(a) No individual contract or agreement shall be made between the Employer
and any employee for work covered by this Agreement, except upon prior
consultation and written approval of the Union. Any such agreement or
arrangement shall not supersede, waive or nullify any of the provisions
contained in this Agreement.
(b) The Employer agrees to endeavour to notify the Chairman of the Union
Shop Committee of any proposed change in the status of any employee's
hours of work, wages, seniority standing, department transfer, and if
anyone is to perform work outside of the scheduled working days.
(c) On the request to the Employer by the Chairman of the Union Shop
Committee, the said Chairman shall have the privilege to examine the
pay records of any employee in the case of any grievance, which
involves any of the said employees.
(d) In order to enhance employees' pride in the workplace, employees will
be required to identify their pieces produced by methods such as
initialing or stamping the reverse side of the product lawtag. The
intent of this clause is not to discipline an employee, however
management reserves its right to monitor an employee's performance.
<PAGE> 16
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ARTICLE 12 - STRIKES AND LOCK-OUTS
(a) In view of the orderly procedure for settling grievances the Employer
agrees that it will not cause or direct any lock-out of the employees.
(b) The Union agrees that it will not authorize any strike, slowdown or any
other stoppage of work, partial or complete, by individual or
collective action.
(c) Any employee or employees instigating or taking part in any such
strike, slowdown, or other stoppage of work may be discharged by the
Employer subject to any rights that the employee may have under the
terms of the grievance procedure.
(d) It is mutually agreed and understood that neither party shall be held
responsible for any damages caused by the act or conduct of any
individual or group of individuals who are acting or conducting
themselves in violation of the terms of the within section or any other
provisions of this Agreement which action or conduct has not been done
by agents of the parties as herein named and specified and which has
not been specifically authorized in writing by the principals to this
Agreement.
(e) It is further mutually agreed that such individuals acting or
conducting themselves in violation of the terms of this Agreement
without written authorization or ratification by the International
President of the Union may be disciplined by the parties hereto.
<PAGE> 17
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ARTICLE 13 - SENIORITY
(a) An employee will be considered on probation and will not be placed on
the seniority list until after he has worked a total of sixty (60) days
for the Employer. By mutual agreement between the Union and the
Employer, the probationary period may be extended by one month.
After the employee has completed his probationary period, his name
shall be placed on the seniority list and his seniority shall commence
from the date of last hiring.
(b) In promoting to higher paid or better jobs with equal pay, transferring
and laying off employees, the seniority standing of each employee in
his own department shall be recognized, provided in the opinion of the
Employer the employee having the greatest seniority is fully qualified
for the job concerned, and further provided that any employee claiming
that he has been discriminated against by the Employer in the
application of this provision, may have his claim determined in
accordance with the grievance procedure.
An employee who is laid off from his department after the application
of the foregoing paragraph will be assigned to displace a less senior
employee from one of the classifications listed below provided he is
fully qualified for the job concerned. Such employee shall receive the
rate of pay for the classification to which he is assigned. The
classifications referred to herein are as follows:
Department - Quilting
- Quilter
- Quilter's helper
- Cutter
<PAGE> 18
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ARTICLE 13 - CONTINUED
Department - Sewing
- Label sewing
- Flanging operator
- Blind stitching
- Border operator
- Foundation capper
- Utility sewer
Department - Mattress
- Mattress builder
- Mattress closer
- Foundation upholsterer
- Line feeder
Department - Utility Operator
- Wrapper
- General factory help
- Janitor
Department - Shipping and Receiving
- Shipper
- Receiver
- Truck Driver
- Loader
(c) Employees working on maintenance jobs shall not be subject to layoff
unless in the opinion of the Employer, it can dispense with all or any
of their services, in which event they shall be subject to layoff on
the basis of seniority, as provided above.
(d) (i) If any employee is transferred from one department to another,
he shall not incur loss of seniority in the department from
which he is transferred for a period of ninety (90) days from
the date of transfer and from that time on departmental
seniority shall govern.
<PAGE> 19
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ARTICLE 13 - CONTINUED
(ii) An employee, who is laid-off for longer than ten (10) working
days and having greater seniority than another employee in a
different department shall displace the said less senior
employee provided that;
(a) the employee with the greater seniority has in the
opinion of the Employer, the necessary ability, skill
and productivity equal to the less senior employee
being displaced, and;
(b) the said senior employee must be able, in the opinion
of the Employer, to demonstrate productivity and an
acceptable quality level within two (2) days if the
said employee has ten (10) years or less seniority or
within five (5) days if he has greater than ten (10)
years seniority. The employee, once successful will
carry his full seniority to the new department.
(e) During slack periods, available work shall so far as is practicable, be
divided in each department so long as there is available thirty-two
(32) hours of weekly work for the department.
(f) An employee may obtain a written leave of absence without loss of
seniority during slack periods in the Employer's business provided that
he returns to work upon being notified by the Employer.
(g) Promotions to supervisory positions shall not be subject to the
provisions of this Agreement.
(h) When an employee is promoted, demoted, or transferred and his seniority
standing is affected, the Employer shall notify the Union if there is
any change in the employee's seniority.
<PAGE> 20
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ARTICLE 13 - CONTINUED
(i) An employee shall not lose any seniority because of absence
due to sickness not exceeding one year provided that upon his
return, he is qualified for the work, and if requested,
furnishes the employer with a satisfactory medical
certificate.
(j) (i) In the event of a layoff the three (3) members of the Union
Shop Committee shall have plant-wide seniority provided each
member thereof is qualified to perform the available work.
Stewards shall be continued at work in their respective
departments so long as there is available work, provided the
Steward is able to satisfactorily perform the work available
at that time and provided the said Steward will accept the
rate of pay for the work that is available at the time.
(ii) When a member of the Union Shop Committee is temporarily
transferred due to a layoff, the said Steward shall maintain
his wage rate if the transfer is for five (5) days worked or
less.
If the transfer is longer than five (5) days worked the said Steward
will accept the rate of pay for work that is available at the time.
ARTICLE 14 - LOSS OF SENIORITY
(a) An employee shall lose all seniority and shall be deemed terminated if
he :
(i) voluntarily quits the employ of the Employer;
(ii) is justifiably discharged;
(iii) fails to return to work after a layoff within three (3) days
of being notified to do so by the Employer or fails to notify
the Employer within the same three days of his intention to
return to work at a date specified by or agreeable to the
Employer; the Employer shall send a duplicate notice to the
Union;
<PAGE> 21
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ARTICLE 14 - CONTINUED
(iv) having less than one (1) year of seniority is laid off for six
(6) months; or having one (1) year or more of seniority is
laid off for one (1) year; or having ten (10) years or more of
seniority is laid off for eighteen (18) months;
(v) is absent from work for three (3) days or more without
providing a reason in writing which is satisfactory to the
Employer and the Union.
(b) It shall be the duty of the employees to notify the Employer
and the Union promptly of any change of their address. If an
employee fails to do this, the Employer will not be
responsible for failure of notice to reach such employee.
ARTICLE 15 - CURTAILMENT PROCEDURE
(a) If there be a general reduction in the number of employees of
the Company, probationary employees shall be the first to be
laid off and thereafter layoff shall take place within
departments according to the seniority within said
departments. Layoff of those holding seniority with the
Company shall not take place until it becomes necessary to
reduce the number of working hours per week in any one
department below thirty-two (32) hours, and before said
seniority layoff, the Shop Chairman shall be notified.
(b) When a layoff takes place according to Section (a) above, it
shall not be compulsory to call any worker back to work,
immediately the work week is increased above the thirty-two
(32) hours stipulated, provided, however, that if said
increase in hours continues for a period of two weeks, laid
off employees shall be called back to work in the inverse
order to that in which they were laid off in sufficient
numbers so that the work week shall not be reduced below
thirty-two (32) hours.
<PAGE> 22
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ARTICLE 15 - CONTINUED
(c) No probationary employees shall be continued at work as long as there
is one permanent employee laid off from work in the plant as a whole.
This provision is subject to Article 13(b).
ARTICLE 16 - STAND-BY PAY
(a) Any employee who reports for work at his regular shift and is told by
the Employer that there is not work available, shall be paid the
equivalent to four (4) hours work at his regular rate; provided that if
requested by the Employer, the employee shall perform available work to
which he may be assigned, and further provided that this shall not
apply in the event of a power or heat failure, fire or other conditions
beyond the control of the Employer.
(b) An employee who loses time in any working day due to circumstances
beyond his control for downtime such as machine breakdown shall be paid
at his classified hourly rate or average hourly earnings for said lost
time for the remainder of the one-half (1/2) shift in which the
breakdown occurs, but in no case for more than four (4) hours.
Downtime is when an employee is unable to perform his work due to his
machinery and/or tooling being down for repair for more than half an
hour and when the company is not able to provide the employee with a
substitute machine or tool.
Downtime will not include disruption to the flow of work and a piece
worker in that case may request his supervisor to send him home. If the
piece worker performs other work during this down time he or she will
be paid base rate.
<PAGE> 23
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ARTICLE 16 - CONTINUED
A piece worker will not replace a time worker in the case of disruption
of work subject to the terms of the collective agreement.
ARTICLE 17 - WAGES
(a) The Employer and the Union agree that a schedule of wages based on
applicable hourly or base rates pertaining to each job classification
is attached hereto and part of this Agreement as Schedule "A".
(b) The employer agrees to grant the following monetary improvements to all
time workers in the bargaining unit and the increases shall be added to
the minimum rates in their respective classifications :
(i) All time workers will receive a 1-1/2% (one and one half
percent) pay increase effective January 1, 1997.
All piece workers will receive a 1/2% (one half percent) pay
increase effective January 1, 1997.
(ii) All time workers will receive a 1-1/2% (one and one half
percent) pay increase effective January 1, 1998.
All piece workers will receive a 1% (one percent) pay increase
effective January 1, 1998.
(iii) All time workers will receive a 1-1/2% (one and one half
percent) pay increase effective January 1, 1999.
All piece workers will receive a 1% (one percent) pay increase
effective January 1, 1999.
(c) Any employee presently receiving a rate above the minimum schedule
shall not have such rate reduced.
<PAGE> 24
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ARTICLE 17 - CONTINUED
(d) The Employer agrees to pay the minimum wage rates described from time
to time under the Employment Standards Act and Regulations to all
learners. In addition, the Employer agrees to increase the learner's
rate twenty cents ($0.20) per hour every month following the date of
commencement of the person's employment until the employee reaches the
applicable base rate.
(e) Any employee who is efficient and produces as much as an experienced
employee shall be paid the full classified rate immediately.
(f) It is agreed that when experienced employees are hired they shall
immediately receive the full classified rate.
(g) In all cases where an employee is engaged in work comprising of more
than one of the classifications as set out above, a satisfactory rate
shall be established for such employee by the Employer and the Union
and such rate after being established shall be set out in writing with
a copy given to each of the said parties.
(h) The Employer accepts the principle of equal pay for equal work as
between male and female employees.
(i) Piece workers shall receive their average hourly piece-work rate for
all authorized time work performed. This shall apply while piece
workers are performing their regular work. Piece-work prices shall be
established in the presence of the Service Representative of the Union
or the Shop Chairman. All prices arrived at shall be set out in writing
and issued to both parties.
<PAGE> 25
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ARTICLE 17 - CONTINUED
(j) Accumulated increases and bonus shall be incorporated within thirty
(30) days from the signing of the Agreement.
(k) An employee in any department shall not suffer loss of time by reason
of a transfer of any work from the section of such employee to another
section in the lower-rated category.
(l) The average hourly piece-work rate will be established on October 1st
and April 1st in each year and will be based on the six (6) months'
previous earnings. The Employer agrees to provide to all piece-workers
fifteen (15) days after October 1st and April 1st of each year a full
and complete statement of their average hourly earnings for the
preceding six-month period.
ARTICLE 18 - COST OF LIVING BONUS
(Consumer Price Index 1971 = 100)
(a) Each employee in the active employ of the Company on each April 1,
during the period of this Agreement, shall receive a lump sum cost of
living bonus for the period of the previous October 1, to March 31 of
that year of sixteen cents ($0.16) per hour.
(b) Each employee in the active employ of the Company on each October 1,
during the period of this contract, shall receive a lump sum cost of
living bonus for the period of the previous April 1, to September 30,
of that year of sixteen cents ($0.16) per hour.
<PAGE> 26
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ARTICLE 18 - CONTINUED
(c) The C.O.L.A. bonus rate of sixteen cents ($0.16) per hour shall remain
in effect until December 31, 1999.
(d) The lump sum cost of living bonuses in paragraphs (a) and (b) hereof
are applicable solely to the period for which each is designated and
none shall be carried over to a subsequent period and no cost of living
bonus shall be folded into any wage rate.
(e) If an employee is on layoff when the payment is made, then if that
person returns to work when recalled he/she will get the C.O.L.A. lump
sum based on the number of hours he/she worked in the period.
(f) C.O.L.A. payments must be made within four (4) pay periods after they
become due.
ARTICLE 19 - TIME STUDY
For the purpose of arriving at a proper piece-work price on all new
items :
(a) The said new item shall be properly timed commencing at the starting
time and ending at the finishing time.
<PAGE> 27
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ARTICLE 19 - CONTINUED
(b) The worker doing the said new item job shall be an experienced average
or medium worker and shall be acceptable both to the Employer and the
employees concerned, and the piece-work prices shall be calculated on
the basis of the actual time taken by the said worker on the third job
of any new item, multiplied by the base rate in the Union Agreement
plus twenty-five percent (25%) incentive. Should the new job be a
similar operation where it is necessary to make more than three (3)
jobs to calculate the piece-work price, the Union and the Employer
shall agree upon the number of jobs necessary in calculating the said
piece-work price.
(c) Should any new jobs so timed in the opinion of either the Union or the
Employer appear to be either undertimed or overtimed, either the Union
or the Employer shall have the privilege of requesting a retiming of
this said new job within a period of four (4) weeks after the said job
has been in production and the retiming shall be done under the
supervision of a representative of the Union and a representative of
the Employer. Failing an agreement, the parties shall bring in an
outside competent time study person whose findings shall be final and
binding on both parties. In the case the parties fail to agree on the
choice of such a competent time study person, either party may request
the Minister of Labour to appoint such a person. The fees and expense
of the appointee shall be shared equally by the parties.
(d) The job shall be paid for on the basis of the original timing and after
the retiming as set out above, the price shall be adjusted up or down;
it being understood that under no circumstances shall there be a
stoppage of work on any item because of any differences of opinion on
the piece-work rate for that item.
<PAGE> 28
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ARTICLE 19 - CONTINUED
(e) It is agreed that should any differences of opinion arise as to the
proper timing of any job, a formal grievance may be entered provided
that the procedure as set out in paragraph 19, subsection (c) has been
carried out as therein set out.
(f) If changes are made in individual elements, a standard adjustment of
piece-work rates may be made by the Employer.
(g) All factory job items will be timed and rated in accordance with the
MTM (Methods-Time Measurement) standard system. These standards are
based on time and motion studies and are independent of any time
clocking system. There will be an implementation of an incentive plan
based on MTM for the following departments by June 30, 1997.
- Quilting
- Border operation
- Pillowtop sewing
- Line Feeding - mattress and foundation
- Wrapping
The Company will have the right in consultation with the Union to
convert piece workers to MTM standards during the period of this
contract. The Company acknowledges that both times and classified
hourly rates need to be considered in this conversion.
<PAGE> 29
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ARTICLE 20 - JOB POSTING
(a) It is agreed that when any position covered by this Agreement, new or
currently established, is vacant, the Company shall post on the
bulletin board for a period of two working days the names and
applicable rates for such positions.
(b) Employees shall submit their applications in writing for such positions
within the above-mentioned period.
(c) The Company shall select the number of employees required for the
positions having consideration for seniority and ability of the
applicants.
(d) Failing to fill the positions as set out in the aforementioned
procedure within a period of three (3) working days from the date of
posting, the Company shall have the right to select an employee from
outside the Company.
ARTICLE 21 - HOURS OF WORK
(a) The standard work week shall consist of forty (40) hours divided as
follows : Monday through Friday :
Time 1
- Eight (8) hours per day
- 7:00 a.m. to 3:30 p.m. with an interval of 1/2 hour for lunch
Time 2
- Eight (8) hours per day
- 7:30 a.m. to 4:00 p.m. with an interval of 1/2 hour for lunch
<PAGE> 30
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ARTICLE 21 - CONTINUED
Time 3
- Eight (8) hours per day
- 8:00 a.m. to 4:30 p.m. with an interval of 1/2 hour for lunch
These times and hours shall not be construed as a guarantee of hours of
work per day or per week, or of days of work per week.
Normal shift times, as listed above, may be changed from time to time
at the company's sole discretion. Any time changes (other than those
listed above) may not be implemented without the mutual consent of the
Union and the Company.
(b) The following outline of penalties shall apply when an employee is late
for work :
0 - 5 minutes late, docked 5 minutes pay,
6 - 10 minutes late, docked 10 minutes pay,
11 - 15 minutes late, docked 15 minutes pay and so on.
<PAGE> 31
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ARTICLE 22 - OVERTIME
(a) Overtime shall be performed on a voluntary basis and all authorized
work performed in excess of the standard work day, Sundays and
statutory holidays shall be considered overtime and shall be paid at
the rate of time and one-half of base rate. The standard work week
shall be completely worked except in the case of accident, sickness or
bereavement, layoff or other justifiable reason.
(b) Should an employee be required to work on any of the holidays for which
he is paid, he shall receive pay for such holiday plus time and
one-half.
(c) It is agreed that no overtime will be performed on the regular local
union monthly meeting night.
ARTICLE 23 - STATUTORY HOLIDAY
(a) The Employer agrees to pay for the following holidays :
New Year's Day
Victoria Day
Good Friday
Canada Day
Civic Holiday
Labour Day
Thanksgiving Day
The day before Christmas, December 24
Christmas Day
Boxing Day
(b) Pay for such holidays shall be eight (8) hours pay at the standard
hourly rate for time workers and eight (8) hours average hourly
earnings for piece workers based on the past six (6) months.
<PAGE> 32
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ARTICLE 23 - CONTINUED
(c) In the event of a statutory holiday falling on a Saturday or Sunday,
such holiday shall be observed on the following Monday.
(d) To qualify for the above listed holidays, an employee shall work the
last scheduled work day prior to and the first scheduled work day
following such holiday except in the case of accident, sickness,
bereavement or other justifiable reason.
(e) Employees with seniority who have been laid off or who have gone on
sick leave will qualify for holiday pay provided they have worked
within two (2) weeks of the holiday.
(f) When one of the above holidays falls within an eligible employee's
vacation period, he shall receive full pay for such holiday and an
additional day off.
(g) Upon completion of the employee's probationary period the employee will
be paid for all statutory holidays which occur during his probationary
period provided the employee meets the qualification requirements set
out in Article 23(d) and (e).
ARTICLE 24 - VACATIONS WITH PAY
(a) All employees at June 30 who have been in the employ of the Company
less than one (1) year shall receive as vacation pay four percent (4%)
of the employee's total earnings calculated from the commencement of
their employment to June 30 as provided by the Employment Standards Act
of Ontario.
<PAGE> 33
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ARTICLE 24 - CONTINUED
(b) Each employee who has been steadily employed in the Company for a
period of more than one (1) year but less than five (5) years prior to
June 30 shall receive two (2) weeks' vacation and payment shall be four
percent (4%) of the employee's total earnings to be computed from the
last date vacation pay was paid to June 30th.
(c) Each employee who has been steadily employed in the Company for a
period of more than five (5) years but less than fifteen (15) years
prior to June 30 shall receive two (2) weeks' vacation granted
concurrently and a third week shall be taken at such time that the
Company and the employee shall mutually agree upon and payment shall be
six percent (6%) of the employee's total earnings to be computed from
the last date vacation pay was paid to June 30th.
(d) Each employee who has been steadily employed in the Company for a
period of fourteen (14) years or more prior to the vacation shall
receive two (2) weeks' vacation granted concurrently and an additional
two (2) weeks' vacation which shall be taken at such time that the
Company and the employee shall mutually agree upon. Payment shall be
eight percent (8%) of the employee's total earnings to be computed from
the last date vacation pay was paid to June 30th.
(e) Vacation requests must be submitted in writing at least sixty (60) days
prior to the requested leave dates. The vacation period for the
employees who have not indicated any preference shall be scheduled at
the Employer's discretion. Should there be a conflict in the requested
vacation dates, the Employee with the most seniority in the department
shall be given preference.
<PAGE> 34
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ARTICLE 24 - CONTINUED
An employee who has more than two weeks vacation shall be limited to
taking two weeks vacation during the prime vacation period, ie: June 15
to September 15. The remainder of the employee's vacation shall be
scheduled outside the prime vacation time, but not later than the end
of the calendar year.
(f) Vacations shall not be accumulated or waived but must be taken within
the current calendar year.
(g) An employee who leaves the employment of the Employer for any reason
prior to June 30th shall receive a vacation pay based on the previous
year's vacation entitlement.
(H) "Gross earnings" shall mean - total taxable earnings for the fifty-two
(52) week period from July 1st to June 30th.
ARTICLE 25 - REST PERIODS
(a) The Employer agrees to continue rest periods of 15 minutes each in the
morning and 10 minutes in the afternoon. The Employer also agrees to
give the employees 5 minutes allowance for cleaning up immediately
before the end of the work day.
ARTICLE 26 - JURY DUTY
(a) All employees who are called to jury duty shall be paid for their lost
time on a make-up basis between their base rate and any outside fees
paid.
<PAGE> 35
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ARTICLE 27 - LEAVE OF ABSENCE
(a) Union Business Leave
Up to two (2) employees who have been elected or appointed by the Union
to attend Union conventions or conferences will be granted an unpaid
leave of absence provided that the Union gives the Employer a minimum
of five (5) working days notice in writing and provided that such
absence does not interfere with the efficient operation of the plant.
(b) The Employer agrees to continue the pay of any employee absent from
work on Union business which is not paid for by the Employer as
provided for elsewhere in the Agreement and the Union shall reimburse
the Employer for such wage payment upon receipt of a monthly statement.
Such leave of absence shall be authorized in writing by the Union.
(c) Provided the Union gives the Employer at least one (1) month's written
notice the Employer agrees to grant an employee leave of absence
without pay or benefits for up to one (1) year to work in an official
capacity for the Union provided :
(c) (i) such request is made by an authorized representative of the
Union, and
(ii) such absence does not interfere with the efficient operation
of the plant.
(d) Paid Education Leave
(i) The Employer agrees to pay into a special fund one
cent ($0.01) per hour per employee for all
compensated hours, for the purpose of providing paid
education leave.
<PAGE> 36
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ARTICLE 27 - CONTINUED
(ii) The purpose of paid educational leave will be to
upgrade the employees in all aspects of handling
their Union Functions in respect to employer/employee
relations.
(iii) Such monies will be paid quarterly into a trust fund
established and administered by the United
Steelworkers of America, and sent to 25 Cecil Street,
Toronto, M5T 1N1; accompanied by data showing the
basis of payment.
(iv) The Employer further agrees that members of the
bargaining unit, selected by the Union to attend the
recognized Union Educational courses, will be granted
a leave of absence without pay for up to twenty (20)
days actual instruction time, plus travel days, where
necessary, in any twelve (12) month period. Seniority
will continue to accrue during any such absence.
(e) Pregnancy Leave
If an employee is absent from her employment for a continuous period of
not more than six (6) months by reason of pregnancy, she shall be
entitled to return to her job upon recovery from pregnancy.
(f) Any new employee hired to take the place of the person who left due to
pregnancy above shall have her employment terminated when the old
employee returns to her job.
<PAGE> 37
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ARTICLE 28 - BEREAVEMENT LEAVE
(a) When death occurs in a seniority employee's immediate family (i.e.,
current spouse, father, mother, child, brother, sister, mother-in-law,
father-in-law) the employee on request will be excused from work for a
period of three (3) consecutive working days up to and including the
day after the funeral and shall be paid for such time at his or her
hourly rate of pay or average earnings. Such employee shall not be
entitled to receive any pay hereunder for any day upon which he or she
would not have been scheduled or expected to work for the Employer.
(b) When death occurs to an employee's sister-in-law, brother-in-law,
grandparent or grandchild the employee on request will be excused from
work for a period of one (1) day provided the funeral is on the
employee's regular working day (the employee is not required to attend
the funeral).
ARTICLE 29 - KEY MAN
(a) The key Man shall receive a premium of twenty-five cents ($0.25) per
hour only when the Employer tells him or her in writing to take over
the department when the foreman is away.
ARTICLE 30 - UIU HEALTH AND WELFARE FUND
(a) The Employer agrees to pay towards the Upholsterers' International
Union Health and Welfare Plan or equivalent a sum equal to 5.6% of the
total Union employees' payroll. The said 5.6% to be forwarded by cheque
to the Upholsterers' International Union of North America, Local 400,
not later than the fifteenth day of each month for the preceding month.
<PAGE> 38
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ARTICLE 31 - PENSION PLAN
(a) The Employer agrees to pay to the Union three and one-half percent
(3.5%) of the gross wages earned by its employees and members of this
Union to be paid by the Union into the Group Registered Retirement
Savings Plan Fund.
The Union is to provide the Employer with a copy of the Group
Registered Retirement Savings Plan documents and Group Registered
Retirement Savings Trust Agreement within one (1) month after
ratification of this Agreement.
ARTICLE 32 - BULLETIN BOARD
(a) The Employer agrees that the Union may use a bulletin board designated
for the purpose provided that its use shall be restricted to the
posting thereon of such notices as have received the prior approval of
the Employer and such notices shall pertain to meetings, social
activities and Union business.
ARTICLE 33 - SAFETY AND HEALTH
(a) The Employer, the Union and the employees agree to cooperate in the
prevention of accidents and the enforcement of plant safety rules. No
employee shall be required to work on any operation that is or can be
considered a hazard to health or life.
<PAGE> 39
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ARTICLE 33 - CONTINUED
(b) Payment for Injured Employees
In the event that an employee is injured in the performance of his
duties, he shall, to the extent that he is required to stop work and
receive treatment, be paid for wages the remainder of his shift. If it
is necessary, the Employer will provide or arrange for suitable
transportation for the employee to the doctor or hospital and back to
the plant and/or to his home as necessary.
(c) Safety Boots
The Company will contribute sixty-five dollars ($65.00) once per
calendar year towards the cost of one (1) pair of safety boots for
employees having one (1) year's seniority who are required by the
Company to wear safety boots. The employee must produce a valid receipt
for the current year in order to receive the sixty-five dollars
($65.00) for such year. Such employee must wear his safety boots at
work.
ARTICLE 34 - CORRESPONDENCE
(a) Except where otherwise provided, any notice which either party desires
to give to the other shall be given by prepaid registered post as
follows :
TO THE EMPLOYER:
Star Bedding Products (1986) Limited
53 Courtland Avenue
Concord, Ontario
L4K 3T2
TO THE UNION:
United Steelworkers of America
Upholstery Division
115 Albert Street
P.O. Box 946
Oshawa, Ontario L1H 7N1
<PAGE> 40
- 38 -
ARTICLE 34 - CONTINUED
(b) Any notice given under this Agreement as above shall be deemed given
and received as of the business day following the date of mailing.
ARTICLE 35 - TECHNOLOGICAL CHANGE
(a) In the event of technological change which results in the displacement
of an employee from his job, the Employer and the Union will meet to
discuss alternatives available to help such employee avoid layoff or
termination of employment. Such alternatives may include training,
reassignment to available work, or exercise of seniority provisions of
this Agreement.
ARTICLE 36 - CREDIT UNION CHECK-OFF
(a) Upon request of an employee, the Employer agrees to implement weekly
payroll deductions for the Steelworkers Credit Union and remit
deductions on a monthly basis to the Toronto Steelworkers Credit Union,
25 Cecil Street, Toronto, Ontario, M5T 1N1.
ARTICLE 37 - COPIES OF AGREEMENT
(a) The Employer is prepared to print fifty (50) copies of this Agreement
and give them to the Union Steward for distribution. The Employer is
prepared to distribute additional copies if an employee so requests.
<PAGE> 41
- 39 -
ARTICLE 38 - MEDICAL CERTIFICATE
(a) When an employee is requested by the Employer to provide a medical
certificate, the Employer will reimburse him to a maximum of ten
dollars ($10.00) upon presentation of a valid receipt.
ARTICLE 39 - MINUTE OF SILENCE
(a) The Employer agrees to observe April 28th of each year as a Day of
Mourning in recognition of workers who were killed or injured on the
job; and in this regard will observe one (1) minute of silence at 11
a.m. on this day.
ARTICLE 40 - RENEWAL - AMENDMENT - TERMINATION
(a) This Agreement shall come into force on January 1, 1997 and shall
remain in full force until the 31st day of December, 1999 and shall be
renewed and remain in force from year to year unless notice of
termination is given by either party thirty (30) days prior to the
expiry date.
(b) Either party may on ten (10) days notice in writing require the other
party to enter into negotiations for renewal or amendment of this
Agreement within the period of three months prior to the expiry date
and both parties shall thereupon enter into such negotiations in good
faith and make every effort to secure such a renewal.
(c) Notice to modify or amend this Agreement shall not be deemed notice to
terminate.
<PAGE> 42
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
signed by its duly authorized representatives as of this
day of , 1997.
STAR BEDDING PRODUCTS (1986) LIMITED
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UNITED STEELWORKERS OF AMERICA
through its agent,
LOCAL 400
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LETTER OF UNDERSTANDING
It is agreed that if a truck driver loses his license, the Company will
in its discretion place the employee in an open job in the plant.
DATED AT TORONTO this day of , 1997.
STAR BEDDING PRODUCTS (1986) LIMITED
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UNITED STEELWORKERS OF AMERICA
Through its agent,
LOCAL 400
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<PAGE> 43
LETTER OF UNDERSTANDING
The Employer agrees that a new employee hired after the commencement of
this Agreement will not receive a rate of pay higher than that being
paid a present employee with similar qualifications in the same job.
DATED AT TORONTO this day of , 1997.
STAR BEDDING PRODUCTS (1986) LIMITED
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UNITED STEELWORKERS OF AMERICA
Through its agent,
LOCAL 400
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<PAGE> 44
SCHEDULE "A"
STAR BEDDING PRODUCTS (1986) LIMITED
JOB CLASSIFICATIONS AND HOURLY & BASE RATES OF PAY
The company and the Union agree to the following minimum rates of pay:
<TABLE>
<CAPTION>
- Memo Only - Effective on Effective on Effective on
Current Rates Jan 1, Jan 1, Jan 1,
Department Job Classification 12/96 1997 1998 1999
- ---------- ------------------ ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Quilting - Quilter 7.75 7.86 7.97 8.09
- Cutter 7.75 7.86 7.97 8.09
Sewing - Machine operator 7.73 7.77 7.85 7.92
Mattress - Mattress builder 7.86 7.90 7.98 8.06
- Mattress closer 7.97 8.01 8.09 8.17
- Foundation upholsterer 7.86 7.90 7.98 8.06
- Line feeder 8.01 8.13 8.25 8.37
Utility Operator - Wrapper 8.01 8.13 8.25 8.37
- Shipper 8.73 8.86 8.99 9.12
- Receiver 8.73 8.86 8.99 9.12
- Loader 7.74 7.85 7.96 8.08
- Janitor 7.74 7.85 7.96 8.08
Driver 8.56 8.69 8.82 8.95
</TABLE>
<PAGE> 1
EXHIBIT 10.37
A G R E E M E N T
This Agreement made and entered into this day of May, 1997, by and
between Sleepmaster L.L.C., its plant located in Linden, New Jersey, hereinafter
referred to as the Company, and the United Steelworkers of America (ABG
Division), AFL-CIO, CLC, and its Local Union #396, hereinafter referred to as
the Union.
WITNESSETH:
WHEREAS, it is the intent and purpose of the parties hereto to promote
and improve the industrial and economic relations between the Company, its
employees and the Union, to establish a basic understanding relative to rates of
pay, hours of work, and amicable adjustment of all disputes and grievances.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I - RECOGNITION
The Company recognizes the Union as the sole and exclusive collective
bargaining agency for all of its production and maintenance employees with
respect to wages, hours and conditions of employment, but excluding office
clerical, professional employees, guards, salesmen and all supervisors as
defined in the Act, limited only to its plant located at 2001 Lower Road,
Linden, New Jersey.
ARTICLE II - UNION SHOP
Section 1. It shall be a condition of employment that all employees of
the Company covered by this Agreement who are members of the Union in good
standing on the effective date of this Agreement shall remain members in good
standing, and those who are not members on the effective date of this Agreement
shall, on the thirtieth (30th) day following the effective date of this
Agreement or after the signing of this Agreement, whichever is later, become and
remain members of the Union in good standing.
Section 2. It shall also be a condition of employment that all
employees covered by this Agreement and hired on or after its effective date or
on or after the signing of
<PAGE> 2
this Agreement, whichever is later, shall, on the thirtieth (30th) day following
the beginning of such employment, become and remain members in good standing of
the Union. For the purpose of this Article, a day shall be defined as eight (8)
hours of work.
Section 3. The Company will, within five (5) working days after receipt
of written notice from the Union, discharge any employee who is not in good
standing in the Union as required by the preceding section of this Article.
ARTICLE III - CHECK-OFF
Subject to the provision of Section 302 (c) of the Labor Management
Relations Act and provided that the Company has received from each employee on
whose account such deductions are made a written assignment, the Company shall
deduct periodically, as stated in such authorization, from the wages of each
such employee the membership dues in the Union of such employee and shall remit
same to the Union together with an itemized list. Such remittance shall be made
at the option of the Union, in case of weekly deductions, not later than ten
(10) days after the end of the month in which such deductions are made, and in
the case of monthly deductions, not later than ten (10) days after such
deductions are made.
ARTICLE IV - HOURS OF WORK
Section 1. The hours of work for full-time employees shall consist of
eight (8) hours per day and forty (40) hours per week. A contract holiday shall
be considered as a day worked for the purpose of computation of overtime. Full
time employees shall have an unpaid lunch period of thirty (30) minutes each
work day.
Section 2. Full time employees are those employees who work a regular
shift of forty (40) hours per week, eight (8) hours per day. Part time employees
are those employees who work less than eight (8) hours per day on a part time
shift.
Section 3. It is understood and agreed that because of the nature of
the Company's business, the Company shall have the right to establish various
shifts,
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<PAGE> 3
whether it be day, night, Saturday or Sunday, in order to cover all phases of
its business, after discussion with the Union.
Section 4. All hours worked in excess of eight (8) hours per day and
forty (40) hours per week shall be paid at the rate of time and one-half. All
paid time under the agreement shall be considered working time for the purposes
of calculating overtime. Unpaid time expended on Union business in accord with
Article VIII (Section 2), shall also be included for the purposes of overtime
calculations. All other unpaid time off shall be excluded for purposes of
overtime calculations. If an employee works on Saturday and has worked less than
forty (40) hours that work week because the Company has sent him home early due
to lack of work (or has volunteered to go home early in response to a
supervisor's request for volunteers), the employee will be credited with the
hours he lost due to being sent home early for purposes of calculating overtime
under this Article.
Section 5. Hours of work are from 7:00 A.M. to 3:30 P.M. for first
shift and from 3:30 P.M. to 12:00 A.M. for second shift. Upon six (6) months
written notice to the Union, the Company may establish staggered shifts, the
first shift not to start earlier than 6:00 am nor later than 8:00 am, and the
second shift not to start earlier than 2:30 pm nor later than 4:30 pm. Staggered
shifts are not to be implemented before May 1, 1998.
Section 6. Any employee working past five and one-half (5 1/2) hours
into the shift shall be paid for the remainder of the day if sent home by the
Company except in the case of Acts of God. The Company shall provide employees
with one-half (1/2) hour notice before being sent home.
Section 7. Employees will be given two (2) hours notice for
non-scheduled overtime.
ARTICLE V - HOLIDAYS
Section 1. All employees on the payroll of the Company for thirty (30)
days or more shall be eligible to receive the following holidays:
New Year's Day Thanksgiving Day
Washington's Birthday Day after Thanksgiving
Memorial Day Christmas Day
Fourth of July Good Friday
Employee's Birthday Labor Day
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<PAGE> 4
Paid holiday time will count for overtime purpose.
Section 2. Full-time regular employees who are employed the day before
and the day after a scheduled holiday shall receive eight (8) hours pay at their
base hourly rate for the aforementioned holidays. The employee will be required
to work the full day before and after the holiday, except that the employee will
be given two (2) fifteen (15) minute grace periods with respect to lateness,
which shall apply to a maximum of two (2) holidays during the year. The grace
period shall not excuse the lateness for any purpose outside of this Article.
Those employees who do not work the day before or the day after the said
scheduled holiday shall receive holiday pay if the absence is for any one of the
following:
(a) A compulsory appearance for jury duty or before a draft board.
(b) Inability to work due to an authenticated illness or injury
occurring on such day before or day following such holiday.
(c) Layoff occurring on such day before or day after such holiday.
(d) A necessary court appearance.
(e) A death of the employee's husband or wife or of the employee's
child or parent.
Section 3. If employees work on a named holiday, except employee's
Birthday, they shall receive time and one half plus holiday pay when worked. No
employee shall work on his Birthday without the prior written permission of his
Supervisor. If an employee is required by his Supervisor to work on his
Birthday, he will be paid time and one-half plus the Holiday pay.
Section 4. Employees may request a vacation day on Martin Luther King
Day on a first come first serve basis, the total number of people off to be
determined by the Company.
ARTICLE VI - SICK DAY/PERSONAL DAY
Section 1. Employees who have completed their probation period shall be
entitled to three (3) paid sick/personal days each contract year.
Section 2. Employees shall be paid at their base hourly rate for an
eight (8) hour
-4-
<PAGE> 5
day.
Section 3. An employee shall provide at least fifteen (15) minutes
notice in advance of or at the beginning of the employee's scheduled shift prior
to taking a sick or personal day. If there are multiple requests for the same
personal day such that it interferes with Company operations, seniority shall
govern.
Section 4. Sick/personal days shall be automatically applied to any
unexcused absence. Any sick/personal day not used as of May 1 shall be bought
back by the Company at the base hourly rate for an eight (8) hour day. Paid
sick/personal days shall count for purposes of computing overtime.
ARTICLE VII - VACATIONS
Section 1. Employees who have been in the Company's active employment
for a period of one (1) year or more will be entitled to vacation as of their
anniversary date in accord with the following schedule:
Full-time employees:
Length of Service Vacation Benefits
One (1) year Five (5) days
Two (2) years Six (6) days
Three (3) years Seven (7) days
Four (4) years Eight (8) days
Five (5) years Ten (10) days
Six (6) years Ten (10) days
Seven (7) years Ten (10) days
Eight (8) years Ten (10) days
Nine (9) years Ten (10) days
Ten (10) years Fifteen (15) days
Eleven (11) years Sixteen (16) days
Twelve (12) years Seventeen (17) days
Thirteen (13) years Eighteen (18) days
Fourteen (14) years Nineteen (19) days
Fifteen (15) years or more Twenty (20) days
Section 2. Layoff periods of up to 90 days and leaves of absence of up
to 30 days (12 weeks in the case of FMLA leaves) shall be considered as time in
the Company's active employ for purposes of calculating vacation entitlement.
Section 3. Vacation pay shall be computed at the employee's base hourly
rate of pay. Should a holiday occur during the vacation period, the Company may
either extend the vacation period or pay the employee holiday pay in lieu
thereof.
-5-
<PAGE> 6
Section 4. The calendar year is divided into four vacation periods
corresponding to four calendar quarters. Employees who wish to take vacation in
any quarter should submit their vacation request in writing to their supervisor
thirty (30) days before the start of that quarter. Employees who have timely
submitted their vacation request shall be given preference, based on seniority,
for available slots, which are determined by business needs. Employees who
submit requests late shall be granted vacation based on date of request in light
of available slots, as determined by business needs.
Section 5. No more than two weeks vacation may be taken at any time.
ARTICLE VIII - UNION BUSINESS
Section 1. A Union Official (including shop steward) will be permitted
reasonable time to present and process grievances on the Company property
without loss of time or pay during his regular working hours, provided that: (1)
presentation and processing of grievances will take place at a time designated
by the Shift Supervisor, and (2) only one Union Official (including shop
steward) will be eligible for coverage under this Article during any shift.
Section 2. Duly designated Union Officers and shop stewards shall be
permitted to take unpaid time off for official Union business away from the
plant such as Union conferences, seminars and educational purposes. Such time
off shall be credited for overtime purposes. In order to be granted leave for
Union business: (1) the employee must provide two (2) weeks written notice, (2)
no more than four (4) employees can be off at any given time, and (3) the leave
shall not unduly or unreasonably interfere with the ongoing production needs of
management.
ARTICLE IX - PROBATIONARY EMPLOYEES
New employees shall be on a probationary basis for the first ninety
(90) days. During the probationary period, they shall have no seniority rights,
shall receive no welfare, medical or insured benefits, and may be discharged by
the Company in its sole
-6-
<PAGE> 7
discretion with or without just cause, without recourse to arbitration. If the
employee is retained beyond the ninety (90) days, his name shall be added to the
seniority list and his seniority shall date back to the date of commencement of
employment.
ARTICLE X - RECALLS AND TRANSFERS
An employee who is a member of the bargaining unit and who is either
being upgraded to a supervisory position or is being transferred to a job not
covered by this Agreement shall cease to be covered by this Agreement and shall
not be subject to any of the terms of this collective bargaining agreement.
ARTICLE XI - DISCHARGE
The Company agrees that it will not discharge any non-probationary
employee except for just cause, which means, among other things, but is not
limited to, inefficiency, insubordination, sabotage, drunkenness, bringing
alcohol onto the job, excessive lateness or absence, punching time cards of
other employees or infraction of Company's work rules, which are part of this
Agreement. Notice shall be given to the Union of any discharge, giving a reason
therefor. This clause is not a modification or waiver of any rights by the
parties hereto of the grievance and arbitration provisions of this Agreement. In
the case of a discharge or a suspension, written notice will be given to a Shop
Steward or other Union Representative within one (1) working day. The Union will
have five (5) working days from the date it receives written notice of discharge
or suspension to file a written grievance at Step 1 of the Grievance Procedure.
ARTICLE XII - GRIEVANCE AND ARBITRATION
Section 1. Any dispute or grievance between the Company and its
employees or the Union growing out of the interpretation or application of any
clause of this
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<PAGE> 8
Agreement or any breach or threatened breach of this Agreement, shall be settled
in the following manner (except to the extent that Article XXIX governs):
Step 1: Employees are encouraged to speak directly to their
Supervisors, with or without their Shop Stewards, and work out their on-the-job
problems on an informal basis. If, however, the problem cannot be informally
adjusted, the Union shall file a grievance within five (5) working days of the
grievance having arisen. The grievance must be in writing and must refer to the
article(s) of the Agreement that are alleged to have been violated. The Shop
Steward will meet with the Supervisor to attempt to resolve the grievance. If
the grievance is not resolved, or the Supervisor fails to respond within three
(3) working days, the Union may appeal to the Plant Manager in writing, within
three (3) working days thereafter.
Step 2: If a timely appeal from Step 1 is filed with the Plant Manager,
he will meet with the Union President within three (3) working days after
receipt of the appeal. If no meeting takes place, or if the grievance is not
resolved or the Plant Manager fails to respond within three (3) working days of
their meeting, the Union may appeal to Step 3 in writing within six (6) days of
the date written appeal from Step 1 was filed.
Step 3: If a timely appeal from Step 2 is filed with the Plant Manager,
he will meet with the International Union Representative within ten (10) working
days after receipt of the appeal. If no meeting takes place, or if the grievance
is not resolved, or the Plant Manager fails to respond within three (3) working
days of their meeting, the Union may file for arbitration in writing within
twenty (20) days of the date of the Step 3 meeting, or if no meeting took place,
the Union may file within twenty (20) days of then end of the ten (10) working
day period.
If the Union fails to: file a timely grievance, appeal in timely
fashion to Step 2 or Step 3, or file for arbitration in timely fashion, the
decision of the Company shall be deemed final and shall waive and bar any
subsequent arbitration or other legal challenge by the Union or the grievant.
The parties may mutually agree to extend the time to file a grievance, appeal,
or file for arbitration in writing, but shall be under no obligation to do so.
An extension of time in one instance shall in no way set a precedent or
requirement that an extension be granted in another situation.
Arbitration: The arbitrator shall be designated for this purpose by
agreement between the parties; said arbitrator shall be a member of the American
Arbitration Association or the New Jersey State Board of Mediation. The
arbitration shall proceed in accordance with the rules then pertaining to either
the American Arbitration
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<PAGE> 9
Association or the New Jersey State Board of Mediation, whichever is selected.
The cost of arbitration shall be borne equally by the Union and the Company. The
failure of either party to submit an arbitrable dispute to arbitration within
the time limited by this paragraph shall be conclusively deemed to be a waiver
of its right thereto and of the claim upon which it is based. No individual
employee may initiate an arbitration proceeding, it being agreed and understood
that the Company and the Union are the only parties at interest herein.
Section 2. Nothing herein contained shall be construed as depriving the
parties hereto of the right to initiate and process a grievance directly with
each other and thereafter to utilize the arbitration procedures of this Article.
Section 3. There shall be no right to arbitration to obtain, and no
arbitrator shall have the authority to make an award granting any change,
modification, alteration of, addition to or subtraction from the provisions
contained in this Agreement.
ARTICLE XIII - BULLETIN BOARD
The Company shall provide a bulletin board for the exclusive use of the
Union at each time clock. No item derogatory to any employee or to the Company
shall be posted on this bulletin board.
ARTICLE XIV - SANITARY CONDITIONS
The Company will comply with applicable safety and health regulations.
The Company, Union and all employees shall cooperate in maintaining a safe and
sanitary work environment. The Company shall post a sign in the locker rooms
providing notice that any employee defacing property or creating unsanitary
conditions will be terminated by agreement of the Company and the Union.
ARTICLE XV - EMPLOYEE INJURY
Any employee injured during working hours shall receive the rest of the
day off without loss of pay, provided that the injuries are such that a doctor
orders the employee not to return to work.
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<PAGE> 10
ARTICLE XVI - MILITARY SERVICE
Any employee who enters military service or training in the armed
forces of the United States or its subdivisions shall, upon completion of such
service or training, be restored to his employment status, provided that he can
do the work, and shall be entitled to the benefits as provided for by law.
ARTICLE XVII - NON-DISCRIMINATION
No employee shall be subjected to any discrimination because of his
race, creed, color or for Union activities.
ARTICLE XVIII - MANAGEMENT RIGHTS
Section 1. Subject only to any limitations stated in this Agreement,
the Union recognizes that the Company retains the exclusive right to manage its
business, including but not limited to the right to determine the methods and
means by which its operations are to be carried on; to direct work force; to
conduct its operations in a safe and effective manner; to decide the number and
location of plants, the equipment, the products to be used, the method of
operation, the scheduling; to determine whether and to what extent the work
required in its business shall be performed by employees covered by this
Agreement; to maintain order and efficiency in its plant and operations; to
hire, lay off, assign, transfer, promote and determine the starting and quitting
time and the number of hours to be worked; to discipline, suspend and discharge
employees for cause, including violation of any of the terms of this Agreement.
Section 2. The above rights of management are not all inclusive but
indicate the type of matters and rights which belong to and are inherent to
management. Any of the rights, powers and authority the Company had prior to
entering into this collective bargaining agreement are retained by the Company,
except as expressly and specifically abridged, delegated, granted or modified by
this Agreement.
Section 3. The Union recognizes the right of the Company to establish,
maintain and enforce, reasonable plant rules and regulations and to revise such
rules and regulations, provided they do not conflict with the provisions of this
Agreement.
ARTICLE XIX - UNION MACHINERY AND GRIEVANCE TIME
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All consultations regarding grievances through the first two steps of
the grievance machinery provided for in Article XII shall not take place on
Company time during regular hours. The Shop Steward only shall be allowed to
process grievances during Company time. The employees' committee for this
purpose shall be limited to the Shop Steward or in his absence, a member of the
Shop Committee and the grievant. Representatives of the Union and/or the
International may also attend any and all consultations dealing with grievances,
as provided for in the first in the first two steps of Article XII.
ARTICLE XX - ALTERATION OF AGREEMENT
No agreement, understanding, alteration, variation, waiver or
modification of the terms, provisions, covenants or conditions contained in this
Agreement shall bind the parties hereto, unless made and executed in writing and
signed by the parties hereto and made a part hereof.
ARTICLE XXI - NO STRIKE OR LOCKOUT
Section 1. The Company agrees not to conduct a lockout for the duration
of this Agreement.
Section 2. The Union agrees that it will not cause, call, sanction or
authorize any strike, slowdown or work stoppage against the Company.
Section 3. Employees engaging in strikes or work stoppages not
authorized by the Union may be disciplined by the Company, subject to the
grievance procedure. Employees engaging in a strike, slowdown or work stoppage
not authorized by the Union and who fail to resume work promptly after being
directed to do so by the Union shall lose the status as such.
ARTICLE XXII - REST PERIOD
There shall be one (1) paid fifteen (15) minute rest period in the
morning and a
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fifteen (15) minute rest period in the afternoon before quitting time. There
shall be no wash up time.
ARTICLE XXIII - REPORTING PAY
Employees reporting for work on their regularly scheduled shift, or at
the request of the Company, without at least eight (8) hours prior notice that
their services will not be needed, and who are not put to work, shall be paid
four (4) hours reporting pay at their prevailing rate of pay. The Company will
not be obligated to pay reporting pay if the employee refuses to accept work,
quits or is voluntarily laid off or laid off by reason of emergency forcing
closedowns beyond the Company's control, such as fire, power failure, broken
machinery or an Act of God.
ARTICLE XXIV - 401(k) PLAN
Section 1. The Company shall continue its current 401(k) plan, subject
to IRS and PBGC approval. An employee is eligible to participate in the 401(k)
plan the first month following completion of one (1) year of service. The
Company will contribute, for each eligible employee who has worked 1000 hours
during the preceding calendar year, $200.00 for the first year of the contract,
$250.00 for the second year of the contract, and $300.00 for the third year of
the contract. Contributions shall be made by July 1 of each year for the prior
calendar year. Accordingly, the contributions for the calendar year 1997 will be
made by July 1, 1998. Employees may invest in accord with plan rules in order to
provide tax deferred income for retirement. The 401(k) plan terms shall govern
in all respects.
ARTICLE XXV - BEREAVEMENT
Section 1. In the event of death of a member of the employee's
immediate family, which is defined as husband, wife, son, daughter, father,
mother, brother, sister,
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current mother-in-law and father-in-law (at the time of death), the employee
shall be entitled to up to a maximum of three (3) days off and shall be paid for
each day of such absence from the employee's regularly scheduled work. All
employees shall be paid eight (8) hours pay at their base hourly rate for each
such day of absence. The employee claiming bereavement pay shall be required to
furnish proof of death of the relative. This section shall not apply to any days
when an employee was not scheduled to work.
Section 2. Bereavement leave shall include grandparents - one day - day
of funeral.
Section 3. In order to receive the benefit of this Article an employee
must list with the Company the names of his mother-in-law and father-in-law and
his grandparents within thirty (30) days of hire, or in the case of current
employees within thirty (30) days of contract ratification. In the case of
remarriage, the employee must promptly list the current in-laws. A form will be
provided to employees by the Company for this purpose.
Section 4. If an employee seeks unpaid leave in addition to the paid
leave provided under this Article, he must obtain advance approval of the Shift
Manager or Plant Manager in writing, or the failure to return as scheduled shall
be unexcused.
ARTICLE XXVI - LEAVE OF ABSENCE
Section 1. Employees desiring leaves of absence shall request the same
from their immediate supervisor of the department in which they work. The
request shall be in writing on an agreed upon form furnished by the immediate
supervisor for that purpose. The Supervisor shall immediately furnish the Union
President a copy of the request with a written notation as to the action taken.
The request shall state for what purpose and to what date the leave of absence
is desired, which shall not exceed thirty (30) days' duration. The leave shall
be at the sole discretion of the Company.
Section 2. An employee returning to work from a leave of absence shall
return to his last job held prior to the leave. If his job no longer exists, the
employee, upon return, shall be placed in a comparable position if possible.
Section 3. Any employee absent from work for longer than three (3) days
for a particular illness or disability may be required to furnish a doctor's
certificate showing proof of continued illness or disability upon return to
work.
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Section 4. Application for extension of leave of absence shall be made
in the same way as provided for making original application and, if granted,
shall cover the extended period.
Section 5. This article shall be deemed amended insofar as necessary to
comply with the Federal and New Jersey FMLA.
ARTICLE XXVII - SENIORITY
Section 1. Seniority is defined as the length of an employee's service
with the Company, dating from the date of last employment by the Company, the
purpose of which is to provide a declared policy of right of preference measured
by such length of service.
Section 2. Seniority within the plant shall prevail in layoffs and
recalls after layoffs, job openings and all similar matters provided the
employee retained or returned is qualified at the discretion of the Company.
Section 3. An employee's rights shall terminate and said employee shall
cease to be an employee of the Company if:
1. He voluntarily leaves the employment of the Company;
2. He is discharged for just cause;
3. He is absent from work for a period of two (2) working days
without notifying the personnel supervisor or department
supervisor.
4. He fails to return to work at the end of a leave of absence
without good cause.
5. In recalling after layoff, the Company shall send a notice to
the employees by certified mail, telegram or telephone to the
last known address appearing on the Company's records. If
within five (5) days of such notice an employee fails to
report or give satisfactory explanation for not reporting, he
shall be considered as voluntarily quitting, with a copy of
such notice being served upon the chairperson of the Shop
Committee.
ARTICLE XXVIII - JURY DUTY
All employees who serve on jury duty shall receive the difference in
their pay
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from what they receive when serving on the jury.
ARTICLE XXIX - WAGES
Section 1. Individual Incentive Program:
i. Incentive rates will be set by the Company through the use of an MTM
based system, which includes scanning of work tickets. The standards program is
expressed in terms of standard hours and is paid at the applicable
classification base rate for the job, as set forth in Appendix 2, except in the
case of a red circled rate as discussed below. The standards developed take into
account allowances for necessary personal time, fatigue, and unavoidable delays,
using U.S. Government guidelines. The classification base rate correlates to
100% under the MTM system. Downtime or delays in excess of normal allowances,
due to lack of work, materials, components, supplies, and equipment malfunctions
shall be paid at the base classification rate. MTM times will be restudied by
July 29, 1997.
ii. Where the Company removes an employee from his standard job to
perform other work, the employee shall receive his average straight-time hourly
pay rate (inclusive of average hourly incentive earnings and any applicable
seniority bonus) over the prior three weeks, for each hour worked away from his
standard job.
iii. All data concerning the development of the MTM standards is
available to the Union for review, upon request, at the Company premises. It is
agreed that such data, as well as the methodology and analysis, are confidential
trade secret information and shall not be copied by the Union or shared by the
Union with any person without the Company's explicit prior written consent. It
is recognized that in the event of a dispute concerning a standard, such
information may be reviewed by a Union official, Union counsel, or an
arbitrator, insofar as those parties agree to the confidentiality of the
information as set forth above.
iv. Incentive standards are set so as to provide earnings opportunities
of 125% above the classification base rate for an average worker working at
incentive pace (except for red circled workers as discussed below). An employee
will be given 30 days to produce at standard (100%) for his job classification.
If he fails to do so he shall be given notice to bring his standard up to at
least 100% within 30 days. This notice shall be given in writing with a copy to
the Union, and the employee shall be counselled in the presence of the shop
steward. If, after receiving such notice, the employee fails to bring his
production level up to 100% within 30 days, he shall be permitted to bump into
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any team incentive or day rate position within the plant based on his seniority,
or if he fails to bump he shall be placed on layoff. The employee shall have a
30 day trial period to prove he is qualified to perform the job he bumps into.
He shall receive the classification base rate for the new position.
v. In the case of new or changed incentive standards (or changeovers
from non-incentive jobs to incentive jobs) established by the Company during the
term of this Agreement, the grievance and arbitration procedure set forth below
shall apply. No grievance shall be filed for the first 30 days after a standard
is put into effect, although employees or the Union may advise the Company that
they feel the standard is incorrect and request a recheck. After the completion
of the 30 day period a grievance may be filed. The grievance must be filed
within 45 days of implementation of the new or changed standard to be timely.
The 45 day period shall include the 30 day trial period. The time limit may be
extended by mutual agreement of the parties in writing. As part of the grievance
procedure the Union may observe the disputed operation and review any data used
to develop the standard, subject to the confidentiality standards set forth
above. If the parties cannot resolve the dispute as to the standard within 20
days after filing the grievance, either party may file a written request for
arbitration within 15 days thereafter. Requests for arbitration filed after 15
days shall be untimely, except that the time limit may be extended by the
parties' mutual agreement in writing.
vi. Arbitration shall be filed with the New Jersey State Board of
Mediation. The parties shall specify that the panel shall be limited to
arbitrators with experience in resolving incentives disputes, preferably with
knowledge of the MTM system.
vii. Once an incentive rate has been established, it shall not be
subject to change unless there are changes in the method, material, equipment or
layout, and such changes would result in an accumulated change of 5% or more to
the original established operational time. In that event only the operations
which have changed will be re-studied, and the overall rate adjusted
accordingly. The intent of this section is to address changes which impact the
time it takes to perform an operation, and employee performance shall not be a
valid reason to restudy an operation.
viii. The arbitrator shall not be empowered to change the
classification base rate associated with an incentive standard, or to change a
red circled base rate (discussed below), or to change a red circled incentive
rate which is correlated to a red circled base rate. The arbitrator's authority
shall be limited to determining whether the standard (100%) rate has been set in
accordance with the MTM system, as set forth herein,
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unless it is shown that the standard is unreasonable or creates a manifest
hardship for employees.
ix. Red circled base rates, as correlated to red circled incentive
rates, are set forth in Appendix 3. These rates are of no precedential value and
apply only to the particular individual in recognition of earning capacity under
the old incentive system.
x. An employee with a red circled base rate that is correlated to a red
circled incentive rate of less than 100% shall be subject to the requirements of
paragraph iv, above, as are all other employees.
xi. An employee with a red circled base rate, correlated to a red
circled incentive rate, shall be subject to the following conditions. Should the
employee's actual incentive rate fall below his red circled incentive rate, his
red circled base rate shall be reduced by a number calculated as follows: (1)
subtract the base rate for the classification from the red circled base rate;
(2) divide that number by the number of incentive points by which the red
circled incentive rate exceeds 100%; (3) multiply that result by the number of
incentive points the employee's actual incentive rate falls below his red
circled incentive rate. This computation shall be made on a daily basis.
xii. An employee with a red circled base rate shall only receive
incentive pay if his actual incentive rate exceeds his red circled incentive
rate. In such event his incentive earnings shall be calculated as follows. Once
an employee reaches his red circled incentive rate he shall receive incentive
calculated based upon the classification base rate, without regard to his red
circled base rate.
xiii. The Company agrees to put the Sewing Department on individual
incentive by January 1, 1998. For purposes of this provision, the Sewing
Department will be deemed to include only the following classifications: (1)
label iron, (2) capper, (3) flanger, (4) label sew, (5) border, (6) quilter. If
for any reason the Company is unable to have an incentive in effect as of
January 1, 1998, Sewing Department employees will receive a $.35 per hour
increase effective January 1, 1998 which shall remain in effect until the
individual incentive is implemented. Under no circumstances shall a dispute as
to the Sewing Department incentive be a basis to contend that the incentive was
not implemented, irrespective of the ultimate finding of an arbitrator as to the
merits of the dispute.
Section 2. Team Incentive Program #1: Servicing Operating Lines
i. Incentive rates for certain loader positions are based on the actual
incentive percentage rate earned by the operators for whom they are loading, and
the ratio of
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loaders to operators. The incentive earnings for these loader classifications
are determined by taking the daily incentive rate earned by the operators fed by
the loading team, subtracting 100%, and dividing that percentage by the number
of loaders, established by a ratio set by the Company for that loader
classification. The resulting number is then multiplied by the classification
base rate for the individual loader, as in the case of individual incentives.
The loader/operator ratio is set forth in Appendix 4, along with the
classification base rate for all team loader classifications.
ii. Certain team loaders have red circled base rates in recognition of
their individual earning capacity under the old incentive system. These rates
have no precedential effect. See Appendix 3.
iii. Team loaders with red circled base rates shall not receive
additional incentive pay until their incentive earnings based upon their
classification base rate exceed their red circled base rate. In that event the
employee will be paid at his actual incentive rate as applied to his
classification base rate, without regard to his red circled base rate. This
computation shall be made on a daily basis.
iv. Team loaders must keep pace with the operators. Failure to do so
will result in progressive counselling in the presence of the shop steward. If
an employee cannot keep pace after counselling, he may bump into any day rate
position in the plant, based upon his seniority, or if he fails to bump he shall
be placed on layoff. The employee shall have a 30 day trial period to prove he
is qualified to perform the job he bumps into. He shall receive the
classification base rate for the new position.
Section 3. Team Incentive Program #2
i. Although it is the intention of the Company to place as many
employees as feasible on the individual incentive program or the Team Incentive
Program #1, as set forth above, that is not practicable for all positions at
this time. In order to nevertheless provide certain production related positions
with a form of incentive, pending changeover to MTM, these classifications will
be paid, in addition to their classification base rate, $.01 for each piece
loaded on the truck during their shift. See Appendix 2.
ii. Certain individuals participating in the Team Incentive Program # 2
have red circled base rates. These rates shall have no precedential effect. See
Appendix 3. These individuals shall be entitled to additional team incentive
payments only if the number of pieces loaded on their shift exceeds 1200.
Section 4. Day Rate Program
i. Day rate positions receive a straight hourly classification pay rate
as set forth
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in Appendix 2. Certain individuals in day rate positions have red circled rates
as set forth in Appendix 3. In the event the Company converts day rate positions
to individual incentive or team incentive positions during the term of this
Agreement, the procedures and principles to calculate and apply incentives as
set forth above shall apply.
Section 5. Seniority Bonus Increases
i. There shall be hourly increases of:
5/1/97 -- $.35/hr
5/1/98 -- $.35/hr
5/1/99 -- $.35/hr
These increases shall apply to all individuals who have passed their
probationary period at the time the increase goes into effect. These increases
shall not be added to the classification base rate, and shall not impact upon
incentive earnings, but shall be paid for each hour worked as a seniority bonus.
Classifications base rates are set forth in Appendix 2.
ii. The classification base rate (plus any seniority bonus applicable
to the employee over the course of this Agreement) shall be the hourly rate for
purposes of holiday and vacation pay.
iii. Red circled rates shall only apply to the employee's standard job.
ARTICLE XXX - CREDIT UNION
The Company agrees to make payroll deductions for credit union
purposes, if the employee has provided the Company with a properly executed
signed statement authorizing the deduction. Such deductions shall only be
remitted to the credit union once a month. The employee may change the amount of
his deduction in writing, once every calendar quarter, during the week
immediately preceding the calendar quarter. The Company is not required to
process any changes that are not made on a timely basis. There shall be only one
credit union for the entire bargaining unit.
ARTICLE XXXI - JOB POSTING
All job vacancies of more than thirty (30) days will be posted for
three (3) working days and senior qualified employees shall have preference. If
the position may only be a temporary position (as in the case of filling an
opening for an employee on pregnancy
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or disability leave), the Company will note on the job posting
"Regular/Temporary". There will be no rebidding for the position if it turns out
to be regular. If the position turns out to be temporary, the employee will be
returned to his prior position when the temporary position ends.
The successful bidder shall be given a maximum of thirty (30) days to
qualify for the position, the determination to be made solely by the Company. An
employee who successfully bids on a position and subsequently decides not be
accept the position, shall not be permitted to bid on another position for six
(6) months. If there are no qualified bidders within the posting period, or the
individual selected for the bid does not pass his qualifying period, the Company
may hire from the outside.
ARTICLE XXXII - MISCELLANEOUS
Section 1. Goods rejected for poor workmanship shall be corrected by
the employee during working hours. The employee shall affix his clock number to
the work ticket and be liable for his own repairs. All work tickets are to be
handed in at the end of the day. Failure to do so shall subject the employee to
discharge.
Section 2. Any employee who damages Company machines, Company property
security devices, etc., shall be discharged.
Section 3. All employees shall be treated equally by the
representatives and shall not be harassed.
Section 4. Temporary transfers shall not exceed 30 days.
Section 5. The Company and the Union will split the cost of printing
new contracts. The printer must be approved of in advance by both the Union and
the Company.
Section 6. Metal racks to be provided for hog ring stations.
ARTICLE XXXIII - HOSPITALIZATION
Section 1. No medical contributions under this Article or Appendix 1
shall be required except in the case of full time employees who have completed
ninety (90) days of employment before the first of the month. For purposes of
this Article and Appendix 1 a full time employees is defined as anyone working a
minimum of twenty-four (24) hours per week.
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Section 2. For the life of this Agreement, the Company will contribute
$8.34 per month for each full time employee (as defined above), who has
completed ninety (90) days of employment for an eyeglass plan to be selected by
the Union for the exclusive benefit of the employees. At the end of the contract
year, if the Company's total contribution for the year is less than $20,000, the
Company will pay the difference between $20,000 and the total yearly
contribution it has already paid to the Eyeglass Plan for the year. The Company
shall have no obligation except to contribute the amount provided under this
Article. All matters concerning coverage, benefits provided, the selection of
provider, the quality of service, administration, and every other aspect of the
Eyeglass Plan shall be the sole and exclusive responsibility of the Union, which
shall hold the Company harmless for any problems whatsoever, that arise under
the Eyeglass Plan.
Section 3. For the life of the Agreement, the Company will contribute
one half (1/2) the current cost (as of April 1, 1997) of the current employee
dental plan: (the current cost is (1) $6.58 per month single, (2) $12.60 per
month married or single parent, and (3) $18.79 per month family)). One half
(1/2) of the current cost shall be the responsibility of the employee, and shall
be made by payroll deduction pursuant to written authorization of the employee.
Any employee who fails to execute an appropriate written authorization shall be
ineligible for coverage until he executes such authorization. The Company also
agrees that if there is a documented increase in the cost of dental benefits
during the term of the Agreement, the Company will pay 50% of such increase up
to a maximum increase of 10% of the Company's current contribution. The Company
shall have no obligation except to contribute the amount provided under this
Article and transfer employee contributions to the provider once the employee
has submitted an appropriate authorization form. All matters concerning
coverage, benefits provided, the selection of provider, the quality of service,
administration, and every
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other aspect of the Dental Plan shall be the sole and exclusive responsibility
of the Union, which shall hold the Company harmless for any problems whatsoever,
that arise under the Dental Plan.
ARTICLE XXXIV - SPANISH TRANSLATIONS
The Company shall translate all work rules which are a basis for
discipline into Spanish. The Company shall translate this Agreement into
Spanish, and shall share the cost of reproduction of the contract for employees,
the cost to be shared equally with the Union. In all cases of contract
interpretation, the English version of the contract shall govern.
ARTICLE XXXV - TERM OF AGREEMENT
This Agreement shall be effective from the date first above written
until midnight April 30, 2000, and thereafter from year to year unless either
party shall notify the other by registered mail at least sixty (60) days prior
to April 30th, 2000 of its intention to make changes in this Agreement.
This Agreement shall be binding upon and shall inure to the benefits of
the respective parties hereto and to their respective successors and assigns.
SLEEPMASTER L.L.C.
________________________
Charles Schweitzer
President
NEGOTIATING COMMITTEE: United Steelworkers of America (ABG Division),
AFL-CIO, CLC and Local Union #396
John Shinn
International Representative
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APPENDIX 1
WELFARE FUND
This Agreement made and entered into this day of May, 1997, by and
between Sleepmaster L.L.C., its plant located in Linden, New Jersey, hereinafter
referred to as the Company, and the United Steelworkers of America (ABG
Division), AFL-CIO, CLC, and its Local Union #396, hereinafter referred to as
the Union.
WITNESSETH:
WHEREAS, the Company and the Union have a collective bargaining
agreement providing for contributions to the Fund; and WHEREAS, the Union and
the Trustees of the Fund desire that contributions be on a uniform basis and
similar circumstances by all participating employees thereunder.
NOW, THEREFORE, and INTENDING TO BE LEGALLY BOUND, the parties hereto
agree as follows:
1. Effective May 1, 1997, and throughout the term of this Agreement,
the Company agrees to pay to the Trustees of the Fund the sum of $255 per
eligible employee per month and to pay any increase in the contribution level up
to the following maximums: (1) from May 1, 1998, up to $280 per month maximum
Company contribution, and (2) from May 1, 1999 up to $310 per month maximum
Company contribution.
2. Payments shall be due on the first of each month based on eligible
employees as defined in Article XXXIII of the Agreement. Payments shall be made
at the Fund Office no later than the tenth (10th) day of said month for all full
time employees, Union and/or otherwise, that are to be enrolled in the Fund
using the "full time employees" as described in Article XXXIII of the Agreement.
With respect to
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Union employees, inclusion shall be from the first day of the month following
completion of the probationary period. As used herein, the term "Policy" shall
mean the policy or policies of insurance issued pursuant to that certain
Agreement and Declaration of Trust creating the Fund dated December 30, 1949, as
amended from time to time, and all other policies of insurance accepted by the
Trustees as part of such fund. Further, the term Policy as used herein shall be
deemed to include any amendments or riders attached to such policy or policies.
3. Each payment shall be accompanied by a "dues listing" on a form
supplied by the Trustees, upon which shall be listed, without exception, the
names of all employees covered pursuant to Section 1 hereinabove.
4. As employees are hired and/or terminated, the Company shall
immediately report such information to the fund Office on forms supplied by the
Trustees or their administrative agents.
5. Any and all forms, reports and/or data reasonably required by the
Trustees, or their administrative agents, for the observance or performance of
their duties shall be completed, made or supplied, as the case may be.
6. Company agrees to be bound by said Agreement and Declaration of
Trust and by all of the rules and regulations uniformly adopted, from time to
time, by said Trustees.
7. The Trustees shall have the right, power and authority:
(a) To establish a uniform due date for all Company
contributions to said Fund and, for good or special cause, to grant
periods of grace, conditionally or unconditionally, for any such
contribution;
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(b) To fix the legal rate of interest, not in excess of that
allowed by law, to be added to delinquent payments of Company
contribution;
(c) To establish a penalty, not exceeding twenty percent (20%)
of the delinquent amount due, and to be added thereto, to defray court
costs and/or attorneys fees whenever any action is instituted in any
court to collect delinquent contributions;
(d) To institute and maintain and/or prosecute in any court or
tribunal having jurisdiction, any action or other proceedings for the
collection or recovery of any and all payments due hereunder.
8. Should there be a change in federal law which requires a change in
medical coverage or the cost of same, the parties shall meet in order to
negotiate concerning the impact of these changes on the current medical coverage
and costs and shall exercise their maximum good faith efforts to effectuate any
required changes within the existing cost structure. If the parties cannot agree
within 60 days the matter shall be submitted under the arbitration clause of
this Agreement. The arbitrator's decision shall, the maximum extent possible,
effectuate any required changes within the existing cost structure, and the
arbitrator shall not be empowered to require changes resulting in increased cost
if there are options within the existing cost structure. All other terms of the
collective bargaining
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agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement this _________ day of July, 1997.
SLEEPMASTER L.L.C. UNITED STEELWORKERS OF AMERICA, AFL-CIO
_________________________________ ________________________________________
Charles Schweitzer George F. Becker, Int'l President
President
________________________________________
Richard H. Davis, Int'l VP, Admin.
________________________________________
Leon Lynch, Int'l VP, Human Affairs
________________________________________
Leo W. Gerard, Int'l Sec./Treas.
________________________________________
Louis J. Thomas, Director, Dist. #4
________________________________________
John E. Shinn, Staff Representative
LOCAL UNION #396 COMMITTEE
________________________________________
Rafeal Ortiz
________________________________________
Lydia Rodriguez
________________________________________
Angle Alecia
________________________________________
Miroslawa Romano
________________________________________
Yves Germain
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<PAGE> 27
AGREEMENT
BETWEEN
UNITED STEELWORKERS OF AMERICA (ABG DIVISION),
AFL-CIO, CLC, AND LOCAL UNION #396
- and -
SLEEPMASTER L.L.C.
* * *
May 1, 1997 Through May 1, 2000
INDEX
<TABLE>
<CAPTION>
DESCRIPTION ARTICLE NO. PAGE
- ----------- ----------- ----
<S> <C> <C> <C>
401(k) Plan XXIV 13
Alteration Of Agreement XX 12
Bereavement XXV 14
Bulletin Board XIII 10
Check-Off III 2
Credit Union XXX 23
Discharge XI 8
Employee Injury XV 11
Grievance And Arbitration XII 8
Holidays V 4
Hospitalization XXXIII 24
Hours Of Work IV 2
Job Posting XXXI 23
Jury Duty XXVIII 16
Leave Of Absence XXVI 15
Management Rights XVIII 11
Military Service XVI 11
Miscellaneous XXXII 24
Non-Discrimination XVII 11
No Strike Or Lockout XXI 13
Probationary Employees IX 7
Recalls And Transfers X 8
Recognition I 1
Reporting Pay XXIII 13
Rest Period XXII 13
Sanitary Conditions XIV 10
Seniority XXVII 16
Spanish Translations XXXIV 25
Sick Day/Personal Day VI 5
Term Of Agreement XXXV 26
Union Business VIII 7
Union Machinery And Grievance Time XIX 12
Union Shop II 1
Vacations VII 6
Wages XXIX 17
</TABLE>
<PAGE> 28
APPENDIX 2
<TABLE>
<CAPTION>
GRADE GRADE GRADE
A B C
CLASS I $/HR TYPE CLASS I $/HR TYPE CLASS I $/HR TYPE
- ------- ----- ---- ------- ----- ---- ------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TAPE EDGE $9.50 I CHECKER(1) $7.50 T2 LABEL IRON $6.25 I
HOG RING 9.50 I QUILT REPAIR 7.50 D MATT 6.25 T1
LOAD(2)
B/S LOAD(2) 6.25 T1
QUILT 6.25 T1
LOAD(3)
CLASS II CLASS II CLASS II
CUTTER $9.75 D LIFT TRUCK $7.25 D HANDLER $6.50 D
QUILTER 8.75 I REPAIR 7.25 D UNCRATER 6.50 D
INSPECTOR 7.00 D LOADER(1) 5.50 T2
B/S NAILER 7.25 I STAGER(1) 5.50 T2
CLASS III CLASS III CLASS III
B/S BUILD $8.25 I CAPPER $6.75 I RECEIVER $6.25 D
FLANGER 6.75 I SANITATION 6.25 D
LABEL SEW 6.75 I BALER 6.25 D
BORDER 6.75 I
B/S GRIDDER 6.75 I
</TABLE>
INCENTIVE TYPE: I=INDIVIDUAL T=TEAM D=DAY WORK
FOOTNOTES:
(1) CHECKERS, LOADERS AND STAGERS RECEIVE ONE CENT PER PIECE FOR PIECES LOADED
ON THEIR SHIFT.
(2) LINE LOADERS PAID A FRACTION OF AVERAGE WEEKLY PERCENTAGE INCENTIVE OF
BUILDERS OVER 100% BASED ON A SET RATIO TO BUILDERS. SEE APPENDIX 4.
(3) ESTABLISHED WHEN MTM QUILT INCENTIVE IS INSTALLED.
<PAGE> 29
APPENDIX 3 -- SHEET 1
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
JOB NAME RED CIRCLE RED CIRCLE
BASE RATE MIN. INCENTIVE %
(A) (B) (A X B)
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLANGER SANTIAGO, LUZ 8.69 100 8.69
- ----------------------------------------------------------------------
FLANGER FERREIRA, MARIA 8.52 100 8.52
- ----------------------------------------------------------------------
FLANGER TAVARES, MARIA 8.54 100 8.54
======================================================================
BORDER FARIA, FATIMA*** 10.19 100 10.19
- ----------------------------------------------------------------------
BORDER CORREIRA, MARIA 9.35 100 9.35
- ----------------------------------------------------------------------
BORDER YANEZ, MARIA 11.55 100 11.55
- ----------------------------------------------------------------------
BORDER CARVALHO, AMELIA 9.16 100 9.16
- ----------------------------------------------------------------------
BORDER MARQUES, FILOMIN 8.53 100 8.53
- ----------------------------------------------------------------------
BORDER RAMOS, BLANCA 7.78 100 7.78
- ----------------------------------------------------------------------
BORDER PULLAS, MARIANA 6.90 100 6.90
======================================================================
LABEL SEW LAPAIX, DELIA*** 9.66 100 9.66
- ----------------------------------------------------------------------
LABEL SEW VINASCO, LUZ 7.60 100 7.60
- ----------------------------------------------------------------------
LABEL SEW CORDERO, NORMA 7.21 100 7.21
======================================================================
QUILTER MARQUES, MARIA 9.84 100 9.84
- ----------------------------------------------------------------------
QUILTER DASILVA, LUISA 9.68 100 9.68
- ----------------------------------------------------------------------
QUILTER SANTOS, LUCIA 9.50 100 9.50
- ----------------------------------------------------------------------
QUILTER CASTANEDA, MARI 8.96 100 8.96
- ----------------------------------------------------------------------
QUILTER CORREIRA, CARMIN 8.92 100 8.92
======================================================================
CAPPER ORTIZ, MARIA 9.35 100 9.35
- ----------------------------------------------------------------------
CAPPER PRAZARES, MARIA 8.73 100 8.73
- ----------------------------------------------------------------------
CAPPER SANTOS, MARIA 7.17 100 7.17
======================================================================
B\S BUILD PERREIRA, MANUE 10.04 138 13.86
- ----------------------------------------------------------------------
B\S BUILD PAZMINO, MARIO 9.43 192 18.11
- ----------------------------------------------------------------------
B\S BUILD AUGUSTE, EVER 8.19 154 12.61
======================================================================
HOG RING TORRES, ANTONIO 13.41 113 15.15
- ----------------------------------------------------------------------
HOG RING VILLANUEZA, RAUL 12.61 179 22.58
- ----------------------------------------------------------------------
HOG RING SIMO, JUAN 12.64 116 14.91
- ----------------------------------------------------------------------
HOG RING ARCE, WILFREDO 12.31 117 14.40
- ----------------------------------------------------------------------
HOG RING MALDONADO, RAM 12.08 131 15.83
- ----------------------------------------------------------------------
HOG RING MUNIZ, HECTOR 12.57 135 16.97
======================================================================
TAPE EDGE ORTIZ, RAFAEL 15.26 100 15.26
- ----------------------------------------------------------------------
TAPE EDGE LUNA EDUARDO 15.13 143 21.64
======================================================================
CUTTER PEREIRA, MANUEL 10.87 D
QUILT
======================================================================
REPAIR MORALES, AZUCEN 9.35 D
======================================================================
INSPECTOR WRIGHT, HERBERT 10.79 D
- ----------------------------------------------------------------------
INSPECTOR BERRONES, ANGEL 8.84 D
======================================================================
REPAIR SZLADEWSKA, WA 9.55 D
======================================================================
LOADER MEDINA, JESUS 6.27 T2/1200PCS
- ----------------------------------------------------------------------
LOADER BRAVO, XAVIER 6.86 T2/1200PCS
======================================================================
CHECKER NOEL, IDOVIC 6.90 T2/1200PCS
======================================================================
SANITATION CASTILLO, ORLAND 7.55 D
- ----------------------------------------------------------------------
SANITATION PHILOGENE, LAMO 6.27 D
======================================================================
HANDLER LOPEZ, ROSA 7.44 D
======================================================================
BALER RODRIGUEZ, MANU 6.55 D
======================================================================
LEADMEN DOMINGUES, MAN 11.80 D
- ----------------------------------------------------------------------
LEADMEN SMITH, JAMES 14.08 D
======================================================================
</TABLE>
<PAGE> 30
APPENDIX 4
A. ONE LOADER WILL BE ASSIGNED FOR EVERY TWO BUILDERS IN ORDER TO KEEP THE LINE
FULL
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
================================================================================
BUILDERS 4 5 6 7 8 9 10 11 12 13 14
- --------------------------------------------------------------------------------
LOADERS 2 3 3 4 4 5 5 6 6 7 7
================================================================================
</TABLE>
B. BASE RATE FOR LINE LOADER IS $6.25 PER HOUR.
C. LINE LOADER INCENTIVE IS CALCULATED AS FOLLOWS:
EXAMPLE: 4 LOADERS SUPPLY 8 BUILDERS WHO PRODUCE AT A RATE OF 125%
125%-100% = 25%
25% / 4 LOADERS = 6.25% PER LOADER
1.0625 X $6.25 = $0.39 PER HOUR OF INCENTIVE FOR EACH LINE LOADER
<PAGE> 1
EXHIBIT 10.38
AGREEMENT AND PLAN OF MERGER
AMONG
SLEEPMASTER L.L.C.,
SLEEPMASTER ACQUISITION CORP.
AND
PALM BEACH BEDDING COMPANY
FEBRUARY ___, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.1. Accounting Terms................................................................................. 1
1.2. Singular and Plural Forms........................................................................ 1
1.3. Other Defined Terms.............................................................................. 2
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.1. The Merger....................................................................................... 6
2.2. The Closing...................................................................................... 7
2.3. Effective Time................................................................................... 7
2.4. Other Actions.................................................................................... 7
2.5. Articles of Incorporation........................................................................ 8
2.6. By-Laws.......................................................................................... 8
2.7. Officers and Directors........................................................................... 8
2.8. Stockholder Representative....................................................................... 8
ARTICLE III
CONVERSION OF SHARES; MERGER CONSIDERATION
3.1. Conversion....................................................................................... 9
3.2. Adjustment to Purchase Price..................................................................... 11
3.3. IRB-Related Obligations.......................................................................... 13
3.4. Assignment of Serta Licenses..................................................................... 13
3.5. Books and Records................................................................................ 14
3.6. Tax Election; Preparation of PBBC Short Year Return; Allocation of Price......................... 14
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PBBC
4.1. Organization and Good Standing; Capitalization................................................... 15
4.2. Financial Statements............................................................................. 16
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONT'D)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
4.3. Authorization; No Violation; Consents............................................................ 17
(a) Authorization and No Violation........................................................ 17
(b) Consents.............................................................................. 17
(c) Enforceable Agreement................................................................. 17
4.4. Properties of the Business....................................................................... 18
(a) Title to Transferred Assets and Related Matters....................................... 18
(b) Owned Real Property................................................................... 18
(c) Leased Real Property.................................................................. 19
(d) Personal Property Leases.............................................................. 19
4.5. Compliance with Laws............................................................................. 19
4.6. Litigation....................................................................................... 19
4.7. Absence of Certain Changes....................................................................... 20
4.8. Patents, Trademarks, Trade Names................................................................. 22
4.9. Contracts and Commitments........................................................................ 22
4.10. Compliance with Labor and Employment Laws........................................................ 24
4.11. Employee Benefit Plans........................................................................... 24
4.12. Environmental Matters............................................................................ 26
4.13. Licenses, Permits and Authorizations............................................................. 28
4.14. Taxes............................................................................................ 28
4.15. Sufficiency and Condition of Assets.............................................................. 30
4.16. Broker's or Finder's Fee......................................................................... 30
4.17. Undisclosed Liabilities.......................................................................... 30
4.18. Subsidiaries..................................................................................... 30
4.19. Notes and Accounts Receivable.................................................................... 30
4.20. Insurance........................................................................................ 31
4.21. Product Warranty................................................................................. 31
4.22. Certain Business Relationships with PBBC and its Affiliates...................................... 31
4.23. Disclosure....................................................................................... 32
4.24. Radon Gas Disclosure............................................................................. 32
4.25. Disclaimer of Other Representations and Warranties............................................... 32
4.26. Exhibits and Disclosure Schedules................................................................ 32
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF SUB
5.1. Organization and Good Standing................................................................... 33
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(CONT'D)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
5.2. Authorization; No Violation; Consents............................................................ 33
(a) Authorization and No Violation........................................................ 33
(b) Consents.............................................................................. 34
5.3. Broker's or Finder's Fees........................................................................ 34
5.4. Litigation....................................................................................... 34
5.5. Sub's Sophistication............................................................................. 34
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF SLEEPMASTER
6.1. Organization and Good Standing................................................................... 35
6.2. Authorization; No Violation; Consents............................................................ 35
(a) Authorization and No Violation........................................................ 35
(b) Consents.............................................................................. 36
6.3. Broker's or Finder's Fees........................................................................ 36
6.4. Litigation....................................................................................... 36
6.5. Purchase for Investment.......................................................................... 36
6.6. Sleepmaster's Sophistication..................................................................... 36
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF SUB AND SLEEPMASTER
7.1. Representations and Warranties True; Obligations Performed....................................... 37
7.2. Officer's Certificate............................................................................ 37
7.3. No Material Changes.............................................................................. 37
7.4. Performance...................................................................................... 37
7.5. Escrow Agreements................................................................................ 37
7.6. Shareholders Agreement........................................................................... 38
7.7. Consents......................................................................................... 38
7.8. Serta Standard License Agreement................................................................. 38
7.9. Financing........................................................................................ 38
7.10. Dissenters Rights................................................................................ 38
7.11. No Proceedings................................................................................... 38
7.12. Deliveries....................................................................................... 38
7.13. Consummation..................................................................................... 38
</TABLE>
<PAGE> 5
TABLE OF CONTENTS
(CONT'D)
<TABLE>
<CAPTION>
Page No.
--------
ARTICLE VIII
CONDITIONS TO THE
OBLIGATIONS OF PBBC
<S> <C> <C>
8.1. Representations and Warranties True; Obligations Performed....................................... 39
8.2. Officer's Certificate............................................................................ 39
8.3. Performance...................................................................................... 39
8.4. Consents......................................................................................... 39
8.5. Employment Agreements............................................................................ 40
8.6. Escrow Agreements................................................................................ 40
8.7. No Proceedings................................................................................... 40
8.8. Deliveries....................................................................................... 40
8.9. Consummation..................................................................................... 40
ARTICLE IX
DELIVERIES BY PBBC
AT THE CLOSING
9.1. Consents......................................................................................... 40
9.2. Opinion of Counsel............................................................................... 40
9.3. Certificate...................................................................................... 41
9.4. Employment Agreements............................................................................ 41
9.5. Escrow Agreements................................................................................ 41
9.6. Termination and Waiver Agreement................................................................. 41
9.7. Secretary's Certificates......................................................................... 41
9.8. Other............................................................................................ 41
ARTICLE X
DELIVERIES BY SLEEPMASTER
AND SUB AT THE CLOSING
10.1. Payment of the Closing Merger Consideration...................................................... 41
10.2. Opinion of Counsel............................................................................... 41
10.3. Consents......................................................................................... 42
10.4. Officer's Certificate............................................................................ 42
10.5. Secretary's Certificate.......................................................................... 42
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
10.6. Manager's Certificate............................................................................ 42
</TABLE>
<PAGE> 7
TABLE OF CONTENTS
(CONT'D)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
10.7. Written Offer to holders of Dissenting Shares.................................................... 42
10.8. Other............................................................................................ 42
10.9. Escrow Agreements................................................................................ 42
ARTICLE XI
COVENANTS OF PBBC, SLEEPMASTER AND
SUB PRIOR TO CLOSING
11.1. General.......................................................................................... 43
11.2. Provide Access to Information.................................................................... 43
11.3. Conduct Prior to Closing Date.................................................................... 43
11.4. Prohibited Transactions Prior to Closing Date.................................................... 43
11.5. Confidentiality.................................................................................. 44
11.6. Notices and Consents............................................................................. 44
11.7. Notice of Developments........................................................................... 44
11.8. Exclusivity...................................................................................... 45
11.9. Permitted Dividends and Other Actions............................................................ 45
ARTICLE XII
SURVIVAL
12.1. Survival......................................................................................... 46
ARTICLE XIII
INDEMNIFICATION FROM THE
INDEMNITY ESCROW
ARTICLE XIV
TERMINATION
14.1. Termination...................................................................................... 50
14.2. Effect of Termination............................................................................ 51
</TABLE>
<PAGE> 8
TABLE OF CONTENTS
(CONT'D)
<TABLE>
<CAPTION>
Page No.
--------
ARTICLE XV
MISCELLANEOUS PROVISIONS
<S> <C> <C>
15.1. Public Announcements............................................................................ 52
15.2. Rights to Third Parties......................................................................... 52
15.3. Notices......................................................................................... 52
15.4. Parties in Interest............................................................................. 54
15.5. Entire Agreement; Amendment; Waiver............................................................. 54
15.6. Headings........................................................................................ 54
15.7. Counterparts.................................................................................... 54
15.8. Governing Law................................................................................... 54
15.9. Severability.................................................................................... 55
15.10. Expenses........................................................................................ 55
15.11. References; Exhibits and Schedules.............................................................. 55
15.12. Specific Performance............................................................................ 55
15.13. Waiver of Jury Trial............................................................................ 55
15.14. Time is of the Essence.......................................................................... 56
15.15. Construction.................................................................................... 56
</TABLE>
<PAGE> 9
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made, entered
into and effective as of the ___ day of February, 1998 by and among SLEEPMASTER
L.L.C., a New Jersey limited liability company ("Sleepmaster"), SLEEPMASTER
ACQUISITION CORP., a Florida corporation ("Sub") and a wholly-owned subsidiary
of Sleepmaster, and PALM BEACH BEDDING COMPANY, a Florida corporation ("PBBC").
Sleepmaster, Sub and PBBC are collectively referred to herein as the "Parties"
and singularly referred to herein as a "Party." This Agreement with be joined in
at the Closing by John Fenn Foster, Esq., as "Representative," provided the
Representative obtains the execution, by each of the Company Stockholders (other
than holders of Dissenting Shares), of that certain "Power of Attorney and
Appointment of Representative," such joiner and consent by John Fenn Foster,
Esq. being solely for the purpose of evidencing his agreement act as
Representative, as provided for herein, unless otherwise limited and as
otherwise provided in said "Power of Attorney and Appointment of
Representative."
RECITALS
WHEREAS, Sleepmaster is engaged in the business of manufacturing and
distributing mattresses and bedding products under the Serta brand and otherwise
in the northeastern United States; and
WHEREAS, PBBC is engaged in the business of manufacturing and
distributing sleep mattresses under the Serta brand and otherwise in the State
of Florida (the "Business"); and
WHEREAS, the Parties desire to enter into this Agreement with each
other under the terms of which Sub will merge with and into PBBC, and under
which PBBC will survive and become a wholly-owned subsidiary of Sleepmaster.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants which are made and to be performed by
the Parties pursuant to this Agreement, Sleepmaster, Sub and PBBC hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1. Accounting Terms. All accounting terms not specifically defined in this
<PAGE> 10
Agreement shall be construed in accordance with GAAP (as hereinafter defined)
consistently applied.
1.2. Singular and Plural Forms. The use herein of the singular form
also denotes the plural form, and the use of the plural form herein also denotes
the singular form, as in each case the context may require.
1.3. Other Defined Terms. The terms listed below in this Section shall
have the following respective meanings in this Agreement:
"Action" means any action, suit, claim, investigation, order,
judgment, decree, ruling, charge or legal, administrative or
arbitration proceeding.
"Affiliate" of an entity means any entity that directly or
indirectly controls, or is controlled by, or is under common control
with such entity and, with respect to any individual, such
individual's spouse or any person within the first degree of kinship
of such individual.
"Aggregate Company Common" means (i) the aggregate number of
issued and outstanding shares of Company Common held by all holders
thereof immediately prior to the Effective Time who have not exercised
their dissenters' rights pursuant to the Florida Law, plus (ii) the
aggregate number of Dissenting Shares.
"Cash per Common Share" means the Closing Merger
Consideration divided by the Aggregate Company Common.
"Change of Control Payments" means all payments, other than
payment of the Closing Merger Consideration, to which any officer or
director of PBBC or any Affiliate of PBBC is entitled to receive from
PBBC as a result of the transaction contemplated hereby.
"Closing Merger Consideration" has the meaning given it in
Section 3.1(a).
"Code" means the Internal Revenue Code of 1986, as amended,
or any successor federal income tax code.
"Company" means PBBC before the Effective Time of the Merger.
"Company Common" means PBBC's Common Stock, par value $5.00
per share, prior to the Effective Time.
<PAGE> 11
"Company Expenses" shall mean the aggregate amount of the
fees and expenses of the Company incurred and unpaid at or prior to
the Effective Time by the Company in connection with this Agreement
which inure directly or indirectly to the benefit of the Company
Stockholders and the consummation of the transactions contemplated
hereby, including, without limitation, any investment banking,
brokers, finders and legal fees, accounting, and all other similar
charges.
"Company Stockholders" mean the holders of the Company
Common, prior to the Effective Time.
"Debt" shall mean all indebtedness of PBBC including without
limitation (i) all obligations of PBBC for borrowed money or evidenced
by bonds, debentures, notes, letters of credit or other similar
instruments, (ii) obligations to pay the deferred purchase price of
property or services, except accounts payable arising in the Ordinary
Course of Business, (iii) all debt of others guaranteed or otherwise
supported by PBBC, or secured by a lien on any of the assets of PBBC,
(iv) any Change of Control Payments, and (v) any interest, principal,
prepayment penalty, fees or expenses in respect of those items listed
in clauses (i) through (iv) of this defined term.
"Dissenting Share" means any Company Common with respect to
which any Company Stockholder, who or which, at the Effective Time,
has exercised his or its dissenters' rights under Sections 607.1302
and 607.1320 of the Florida Business Corporation Act, holds of record.
"Dollars" or "$" means dollars ($) of the United States of
America.
"Escrow Agent" shall mean The First National Bank of Chicago,
a national banking association.
"Excluded Assets" has the meaning given it in Section 11.9.
"Excluded Real Estate" means the following parcels of land,
with improvements thereon, located outside of the municipal
incorporated boundaries of the City of Riviera Beach, Florida, at the
following post office addresses, the legal descriptions of such
parcels being described on the attached Exhibit 1.3: (1) 1016 Clare
Avenue, West Palm Beach, Florida 33402; (2) 1000 Old Okeechobee Road,
West Palm Beach, Florida 33402; (3) 1220 Elizabeth Street, West Palm
Beach, Florida 33402; and (4) 7621 Main Street, Jacksonville, Florida
33208.
"Florida Law" means the Florida Business Corporation Act.
<PAGE> 12
"First Union" means First Union National Bank of Florida.
"GAAP" shall mean United States generally accepted accounting
principles, as in effect from time to time, applied on a basis
consistent with prior periods.
"Governmental Entity" means any court, arbitral tribunal,
administrative agency or commission or other governmental or other
regulatory authority or agency.
"Intangible Property Rights" means all of the following
utilized by and owned or licensed to PBBC in connection with its
operation of the Business on or after December 31,
1996, irrespective of where any of the same were issued, are pending
or exist: United States and foreign patents of any description, and
applications therefor, registrations of trademark and of other marks,
registrations of trade names, labels or other trade rights, registered
user entries, and applications for any such registration or entries;
United States and foreign copyrights, copyright registrations and
applications therefor; United States and foreign trademarks and other
marks, corporate names, trade names, business names, labels and other
trade rights, whether or not registered; inventions, discoveries,
improvements, designs, processes, formulae, technology, know-how,
trade secrets, confidential information and technical information,
whether patented, not patented, patentable or not patentable; and shop
rights and other rights relating in whole or in part to any of the
foregoing.
"IRB Documents" means the following documents comprised
within the IRB-Related Obligations: (i) the Loan Agreement (the "Loan
Agreement"), dated as of April 1, 1996, between PBBC and Palm Beach
County, Florida relating to $7,650,000 Palm Beach County, Florida
Variable Rate Demand Industrial Development Revenue Bonds (Palm Beach
Bedding Company Project, Series 1996) (the "IRB's") originally
outstanding in the original principal amount of $7,650,000; (ii) the
Letter of Credit and Reimbursement Agreement, dated as of April 1,
1996, between PBBC and First Union National Bank of Florida ("First
Union"); (iii) the Mortgage and Security Agreement, dated April 1,
1996, between PBBC and First Union; (iv) the Remarketing Agreement,
dated April 1, 1996, between PBBC and First Union; and (v) the Pledge
Agreement, dated April 1, 1996, between PBBC and First Union.
"IRB Issuer" shall mean Palm Beach County, Florida.
"IRB-Related Obligations" means PBBC's obligations and
indebtedness under the Loan Agreement and the IRB Documents.
"IRS" means the Internal Revenue Service.
<PAGE> 13
"Knowledge" when used as a qualification to any
representations or warranties made by PBBC, shall mean the actual
knowledge of Michael W. Bubis.
"Lien" or "Liens" shall mean with respect to any asset any
mortgage, pledge, security interest, conditional sale or other title
retention agreement, encumbrance, lien, easement, claim, right,
covenant, restriction, right of way, warrant, option or charge of any
kind in respect of such asset, including without limitation any liens
to secure the payment or collection of Taxes due and payable, but
excluding from the definition of "Lien" or "Liens" (i) all matters
shown on the status of title report with respect to the Facility, in
the ALTA Form Title insurance policy, dated April 2, 1996, and update
thereto, dated February __, 1998 and included in Schedule 4.4(b)
(collectively the "Title Policy"), (ii) the IRB-Related Obligations,
(iii) any liens to secure the payment or collection of Taxes not yet
due and payable and (iv) any such matter arising in the Ordinary
Course of Business of PBBC and (a) not incurred in connection with the
borrowing of money, (b) which does not materially
interfere with the Business as currently conducted and (c) which did
not arise from a tort or breach of contract.
"Majority Holders" means Company Stockholders who
collectively hold more than 50% of the Aggregate Company Common at or
immediately prior to the Effective Time.
Any reference to any event, change or effect having a
"Material Adverse Effect" means with respect to PBBC, such event,
change or effect that is materially adverse to the consolidated
condition (financial or otherwise), properties, assets (including
intangible assets), liabilities (including contingent liabilities),
business, results of operations or prospects of PBBC.
"Net Working Capital" shall mean the excess of PBBC's current
assets at the Effective Time over PBBC's current liabilities at the
Effective Time, as determined in accordance with GAAP; provided, that
for purposes of determining Net Working Capital, (a) PBBC's current
assets shall not include (i) any Unrestricted Cash, (ii) any prepaid
items relating to the Company's note to Serta Inc. for amounts due to
Serta Inc. during 1998, (iii) any of the Excluded Assets at the
Effective Time or (iv) the Project Account Cash Equivalents, and (b)
PBBC's current liabilities shall not include (i) the current portion
(those payments due and payable by PBBC within 12 months of the
Closing Date)of principal and interest due and payable with respect to
the IRB-Related Obligations or (ii) any portion of the aforesaid note
to Serta Inc. coming due during calendar year 1998 after the Effective
Time.
<PAGE> 14
"Non-Dissenting Ratio" shall mean a fraction, the numerator
of which shall be the aggregate number of issued and outstanding
shares of Company Common held by the Company Stockholders immediately
prior to the Effective Time who have not exercised their dissenters'
rights pursuant to the Florida Law and the denominator of which shall
be the Aggregate Company Common.
"Ordinary Course of Business" means the ordinary course of
the Business consistent with past custom and practice as of December
31, 1996 (including with respect to quantity and frequency).
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization or a
Governmental Entity.
"Pro Rata Escrow Share" has the meaning given it in Section
3.1(d).
"Pro Rata Portion" has the meaning given it in Section
3.1(b).
"Project Account" means the Project Account at First Union
that holds the remaining portion of the proceeds of the loan made by
Palm Beach County to PBBC in connection with the IRB-Related
Obligations, together with all amounts earned thereon.
"Project Account Cash Equivalents" means the cash, cash
equivalents, certificates of deposit and stock or bond investments of
PBBC in the Project Account.
"Surviving Corporation" means PBBC at and after the
Effective Time of the Merger.
Surviving Pre-Closing Covenants means those covenants given
in Sections 11.5(a), 11.8 and 11.9 of this Agreement.
"Tax" means any taxes, fees, charges, levies, excises,
duties, or assessments of any kind whatsoever, including, without
limitation, income, gross receipts, ad valorem, premium, excise, real
property, personal property, windfall profit, sales, use, transfer,
licensing, import, export, withholding, employment, payroll, social
security, medicare, environmental (under Code Sec. 59A), customs
duties, value added, alternative or add-on minimum estimated and
franchise taxes, together with additions to tax or additional amounts,
interests and penalties relating thereto that may be imposed on or
with respect to PBBC with respect to all taxable periods ending on or
prior to the Closing Date;
"Tax Returns" mean all returns, reports, declarations and
forms, including
<PAGE> 15
any schedule or attachment thereto, and any amendment thereof,
required to be filed in respect of any Taxes.
"Transferred Assets" mean all of the assets of PBBC as of the
Closing Date, less and excepting the Excluded Assets (as defined in
Section 11.9).
"Unrestricted Cash" means all cash and cash equivalents of
PBBC (including, but not limited to, all certificates of deposit and
other stock or bond investments of PBBC) other than Project Account
Cash Equivalents and any proceeds from the sale or other transfer of
any Excluded Assets.
Other capitalized terms used herein shall have their respective meanings
accorded them throughout this Agreement.
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 2.3) Sub shall be merged
with and into PBBC and the separate corporate existence of Sub shall thereupon
cease (the "Merger"). PBBC shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Florida. The separate
corporate existence of PBBC with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger. The Merger
shall have effects specified in the Florida Law.
2.2. The Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of John Fenn Foster, Esq., Foster, Foster & Heffling,
P.A., 501 South Flagler Drive, Flagler Center, Suite #305, West Palm Beach,
Florida 33401, counsel to PBBC, or such other place as the Parties mutually
agree, commencing at 10:00 a.m. local time on the later of (i) March 2, 1998,
and (ii) the first business day immediately following the day on which the last
of the conditions set forth in Articles VII and VIII is fulfilled or waived in
accordance with this Agreement (the "Closing Date"); provided, that the Closing
Date shall be no later than March 16, 1998. Closing shall be consummated by the
execution and acknowledgment by PBBC and Sub of the Florida Articles (as defined
in Section 2.3).
2.3. Effective Time. If all the conditions to the Merger set forth in
Articles VII and VIII shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated in accordance with Article
XIV, on the Closing Date the
<PAGE> 16
Parties shall cause the Articles of Merger (the "Florida Articles"),
substantially in the form of Exhibit A and meeting the requirements of Section
607.1105 of the Florida Law, to be properly executed and filed in accordance
with such Section. The Merger shall become effective on the date and at the time
(the "Effective Time") at which the Florida Articles have been filed in
accordance with the Florida Law, which shall be the date of Closing. The Merger
shall have the effect set forth in the Florida Law. Prior to the Closing Date,
to the extent permitted by applicable law, the Parties shall cause the Florida
Articles to be pre- filed with the appropriate Governmental Entity for review
and comment to ensure that each document will be accepted for filing on the
Closing Date. At the Closing, (i) PBBC will deliver to the Sub and Sleepmaster
the various certificates, instruments and documents referred to in Article IX,
(ii) the Sub and Sleepmaster will deliver to PBBC the various certificates,
instruments and documents referred to in Article X, and (iii) the Sub and
Sleepmaster will cause the Surviving Corporation to deliver the Closing Merger
Consideration to the Representative and the Escrow Agent in the manner provided
in Article III.
2.4. Other Actions. If, at any time after the Effective Time, the
Surviving Corporation shall reasonably determine that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of PBBC or Sub acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger (excluding for all
purposes the "Excluded Assets") or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of PBBC or Sub or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of PBBC or Sub or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
2.5. Articles of Incorporation. The Articles of Incorporation of PBBC
as in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, without any modification or
amendment in the Merger, unless and until amended after the Effective Time, in
accordance with its terms and the Florida Law.
2.6. By-Laws. The By-Laws of PBBC as in effect immediately prior to
the Effective Time shall be the By-Laws of the Surviving Corporation without any
modification or amendment in the Merger, unless and until amended after the
Effective Time, in accordance with their terms, the Articles of Incorporation of
the Surviving Corporation, and the Florida Law.
2.7. Officers and Directors. The officers of PBBC immediately prior to
the Effective Time shall be the officers of the Surviving Corporation until
their respective
<PAGE> 17
successors are duly appointed. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until their
successors are duly elected and qualified.
2.8. Stockholder Representative. To facilitate the consummation of the
transactions contemplated by this Agreement, the Company will request the
Company Stockholders, in conjunction with their vote upon the merger
contemplated by this Agreement, to designate, appoint and empower, John Fenn
Foster, Esq., or such other individual Person they may choose, as the sole and
exclusive representative (the "Representative") of the Company Stockholders, to
make all decisions and determinations on behalf of the Company Stockholders that
the Representative may deem necessary or appropriate to accomplish the intent of
this Agreement, pursuant to a Power of Attorney and Appointment of
Representative, the form of which is annexed hereto as Exhibit B (the "Power of
Attorney"). Whenever the Representative or any direct or indirect successor to
the Representative resigns or is removed, a new Representative shall be
appointed by a vote of the Majority Holders, such appointment to become
effective upon the written acceptance by the new Representative. Until such
appointment, the Majority Holders may act for and bind all of the Company
Stockholders. If PBBC obtains the execution of the foregoing Power of Attorney
from each of the Company Stockholders, Sleepmaster acknowledges and agrees that
the Representative, in its capacity as such with respect to the Company
Stockholders, shall not be liable to Sleepmaster or Sub or any Person affiliated
or associated therewith, other than for gross negligence, acting in bad faith or
for reckless or intentional misconduct.
ARTICLE III
CONVERSION OF SHARES;
MERGER CONSIDERATION
3.1. Conversion.
(a) Subject to the adjustments required by Section 3.2, the
"Closing Merger Consideration" shall consist of:
(i) Thirty-Two Million Dollars ($32,000,000) (the "Fixed
Closing Merger Consideration"), plus
(ii) the Unrestricted Cash as of the opening of business on
the Closing Date (less the amount of checks written or drafts drawn on
PBBC's accounts which are in transit or have yet to clear, and plus
any funds deposited but not credited to PBBC's accounts as of such
time) (the "Variable Closing Merger Consideration").
<PAGE> 18
(b) The Closing Merger Consideration shall be allocated among
the holders of the shares of Company Common as set forth in this Section 3.1(b).
At the Effective Time, by virtue of the Merger and without any action on the
part of the holders of the shares of Company Common, each share of Company
Common (other than any Dissenting Shares) issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive the
Cash per Common Share, and each holder of shares of Company Common (other than
holders of Dissenting Shares) shall be entitled to receive a portion (the "Pro
Rata Portion") of the Closing Merger Consideration equal to (i) the Cash per
Common Share, multiplied by (ii) the aggregate number of shares of Company
Common (other than Dissenting Shares) held by such holder immediately prior to
the Effective Time.
(c) Immediately prior to the Effective Time, Sleepmaster will
pay: (1) to the Representative, by wire transfer of immediately available funds,
an amount (the "Funding Amount") equal to (i) the Closing Merger Consideration,
determined prior to giving effect to the adjustments provided for in Section
3.2, minus (ii) the product of (x) the number of Dissenting Shares and (y) the
Cash per Common Share, minus (iii) One Million Dollars ($1,000,000) (the
"Adjustment Escrow Amount"), minus (iv) Two Million Eight Hundred Thousand
Dollars ($2,800,000) (the "Indemnity Escrow Amount," and, together with the
Adjustment Escrow Amount, the "Escrow Amounts"), to be held in two separate,
segregated, interest-bearing escrow accounts (the "Adjustment Escrow" and the
"Indemnity Escrow," respectively), and (2) to the Escrow Agent, by wire transfer
of immediately available funds, an amount equal to the sum of the Escrow
Amounts. Upon payment by Sleepmaster to the Representative of the Funding Amount
and to the Escrow Agent of the Escrow Amounts, in accordance with this Section
3.1(c), Sleepmaster and the Surviving Corporation shall be deemed to have
satisfied their obligations to make payments in respect of the Closing Merger
Consideration other than (A) Sleepmaster's or the Surviving Corporation's
obligation to make payments required by Section 3.2, if any, and (B) the
obligation of Sleepmaster or the Surviving Corporation under or pursuant to the
Florida Law, to make payments to the holders of the Dissenting Shares following
the Effective Time.
(d) After the Effective Time, each holder of an outstanding
certificate or certificates evidencing shares of Company Common (the
"Certificates"), other than any holder of Dissenting Shares, upon surrender of
such Certificates to the Representative shall be entitled to receive an amount,
without interest, equal to the Pro Rata Portion (subject to the provisions of
Section 3.2) allocable to such holder in exchange for the Certificates, less and
except each holder's pro rata share ("Pro Rata Escrow Share") of the Escrow
Amounts determined by dividing (A) the number of shares of Company Common held
by such holder (exclusive of Dissenting Shares) by (B) the Aggregate Company
Common (exclusive of Dissenting Shares), and then multiplying such fraction and
the Escrow Amounts. Pending such surrender and exchange, a holder's Certificate
<PAGE> 19
or Certificates shall be deemed for all purposes (other than the exchange
contemplated by this Section 3.1) to evidence such holder's Pro Rata Portion,
less and except such holder's Pro Rata Escrow Share, which Pro Rata Escrow Share
shall be retained in escrow and be distributed pursuant to terms of Article
XIII.
(e) At the Effective Time, the Surviving Corporation shall,
pursuant to Florida Law, deliver to each holder of Dissenting Shares a written
offer to pay to such holder of Dissenting Shares, an amount deemed by the
Surviving Corporation to constitute the fair value of the aggregate of such
holder's Dissenting Shares owned at the Effective Time. The Surviving
Corporation's notice and offer shall be accompanied by a balance sheet of PBBC
as of the latest available date that is not more than 12 months before the
offer, and by a profit and loss statement of PBBC for the 12-month period ending
on the date of the accompanying balance sheet. At and as of the Effective Time,
each Dissenting Share shall be converted into the right to receive payment from
the Surviving Corporation with respect thereto in accordance with the provisions
of the Florida Law. Notwithstanding any other provision of this Agreement, the
obligations created by this Section 3.1(e) shall survive the Closing until
fulfilled.
(f) At the Effective Time, all shares of the capital stock of
PBBC which are held in PBBC's treasury shall be canceled and retired, without
the payment of any consideration therefor.
(g) From and after the Effective Time, there will be no
transfers of Company Common on the stock transfer book of the Surviving
Corporation.
(h) At the Effective Time, each share of Common Stock of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of Common Stock, par value $5.00 per share, of the
Surviving Corporation (the "Surviving Corporation Common").
3.2. Adjustment to Purchase Price.
(a) The Closing Merger Consideration shall be adjusted by
reference to the Closing Date Balance Sheet as finally determined pursuant to
this Section. Immediately prior to the Closing Date, PBBC will perform a
physical inventory of PBBC; provided, that Sleepmaster and its representatives
may participate in any such physical inventory. As soon as reasonably
practicable after the Closing Date (but in no event later than 60 days following
the Closing Date), the Surviving Corporation and Sleepmaster will prepare and
deliver to the Representative a statement of PBBC's Net Working Capital as at
the opening of business on the Closing Date determined on a pro forma basis as
though the Parties had not consummated the transactions contemplated by this
Agreement (the "Draft Closing Date Balance Sheet"). The Surviving Corporation
and Sleepmaster will prepare the Draft Closing Date Balance Sheet in accordance
with GAAP applied on a basis consistent with the preparation of the most recent
audited balance sheet included within the Historical Balance Sheets (as defined
in Section 4.2)
<PAGE> 20
of PBBC; provided, that (i) the assets, liabilities, gains, losses, revenues and
expenses in interim periods or as of dates other than year-end (which normally
are determined through the application of so-called interim accounting
conventions or procedures) will be determined, for purposes of the Draft Closing
Date Balance Sheet, through full application of the procedures used in preparing
the most recent audited balance sheet included within the Historical Balance
Sheets; (ii) a reserve for doubtful accounts receivable of Forty Thousand
Dollars ($40,000) shall be established and agreed to for the Draft Closing
Balance Sheet (the "Accounts Receivable Reserve"); (iii) all Company Expenses
shall be accrued for and shall be recorded on the Draft Closing Balance Sheet;
and (iv) all known arithmetic errors shall be taken into account in the
preparation of the Draft Closing Balance Sheet. With respect to the preparation
of the Draft Closing Balance Sheet, no change in accounting principles shall be
made from those utilized in preparing the Historical Balance Sheets, including,
without limitation, with respect to the nature of accounts, or the determination
of the level of reserves or level of accruals. For purposes of the preceding
sentence, a "change in accounting principles" includes all changes in accounting
principles, policies, practices, procedures or methodologies with respect to
financial statements, their classification or their display, as well as all
changes in practices, methods, conventions or assumptions (unless required by
objective changes in underlying events) utilized in making accounting estimates.
All effects of purchase accounting principles (A.P.B. 16 and/or 17 and EITF
88-16 and FASB 109) and all adjustments for transaction expenses in connection
with this Agreement shall be excluded for purposes of preparation of the Draft
Closing Balance Sheet. The Surviving Corporation and Sleepmaster will make the
work papers and backup materials used in preparing the Draft Closing Date
Balance Sheet available to the Representative and his accountants and other
representatives at reasonable times and upon reasonable notice at any time
during (A) the review by the Representative of the Draft Closing Date Balance
Sheet, and (B) the resolution by the Surviving Corporation, Sleepmaster and the
Representative of any objections thereto.
(b) The Representative will review the Draft Closing Date
Balance Sheet and, in no event later than 30 days following its receipt of the
Draft Closing Date Balance Sheet, deliver to the Surviving Corporation and
Sleepmaster a statement setting forth in detail its objections and
qualifications to any items on the Draft Closing Date Balance Sheet. If the
Representative delivers such a statement within the required time, the
Representative, Sleepmaster and the Surviving Corporation shall promptly
negotiate in good faith to resolve the issue or issues which form the basis for
such objections and qualifications, and will revise the Draft Closing Balance
Sheet to incorporate all final resolutions so reached that require such
incorporation. If the Representative, Sleepmaster and the Surviving Corporation
are unable to agree on the final resolution of such of the Representative's
objections and qualifications within 30 days after delivery of the
Representative's objections and qualifications to the Surviving Corporation, the
Representative, Sleepmaster and the Surviving Corporation will refer
<PAGE> 21
such dispute to another firm of independent certified public accountants
mutually acceptable to the Representative, Sleepmaster and the Surviving
Corporation to resolve any remaining objections and qualifications and for
determination of an appropriate adjustment to the Draft Closing Date Balance
Sheet to resolve the issues raised by the Representative's statement of
objections and qualifications (the "Outside Accountant"). If the Representative,
Sleepmaster and the Surviving Corporation are unable to agree on the choice of
an Outside Accountant firm, they will select a nationally-recognized accounting
firm by lot (after excluding their respective regular outside accounting firms).
The determination of any Outside Accountant firm so selected will be set forth
in writing and will be conclusive and binding upon the Representative,
Sleepmaster and the Surviving Corporation. The Company Stockholders shall pay
the fees, expenses and costs of the Representative's accountant, and Sleepmaster
and the Company Shareholders as a group will each pay one half of the fees,
expenses and costs of the Outside Accountant firm for the services described
herein. The Representative, Sleepmaster and the Surviving Corporation will
revise the Draft Closing Date Balance Sheet as appropriate to reflect the
resolution of any objections and qualifications thereto pursuant to this
Section. The "Closing Date Balance Sheet" shall mean the Draft Closing Date
Balance Sheet together with any revisions thereto made pursuant to this Section.
(c) The Closing Merger Consideration shall be adjusted by an
amount equal to the amount by which the Net Working Capital, as shown on the
Closing Date Balance Sheet differs from Three Million Dollars ($3,000,000) (the
"Target"). If Net Working Capital is less than the Target, the Closing Merger
Consideration shall be adjusted downward by an amount equal to the difference,
up to a limit of One Million Dollars ($1,000,000) (the "Deficiency"); and if Net
Working Capital is greater than the Target, the Closing Merger Consideration
shall be adjusted upward by an amount equal to the difference, up to a limit of
One Million Dollars ($1,000,000) (the "Excess"). In no event shall the
Deficiency or the Excess exceed One Million Dollars ($1,000,000) in amount.
Within fifteen (15) days following the determination of the Closing Data Balance
Sheet, (i) if payment of an Excess shall be due, Sleepmaster will cause the
Surviving Corporation to pay, or shall otherwise pay itself, to the
Representative, on behalf of and for distribution to the Company Stockholders
who have not exercised their dissenters' rights under the Florida Law, an amount
equal to the Excess, multiplied by the Non-Dissenting Ratio, and (ii) whether
there shall be an Excess or a Deficiency, the Surviving Corporation, Sleepmaster
and the Representative will simultaneously issue and execute written
instructions to the Escrow Agent such that:
(i) if there is an Excess, the amount equal to the
Adjustment Escrow Amount, together with all interest earned on such
amount, shall be released by the Escrow Agent from the Adjustment
Escrow to the Representative for distribution to the Company
Stockholders other than the holders of Dissenting Shares; and
(ii) if there is a Deficiency, the amount equal to the
Deficiency
<PAGE> 22
times the Non-Dissenting Ratio, together with all interest earned on
such amount, shall be released by the Escrow Agent from the Adjustment
Escrow to the Surviving Corporation, and the balance of the Adjustment
Escrow Amount shall be paid by the Escrow Agent from the Adjustment
Escrow to the Representative for distribution to the Company
Stockholders other than the holders of Dissenting Shares.
Notwithstanding the foregoing, no payment of an Excess or Deficiency shall be
made unless the amount of such payment exceeds One Hundred Thousand Dollars
($100,000), in which case the amount of such Excess or Deficiency (including the
$100,000 threshold amount) shall be made in accordance with the provisions of
this Section. Notwithstanding other provisions of this Agreement, the
obligations contained in this Section 3.2 shall survive the Closing until
fulfilled.
3.3. IRB-Related Obligations.
The Parties acknowledge and agree that the transactions
contemplated by this Agreement will require Sleepmaster and Sub to obtain the
consent of certain third parties under the IRB Documents. Accordingly,
Sleepmaster and Sub enter into this Agreement with full knowledge of the terms,
provisions and conditions of the IRB Documents. If, as a result of the Merger,
the IRB- Related Obligations are accelerated in accordance with their terms, the
Closing Merger Consideration shall not be increased or decreased by any amounts
payable under the IRB-Related Obligations, including any prepayment penalties
associated with fully discharging all obligations under the IRB- Related
Obligations and any costs, expenses and additional interest imposed by the
holder associated with fully discharging all obligations under the IRB-Related
Obligations prior to the stated maturity thereof. Sleepmaster acknowledges that
all fees, costs, expenses, and charges which may be incurred or assessed by
First Union in connection with their review and approval of this Merger
Agreement and its impact upon the IRB-Related Obligations shall be the sole
obligation of the Surviving Corporation, without any decrease in the Closing
Merger Consideration and without any impact upon nor inclusion within the
calculation of "Net Working Capital" under Section 3.2 of this Agreement.
3.4. Assignment of Serta Licenses. Sleepmaster and the Sub acknowledge
that the consummation of the Merger contemplated by this Agreement will require
the consent of Serta, Inc., a Delaware corporation, under that certain Standard
License Agreement, dated November 4, 1989 (the "Standard License Agreement") in
order for the transaction to be consummated. Prior to the Closing, at its
expense, PBBC will use commercially reasonable efforts to obtain, and will
refrain from any act that would not permit to be given, the consent of Serta to
reissue PBBC's entire right, title and interest in the Serta License to the
Surviving Corporation, and PBBC shall provide Sub with any and all reasonable
assistance that Sub may require to permit the Surviving Corporation to enter
into a Standard License Agreement and Memorandum of Agreement with
<PAGE> 23
Serta, appointing the Surviving Corporation as the U.S. primary licensee in
place of PBBC for the territory described in the Standard License Agreement in
which the Business operates and entitling the Surviving Corporation to own and
hold shares of stock in Serta, Inc., such agreements to contain terms and
conditions either identical to the Serta Standard License Agreement or
reasonably satisfactory to Sub (collectively, the "Replacement License").
3.5. Books and Records. Unless otherwise consented to in writing by
the Representative, for a period of seven years after the Closing Date, the
Surviving Corporation will not destroy, alter or otherwise dispose of any of its
original books, records or software without first offering to surrender such
books, records or software to the Representative, all of such records being
retained within Palm Beach County, Florida. If the Representative has given
reasonable prior written notice to the Surviving Corporation, for a period of
six years after the Closing Date, the Surviving Corporation shall allow the
Representative (or its successor) and its accountants, counsel and agents, and
the Representative or the Representative's representative shall have the right
of access during normal business hours, to examine and copy the books and
records of the Surviving Corporation.
3.6. Tax Election; Preparation of PBBC Short Year Return; Allocation
of Price.
(a) In connection with the Code Section 338 (h)(10) election provided
in Section 3.6(b) below, not later than the Closing, Sleepmaster and PBBC shall
act together in good faith to determine and agree upon a "Modified Aggregate
Deemed Sales Price" with respect to PBBC (within the meaning of, and in
accordance with, Treasury Regulation Section 1.338(h)(10)-1(f). Schedule 3.6
sets forth the proper allocations of the Modified Aggregate Deemed Sale Price
among the respective assets of PBBC (in accordance with Code Section 338(b)(5)
and the Treasury regulations promulgated thereunder).Sleepmaster, the Surviving
Corporation, PBBC and the Company Stockholders shall be bound by such
determinations and allocations for all purposes (including financial, accounting
and tax reporting purposes).Sleepmaster, the Surviving Corporation, PBBC and the
Company Stockholders will prepare and file their respective tax returns and
information reports in a manner and on a basis consistent with such
determinations and allocations. None of PBBC, the Company's Stockholders, the
Surviving Corporation and Sleepmaster shall take any position (on any applicable
tax return, in any proceeding before any taxing authority or otherwise) for
purposes of federal, state or local income tax, respecting the foregoing
determinations and allocations which is inconsistent with the determinations and
allocations so agreed upon by the Parties in accordance with this Section. In
the event that such values set forth in the Allocation Schedule attached hereto
is disputed by any taxing authority, the party receiving notice of the dispute
shall promptly notify the Representative and Sleepmaster, as the case may be,
concerning resolution of the dispute.
<PAGE> 24
(b) After the Effective Time, Sleepmaster, the Surviving
Corporation and each of the Company Stockholders will make an election to have
the Merger treated in accordance with the provisions of Section 338(h)(10) of
the Code. At the Closing, Sleepmaster shall deliver to the Representative a
signed Department of Treasury Form 8023-A, with Section 1a through 6h (excluding
Section c) completed. The allocations set forth in the required attachment to
Treasury Form 8023-A has been made in a manner consistent with the fair market
values set forth in the Allocation Schedule attached hereto.
(c) Representative, on behalf of the Company Stockholders,
shall prepare or cause to be prepared and shall file or cause to be filed, in a
manner consistent with past practice, all federal and state income tax returns
for PBBC for all periods ending on or prior to the Closing Date which are filed
after the Closing Date, including but not limited to the short year Subchapter
"S" federal income tax return for the period beginning on January 1, 1998 and
ending on the Closing Date. The appropriate officers of the Surviving
Corporation shall execute such Representative-prepared returns upon written
request of the Representative, thereby enabling the Representative to file or
cause to be filed such returns with the appropriate Governmental Entities. The
Representative shall permit Sleepmaster to review and comment on each such tax
return described in the preceding sentence prior to filing. The Surviving
Corporation shall allow the Representative (or its successor) and its
accountants, counsel and agents, and the Representative or the Representative's
representative shall have the right of access during normal business hours, to
examine and copy the books and records of PBBC within the possession of the
Surviving Corporation to enable it to prepare and file the foregoing tax
returns.
(d) All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
City Transfer Tax and any similar tax imposed in other states or subdivisions),
shall be paid by Sleepmaster when due, and Sleepmaster and the Representative
will each, at its own expense, file all necessary tax returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law, the
Company Stockholders will join in the execution of any such tax returns and
other documentation.
(e) Notwithstanding any other provision of this Agreement,
the obligations created by this Section 3.6 shall survive the Closing until
fulfilled.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF PBBC
<PAGE> 25
PBBC hereby represents and warrants to Sub that the statements made in
this Article III are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date, except as set forth in the
disclosure schedule accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Article IV.
4.1. Organization and Good Standing; Capitalization.
(a) PBBC (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of formation;
(ii) has full corporate power and authority to carry on the Business as it is
now being conducted and to own the properties and assets it now owns; and (iii)
is duly qualified to transact business in all jurisdictions in which the
ownership or leasing of assets, or conducting of the Business, requires such
qualification and in which the failure to so qualify would have a Material
Adverse Effect on the Business. PBBC has heretofore delivered to Sub complete
and correct copies of its Articles of Incorporation, as amended as currently in
effect.
(b) PBBC's authorized capital is 50,000 shares of Company
Common, of which 26,752 shares of Company Common are issued and outstanding.
Schedule 4.1(b) sets forth a true, correct and complete list of all of the
issued and outstanding shares of capital stock of PBBC and the holders of record
thereof. All of the issued and outstanding shares of Company Common have been
duly authorized and validly issued (without violation of any preemptive rights
of any stockholder) in conformity with all applicable state and federal laws,
and are fully paid and non-assessable. Other than as set forth on Schedule
4.1(b), there are no outstanding shares of capital stock or subscriptions,
commitments, options, warrants or other arrangements to issue shares of capital
stock or other securities convertible into shares of capital stock of PBBC.
(c) Other than with respect to investments in publicly traded
companies which it does not control, PBBC has no capital investment in, and does
not control, directly or indirectly, any other corporation, partnership, joint
venture, association or other entity or business concern.
4.2. Financial Statements. Attached hereto as Schedule 4.2 are (a) the
balance sheets of PBBC as at December 31, 1994, December 31, 1995 and December
31, 1996 (the "Historical Balance Sheets") and the related statements of
operations and cash flows of PBBC for the three fiscal years then ended,
together with the notes thereto, in each case audited by Lamn, Krielow, Dytrych
& Darling, P.A., PBBC's independent certified public accountant, together with
the audit report of such firm as to such statements (collectively, with the
Historical Balance Sheets, the "Historical Financial Statements"); and (b) an
unaudited balance sheet for PBBC as at September 30, 1997 (the "Interim Balance
Sheet") and unaudited statements of operations and cash flow for the nine-month
period then ended (collectively with the Interim Balance
<PAGE> 26
Sheet, the "Interim Financial Statements"); (the Historical Financial Statements
and the Interim Financial Statements being collectively referred to as the
"Financial Statements"). The Financial Statements (i) were compiled from and are
consistent with the books and records of the Business regularly maintained by
management and used to prepare the financial statements of PBBC, (ii) are used
by PBBC in the ordinary conduct of the Business, (iii) except as disclosed in
Schedule 4.2, were determined on a basis consistent with the past practices of
PBBC, (iv) present fairly the financial position, results of operation and other
information of PBBC included therein, and (v) except with respect to the absence
of footnotes and other presentation items normally found in a year-end report
and normal year-end adjustments to be made to the Interim Financial Statements,
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby.
4.3. Authorization; No Violation; Consents.
(a) Authorization and No Violation. Except as set forth in
Schedule 4.3(a), PBBC has full corporate power and authority to execute and
deliver this Agreement and the other agreements and documents contemplated
hereby, to perform its obligations hereunder and thereunder. The execution and
delivery by PBBC of this Agreement and the other agreements and documents
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, (i) upon and subject to obtaining approval by PBBC's board
of directors and the Company's Stockholders, in a manner required by the Florida
Law, will then be deemed duly and validly authorized by all necessary action on
the part of PBBC, (ii) do not conflict with or violate any of the terms of the
articles of incorporation or by-laws of PBBC, (iii) do not violate to any
material degree, any applicable law, ordinance, rule or regulation or any
judgment, order, writ, injunction or decree of any court, administrative or
Governmental Entity, and (iv) except as set forth in Schedule 4.3(a) and except
with respect to the Serta Standard License Agreement and the IRB-Related
Obligations, do not violate or conflict with the terms of, or result in a breach
of, or constitute a default under, or result in the creation or imposition of
any Lien upon any property or assets of the Business under, any mortgage,
indenture, lease, agreement, license or other instrument to which PBBC or the
Business is a party or by which PBBC, or the Business, or the assets thereof,
may be bound, which violation, conflict, default or Lien, in the aggregate with
all other such violations, conflicts, defaults and Liens, would have a Material
Adverse Effect on the Business.
(b) Consents. Except as set forth in Schedule 4.3(b) and
except with respect to (i) the IRB-Related Obligations, (ii) the Serta Standard
License Agreement, (iii) the Florida Law, and (iv) obtaining approval by PBBC's
Board of Directors and the Company Stockholders, in a manner required by the
Florida Law, PBBC and the Company Stockholders do not need to obtain any
consents, authorizations or approvals
<PAGE> 27
of, notices to, or filings or registrations with, any Governmental Entity or any
other third party, and no Change of Control Payments become payable, in
connection with the execution and delivery by PBBC of this Agreement and the
other agreements and documents contemplated by this Agreement, and the
consummation of the transactions contemplated hereby and thereby, except where
the failure to obtain such consents, authorizations or approvals would not have
a Material Adverse Effect on the Business. Except as otherwise set forth in
Schedule 4.3(b), and except with respect to (i) the IRB-Related Obligations,
(ii) the Serta Standard License Agreement, (iii) the Florida Law, and (iv)
obtaining approval by PBBC's Board of Directors and the Company Stockholders, in
a manner required by the Florida Law (the "Required Corporate Consents"), all
consents, authorizations, approvals, notices, filings and registrations set
forth in said Schedule have been obtained or made.
(c) Enforceable Agreement. Upon obtaining the Required
Corporate Consents, this Agreement constitutes the legal, valid and binding
obligations of PBBC, enforceable in accordance with their respective terms,
except for (i) the effect of bankruptcy, reorganization or other similar laws of
general application relating to or affecting the rights or remedies of
creditors; (ii) limitations imposed by general principles of equity upon the
specific enforcement of any of the remedies, covenants or other provisions of
this Agreement and the other agreements and documents contemplated hereby and
upon the availability of injunctive relief or other equitable remedies; and
(iii) other laws, court decisions or legal or equitable doctrines affecting the
right to specific performance or affecting the enforcement of other specific
rights and remedies.
4.4. Properties of the Business.
(a) Title to Transferred Assets and Related Matters. Except
as set forth in Schedule 4.4(a) and except as described in (i) the IRB-Related
Obligations (ii) in the Title Policy, (iii) with respect to Taxes not yet due,
(iv) mechanic's, materialmen's and similar liens, (v) purchase money Liens and
Liens securing rental payments under capital lease arrangements, (vi) Liens
arising in the Ordinary Course of Business of PBBC, and (vii) the "Canal Issue"
(as hereinafter described), PBBC has good title to, or a valid leasehold
interest in, all of the Transferred Assets (except for such properties and
assets within the definition of Transferred Assets disposed of in the Ordinary
Course of Business since the date of this Agreement), and on the Closing Date
the Transferred Assets shall be free and clear of all Liens, except such Liens
which are set forth in Schedule 4.4(a) and except as described in (i) the
IRB-Related Obligations (ii) in the Title Policy, (iii) with respect to Taxes
not yet due, (iv) mechanic's, materialmen's and similar liens, (v) purchase
money Liens and Liens securing rental payments under capital lease arrangements,
(vi) Liens arising in the Ordinary Course of Business of PBBC, and (vii) the
"Canal Issue." All property and assets (tangible and intangible) used by PBBC in
the conduct of the Business as presently conducted are owned by PBBC or licensed
or leased to PBBC pursuant to a license or lease listed in Schedule 4.4(c),
Schedule 4.4(d), Schedule 4.8 or Schedule 4.9. The Transferred Assets include
all properties and assets utilized in carrying on the operations of the Business
in the Ordinary Course of Business except for the Unrestricted Cash utilized by
PBBC in
<PAGE> 28
conducting the Business before the Effective Time. For purposes of this
Agreement, the Canal Issue shall refer to the following facts and circumstances:
The owner of the 50 feet strip of real property to the north of the present
Facility, which real property constitutes the south half of a drainage canal,
has made claims in the past that PBBC has no right to outfall into the drainage
canal. These claims were primarily made to the Palm Beach County, Florida,
County Engineer at such time as PBBC was applying for a building permit for
construction of its Facility. Palm Beach County, Florida agreed with PBBC's
analysis and issued the Facility building permit and the Facility was
constructed. Copies of pertinent correspondence are attached as Exhibit 4.4.
(b) Owned Real Property. PBBC owns that certain parcel of
real estate with improvements thereon, located in the City of Riviera Beach,
Florida, and more fully described on Schedule 4.4(b) (the "Facility"), as
defined in the Title Policy, in fee simple, subject to the IRB- Related
Obligations and to the Liens described and as provided in Title Policy No.
10-0732-106- 00000070 (previously provided to Sleepmaster) issued by Chicago
Title Insurance Company showing insurable title to such real property vested in
PBBC ("Title Policy").
(c) Leased Real Property. Schedule 4.4(c) sets forth all
leases or other agreements pursuant to which PBBC or the Business leases,
occupies or otherwise uses real property. Other than PBBC, and the named tenants
or subtenants described in the leases contained on Schedule 4.4(c), there are no
parties in possession or parties having any rights to occupy all or any portion
of the Facility. The Facility is in good condition and repair and is sufficient
and appropriate for the conduct of the Business as presently conducted. Except
as may be described in the Title Policy and except with respect to the Canal
Issue, the Facility, and all plants, buildings and improvements located thereon,
to PBBC's knowledge, conform to all applicable building, zoning and other laws,
ordinances, rules and regulations, other than nonconformance, none of which,
either individually or in the aggregate, would have a Material Adverse Effect on
the Business. There is no pending or, to the Knowledge of PBBC, any threatened
condemnation proceeding affecting any portion of the Facility. Except as may be
described in the Title Policy, all utilities enter the Facility from an adjacent
public street or valid private easement owned by the supplier of such utility.
To the Knowledge of PBBC, the Facility has direct access to a public street
adjoining the Facility and no existing access way crosses or encroaches upon any
property or property interest of any third party. To the Knowledge of PBBC,
except as may be impacted by the Canal Issue, no improvement forming a portion
of the Facility encroaches upon any property or property interest of any third
party.
(d) Personal Property Leases. Schedule 4.4(d) contains a
complete list, insofar as any of them relate to the Business, of:
<PAGE> 29
(i) all leases pursuant to which PBBC or the Business leases
any type of personal property (including without limitation computer
hardware and software) which provide, singly, for rental payments in
excess of $10,000 per annum; and
(ii) all leases pursuant to which PBBC or the Business leases
to others any type of property which provide, singly, for rental
payments in excess of $25,000 per annum or which have an unexpired
term in excess of three years.
4.5. Compliance with Laws. Since December 31, 1992, PBBC has
conducted the Business in compliance with all applicable federal, state or local
laws, rules and regulations, ordinances, orders, judgments, decrees or
administrative rulings, except for (i) possible violations which in the
aggregate do not have a Material Adverse Effect on the Business, and (ii) those
described in Schedule 4.5.
4.6. Litigation. Schedule 4.6 sets forth each instance in
which PBBC: (i) is subject to any outstanding injunction, judgment, order,
decree, ruling or charge or (ii) is a party to any action, suit, proceeding,
hearing or, to the Knowledge of PBBC, investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction, except where the injunction, judgment, order, decree,
ruling, action, suit, proceeding, hearing or investigation which would not have
a Material Adverse Effect on the Business. No Actions are pending or, to PBBC's
knowledge, threatened against PBBC or otherwise which question or challenge the
validity of this Agreement or any action taken or proposed to be taken by PBBC
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement.
4.7. Absence of Certain Changes. Except as set forth in
Schedule 4.7, since December 31, 1996, PBBC has conducted the Business only in
accordance with the Ordinary Course of Business and PBBC has not since that
date:
(i) except with respect to accounts receivables of
and sales by PBBC to parties who are the subject of pending
bankruptcy proceedings (including but not limited to such
accounts receivables of and sales by PBBC to Montgomery Ward
Company, Saw Mattress Company and Levitz Furniture Company),
collectively referred to herein as the "Bankruptcy
Receivables," PBBC has not, since December 31, 1996, suffered
any Material Adverse Effect;
(ii) suffered any damage, destruction or loss of the
Equipment or the Facility, whether covered by insurance or
not, which has had a Materially Adverse Effect on the
Business;
(iii) paid, discharged or satisfied any material
liability or other expenses, other than the payment, discharge
or satisfaction of liabilities at
<PAGE> 30
the time the same were due and payable and in the Ordinary
Course of Business;
(iv) sold, assigned or transferred, or mortgaged,
pledged or permitted or allowed the imposition of any Liens
upon any of its properties or assets (real, personal or mixed,
tangible or intangible), in the case of Liens other than (a)
mechanic's, materialmen's and similar liens, (b) liens for
Taxes not yet due and payable, (c) purchase money Liens and
Liens securing rental payments under capital lease
arrangements, and (d) other Liens arising in the Ordinary
Course of Business and not incurred in connection with the
borrowing of money;
(v) created or incurred any Debt, except in the
Ordinary Course of Business or created or incurred any other
material liability, other than in the Ordinary Course of
Business;
(vi) except with respect to a matter with Leggett &
Platt concerning the payment for certain equipment and
machinery, delayed or postponed the payment of accounts
payable or other liabilities not in the Ordinary Course of
Business;
(vii) canceled or compromised any material
liabilities, or waived or permitted to lapse any material
claims or rights, except in the Ordinary Course of Business;
(viii) disposed of or permitted to lapse any rights
to the use of any patent, trademark, trade name, copyright,
slogan or telephone number material to the Business;
(ix) granted any material general increase in the
compensation of officers or employees (including any such
increase pursuant to any bonus, pension, profit-sharing or
other plan or commitment) or any increase in the compensation
payable or to become payable to any managers or employee,
other than in the Ordinary Course of Business;
(x) entered into any contract, license, commitment or
transaction not in the Ordinary Course of Business, invested
in, or committed to invest in, or acquired the assets of
another Person in excess of $25,000, or made any capital
expenditures or commitment for any additions to property,
plant or equipment which exceed $25,000 in any one case or
$250,000 in the aggregate;
(xi) accelerated, terminated, modified or canceled
any agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) involving
more than $100,000 to which
<PAGE> 31
PBBC is a party or by which it is bound, and PBBC has no
knowledge of any action by any party to do any of the
foregoing;
(xii) made any material change in any method of
accounting or accounting practice, except for any such change
required by reason of a concurrent change in GAAP;
(xiii) paid (other than any payments in the Ordinary
Course of Business of PBBC and other than loans to
shareholders set forth on Schedule 4.7), loaned or advanced
any material amount to, or sold, transferred or leased any
properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement
with, any of its managers, employees, or any family member of
any of its managers or employees, or any Affiliate of PBBC,
any manager or employee of any such Affiliate;
(xiv) granted or entered into any license or
sublicense of any rights under or with respect to any
Intangible Property Rights;
(xv) declared, set aside or paid any dividend or made
any distribution with respect to its capital stock (whether in
cash or in kind) other than distributions made pursuant to
Section 11.9 and distributions of its taxable earnings in the
amounts permitted by Section 11.9 as set forth in Schedule
4.7, or redeemed, purchased or otherwise acquired any of its
capital stock;
(xvi) entered into any employment contract or
collective bargaining agreement, written or oral, or modified
the terms of any existing such employment contract or
collective bargaining agreement; and
(xvii) agreed, whether in writing or otherwise, to
take any action described in this Section 4.7.
4.8. Patents, Trademarks, Trade Names. To the Knowledge of
PBBC, PBBC has not interfered with, infringed upon, misappropriated or violated
any material Intellectual Property rights of third parties in any material
respect, and PBBC has never received any demand or notice alleging any such
interference, infringement, misappropriation or violation (including any claim
that PBBC must license or refrain from using any Intellectual Property rights of
any third party), which claim, if correct, would have a Material Adverse Effect
on the Business. To the Knowledge of PBBC, no third party has interfered with,
infringed, upon, misappropriated or violated any material
<PAGE> 32
Intellectual Property rights of PBBC in any material respect. Schedule 4.8 of
the Disclosure Schedule identifies each patent or registration which has been
issued to PBBC with respect to any of its Intellectual Property Rights,
identifies each pending patent application or application for registration which
PBBC has made with respect to any of its Intellectual Property Rights, and
identifies each license, agreement or other permission which PBBC has granted to
any third party with respect to any of its Intellectual Property Rights.
Schedule 4.8 identifies all trade names, corporate names, unregistered
trademarks and material unregistered copyrights which have been issued to or
used by PBBC and all licenses and other agreements relating to any Intangible
Property Rights which PBBC is licensed or authorized to use by others or
licenses or authorizes others to use. Except for matters set forth in Schedule
4.8, for computer software utilized by PBBC under standard license agreements,
and for immaterial nonexclusive licenses granted to third parties, to PBBC's
knowledge, PBBC has the sole and exclusive right to use the Intangible Property
Rights of the Business, and no consent of any third party other than Serta, Inc.
is required for the use thereof by the Surviving Corporation upon completion of
the transfer of the Transferred Assets.
4.9. Contracts and Commitments.
(a) Insofar as they relate to the Business, Schedule
4.9 (together with the leases disclosed in Schedules 4.4(c) and 4.4(d)) contains
a true and complete list of the following types of agreements binding on PBBC
which require the performance of any obligation by PBBC or the payment or
delivery of any consideration by any party thereto after the Closing Date:
(i) the Serta Standard License Agreement;
(ii) all agreements, contracts and commitments to
which PBBC is a party or by which any of the Transferred
Assets is bound which by their terms (A) can reasonably be
expected to require future payment by or to PBBC of $25,000 or
more or (B) cannot be terminated by any party thereto on less
than 90 days prior notice;
(iii) all written employment contracts and
commitments with employees of PBBC providing for direct
remuneration for any employee of PBBC or containing any
severance or termination pay or obligations for any employee
of PBBC;
(iv) all collective bargaining agreements and union
contracts respecting the Business to which PBBC is a party;
(v) all other contracts of PBBC utilized by PBBC in
the operation of the Business as of September 30, 1997 for or
relating to the construction of capital assets which exceed
$100,000 in any one case or $250,000 in the aggregate;
<PAGE> 33
(vi) all partnership or joint venture agreements to
which PBBC is a party;
(vii) any agreement (or group of related agreements)
for the purchase or sale of raw materials, commodities,
supplies, products or other personal property, or for the
furnishing or receipt of services, the performance of which
will extend over a period of more than one year, result in a
material loss to PBBC, or involve consideration in excess of
$100,000;
(viii) any agreement concerning confidentiality or
noncompetition; or
(ix) any agreement under which the consequences of a
default or termination could have a Material Adverse Effect on
the Business.
(b) PBBC has made available to Sleepmaster or Sub
full and complete copies of the documents identified in Schedules 4.4(c), 4.4(d)
and 4.9 (the "Material Contracts").
(c) Other than the Serta Standard License Agreement,
PBBC is not a party to any written agreement and is not subject to any other
instruments or documents that would materially restrict the Business from
carrying on its business anywhere in the world.
(d) To the Knowledge of PBBC, the Material Contracts
are valid, binding, enforceable and in full force and effect with respect to the
Business and there does not exist any default on the part of PBBC, except with
respect to the Unauthorized Sales, or, to PBBC's knowledge, any default on the
part of the other party thereto, or any event which with notice or lapse of time
or both would constitute a default, under a Material Contract, which default
would allow the termination thereof and would have a Material Adverse Effect on
the Business.
(e) The by-laws of Serta, the Standard License
Agreement and the rules and regulations of Serta promulgated thereunder are the
only instruments or agreements among Serta and its stockholders to which PBBC or
any of its Affiliates are subject or which bind PBBC or any of its Affiliates.
(f) Other than the IRB-Related Obligations, the
obligations of PBBC to pay accounts payables and salaries and other
remunerations arising in the Ordinary Course of Business, and the obligations to
make payments under certain
<PAGE> 34
equipment leases, PBBC is not obligated on or with respect to any Debt.
4.10. Compliance with Labor and Employment Laws.
(a) PBBC is in compliance in all material respects,
with all applicable laws, regulations and administrative orders of any country,
state or municipality or of any subdivision thereof to which the Business and
the employment of labor are subject, including without limitation laws
respecting employment and employment practices, terms and conditions of
employment, workplace health and safety, plant closing, employment
discrimination and wages and hours, except where the failure to comply with any
such applicable laws, regulations and administrative orders would not have a
Material Adverse Effect on the Business.
(b) There is no strike, labor dispute, slowdown or
stoppage actually pending,
or, to PBBC's Knowledge, threatened, against or directly affecting PBBC.
(c) To the Knowledge of PBBC, (i) other than with
respect to Patricia Gray,
the chief financial officer of PBBC, no executive, key employee, or group of
employees has any plans to terminate employment with PBBC; (ii) PBBC has not
experienced any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes; (iii) PBBC has not committed any unfair labor
practice and (iv) there is no organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of PBBC.
4.11. Employee Benefit Plans.
(a) Schedule 4.11 sets forth the name of (i) each
of the "employee benefit plans" (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) maintained
currently or in the past by PBBC under which PBBC has any current or, to the
Knowledge of PBBC, potential liability or under which any former or present
employee of PBBC has any current or future rights to benefits (the "ERISA
Plans"), (ii) each nonqualified deferred compensation, bonus, incentive or other
retirement, plan, program or arrangement, and (iii) each fringe benefit plan or
program (collectively (i), (ii) and (iii) shall be referred to as the "Plans"),
copies of which have been previously delivered to Sleepmaster or the Sub. None
of the employee benefit plans set forth in Schedule 4.11 is a "pension plan" as
defined in Section 3(2) of ERISA.
(b) Neither PBBC nor any trade or business (whether
or not incorporated) which are or have ever been under common control, or which
are or have been treated as a single employer, with PBBC under Section 414(b),
(c), (m) or (o) of the Code, has maintained or contributed or ever been
obligated to contribute to any pension plan that is subject to Title IV of ERISA
(including a multiemployer pension plan).
<PAGE> 35
(c) Since January 1, 1992, each Plan (and related
trusts, insurance contracts or other funding vehicles) complied in form and
operation with the applicable requirements of law; and each ERISA Plan which is
intended to be qualified (except where the failure to be qualified would not
have a Material Adverse Effect upon the Business) under Section 401 of the Code
is so qualified, has received a favorable determination letter from the IRS and
was timely amended and filed with the IRS for a favorable determination letter
with respect to changes made by the Tax Reform Act of 1986. All required
reporting and disclosure obligations (including Form 5500 Annual Reports,
Summary Annual Reports and Summary Plan Descriptions) with respect to each ERISA
Plan have been properly and timely filed with the appropriate government agency
or distributed to participants.
(d) With respect to each Plan, all contributions and
premium payments which are due (including all employer and employee
contributions) have been paid and all contributions, premium payments and
uninsured welfare benefit plan liabilities for all periods ending on the Closing
Date are or will be accrued for on the books and records of PBBC as of the
Closing Date.
(e) To the Knowledge of PBBC, with respect to each
Plan, (i) PBBC has no actual liability to the IRS or the Department of Labor,
(ii) there have been no prohibited transactions as defined in Section 406 of
ERISA in Section 4975 of the Code), (iii) no fiduciary (as defined in Section
3(21) of ERISA) has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of such Plan, and (iv) no Actions with respect to the assets thereof
are pending or threatened, and PBBC has no knowledge of any facts which would
give rise to or could reasonably be expected to give rise to any such Actions.
(f) No welfare benefit plan (as defined in Section
3(1) of ERISA) maintained by PBBC provides post-employment benefits with respect
to current or former employees beyond termination of employment (other than
coverage mandated by Section 4980B of the Code ("COBRA")). PBBC has complied in
all material respects with COBRA.
(g) PBBC has made available to Sleepmaster or Sub
true and complete copies of (i) all documents governing the Plans, including,
without limitation, all amendments thereto which will become effective at a
later date; (ii) all summary plan descriptions and each Summary of Material
Modifications relating to the ERISA Plans; (iii) all employment manuals; (iv)
insurance policies or contracts with respect to each Plan; (v) financial
statements with respect to the ERISA Plans (to the extent applicable); (vi) the
IRS favorable determination letter with respect to each ERISA Plan (to the
extent applicable); and (vii) Form 5500 (including all schedules and
attachments) with respect to each ERISA Plan.
<PAGE> 36
4.12. Environmental Matters. To the Knowledge of PBBC, except
as set forth in Schedule 4.12 and except as disclosed on the Environmental Audit
Report, dated August 1995, as updated on the 23rd day of January, 1998
(collectively the "Environmental Audit Report"), previously delivered to
Sleepmaster and attached hereto as Exhibit 4.12:
(a) To the Knowledge of PBBC, the operation of the
business of PBBC and any real property owned, operated or leased by PBBC are in
compliance in all material respects with all applicable Environmental Laws (as
hereinafter defined).
(b) (i) PBBC has in a timely manner obtained and
currently maintains all Environmental Permits (as hereinafter defined) necessary
for its operations and, to the Knowledge of PBBC, is in compliance with such
Environmental Permits, (ii) there are no legal proceedings pending nor, to
PBBC's Knowledge, threatened to revoke such Environmental Permits, and (iii)
PBBC has not received any notice to the effect that there is lacking any
Environmental Permit required for the current use or operation of any real
property owned, operated or leased by PBBC.
(c) PBBC does not now utilize, store, dispose of,
treat, generate, transport, release or own any Hazardous Substance (as defined
below) in a manner which violates any Environmental Laws.
(d) To the Knowledge of PBBC, PBBC has not ever
utilized any property of PBBC, or any portion thereof, in violation of any
Environmental Law.
(e) To the Knowledge of PBBC, no Release (as defined
below) by PBBC of any Hazardous Substance has occurred at, upon or under any
property owned, operated or leased by PBBC in an amount which violates any
Environmental Law or could reasonably be expected to give rise to an obligation
to remediate under or pursuant to any Environmental Law.
(f) To the Knowledge of PBBC, there is not now, nor
has there been in the past, on, in or under any real property owned, leased or
operated by PBBC (i) any underground storage tanks, above ground storage tanks,
dikes or surface impoundments, (ii) any asbestos-containing materials which
would be required to be removed by Environmental Laws, (ii) any polychlorinated
biphenyls or (iv) any radioactive substances.
(g) PBBC has not received any notice of outstanding
writs, injunctions, decrees, orders, notices of violation or judgments or any
suits, claims, actions, proceedings or, to the Knowledge of PBBC, investigations
pending or, to the Knowledge of PBBC, threatened under or pursuant to any
Environmental Laws, including but not limited to any notice from any
Governmental Entity or private or public entity advising PBBC that it is, or is
potentially, responsible for response costs under the CERCLA (as defined in
Section 4.12(j)) with respect to a release or threatened
<PAGE> 37
release of Hazardous Substances.
(h) PBBC has not received any notice of any violation
of any Environmental Law relating to the operation of the Business or, to the
Knowledge of PBBC, to any of the processes used or followed, results obtained or
products developed, made or sold by PBBC including, without limitation, under
CERCLA, the Toxic Substances Control Act of 1976, as amended, the Resource
Conservation Recovery Act of 1976, as amended, the Clean Air Act, as amended,
the Federal Water Pollution Control Act, as amended, or the Occupational Safety
and Health Act of 1970, as amended.
(i) There are no Actions pending or, to the Knowledge
of PBBC, threatened against PBBC alleging the violation of or imposing liability
pursuant to any Environmental Law or Environmental Permit.
(j) For purposes of this Agreement, the following
terms have the following meanings: (i) "Environmental Laws" means any federal,
state, local or foreign law (including common law), statute, code, ordinance,
rule, regulation or other requirement relating to the environment, natural
resources, or public or employee health and safety as in effect as of the date
of this Agreement and includes, but is not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the
Clean Air Act, 33 U.S.C. Section 2601 et seq., the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Section 136 et seq., the Oil Pollution Act of 1990, 33
U.S.C. Section 2701 et seq. and the Occupational Safety and Health Act, 29
U.S.C. Section 651 et seq., as such laws have been amended or supplemented to
the date hereof, and the regulations promulgated pursuant thereto, and all
analogous state or local statutes; (ii) "Environmental Permit" means any permit,
approval, authorization, license, variance, registration, or permission required
under any applicable Environmental Law; (iii) "Hazardous Substances" means any
substance, material or waste which is regulated by any Governmental Authority or
the United States or other national government, including, without limitation,
any material, substance or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste,"
"restricted hazardous waste," "contaminant," "toxic waste" or "toxic substance"
under any provision of Environmental Law, which includes, but is not limited to,
petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated
biphenyls and (iv) "Release" means any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching, or migration on or into the indoor or outdoor environment
or into or out of any property.
(k) This Section 4.12 contains the sole and exclusive
representations and warranties of PBBC with respect to any environmental
matters,
<PAGE> 38
including without limitation any arising under any Environmental Laws.
4.13. Licenses, Permits and Authorizations. PBBC holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of the Business (the
"Business Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals that would not, individually or in
the aggregate, have a Material Adverse Effect on the Business. PBBC is in
compliance with the terms of the Business Permits, except where the failure so
to comply would not have a Material Adverse Effect on the Business. Except as
disclosed in Schedule 4.13, to the Knowledge of PBBC, the Business is not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for possible violations that individually or in the aggregate do
not, and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on the Business. Except as set forth in Schedule 4.13,
to the Knowledge of PBBC, no investigation or review by any Governmental Entity
with respect to PBBC is pending or, to the Knowledge of PBBC, threatened, nor
has any Governmental Entity indicated an intention to conduct the same, other
than, in each case, those the outcome of which, as far as reasonably can be
foreseen, in the future will not have a Material Adverse Effect on the Business.
4.14. Taxes.
(a) Except as set forth in Schedule 4.14, PBBC has:
(i) timely filed or will file when due all
federal, foreign, state and local Tax Returns required to be
filed by or with respect to PBBC and all such Tax Returns are
correct and complete in all material respects;
(ii) paid in full all Taxes for which it is or
may be liable and Taxes claimed to be due by any Governmental
Entity; and
(iii) with respect to any period for which Tax
Returns have not yet been filed, or for which Taxes are not
yet due or owing, made due and sufficient accruals for Taxes
with respect to PBBC (or for which it may be liable) in the
Interim Financial Statements.
(b) PBBC is not a party to, and has not received any
written notice of, any pending action or proceeding, nor, to PBBC's Knowledge,
is any such action or proceeding threatened by any Governmental Entity, for the
assessment or collection of any Taxes and no claim for the assessment or
collection of any Taxes has been asserted against PBBC. PBBC has not given or
been requested to give waivers or extensions of any statutes of limitations
relating to the payment of Taxes. PBBC has withheld proper and accurate amounts
from its employees in compliance in all material respects with all withholding
and similar provisions of any and all applicable federal, foreign, state and
local laws, statutes, codes, ordinances, rules and regulations and paid such
amounts to the appropriate Governmental Entity. PBBC has filed proper and
<PAGE> 39
accurate federal, foreign, state and local tax returns and estimates with
respect to employee income tax or other withholding with respect to social
security taxes and unemployment taxes for all years and periods (and portions
thereof) for which tax returns were due and any and all amounts shown on such
tax returns to be due and payable have been paid in full. All payments
(including interest and penalties) due or to become due with respect to employee
income tax or other withholding with respect to any social security taxes and
unemployment taxes for any period ending prior to the Closing Date were either
paid in full on or prior to the Closing Date or accrued as a liability on the
Financial Statements.
(c) PBBC has made all required estimated payments of
Taxes sufficient in amount to avoid any underpayment penalties.
(d) None of the Transferred Assets is an asset or
property that the Surviving Corporation is or will be required to treat as being
(i) owned by any other person pursuant to the provisions of Section 168(f)(8) of
the Code, or (ii) tax-exempt use property within the meaning of Section
168(h)(1) of the Code. There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by PBBC by reason of Section
280G of the Code. Other than as contemplated by this Agreement, no election
under Section 338 has been made with respect to PBBC. No consent to the
application of Section 341(f) of the Code (or any predecessor provision) has
been made or filed by or with respect to PBBC or any of their assets. PBBC is
not a party to, is not bound by and has no obligation under any tax sharing
agreement or similar contract. PBBC has no liability for the Taxes of any other
Person as a transferee or a successor, by contract, operation of law or
otherwise. PBBC has previously made available to Sleepmaster true and complete
copies of each of (i) any written audit reports issued by any taxing authority
within the last three years relating to the United States federal, state, local,
or foreign Taxes due from or with respect to PBBC and (ii) the United States
federal, state, local, and foreign Tax Returns, for each of the three taxable
years preceding the date hereof filed by PBBC. No closing agreement pursuant to
Section 7121 of the Code (or any predecessor provision) or any similar provision
of any state, local, or foreign law has been entered into by or with respect to
PBBC. There are no deferred gains with respect to deferred intercompany
transactions involving PBBC within the meaning of Treasury Regulation Section
1.1502-13(c) (or any successor Regulation). PBBC (A) has not been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was PBBC) or (B) has any liability for the
Taxes of any person (other than PBBC) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise. The 1996 Tax Return of PBBC sets forth the
respective tax bases of the Transferred Assets.
<PAGE> 40
(e) No tax years of PBBC are open during which PBBC did not
qualify as an "S" corporation. Neither PBBC nor any of its shareholders has
taken any action that would invalidate PBBC's election to be treated as an "S"
corporation for federal or Florida income tax purposes (or failed to take any
action to keep such election in place).
(f) PBBC elected to be treated as an "S" corporation for both
federal and Florida income tax purposes, effective for taxable years beginning
after May 1, 1986. Such election has continued in place at all times since made.
The acquisition of the Company Common contemplated by this Agreement (including,
without limitation, the Section 338(h)(10) election) will not result in any
federal or Florida state income tax liability for the Surviving Corporation
under Code Section 1374.
4.15. Sufficiency and Condition of Assets. Except for the
Unrestricted Cash utilized by PBBC in conducting the Business before the
Effective Time, the Transferred Assets constitute all the property, assets and
contractual rights (i) appropriate for the conduct of the Business as conducted
by PBBC as of December 31, 1996 and (ii) presently used by PBBC with respect to
the Business. The Business has, and on the Closing Date will have, a normal
operating supply (consistent with practices and policies as of December 31,
1996) of inventory, equipment and supplies. Each Transferred Asset has been
substantially maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is, except
with respect to the disputed equipment and machinery acquired from Leggett &
Platt, suitable for the purposes for which it presently is used.
4.16. Broker's or Finder's Fee. Neither PBBC nor any of its
Affiliates has incurred any liability to any broker, finder or agent or any
other person or entity for any fees or commissions with respect to the
transactions contemplated by this Agreement for which Sleepmaster or the
Surviving Corporation could become liable or obligated.
4.17. Undisclosed Liabilities. PBBC has no liabilities (and,
to PBBC's Knowledge, there exists no basis for any present or future Action
against it giving rise to any liabilities), except for (i) liabilities set forth
in the Historical Financial Statements or on the face of the Interim Financials
(including those disclosed in any notes thereto), (ii) liabilities set forth or
shown on any and all exhibits and disclosure schedules hereto, (iii) liabilities
set forth or shown on any and all of the Disclosure Schedules, as amended, and
on any and all of the documents and materials tendered by PBBC to Sleepmaster or
its financial and legal advisors (the "Advisors") and (iv) liabilities which
have arisen after the date of the Interim Financials in the Ordinary Course of
Business.
4.18. Subsidiaries. PBBC does not (a) own a majority of the
voting securities of any other entity or (b) have the power to vote or direct
the voting of sufficient securities to elect the body controlling another entity
or to control any other entity.
<PAGE> 41
4.19. Notes and Accounts Receivable. All notes and accounts
receivable (the "Accounts Receivable") of PBBC (i) are reflected properly on the
Interim Balance Sheet and on PBBC's books and records, (ii) are valid
receivables subject, except with respect to the Bankruptcy Receivables, to no
setoffs or counterclaims, (iii) are free and clear of any Liens (but such notes
and accounts receivables are encumbered by the IRB-Related Obligations, Taxes
not yet due and payable and matters arising in the Ordinary Course of Business);
and (iv) arose from valid sales and bona fide transactions. Except for the
Bankruptcy Receivables, the Accounts Receivable constitute all of the accounts
receivable of the business of the Company. Except for the Bankruptcy
Receivables, Schedule 4.19 contains a complete and accurate list of all Accounts
Receivable as of the date of the Interim Balance Sheet, which list sets forth
the aging of such Accounts Receivable.
4.20. Insurance. Schedule 4.20 (together with the issuance
policies attached thereto) sets forth the following information with respect to
each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which PBBC has been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past five years:
(a) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(b) the policy number and the period of coverage; and
(c) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount of
coverage.
PBBC has been covered since December 31, 1992 by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. Schedule 4.20 describes any self-insurance arrangements
affecting PBBC.
4.21. Product Warranty. To the Knowledge of PBBC, each product
manufactured, sold or delivered by PBBC has substantially been in conformity
with all applicable contractual commitments and all express and implied
warranties, and PBBC has no liability (and, to PBBC's Knowledge, there is no
basis for any present or future Action) for replacement or repair thereof or
other damages in connection therewith other than returns and claims which could
lead to returns of individual products or sets of its products in volumes
consistent with the return information that was used to compute "net shipments"
as shown on the Financial Statements. No product
<PAGE> 42
manufactured, sold or delivered by PBBC is subject to any guaranty, warranty, or
other indemnity beyond the applicable standard terms and conditions of sale or
lease. PBBC has delivered to Sleepmaster or Sub copies of its standard terms and
conditions of sale (including applicable guaranty, warranty and indemnity
provisions).
4.22. Certain Business Relationships with PBBC and its
Affiliates. Other than the employment agreements listed in Schedule 4.9 and as
disclosed on Schedule 4.22, none of PBBC's shareholders have been involved in
any business arrangement or relationship with PBBC within the past twelve
months, which arrangement or relationship will not have been terminated prior to
or at the Closing. None of PBBC's shareholders owns any asset, tangible or
intangible, which is used in the Business.
4.23. Disclosure. To the Knowledge of PBBC, no representation
or warranty by PBBC in this Agreement (including, without limitation, the
Disclosure Schedules) contains any untrue statement of a material fact or omits
or will omit to state any material fact necessary to make the statements herein
or therein not misleading.
4.24. Radon Gas Disclosure. As required by Florida law, the
following is notification regarding radon gas:
RADON GAS: Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient
quantities, may present health risks to persons who are
exposed to it over time. Levels of radon that exceed federal
and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may
be obtained from your county public health unit. In that
regard, Sleepmaster hereby acknowledges that PBBC has made no
investigation to determine whether there is radon gas or other
environmental pollutants in, on or about the Facility and/or
the buildings upon the Facility or affecting such buildings,
although such conditions may exist. Further, PBBC has made no
analysis or verification of the extent of the environmental or
health hazard, if any, that may affect the buildings upon the
Facility, Sleepmaster or PBBC or their respective invites.
4.25. Disclaimer of Other Representations and Warranties.
Except as expressly set forth in this Article IV, PBBC makes no representation
or warranty, express or implied, at law or in equity, in respect of any of its
assets (including, without limitation, the Transferred Assets), liabilities or
operations, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and any such other representations or
warranties are hereby expressly disclaimed. Sleepmaster hereby acknowledges and
agrees that, except to the extent specifically set forth in this Article IV, the
Surviving Corporation is accepting the Transferred Assets on an "as-is,
<PAGE> 43
where-is" basis. Without limiting the generality of the foregoing, PBBC makes no
representation or warranty regarding any assets other than the Transferred
Assets and none shall be implied at law or in equity.
4.26. Exhibits and Disclosure Schedules. Notwithstanding
anything contained herein to the contrary, the representations and warranties of
PBBC set forth above in this Article IV are expressly subject to the terms,
provisions, conditions, facts and disclosures shown on the referenced Exhibits
and Disclosure Schedules and all documents and materials tendered to Sleepmaster
and its Advisors. In the event of any conflict between the representations and
warranties of PBBC set forth above in this Article IV and the terms, provisions,
conditions, facts and disclosures shown on any Exhibits or Disclosure Schedules
or documents and materials tendered to Sleepmaster and its Advisors, the terms,
provisions, conditions, facts and disclosures shown on the Exhibits or
Disclosure Schedules or documents and materials tendered to Sleepmaster and its
Advisors shall control.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF SUB
Sub hereby represents and warrants to PBBC that the statements
made in this Article V are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Article V.
5.1. Organization and Good Standing. Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Florida.
5.2. Authorization; No Violation; Consents.
(a) Authorization and No Violation. Sub has full
corporate power and authority to execute and deliver this Agreement and the
other agreements and documents contemplated hereby and to perform its
obligations hereunder and thereunder. The execution and delivery by Sub
of this Agreement and the other agreements and documents contemplated hereby,
and the consummation of the transactions contemplated hereby and thereby, (i)
have been duly and validly authorized by all necessary corporate action on the
part of Sub, (ii) do not conflict with or violate any of the terms of the
Certificate of Incorporation or By-Laws of Sub, (iii) do not violate, to any
material degree, any applicable law, ordinance, rule or regulation or any
judgment, order, writ, injunction or decree of any court, administrative or
<PAGE> 44
Governmental Entity applicable to Sub, and (iv) do not violate or conflict with
the terms of, or result in a breach of, or constitute a default under, or result
in the creation or imposition of any Lien upon any property or assets of Sub
under, any mortgage, indenture, lease, agreement or other instrument to which
Sub is a party or by which Sub may be bound, which violation, conflict, default
or Lien, either individually or in the aggregate with all other such violations,
conflicts, defaults, Liens, would have a Material Adverse Effect on the
business, operations or financial condition of Sub. This Agreement and the other
agreements and documents contemplated hereby constitute the legal, valid and
binding obligations of Sub, enforceable against Sub in accordance with their
respective terms, and this Agreement, constitutes the legal, valid and binding
obligations of Sub in accordance with their respective terms, except that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding may be brought, and that applicable bankruptcy and
other laws of general application may affect the rights and remedies of
creditors.
(b) Consents. Except as set forth in Schedule 5.2(b),
there are no consents, authorizations, or approvals of, or notices to, or
filings or registrations with, any Governmental Entity or any other third party
required in connection with the execution and delivery by Sub of this Agreement
or the other agreements and documents contemplated hereby and thereby or the
consummation by Sub of the transactions contemplated hereby and thereby, except
where the failure to obtain such consents, authorizations or approvals would not
have a Material Adverse Effect on the business, operations or financial
condition of the business of Sub. Except as otherwise set forth in Schedule
5.2(b), all consents, authorizations, approvals, notices, filings and
registration set forth in said Schedule have been obtained or made.
5.3. Broker's or Finder's Fees. Sub has not incurred any
liability to any broker, finder or agent or any other person or entity for any
fees or commissions with respect to the transactions contemplated by this
Agreement for which PBBC could become liable or obligated.
5.4. Litigation. There are no Actions pending or, to Sub's
knowledge, threatened against Sub or any properties or rights of Sub, before any
court, arbitrator or administrative or Governmental Entity, which questions or
challenges the validity of this Agreement or any action taken or proposed to be
taken by Sub pursuant to this Agreement or the transactions contemplated hereby.
5.5. Sub's Sophistication. Sub hereby represents that it, its
officers, members of its Board of Directors and all those directing its affairs:
(i) are sophisticated investors by virtue of their numerous prior investments
and that they are knowledgeable and experienced in financial and business
affairs; and (ii) are capable of evaluating the merits and risks of the
transactions contemplated by the Agreement. Sub acknowledges that it has had
sufficient access to and has engaged in a comprehensive independent examination
of the Transferred Assets, PBBC's books, records, contracts
<PAGE> 45
and documents related to the Transferred Assets, the Financial Statements, the
IRB-Related Obligations, the Title Policy, the Canal Issue, the Leggett & Platt
matter, the Unauthorized Sales, and all other aspects of the transaction
contemplated by the Agreement (the "Transaction") that it determined necessary
to close the Transaction. Sub further acknowledges that it has had sufficient
opportunity to direct inquiries to PBBC with respect to any matter it has deemed
relevant to the Transaction, and that such examination and all such inquiries
have been completed to its satisfaction.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF SLEEPMASTER
Sleepmaster hereby represents and warrants to PBBC that the
statements made in this Article VI are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article VI.
6.1. Organization and Good Standing. Sleepmaster is a limited liability company
duly formed, validly existing and in good standing under the laws of the State
of New Jersey.
6.2. Authorization; No Violation; Consents.
(a) Authorization and No Violation. Sleepmaster
has full requisite power and authority to execute and deliver this Agreement and
the other agreements and documents contemplated hereby and to perform its
obligations hereunder and thereunder. Sleepmaster will, at the Closing, cause
the Closing Merger Consideration to be paid to the Representative and Escrow
Agent, consistent with the terms of Articles II, III and X. The execution and
delivery by Sleepmaster of this Agreement and the other agreements and documents
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, (i) have been duly and validly authorized by all necessary
action on the part of Sleepmaster, (ii) do not conflict with or violate any of
the terms of the Articles of Formation or Operating Agreement of Sleepmaster,
(iii) do not violate, to any material degree, any applicable law, ordinance,
rule or regulation or any judgment, order, writ, injunction or decree of any
court, administrative or Governmental Entity applicable to Sleepmaster, and (iv)
do not violate or conflict with the terms of, or result in a breach of, or
constitute a default under, or result in the creation or imposition of any Lien
upon any property or assets of Sleepmaster under, any mortgage, indenture,
lease, agreement or other instrument to which Sleepmaster is a party or by which
Sleepmaster may be bound, which violation, conflict, default or Lien, either
individually or in the aggregate with all other such violations, conflicts,
defaults, Liens, would have a Material Adverse Effect on the
<PAGE> 46
business, operations or financial condition of Sleepmaster. This Agreement and
the other agreements and documents contemplated hereby constitute the legal,
valid and binding obligations of Sleepmaster, enforceable against Sleepmaster in
accordance with their respective terms, and this Agreement, constitutes the
legal, valid and binding obligations of Sleepmaster in accordance with their
respective terms, except that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding may be brought, and that
applicable bankruptcy and other laws of general application may affect the
rights and remedies of creditors.
(b) Consents. Except as set forth in Schedule 6.2(b),
there are no consents, authorizations, or approvals of, or notices to, or
filings or registrations with, any Governmental Entity or any other third party
required in connection with the execution and delivery by Sleepmaster of this
Agreement or the other agreements and documents contemplated hereby and thereby,
the consummation by Sleepmaster of the transactions contemplated hereby and
thereby or the performance by Sleepmaster of its obligations contemplated
hereby, except where the failure to obtain such consents, authorizations or
approvals would not have a Material Adverse Effect on the business, operations
or financial condition of the business of Sleepmaster. Except as otherwise set
forth in Schedule 6.2(b), all consents, authorizations, approvals, notices,
filings and registration set forth in said Schedule have been obtained or made.
6.3. Broker's or Finder's Fees. Sleepmaster has not incurred
any liability to any broker, finder or agent or any other person or entity for
any fees or commissions with respect to the transactions contemplated by this
Agreement for which PBBC could become liable or obligated.
6.4. Litigation. There are no Actions pending or, to
Sleepmaster's knowledge, threatened against Sleepmaster or any properties or
rights of Sleepmaster, before any court, arbitrator or administrative or
Governmental Entity, which questions or challenges the validity of this
Agreement or any action taken or proposed to be taken by Sleepmaster pursuant to
this Agreement or the transactions contemplated hereby.
6.5. Purchase for Investment.
(a) Sleepmaster is acquiring the equity stock
interest in the Surviving Corporation for investment for its own account and not
with a view to, or for sale in connection with, any distribution thereof;
(b) Sleepmaster understands, acknowledges and agrees
that the Company Common and the Surviving Corporation Common have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or applicable state
<PAGE> 47
securities laws, and may not be sold or otherwise transferred by Sleepmaster
unless the Surviving Corporation Common have been registered under the
Securities Act and applicable state securities laws or are sold or transferred
in a transaction exempt therefrom.
6.6. Sleepmaster's Sophistication. Sleepmaster hereby represents that
it, its managers, members of its Board of Advisors and all those directing its
affairs: (i) are sophisticated investors by virtue of their numerous prior
investments and that they are knowledgeable and experienced in financial and
business affairs; and (ii) are capable of evaluating the merits and risks of the
transactions contemplated by the Agreement. Sleepmaster acknowledges that it has
had sufficient access to and has engaged in a comprehensive independent
examination of the Transferred Assets, PBBC's books, records, contracts and
documents related to the Transferred Assets, the Financial Statements, the
IRB-Related Obligations, the Title Policy, the Canal Issue, the Leggett & Platt
matter, the Unauthorized Sales, and all other aspects of the transaction
contemplated by the Agreement (the "Transaction") that it determined necessary
to close the Transaction. Sleepmaster further acknowledges that it has had
sufficient opportunity to direct inquiries to PBBC with respect to any matter it
has deemed relevant to the Transaction, and that such examination and all such
inquiries have been completed to its satisfaction.
6.7. Hart-Scott Rodino. Sleepmaster Holdings, L.L.C., ultimate
parent entity of Sleepmaster, has annual net sales and total assets (as stated
in its most recent regularly prepared consolidated annual income statement and
balance sheet, prepared in accordance with the accounting principles normally
used by Sleepmaster Holdings, L.L.C. and are of a date not more than 15 months
prior to the Effective Time) of less than One Hundred Million Dollars
($100,000,000).
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF SUB AND SLEEPMASTER
The consummation by Sub and Sleepmaster of the transactions
contemplated hereby is subject to the satisfaction, fulfillment or waiver of
each of the following conditions on or prior to the Closing Date:
7.1. Representations and Warranties True; Obligations
Performed. The representations and warranties of PBBC set forth in Article IV
shall be true and accurate in all material respects, without giving effect to
any qualifications as to Knowledge provided in this Agreement, at and as of the
date of this Agreement and as of the Closing Date as though such representations
and warranties were made on such date, except (a) for changes expressly
permitted or contemplated by this Agreement and (b) to the extent that any such
representations and warranties are made as of a
<PAGE> 48
specified date and as to such representations and warranties the same shall be
materially true and correct as of the specified date.
7.2. Officer's Certificate. PBBC shall have delivered a
certificate, signed by its President, dated the Closing Date, certifying to the
satisfaction of the conditions set forth in Sections 7.1, 7.3 through 7.7 and
Sections 7.10 through 7.12.
7.3. No Material Changes. Other than with respect to the
Bankruptcy Receivables, since December 31, 1996 the Business shall not have
suffered or become subject to changes of any kind or nature which either
individually or in the aggregate would have a Material Adverse Effect on the
Business.
7.4. Performance. PBBC shall have performed and complied in
all material respects with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date.
7.5. Escrow Agreements. Sleepmaster, the Escrow Agent and the
Representative shall have executed and delivered the Indemnity Escrow Agreement
and the Adjustment Escrow Agreement (collectively the "Escrow Agreements"),
substantially in the form of Exhibits C-1 and C-2.
7.6. Shareholders Agreement. The Shareholders Agreement among
the Company Stockholders and PBBC, entered into on or about December 1997, shall
have been terminated pursuant to its terms and the holders of at least 100% of
Aggregate Company Common shall have executed the form of Termination and Waiver
Agreement (the "Termination and Waiver Agreement"), dated the Closing Date,
attached to this Agreement as Exhibit D.
7.7. Consents. All filings with and consents from
administrative, Governmental Entities, regulatory and industry authorities and
other third parties required to be obtained or filed by PBBC to consummate the
transactions contemplated hereby shall have been obtained by PBBC (other than
with respect to the IRB-Related Obligations, the Florida Law, and the Serta
Standard License Agreement), unless the failure to obtain any such consent or
make any such filing would not have a Material Adverse Effect on the Business or
the transactions contemplated hereby, or except to the extent that making any
such filing or obtaining any such consent has been waived in writing by Sub or
Sleepmaster.
7.8. Serta Standard License Agreement. Serta shall have (i)
consented to the transactions contemplated by this Agreement insofar as such
transactions may constitute an event that permits Serta to terminate the Serta
Standard License Agreement and (ii) approved and entered into the Replacement
License.
7.9. Financing. Sub shall have received debt and equity
financing from one or more sources sufficient to consummate the transactions
contemplated by this
<PAGE> 49
Agreement and to provide working capital to the Surviving Corporation after the
Merger.
7.10. Dissenters Rights. The holders of not more than 20% of
the Company Common shall have exercised their dissenters' rights pursuant to
Sections 607.1302 and 607.1320 of the Florida Law.
7.11. No Proceedings. No Action instituted by a Person or
entity other than Sleepmaster or Sub, or any of their respective Affiliates,
members or managers, shall be pending before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (a) prevent consummation of any of the
transactions contemplated by this Agreement, (b) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation or (c)
materially affect adversely the right of the Surviving Corporation to operate
the Business (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect).
7.12. Deliveries. PBBC shall have made all of the deliveries
to Sub required in Article IX.
7.13. Consummation. The consummation by Sleepmaster and Sub of
the transactions contemplated hereby, as evidenced by their participation,
pursuant to the terms of this Agreement, at the Closing, shall be conclusive
evidence of the satisfaction, fulfillment or waiver of each of the conditions
described in this Article VII on or prior to the Closing Date.
ARTICLE VIII
CONDITIONS TO THE
OBLIGATIONS OF PBBC
The obligation of PBBC to consummate the transactions to be
performed by PBBC in connection with the Closing is subject to the satisfaction
or fulfillment of each of the following conditions on or prior to the Closing
Date:
8.1. Representations and Warranties True; Obligations
Performed. The representations and warranties of Sub set forth in Article V and
the representations and warranties of Sleepmaster set forth in Article VI shall
be true and accurate in all material respects, without giving effect to any
qualifications as to knowledge provided in this Agreement, at and as of the date
of this Agreement and as of the Closing Date, except for changes expressly
permitted or contemplated by this Agreement and except to the
<PAGE> 50
extent that any such representations and warranties are made as of a specified
date and as to such representations and warranties the same shall be materially
true and correct as of the specified date.
8.2. Officer's Certificate. Each of Sleepmaster and Sub shall
have delivered a certificate, signed by its Manager and President, dated the
Closing Date, certifying to the satisfaction of the conditions set forth in
Sections 8.1, 8.3, 8.4(a) and 8.5 through 8.8.
8.3. Performance. Each of Sleepmaster and Sub shall have
performed and complied in all material respects with all agreements, obligations
and conditions required by this Agreement to be respectively performed or
complied with by them on or prior to the Closing Date.
8.4. Consents.
(a) All filings with and consents from administrative or
Governmental Entities required to have been obtained or filed by Sleepmaster or
Sub to consummate the transactions contemplated hereby shall have been obtained
by Sleepmaster or Sub, unless the failure to obtain any such consent (other than
with respect to the Essential Contract) or make any such filing would not have a
Material Adverse Effect on the transactions contemplated hereby or except to the
extent that making any such filing or obtaining any such consent has been waived
in writing by PBBC.
(b) The transactions contemplated by this Agreement shall have
been approved by the holders of a majority of the Company Common, as required by
Section 607.1103 of the Florida Law.
8.5. Employment Agreements. PBBC and the Company shall have
executed and delivered (i) those Employment Agreements with Michael W. Bubis,
Howard Bubis and Samuel Bubis (the "Employment Agreements"), each in the form of
Exhibits E, F and G.
8.6. Escrow Agreements. Sleepmaster, the Escrow Agent and the
Representative shall have executed and delivered the Escrow Agreements.
8.7. No Proceedings. No Action instituted by a Person or
entity other than PBBC or any of its officers, directors or shareholders shall
be pending or threatened before any court or quasi- judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or
charge would (a) prevent consummation of any of the transactions contemplated by
this Agreement or (b) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such injunction,
judgment, order, decree, ruling or charge shall be in effect).
<PAGE> 51
8.8. Deliveries. Each of Sleepmaster and Sub shall have made
all of the deliveries to PBBC required in Article X.
8.9. Consummation. The consummation by PBBC of the
transactions contemplated hereby, as evidenced by its participation, pursuant to
the terms of this Agreement, at the Closing, shall be conclusive evidence of the
satisfaction, fulfillment or waiver of each of the conditions described in this
Article VIII on or prior to the Closing Date.
ARTICLE IX
DELIVERIES BY PBBC
AT THE CLOSING
At the Closing, PBBC shall deliver to Sleepmaster and Sub the
following:
9.1. Consents. Copies of all executed consents,
authorizations, approvals, notices, registrations and filings required by
Section 7.7 to be obtained by PBBC.
9.2. Opinion of Counsel. The executed opinion of Robert A.
Kramer, P.A., counsel to PBBC, substantially in the form of Exhibit H. In
rendering this opinion, Robert A. Kramer, P.A., as to factual matters that
affect its opinion, may rely solely on its examination of applicable
documentation and certificates from and under seal of the current members of
PBBC's Board of Directors and the Company Stockholders (collectively, the
"Support Documents") and shall not have been required to have conducted any
independent verification of the facts contained in the Support Documents,
including without limitation, the representations and warranties contained
therein of the current members of PBBC's Board of Directors and the Company
Stockholders or third party(ies) rendered in any of the Support Documents.
9.3. Certificate. PBBC's executed officer's certificate
referred to in Section 7.2.
9.4. Employment Agreements. The duly executed Employment
Agreements.
9.5. Escrow Agreements. The duly executed Escrow Agreements,
duly executed by the Representative.
9.6. Termination and Waiver Agreement. The Termination and
Waiver Agreement, duly executed by the holders of 100% of the Aggregate Company
<PAGE> 52
Common.
9.7. Powers of Attorney. The Powers of Attorney duly executed
by each of the holders of Company Common other than Dissenters' Shares.
9.8. Secretary's Certificates. An executed certificate of an
officer of PBBC, dated as of the Closing Date, certifying as to (i) resolutions
adopted by its Board of Directors and its stockholders, authorizing this
Agreement and the transactions contemplated hereby and incident thereto and (ii)
the incumbency and signatures of its executive officers.
9.9. Charter Documents. (a) The Certificate of Incorporation
and all amendments thereto of PBBC, duly certified as of a recent date by the
Secretary of State of the State of Florida; (b) the By-Laws of PBBC, duly
certified by its Secretary as being in force at all times since at least January
1, 1997; and (c) a good standing certificate issued as of a recent date with
respect to PBBC by the Secretary of State of the State of Florida and each state
in which PBBC is qualified to conduct business.
9.10. Other. Such other documents or certificates as shall be
reasonably requested by Sleepmaster or its counsel.
ARTICLE X
DELIVERIES BY SLEEPMASTER
AND SUB AT THE CLOSING
At the Closing, Sub shall deliver and Sleepmaster shall cause
to be delivered to PBBC the following:
10.1. Payment of the Closing Merger Consideration. Sub shall
have paid and Sleepmaster shall have caused to have been paid to the
Representative and the Escrow Agent, the Closing Merger Consideration in the
manner described in Articles II and III of this Agreement.
10.2. Opinion of Counsel. The executed opinion of Blumenthal &
Lynne, a Professional Corporation, counsel to Sub and Sleepmaster, substantially
in the form of Exhibit I. In rendering this opinion, Blumenthal & Lynne, as to
factual matters that affect its opinion, may rely solely on its examination of
applicable documentation and certificates from and under seal of the current
members of Sub's Board of Directors, Sleepmaster's managers and Sleepmaster's
members (collectively, the "Support Documents") and shall not have been required
to have conducted any independent verification of the facts contained in the
Support Documents, including without limitation, the representations and
warranties contained therein of the current members of Sub's Board of Directors,
Sleepmaster's managers and Sleepmaster's members or
<PAGE> 53
third party(ies) rendered in any of the Support Documents.
10.3. Consents. Copies of all consents, authorizations,
approvals, notices, registrations and filings required by Section 8.4(a) to be
obtained by Sub and Sleepmaster.
10.4. Officer's Certificate. Sub's and Sleepmaster's executed
officer's certificate referred to in Section 8.2.
10.5. Secretary's Certificate. An executed certificate of the
Secretary or Assistant Secretary of Sub, dated as of the Closing Date, (i)
attaching a copy of the Articles of Incorporation of Sub, duly certified as of a
recent date by the Department of State of the State of Florida; (ii) attaching a
copy of the By-Laws of Sub and certifying that said By-Laws are true and
complete and have been in effect since the date of incorporation of Sub; (iii)
attaching a copy of the good standing certificate issued as of a recent date
with respect to Sub by the Department of State of the State of Florida; (iv)
certifying as to the resolutions adopted by the Board of Directors and
stockholders of Sub authorizing this Agreement and the transactions contemplated
hereby and incident thereto and (v) certifying as to the incumbency and
signatures of certain officers of Sub.
10.6. Manager's Certificate. An executed certificate of the
Manager of Sleepmaster, dated as of the Closing Date, (i) attaching a copy of
the Articles of Formation of Sleepmaster, duly certified as of a recent date by
the Secretary of State of the State of New Jersey; (ii) attaching a copy of the
Amended and Restated Operating Agreement of Sleepmaster (the "Operating
Agreement") and certifying that said Operating Agreement has been in effect
since January 1, 1997; (iii) attaching a copy of the Certificate of Existence
issued as of a recent date with respect to Sleepmaster by the Secretary of State
of the State of New Jersey; (iv) certifying as to the resolutions adopted by its
Board of Directors (or body with similar duties) and members (or body with
similar duties) authorizing this Agreement and the transactions contemplated
hereby and incident thereto and (v) certifying as to the incumbency and
signatures of certain managers of Sleepmaster.
10.7. Written Offer to holders of Dissenting Shares. The
Surviving Corporation shall, pursuant to Florida Law, have deliver to each
holder of Dissenting Shares a written offer to pay to such holder of Dissenting
Shares, in an amount deemed by the Surviving Corporation to constitute the fair
value of the aggregate of such holder's Dissenting Shares owned at the Effective
Time.
10.8. Other. Such other documents or certificates as shall be
reasonably requested by PBBC or its counsel.
<PAGE> 54
10.9. Escrow Agreements. The duly executed Escrow Agreements,
duly executed by the Surviving Corporation and the Escrow Agent.
ARTICLE XI
COVENANTS OF PBBC, SLEEPMASTER AND
SUB PRIOR TO CLOSING
11.1. General. Each of Sleepmaster, Sub and PBBC will use its
commercially reasonable best efforts to (a) take all action, (b) cooperate and
(c) do all things reasonably necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Articles VII and VIII).
11.2. Provide Access to Information. Prior to the Closing
Date, (a) PBBC shall afford to Sleepmaster and Sub, their attorneys,
accountants, lenders and representatives (its "Advisors") reasonable access
during normal business hours and upon reasonable prior notice to the President
of PBBC (provided, that Sleepmaster and Sub and the Advisors will undertake such
access in a manner so as not to interfere with the normal business operations of
PBBC), to the books and records of PBBC in order that Sub and its Advisors may
have full opportunity to make such investigation as they shall reasonably desire
of the Business, and (b) PBBC shall provide to Sub and its Advisors such
additional financial and operating data and other information as to the
Business, as Sleepmaster and Sub or their Advisors shall from time to time
reasonably request.
11.3. Conduct Prior to Closing Date. PBBC will not from the
date of its execution of this Agreement through and including the Closing Date
engage in any practice, take any action or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of the
foregoing, PBBC shall not engage in any practice, take any action or enter into
any transaction outside the Ordinary Course of Business, the primary purpose or
effect of which will be to generate or preserve cash or cash equivalents. In
addition, PBBC shall not intentionally interfere with the goodwill of or
intentionally seek to adversely effect the contractual relationships with PBBC's
customers, distributors, suppliers and others having business relations with
PBBC and shall not expend or convert any of the assets in the Project Account
referred to in Section 11.9(c), except that PBBC shall be authorized to expend
any sum from the Project Account to enhance or improve the Facility or to
acquire equipment which will be owned by the Surviving Corporation at the
Effective Time in accordance with the IRB Obligations.
11.4. Prohibited Transactions Prior to Closing Date. Except as
otherwise contemplated by this Agreement or permitted by the prior written
consent of Sub or Sleepmaster, prior to the Closing Date, PBBC shall not become
a party to any agreement which, if it existed on the date of this Agreement,
would be required to be
<PAGE> 55
listed in the Disclosure Schedules, unless PBBC enters into such agreement in
the Ordinary Course of Business; provided, that nothing in this Section shall
relieve PBBC of its obligations under Section 11.7 to provide an Update Notice
(as defined in such Section) or to modify any of the Disclosure Schedules to
this Agreement with respect to any agreement referred to above in this Section.
11.5. Confidentiality.
(a) Except as required by any court order or decree,
regulatory authorities, Governmental Entities or applicable law, Sub and
Sleepmaster (i) prior to the Closing shall, and shall cause its respective
officers, directors, members and managers and Advisors to hold in strict
confidence and not disclose to others for any reason whatsoever, without the
prior written consent of PBBC, any non-public information received by it from
PBBC in connection with the transactions contemplated by this Agreement or the
Exhibits hereto all in accordance with the terms and conditions of that certain
Confidential Disclosure Agreement, dated October 7, 1997, for identification
purposes, by and between Sleepmaster and PBBC, which terms and conditions are
incorporated into this Agreement and will continue to survive pursuant to its
terms, and (ii) will not use such information for any purpose in the event that
the Closing does not occur under this Agreement.
(b) Except as required by any court order or decree,
regulatory authorities, Governmental Entities or applicable law, the Surviving
Corporation (i) after the Closing shall, and shall cause its officers, directors
and Advisors to, hold in strict confidence, and not disclose to others for any
reason whatsoever, without the prior written consent of the Representative, any
non-public information concerning the conduct, affairs or operation of the
Business, and (ii) Sleepmaster will not use any non-public information received
by it from PBBC for any purpose in the event the Closing does not occur under
this Agreement. Except as required by any court order or decree, regulatory
authorities, Governmental Entities or applicable law, Sleepmaster, the Surviving
Corporation and their respective officers, directors, managers, members and
Advisors shall hold in strict confidence and not disclose to others for any
reason whatsoever, the terms, conditions and consideration described in this
Agreement.
11.6. Notices and Consents. PBBC will give any notices to
third parties, and PBBC will use its commercially reasonable efforts to obtain
any third party consents, that Sub reasonably may request in connection with the
matters referred to in Section 4.3(b). Sub and Sleepmaster will give any notices
to third parties and, except as set forth in this Agreement, Sub and Sleepmaster
will use commercially reasonable efforts to obtain any third party consents that
PBBC reasonably may request in connection with the matters referred to in
Section 6.2(b). Each of the Sub, Sleepmaster and PBBC will give any notices to,
make any filings with, and use commercially reasonable efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 4.3(b), Section 5.2(b) and
Section 6.2(b).
<PAGE> 56
11.7. Notice of Developments. With regard to any
representation or warranty of PBBC contained in this Agreement or prospective
Interim Financial Statements, PBBC shall promptly notify Sub and Sleepmaster in
writing (the "Update Notice") of any change in the information included in such
representation or warranty or any Schedule delivered by PBBC pursuant thereto
("development"), which change would cause such representation or warranty to be
untrue as of the date hereof or as of the Closing Date. Unless Sub or
Sleepmaster exercises its right to terminate this Agreement, pursuant to Section
14.1 by reason of the development, and exercises that right within ten (10)
business days of the receipt of the Update Notice, the Update Notice given
pursuant to this Section 11.7 will be deemed to have amended the Disclosure
Schedule, to have qualified the representations and warranties contained in this
Agreement, and to have cured any misrepresentation or breach of warranty that
otherwise might have existed hereunder by reason of the development.
11.8. Exclusivity. From the date of this Agreement until March
16, 1998 (the "Exclusivity Termination Date"), PBBC shall not, and shall cause
its representatives, officers, directors, agents, stockholders or Affiliates
(all such persons and entities, the "Seller Group") to not, initiate, solicit,
entertain, negotiate, accept or discuss, directly or indirectly, any proposal or
offer (an "Acquisition Proposal") to acquire all or any significant part of the
Business or the properties, capital stock equivalents of PBBC and/or any of its
Affiliates, whether by merger, purchase of stock, purchase of assets, tender
offer or otherwise (a "Third Party Acquisition"), or provide any non-public
information to any third party in connection with an Acquisition Proposal or
enter into any agreement, arrangement or understanding requiring PBBC to
abandon, terminate or fail to consummate the transactions contemplated hereby.
11.9. Permitted Dividends and Other Actions.
(a) Notwithstanding any other provision of this
Agreement to the contrary, at any time prior to the Effective Time, PBBC shall
sell, transfer, dividend or otherwise assign and distribute the following assets
of PBBC to or for the benefit of the holders of the Company Common
(collectively, the "Excluded Assets") without any reduction in the Closing
Merger Consideration:
(i) all right, title and interest of PBBC in the
Excluded Real Estate and in all cash and notes receivable
proceeds resulting from any sale, exchange or other
disposition of any Excluded Real Estate prior to the Closing
Date;
(ii) all right, title and interest of PBBC in notes
receivable from the prior sale of PBBC's Miami, Florida
warehouse;
<PAGE> 57
(iii) all right, title and interest of PBBC in all
cash surrender values on life insurance policies owned by PBBC
on officers, directors and shareholders of PBBC, as well as
the underlying life insurance policies;
(iv) all right, title and interest of PBBC in those
notes and accounts receivable owned by PBBC as of the Closing
Date and itemized on Schedule 11.9(a)(iv);
(v) the Bankruptcy Receivables of PBBC, as of the
Closing Date, as itemized on Schedule 11.9(a)(v). The
Surviving Corporation and Sleepmaster covenant that they shall
provide reasonable assistance to the Common Stockholders,
without consideration, in collecting these items after the
Closing in its Ordinary Course of Business;
(vi) all promissory notes payable to PBBC from any of
PBBC's officers, directors or shareholders, owned by PBBC as
of the Closing Date; and
(vii) any proceeds of any of the foregoing (i)
through (vi).
(b) Subject to Section 11.3, at any time prior to the Closing,
PBBC may dividend or otherwise distribute the Unrestricted Cash without any
reduction in the Fixed Closing Merger Consideration, but with a corresponding,
dollar-for-dollar reduction in the Variable Closing Merger Consideration.
(c) In addition to distributions permitted under clauses (b)
and (c) above in this Section, PBBC shall also be permitted to make
distributions to the holders of the Company Common to enable them to pay federal
and state income taxes imposed upon them as a result of the allocation of PBBC's
income to them, consistent with the Ordinary Course of the Business.
ARTICLE XII
SURVIVAL
12.1. Survival. Notwithstanding any other provision of this
Agreement to the contrary, none of representations and warranties contained in
this Agreement, the Exhibits or the Disclosure Schedules with respect to such
provisions and none of the covenants of the Parties contained in Article XI and
elsewhere in this Agreement shall survive the Closing or provide any basis for
any cause of action or claim against such Parties or their respective
shareholders, employees, members, managers, representatives, officers and
members of their respective boards of directors or advisors, as the case shall
be, from and after the Closing, other than those contained
<PAGE> 58
Sections 3.2, 3.6, 4.14(e), Surviving Pre-Closing Covenants, and Sections 13.1
through 13.15, all of which shall, and are expressly agreed to, survive in
accordance with their respective terms. Subject to Section 12.3 and Article
XIII, the sole and exclusive remedy of Sub and Sleepmaster or PBBC (or their
respective officers, directors, shareholders, members, managers, employees and
representatives) for any such breach of the representations, warranties and
pre-closing covenants contained in this Agreement shall be to terminate this
Agreement prior to the Closing, as provided in clauses (ii) or (iii) of Section
14.1. Subject to Section 12.3 and as provided in Article XIII, the sole and
exclusive purpose of any Party providing its representations, warranties and
pre-closing covenants, other than the Surviving Pre-Closing Covenants, pursuant
to this Agreement, is to provide all other party(ies) to this Agreement with an
information gathering mechanism and conditions to Closing and not for the
purpose of providing such other Party(ies) (or their respective officers,
directors, shareholders, members, managers, employees and representatives) the
benefit of any indemnification from or against any adverse consequences
resulting from any inaccuracy with respect to any Party's representations,
warranties and pre-closing covenants, other than the Surviving Pre-Closing
Covenants. Subject to Section 12.3 and as provided in Article XIII, all
representations, warranties and pre-closing covenants of the Parties hereto,
other than the Surviving Pre-Closing Covenants, will, upon Closing, merge into
the respective instruments of conveyance, cease to exist and become null and
void, and such Party's representations, warranties and pre-closing covenants,
other than the Surviving Pre-Closing Covenants, shall not provide any contingent
post-closing liability for such Party(or any of its officers, employees,
representatives, members, managers, directors, advisors or shareholders),
regardless of the extent of any pre-closing investigation undertaken by such
Party (or any of its officers, employees, representatives, members, managers,
directors, advisors or shareholders) or by the other Party(ies) hereto (or their
respective officers, directors, advisors, shareholders, members, managers,
employees and representatives); and that should any such other Party discover
any inaccuracy in any of a Party's representations or warranties prior to
Closing, such other Party shall be obligated to acknowledge and accept such
inaccuracy in writing and proceed to Closing or to terminate the transactions
contemplated by this Agreement.
12.2. Indemnity. In furtherance of the foregoing provisions
contained in this Article XII, Sleepmaster will indemnify each individual who
served as a director or officer of PBBC at any time prior to the Effective Time
from and against any and all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses and
fees, including all court costs and reasonable attorneys' fees and expenses,
resulting from, arising out of, relating to, in the nature of, or caused by
claims or actions instituted by Sub, Sleepmaster or their respective officers,
directors,
<PAGE> 59
managers, shareholders or members, at law, in equity, by statute, contract or
otherwise, arising out of or related in any way to this Agreement or any of the
transactions contemplated by this Agreement, provided that this Section 12.2
shall not apply to any claims or actions with respect to any Surviving
Pre-Closing Covenants, post Closing obligations or claims referred to in Section
12.3.
12.3. Fraud In Fact. Notwithstanding the foregoing, Section
12.1 shall not preclude any claims against a party for actual fraud in fact (as
opposed to constructive fraud or fraud in law) committed by such party.
ARTICLE XIII
INDEMNIFICATION FROM THE
INDEMNITY ESCROW
13.1. For purposes of this Article, (a) "Indemnity Payment"
means any amount of Indemnifiable Losses required to be paid to an Indemnitee
pursuant to this Section 13.1, 13.2 or Section 13.5, (b) "Indemnitee" means
Sleepmaster and the Surviving Corporation, (c) "Indemnifiable Losses" means any
and all damages, losses, liabilities, obligations, costs and expenses actually
incurred or suffered, and any and all claims, demands or suits (by any person or
entity, including without limitation any Governmental Entity), including,
subject to Section 13.9(ii) hereof, the costs and expenses of any and all
Actions, demands, assessments, judgments, settlements and compromises relating
thereto and including reasonable attorneys' fees and expenses in connection
therewith, after giving effect to all actual insurance indemnities actually
received by and all tax savings actually realized by the Indemnitee, solely with
respect to the Indemnification Obligations (as defined in Section 13.2) provided
under this Article XIII, and (d) "Third Party Claims" means any Action made or
brought by any Person which is not a Party or an Affiliate of a Party against
the Surviving Corporation or Sleepmaster and as to which an Indemnitee is
entitled to indemnification under Section 13.5.
13.2. Subject to the dollar limitations set forth in Section
13.3, the Indemnitee shall be indemnified and held harmless, solely by the
principal funds in the Indemnity Escrow, from and against any and all
Indemnifiable Losses, as and when incurred, relating to, resulting from, or
arising out of (i) the Excluded Real Estate (the "Excluded Real Estate
Indemnity"); (ii) any breach of the Surviving Pre-Closing Covenants by PBBC
prior to the Closing (the "Pre-Closing Covenant Indemnity"); and (iii) any
inaccuracy in or any breach of the representation and warranty of PBBC contained
in Section 4.14(e) of this Agreement, which inaccuracy or breach results in the
Surviving Corporation having liability for United States federal or State of
Florida corporate income taxes resulting solely from a loss by PBBC of its
status as an "S" corporation for both federal and Florida income tax purposes at
a time that is prior to the Effective Time (the "Tax Indemnity").
Notwithstanding the foregoing, in no event will
<PAGE> 60
the Tax Indemnity apply to any Indemnifiable Losses sustained by any Indemnitee
due to (i) the invalidity of the Section 338(h)(10) election resulting from a
loss by PBBC or a failure of PBBC to maintain its status as an "S" corporation,
for either federal or Florida income tax purposes, prior to the Effective Time,
or, except as specifically described in the Tax Indemnity, (ii) from any other
inaccuracy in or any breach of the representations and warranties of PBBC other
than that contained in Section 4.14(e). The Tax Indemnity, the Pre-Closing
Covenant Indemnity and the Excluded Real Estate Indemnity are collectively
referred to herein as the "Indemnification Obligations."
13.3. Notwithstanding any other provision of this Agreement or
of any applicable Law, no Indemnitee will be entitled to make a claim against
the Indemnity Escrow other than for any Indemnifiable Losses related solely to
the Indemnification Obligations. No Indemnitee will be entitled to recover any
payments to the extent that such Indemnifiable Losses exceed, when aggregated
with all other payments received by all other Indemnitees from the Indemnity
Escrow, the principal sum of Two Million Eight Hundred Thousand Dollars
($2,800,000) (the "Indemnification Cap"), which amount shall be the maximum
aggregate liability to which the Indemnity Escrow shall be subject under this
Agreement.
13.4. The Parties shall make appropriate adjustments for tax
benefits actually realized and insurance coverage actually received in
determining Indemnifiable Losses for purposes of this Agreement. If and to the
extent that any Indemnitee collects insurance proceeds in respect of an
Indemnifiable Loss after the Indemnitee has been reimbursed in full for such
Indemnifiable Loss, the Indemnitee shall pay over such proceeds to the
Representative for distribution to the Company Stockholders (other than holders
of any Dissenting Shares).
13.5. (a) If any Indemnitee receives notice of assertion or
commencement of any Third Party Claim against such Indemnitee with respect to
which the Indemnity Escrow is obligated to provide reimbursement of
Indemnifiable Losses under this Article XIII, the Indemnitee will give the
Representative (on behalf of the holders of Company Common other than holders of
Dissenting Shares) reasonably prompt written notice thereof, but in any event
not later than (i) twelve (12) calendar days after receipt by such Indemnitee of
such notice of such Third Party Claim that a legal proceeding or arbitration has
been commenced or after receipt of any letter from the Internal Revenue Service
requiring a response to maintain an administrative or judicial right of review
or appeal with respect to the Indemnification Obligations arising from matters
occurring prior to the Effective Time or (ii) twenty (20) days in the case of
all other Third Party Claims, subject to Section 13.9(i). Such notice (the
"Third Party Claim Notice") will describe the Third Party Claim in reasonable
detail, will include copies of all material written evidence thereof and notices
received from such third parties and will indicate the estimated amount, if
known and quantifiable, of the
<PAGE> 61
Indemnifiable Loss that has been or may be sustained by the Indemnitee. The
Representative (on behalf of the holders of Company Common other than holders of
Dissenting Shares) shall have twelve (12) days from its receipt of a Third Party
Claim Notice (the "Third Party Claim Notice Period") to notify Indemnitee
whether the Representative (on behalf of the holders of Company Common other
than holders of Dissenting Shares) disputes the Indemnitee's right of
indemnification with respect to such Third Party Claim from the Indemnity Escrow
or if the Representative (on behalf of the holders of Company Common other than
holders of Dissenting Shares) does not dispute such right of indemnification,
whether or not it desires to defend the Indemnitee against such Third Party
Claim. The Parties acknowledge (x) the rights of the holders of Company Common
(other than the holders of Dissenting Shares) to the Indemnity Escrow deposited
with the Escrow Agent under the Indemnity Escrow Agreement, subject to the
Indemnification Obligations and (y) that for the remaining portions of this
Article XIII the Representative shall always be acting on behalf of the holders
of Company Common other than the holders of Dissenting Shares.
(b) If the Representative notifies the Indemnitee
within the Third Party Claim Notice Period that (i) the Representative does not
dispute the Indemnitee's right of indemnification and (ii) the Representative
desires to defend against such Third Party Claim, then the Representative shall
have the right to assume and control the defense of such Third Parry Claim by
appropriate proceedings with counsel reasonably acceptable to Indemnitee, at the
Representative's sole cost and expense; provided, that such rights shall adhere
and last only so long as (A) prior to assuming such defense, the Representative
notifies the Indemnitee in writing within 30 days after the Indemnitee has given
notice of the Third Party claim that the Indemnity Escrow will, subject to the
Indemnification Cap, indemnify the Indemnitee from and against any adverse
consequences the Indemnitee may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, and (C) the Representative conducts the defense of the Third
Party Claim actively and diligently. The Indemnitee may participate in, but not
control, any such defense or settlement, at its sole cost and expense, and, if
the size of the Third Party Claim is such that the Indemnitee has reasonably
determined that its potential loss in connection with such Third Party Claim is
at least twice the principal amount of the funds in the Indemnity Escrow, the
Indemnitee may elect to participate in the defense thereof, and thereafter no
material decisions shall be made without the Indemnitee's prior written consent.
(c) If the Representative (i) disputes the
Indemnitee's right of indemnification with respect to a Third Party Claim, (ii)
does not dispute such right of indemnification but fails to promptly assume and
prosecute the defense of such Third Party Claim, or (iii) is not entitled to
assume defense of such Third Party Claim under Section 13.5(b), then the
Indemnitee shall be obligated to assume and control the defense of such Third
Party Claim and shall diligently pursue such defense with counsel reasonably
acceptable to the Representative. If the Representative does not assume
<PAGE> 62
the defense of a Third Party Claim for any reason, it may still participate in,
but not control, the defense of such Third Party Claim at the Representative's
sole cost and expense.
(d) The party responsible for the defense of any
Third Party Claim (the "Responsible Party") shall, to the extent reasonably
requested by the other person or entity described in this Section 13.5, keep
such other person or entity informed as to the status of any Third Party Claim
for which such other person or entity is not the Responsible Party, including,
without limitation, all settlement negotiations and offers. With respect to a
Third Party Claim for which the Representative is the Responsible Party, the
Indemnitee shall make available to the Representative and its representatives
all books and records of the Indemnitees relating to such Third Party Claim and
shall render to the Representative such assistance and access to records and the
representatives of the Indemnitee as the Representative and its representatives
may reasonably request, except that the Indemnitee shall not be required to make
available to the Representative any books, records, documents or other
information that the Indemnitee reasonably determines to be confidential or
subject to attorney-client privilege unless and until the Representative shall
have entered into such agreements as the Indemnitee reasonably deems to be
necessary in light of all surrounding circumstances (including, without
limitation, the Representative's need for information in connection with the
investigation or defense of a Third Party Claim) to protect such confidentiality
or privilege.
(e) Neither the Representative, on the one hand, nor
the Indemnitee, on the other hand, shall enter into any settlement of any Third
Party Claim subject to indemnification under this Article XIII of this Agreement
in an amount in excess of One Hundred Thousand Dollars ($100,000) without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. The Responsible Party shall promptly notify the other
party of each settlement offer (including whether or not the Responsible Party
is willing to accept the proposed settlement offer) with respect to a Third
Party Claim. In the case of any settlement involving more than One Hundred
Thousand Dollars ($100,000), such other person or entity agrees to notify the
Responsible Party with reasonable promptness whether or not such party is
willing to accept the proposed settlement offer, and if not, his objections
thereto in reasonable detail and the offer that he would accept. If an
Indemnitee fails to consent to any settlement offer of a Third Party Claim
(whether or not the Indemnitee is the Responsible Party with respect to such
Third Party Claim), the Indemnitee may continue to contest or defend such Third
Party Claim and, in such event, the maximum liability of the Indemnity Escrow
with respect to such Third Party Claim (including the reasonable costs and
expenses of contesting or defending such Third Party Claim incurred after the
Indemnitee fails to consent to such settlement offer) shall not exceed the full
amount of such settlement offer plus the reasonable costs and expenses of
contesting or defending such Third Party Claim to the extent incurred before the
Indemnitee failed to consent to such settlement offer.
<PAGE> 63
13.6. The Representative will have a period of 30 calendar
days within which to respond in writing to any claim by an Indemnitee on account
of an Indemnifiable Loss which does not result from a Third Party Claim (a
"Direct Claim"). If the Representative rejects such claim within such 30-day
period or if the Representative does not so respond within such 30 calendar day
period, the Representative will be deemed to have rejected such claim, in which
event the Indemnitee will be free to pursue such remedies, subject to Section
13.10 hereof, as may be available to the Indemnitee, with each monetary recovery
being paid from the Indemnity Escrow. In no event, however, can the aggregate
recovery of the Indemnitee with respect to a Direct Claim (including the fees
and expenses incurred in connection with the defense of such claim), when
aggregated with all other amounts paid to all Indemnitees from the Indemnity
Escrow, exceed the Indemnification Cap.
13.7. All Indemnity Payments under this Agreement shall be
deemed adjustments to the Closing Merger Consideration under the Merger
Agreement.
13.8. All amounts to be paid from the Indemnity Escrow shall
be released upon the joint written instructions of the Surviving Corporation and
the Representative or as a court of competent jurisdiction otherwise directs.
13.9. The obligations to indemnify the Indemnitee, pursuant to
this Article XIII of this Agreement, shall be limited as follows: (i) the
Indemnitee shall be entitled to indemnification from the Indemnity Escrow only
if and to the extent that the Representative has received written notice from
the Indemnitee of a claim for indemnification: (A) within twelve (12) days after
such Indemnitee has received notice of a claim or demand for which a legal
proceeding or arbitration has been commenced or after receipt of any letter from
the IRS requiring a response to maintain an administrative or judicial right of
review or appeal with respect to the Indemnification Obligations and matters
occurring prior to the Effective Time has been received; or (B) not later than
twenty (20) days in the case of all other Third Party Claims; provided, that a
failure to give timely notice or to include any specified information in any
notice as provided in Section 13.9(i)(B) above will not affect the rights of an
Indemnitee to indemnification from the Indemnity Escrow except and only to the
extent that, as a result of such failure, the Representative was actually
prejudiced as a result of such failure; and (ii) the Indemnitee shall not be
entitled to indemnification with respect to its investigation and/or litigation
of a claim, including but not limited to such Indemnitee's attorney's fees,
paralegal fees, disbursements and any applicable taxes thereon, whether incident
to trial, appellate or arbitration proceedings or negotiations, if the Indemnity
Escrow is ultimately not liable for any payments to a prevailing party in any
such legal matter. Notwithstanding any other provision of this Agreement to the
contrary, if a counterclaim is asserted to any Third Party Claim with respect to
the Excluded Real Estate, any recovery on the counterclaim in excess of any
payment made or to be made with respect to the Third Party Claim shall be paid
to the Representative for distribution to the Company Stockholders other than
the holders of Dissenting Shares. For the avoidance of any doubt, in the event
<PAGE> 64
an Indemnitee incurs Indemnifiable Losses with respect to the Tax Indemnity, and
as a result thereof the Company Stockholders file amended individual income tax
returns and obtain federal or state income tax refunds with respect to amounts
of income originally reported on their respective personal income tax returns
but properly reportable by PBBC, then such federal or state income tax refunds
shall remain the sole property of the Company Stockholders with no Indemnitee
having any claim to such property.
13.10. Each Indemnitee acknowledges and agrees that, subject
to Section 12.3, the foregoing indemnification provisions in this Article XIII
of this Agreement shall be the exclusive remedy of such Indemnitee with respect
to this Agreement and the transactions contemplated by this Agreement and,
without limiting the generality of the foregoing, each Indemnitee acknowledges
and agrees that such Indemnitee shall not have any remedy after the Closing
under this Agreement for any breach of the representations and warranties of
PBBC in this Agreement and each other agreement and the transactions
contemplated by this Agreement, other than as specifically provided in this
Article XIII of this Agreement. Except with respect to any claims or actions
concerning any Surviving Pre-Closing Covenants, post Closing obligations or
claims referred to in Section 12.3, each Indemnitee hereby waives any right,
whether arising at law or in equity, to seek contribution, cost recovery,
damages or any other recourse or remedy from the Company Stockholders, the
Representative on behalf of the Company Stockholders and/or any other
indemnifying parties, and hereby releases the Company Stockholders, the
Representative on behalf of the Company Stockholders and/or any other
indemnifying parties, from any claim, demand or liability. EACH INDEMNITEE
HEREOF IRREVOCABLE COVENANTS AND AGREES NOT TO SEEK A DEFICIENCY JUDGMENT
AGAINST ANY OF THE COMPANY STOCKHOLDERS OR THE REPRESENTATIVE ON BEHALF OF THE
COMPANY STOCKHOLDERS ON OR WITH RESPECT TO THE INDEMNIFICATION OBLIGATIONS
SUBSEQUENT TO THE FUNDING OF THE INDEMNITY ESCROW AS ABOVE PROVIDED, AND EACH
INDEMNITEE AGREES THAT THE COLLECTION OF THE INDEMNIFIABLE LOSSES WITH RESPECT
TO THE INDEMNIFICATION OBLIGATIONS EVIDENCED BY THIS AGREEMENT WILL BE ENFORCED
SOLELY AGAINST THE INDEMNITY ESCROW DESCRIBED IN THIS AGREEMENT.
13.11. (a) In the event the Representative and the Indemnitee
determine that the Indemnitee is entitled to receive any reimbursement with
respect to Indemnified Losses or the Representative and the Indemnitee determine
that a Third Party Claim is due and payable, each in respect solely to the
Indemnification Obligations, the Representative and the Indemnitee shall issue
joint written instructions to direct the Escrow Agent to distribute to the
Indemnitee, or to the Third Party claimant, such portion of the Indemnity
Escrow. The Escrow Agent, subject to the terms of the Indemnity Escrow
Agreement, shall release all or any portion of the Indemnity Amount only upon
(i) receipt of joint written instructions from the Representative and the
Surviving Corporation, stating the amount and manner in which the Indemnity
Escrow is to be distributed (including specific payment instructions) or (ii) an
order of a court of competent jurisdiction otherwise directing the Escrow Agent,
if applicable.
<PAGE> 65
(b) Sleepmaster, Sub, PBBC and the Representative
agree not to direct the Escrow Agent to dispose of all or any portion of the
Indemnity Escrow other than as provided in this Agreement.
13.12. (a) On the third anniversary of the filing of PBBC's
1997 calendar year federal income tax return (the "Distribution Date"), the
Representative and the Surviving Corporation will give joint written
instructions to the Escrow Agent that it shall immediately deliver to the
Representative an amount equal to (A) the amount remaining on deposit of the
Escrow Amount in the Indemnity Escrow, less (B) any amount designated by the
Representative and the Surviving Corporation as subject to any documented
pending or potential claim with respect to the Indemnification Obligations,
including but not limited to any actual or threatened litigation in respect of
such claim of which either the Indemnitee or the Representative has actual
knowledge (each a "Pending Claim") to the extent such Pending Claim has not been
resolved prior to such date, and less (C) any amount to cover the Escrow Agent's
costs and expenses incurred or expected to be incurred in connection with its
activities hereunder. Any amount retained in the Indemnity Escrow after the
Distribution Date shall be held by the Escrow Agent and upon resolution and
payment out of the Indemnity Escrow in satisfaction of any Pending Claims, as
directed by the Representative and the Surviving Corporation, in the manner
otherwise consistent with the terms of this Agreement, any remaining amounts in
Indemnity Escrow shall be paid to the Representative (on behalf of the Company
Stockholders).
(b) Upon distribution of the entire amount of the
Indemnity Escrow, the Indemnity Escrow Agreement shall be automatically
terminated.
13.13. The Escrow Agent shall disburse to the Representative
(on behalf of the Company Stockholders), on an annual basis on or before March
1st of each calendar year, during which the Escrow Agent retains any portion of
the Indemnity Escrow, any interest earned and realized in respect of the
Indemnity Escrow, together with a 1099-DIV setting forth the amount and nature
of the interest earned by the Representative (on behalf of the Company
Stockholders) from the Indemnity Escrow.
13.14. (a) Sections 13.14 and 13.15 set forth the provisions
for resolving any dispute, controversy or claim arising out of or relating to a
party's entitlement to have Indemnifiable Losses related to Indemnification
Obligations satisfied out of the Indemnity Escrow and the rights and obligations
of a party under Article XIII of this Agreement or the validity, interpretation,
breach or termination thereof (a "Dispute"), including claims seeking redress or
asserting rights under applicable law.
(b) All communications between the parties or their
representatives in connection with the attempted resolution of any Dispute shall
be deemed to have been delivered in furtherance of a Dispute settlement and
shall be exempt from discovery and production, and shall not be admissible in
evidence (whether as an admission or otherwise), in any arbitral or other
proceeding for the resolution of the Dispute.
<PAGE> 66
(c) Any Dispute not resolved amicably may be resolved
through adjudication as otherwise provided in this Agreement, except as provided
below. IN CONNECTION WITH ANY DISPUTE, THE PARTIES EXPRESSLY WAIVE AND FOREGO
ANY RIGHT TO TRIAL BY JURY.
13.15. (a) Within 30 days after efforts to amicably resolve
any Dispute have ceased, then at the Representative's or the Surviving
Corporation's option ("Optionee"), to be exercised by notice to any other party
to the Dispute, Optionee may submit the Dispute for resolution by arbitration
pursuant to the Rules of the Center for Public Resources ("CPR") for
Non-Administered Arbitration of Business Disputes as in effect at the time of
the arbitration. The parties consent to a single, consolidated arbitration for
all Disputes for which arbitration is permitted. If an action shall have been
commenced in any court or other forum against Optionee, Optionee may exercise
its option under this Section at any time within 30 days thereafter or such
later time as an answer may be due in such other forum.
(b) The neutral organization for purposes of the CPR
rules will be the CPR. The arbitral tribunal shall be composed of one arbitrator
selected by agreement of the parties or, in the absence of such agreement within
60 days after either party first proposes an arbitrator, by the CPR. All
arbitrators shall be experts in merger and acquisition transactions and shall be
instructed to make their determinations consistent with the terms, conditions
and principles of this Agreement. The arbitration shall be conducted in West
Palm Beach, Florida. Each party shall be permitted to present its case,
witnesses and evidence, if any, in the presence of the other party. A written
transcript of the proceedings shall be made and furnished to the parties. The
arbitrators shall determine the Dispute in accordance with the Florida
Arbitration Code, without giving effect to any conflict of law rules or other
rules that might render such law inapplicable or unavailable, and shall apply
this Agreement according to its terms.
(c) The parties agree that any award or order
resulting from any arbitration conducted hereunder shall be final and binding
and further agree that:
(i) any monetary award shall include
pre-award interest, to the extent appropriate, and shall be
made and payable in U.S. dollars, free of any withholding tax
or other deduction, together with interest thereon at the
Prime Rate in effect on the date of the award, which interest
shall be payable for the period from the date the award is
granted to the date it is paid in full;
(ii) in the context of an attempt by either
party to enforce an arbitral award or order, any defenses
relating to the parties' capacity or the validity of this
Agreement or any related agreement under any law are hereby
waived; and
(iii) judgment on any award or order
resulting from an arbitration conducted under this Section may
be entered and enforced in any court, in any country, having
jurisdiction thereof or having jurisdiction over any of the
parties or any of their assets.
<PAGE> 67
(d) If Optionee shall have submitted a Dispute for
arbitration as provided above, no other party will thereafter commence or
continue any court action or proceeding concerning such Dispute, except (i) for
enforcement as contemplated by Section 13.15(c)(iii) above, (ii) to restrict or
vacate an arbitral decision based on the grounds specified under applicable law
and not waived in Section 13.15(c)(ii) above, or (iii) for interim relief as
provided in Section 13.14(e) below.
(e) In addition to the authority otherwise conferred
on the arbitral tribunal, the tribunal shall have the authority to make such
orders for interim relief, including injunctive relief, as it may deem just and
equitable, pursuant to the terms, conditions and principles of this Agreement.
(f) The parties agree that, insofar as it is within
their control, and notwithstanding anything to the contrary in the applicable
arbitration rules:
(i) the arbitrator(s) shall be selected
within 21 days after commencement of the arbitration;
(ii) any discovery that may be permitted
will be completed within 60 days and will not exceed single
depositions of more than three individuals per side who are
directly involved and a single, reasonable request for
directly relevant documents;
(iii) any hearing that may be held will take
place within 90 days after completion of discovery, and each
party's presentation at the hearing will not require more than
three full days;
(iv) any written briefs submitted to the
arbitrator(s) will not exceed a total of 25 pages prior to the
hearing and 15 pages subsequently, in each case excluding
exhibits; and
(v) the decision will be issued with only a
brief opinion within 30 days after the hearing.
13.16. Notwithstanding any other provision of this Agreement,
the obligations created by this Article XIII shall survive the Closing until
fulfilled.
ARTICLE XIV
TERMINATION
14.1. Termination. At any time before the Closing, this
Agreement may be terminated:
<PAGE> 68
(i) by the mutual written consent of the Parties at
any time prior to the Closing;
(ii) by PBBC (a) if there has been a material
misrepresentation, breach of warranty or breach of any
covenant or agreement contained in this Agreement by
Sleepmaster or Sub which is not cured within twenty business
days after Sub has been notified of PBBC's intent to terminate
this Agreement pursuant to this clause (ii) or (b) if the
Closing shall not have occurred on or before March 16, 1998,
by reason of the failure of any condition precedent under
Article VIII;
(iii) by Sleepmaster or Sub, if there has been a
material misrepresentation, breach of warranty or breach of
any covenant or agreement contained in this Agreement by PBBC
which is not cured within twenty business days after PBBC has
been notified of Sub's intent to terminate this Agreement
pursuant to this clause;
(iv) by PBBC if any condition set forth in Article
VIII has not been complied with or performed at or before the
Closing and such noncompliance or nonperformance shall not
have been cured or eliminated by March 16, 1998;
(v) by Sleepmaster or Sub if any condition set forth
in Article VII has not been complied with or performed at or
before the Closing and such noncompliance or nonperformance
shall not have been cured or eliminated by March 16, 1998;
(vi) by Sleepmaster or Sub, upon receipt by
Sleepmaster or Sub of an Update Notice from PBBC which
contains a development unacceptable within the sole discretion
of Sub or Sleepmaster;
(vii) by PBBC giving written notice to Sleepmaster
and the Sub, at any time prior to the Effective Time, in the
event this Agreement and the Merger fail to receive the
requisite stockholder approval of the Company Stockholders
pursuant to the Florida Law;
(viii) by PBBC by giving written notice to
Sleepmaster and the Sub, at any time prior to the Effective
Time, in the event PBBC's Board of Directors concludes that
termination would be in the best interests of PBBC and the
Company Stockholders.
14.2. Effect of Termination. If any of Sub, Sleepmaster or
PBBC terminates this Agreement pursuant to Section 14.1, all rights and
obligations of the Parties shall terminate without any liability of any Party to
any other Party (except for any liability of any Party then in breach);
provided, that the confidentiality provisions contained in this Agreement and in
the Confidential Disclosure Agreement shall survive such termination and
continue in force, pursuant to their respective terms.
<PAGE> 69
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1. Public Announcements. Prior to the Closing Date, none of
PBBC, Sleepmaster and Sub will issue any press releases or otherwise make any
public statements with respect to this Agreement or the transactions
contemplated hereby without obtaining the prior written consent of the other
Party, except as may be required by law (in which case the disclosing party will
advise the other party prior to making the disclosure). On or after the Closing
Date, Sleepmaster and Sub shall cooperate to issue a mutually agreeable press
release.
15.2. Rights to Third Parties. Except as permitted pursuant to
Section 14.4, nothing in this Agreement shall establish any enforceable rights,
legal or equitable, in any person other than the Parties, including any employee
of PBBC or any beneficiary of such employee.
15.3. Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be sufficiently given if
delivered in person, if mailed by certified mail, return receipt requested,
postage prepaid, if delivered by confirmed telefax or if sent by a nationally
recognized overnight courier, delivery prepaid, addressed as follows:
(a) if to PBBC or Representative, to:
Palm Beach Bedding Company
c/o Michael W. Bubis
3774 Interstate Park Road North
Riviera Beach, Florida 33404
PERSONAL AND CONFIDENTIAL
with a copy to:
Robert A. Kramer, P.A.
316 South Baylen Street
Pensacola, Florida 32501
Fax No.: (850) 436-6710
or such other person or address as PBBC may furnish Sub or Sleepmaster in
writing.
<PAGE> 70
(b) if to Sub, to:
Sleepmaster Acquisition Corp.
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036
Attn: Charles Schweitzer or James Koscica
Fax No.: (908) 381-3925
with a copy to:
Blumenthal & Lynne, A Professional
Corporation
488 Madison Avenue
New York, New York 10022
Attn: William A. Newman, Esq.
Fax No.: (212) 752-0097
or such other person or address as Sub or Sleepmaster shall furnish PBBC in
writing.
(c) if to Sleepmaster, to:
Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036
Attn: Charles Schweitzer or James Koscica
Fax No.: (908) 381-3925
with a copy to:
Blumenthal & Lynne, A Professional
Corporation
488 Madison Avenue
New York, New York 10022
Attn: William A. Newman, Esq.
Fax No.: (212) 752-0097
or such other person or address as Sleepmaster or Sub shall furnish PBBC in
writing.
All such written notices and communications delivered as
aforesaid shall be deemed given for purposes of this Agreement on the day such
notice or communication is received if delivered personally or by telefax, or,
if delivered by certified mail, as aforesaid, on the date that is four business
days after deposit in the mail or, if delivered by nationally recognized
overnight courier, two days after it has been so sent.
<PAGE> 71
15.4. Parties in Interest. This Agreement will be binding
upon, inure to the benefit of the Parties and be enforceable by their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of all of the other Parties; provided, that Sleepmaster and Sub may (i)
assign any or all of their respective rights and interests under this Agreement
to one or more of their sources of financing for collateral purposes only, (ii)
assign any or all of their respective rights and interests under this Agreement
to one or more of its Affiliates, or (iii) after the Effective Time, assign any
or all of their respective rights under this Agreement to any subsequent
purchaser of all or substantially all of the assets of the Surviving Corporation
or Sleepmaster; provided, in each and every situation described in clauses (i),
(ii) and (iii) of this proviso, Sub and Sleepmaster nonetheless shall remain
legally responsible for the performance of all of their respective obligations
under this Agreement.
15.5. Entire Agreement; Amendment; Waiver. This Agreement and
the agreements and documents referred to herein or delivered pursuant hereto
contain the entire understanding of the Parties with respect to its subject
matter. There are no representations, promises, warranties, covenants or
undertakings other than as expressly set forth herein or therein. This Agreement
supersedes all prior agreements and understandings between the Parties with
respect to its subject matter, except as otherwise contained in the Confidential
Disclosure Agreement. This Agreement may be amended or modified by the boards of
directors of the Sub and PBBC, before the filing of the Florida Articles, only
by a written instrument duly executed by the Parties, and any condition to a
party's obligations hereunder may only be waived in writing by such party;
provided, that any amendment effected subsequent to stockholder approval will be
subject to the restrictions contained in the Florida Law. If the Florida
Articles have already been filed with the Florida Secretary of State and the
Parties desire to amend this Agreement, in a manner permitted by Florida
Statutes, amended Articles of Merger must be filed before the Effective Time. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
15.6. Headings. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
15.7. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, and all such counterparts together shall constitute but
one agreement.
15.8. Governing Law. This Agreement and all transactions
contemplated by this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Florida without regard to
principles of conflicts of laws. Sub, Sleepmaster and PBBC acknowledge that a
substantial portion of the negotiations, anticipated performance and execution
of this Agreement occurred or shall occur in Palm Beach County, Florida, and
that, therefore, without limiting the jurisdiction or venue of any other federal
or state courts, each of the Parties irrevocably
<PAGE> 72
and unconditionally: (a) agrees that any suit, action or legal proceeding
arising out of or relating to this Agreement may be brought in the courts of
record of the State of Florida in Palm Beach County or the District Court of the
United States, Southern District of Florida; (b) consents to the jurisdiction of
each such court in any suit, action or proceeding; (c) waives any objection
which it may have to the laying of venue of any such suit, action or proceeding
in any of such courts; and (d) agrees that service of any court paper may be
effected on such party by mail, as provided in this Agreement, or in such other
manner as may be provided under applicable laws or court rules in said state.
15.9. Severability. In the event that any provision, or part
thereof, of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions, or parts thereof, shall not in any way be affected or impaired
thereby.
15.10. Expenses. Each of the Parties shall be responsible for
its own legal fees and other costs and expenses incurred in connection with this
Agreement and the negotiation and consummation of the transactions contemplated
hereby; provided, that the Surviving Corporation shall be obligated to pay only
those Company Expenses that have been accrued on the Draft Closing Date Balance
Sheet and only to the extent accrued on the Closing Date Balance Sheet.
15.11. References; Exhibits and Schedules. All references in
this Agreement to Sections, Exhibits and Schedules shall, unless otherwise
stated, refer to Sections, Exhibits and Schedules of this Agreement. The
Exhibits and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
15.12. Specific Performance. Each of the Parties acknowledges
and agrees that the other Party would be damaged irreparably in the event
Sections 11.5 and 11.8 of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other party shall be entitled to an injunction or injunctions to
prevent any actual or threatened breaches of Sections 11.5 and 11.8 of this
Agreement and to enforce specifically the terms and provisions thereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
15.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES WAIVES ANY
RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION WHICH ARISES OUT OF, OR
WHICH IS RELATED TO, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
15.14. Time is of the Essence. Each of the Parties agrees that
time is of the essence with respect to every date, every action and every
delivery set forth in this Agreement.
15.15. Construction. Sleepmaster, Sub and PBBC have
participated jointly in the negotiation and drafting of this Agreement. If an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by Sleepmaster, Sub and PBBC, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the
<PAGE> 73
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to refer to
all rules and regulations promulgated thereunder, unless the context otherwise
requires. The word "including" shall mean including without limitation.
IN WITNESS WHEREOF the Parties hereto have caused this
Agreement to be duly executed as of the date first above written.
SLEEPMASTER L.L.C.
By:
----------------------------------------
Name: Charles Schweitzer
----------------------------------
Title: Manager
---------------------------------
By:
----------------------------------------
Name: James P. Koscica
----------------------------------
Title: Manager
---------------------------------
SLEEPMASTER ACQUISITION CORP.
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PALM BEACH BEDDING COMPANY
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
This Agreement with be joined in at the Closing by John Fenn Foster,
Esq., as "Representative," provided the Representative obtains the execution, by
each of the Company Stockholders (other than holders of Dissenting Shares), of
that certain "Power of Attorney and Appointment of Representative," such joiner
and consent by John Fenn Foster, Esq. being solely for the purpose of evidencing
his agreement act as Representative, as provided for herein unless otherwise
limited and as otherwise provided in said "Power of Attorney and Appointment of
Representative."
REPRESENTATIVE
By:
----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 1
EXHIBIT 12.1
SLEEPMASTER L.L.C.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the Three Months
For the Year Ended December 31, Ended March 31,
------------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income before income taxes .......... $3,389 $3,214 $4,697 $4,770 $ 7,168 $ 965 $2,259
Add: Fixed charges .................. 547 2,564 2,865 4,923 7,503 1,538 2,148
------ ------ ------ ------ ------- ------ ------
TOTAL EARNINGS ...................... $3,936 $5,778 $7,562 $9,693 $14,671 $2,503 $4,407
------ ------ ------ ------ ------- ------ ------
Fixed Charges:
Interest, net (includes amortization
of deferred debt issuance costs) .. $ 308 $2,304 $2,578 $4,663 $ 7,096 $1,478 $2,028
Interest income ..................... 27
Interest portion of rent expense .... 239 260 260 260 407 79 120
------ ------ ------ ------ ------- ------ ------
TOTAL FIXED CHARGES ................. $ 547 $2,564 $2,865 $4,923 $ 7,503 $1,557 $2,148
====== ====== ====== ====== ====== ====== ======
Ratio of Earnings to Fixed Charges .. 7.20x 2.25x 2.64x 1.97x 1.96x 1.61x 2.05x
====== ====== ====== ====== ====== ====== ======
</TABLE>
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
AFTER ADJUSTMENT FOR ISSUANCE OF SENIOR SUBORDINATED NOTES
<TABLE>
<CAPTION>
For the Year For the Quarter
Ended Ended
December 31, 1998 March 31, 1999
----------------- --------------
<S> <C> <C>
Pro Forma Earnings:
Pro forma income before income taxes........... $ 5,765 $1,756
Add: Pro forma fixed charges................... 13,852 3,461
------- ------
Total pro forma earnings....................... $19,617 $5,217
------- ------
Fixed charges, as above ....................... $ 7,503 $2,148
Adjustments:
Estimated net increase in interest expense
from offering........................... 6,349 1,313
------- ------
Total pro forma fixed charges $13,852 $3,461
======= ======
Pro forma ratio of earnings to fixed charges 1.42x 1.51x
======= ======
</TABLE>
<PAGE> 1
Exhibit 21.1
Subsidiaries of Registrant
Sleepmaster Finance Corporation
Palm Beach Bedding Company
Herr Manufacturing Company
Lower Road Associates, LLC
Star Bedding Products Limited
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Sleepmaster L.L.C. of our reports dated:
- - April 2, 1999 relating to the consolidated financial statements of
Sleepmaster L.L.C. and Subsidiary;
- - March 26, 1999 relating to the financial statements of Palm Beach Bedding
Company; and
- - March 26, 1999 relating to the financial statements of Herr Manufacturing
Company;
which appear in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
June 29, 1999
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 of
Sleepmaster L.L.C. of our report dated March 19, 1999 (except as to note 11(b),
which is as of April 8, 1999) relating to the consolidated financial statements
of Star Bedding Products (1986) Limited, which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
PricewaterhouseCoopers LLP
Chartered Accountants
North York, Ontario
June 29, 1999
<PAGE> 1
EXHIBIT 25.1
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
SLEEPMASTER LLC
(Exact name of OBLIGOR as specified in its charter)
New Jersey 22-3341313
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
2001 Lower Road 07036
Linden, New Jersey (Zip Code)
(Address of principal executive offices)
------------------
<PAGE> 2
- 2 -
------------------
SLEEPMASTER FINANCE CORPORATION
(Exact name of OBLIGOR as specified in its charter)
Delaware 22-3652420
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
------------------
PALM BEACH BEDDING COMPANY
(Exact name of OBLIGOR as specified in its charter)
Florida 59-0833373
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
------------------
HERR MANUFACTURING COMPANY
(Exact name of OBLIGOR as specified in its charter)
Pennsylvania 28-1414913
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
------------------
LOWER ROAD ASSOCIATES, LLC
(Exact name of OBLIGOR as specified in its charter)
New Jersey 22-3578078
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
------------------
11% Senior Subordinated Notes due 2009
(Title of the indenture securities)
==============================================
<PAGE> 3
- 3 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New
York (Board of Governors of the Federal Reserve System) Federal
Deposit Insurance Corporation, Washington, D.C. New York State
Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Sleepmaster LLC, Sleepmaster Finance Corporation, Palm Beach Bedding
Company, Herr Manufacturing Company and Lower Road Associates, LLC
currently are not in default under any of its outstanding securities for
which United States Trust Company of New York is Trustee. Accordingly,
responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form
T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
<PAGE> 4
- 4 -
16. LIST OF EXHIBITS (cont'd)
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
- ----
As of June 16, 1999, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 16th day
of June, 1999.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By:/s/ Margaret Ciesmelewski
---------------------------
Margaret Ciesmelewski
Assistant Vice President
<PAGE> 5
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
January 7, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/Gerard F. Ganey
-------------------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE> 6
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1999
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 139,755
Short-Term Investments 85,326
Securities, Available for Sale 528,160
Loans 2,081,103
Less: Allowance for Credit Losses 17,114
----------
Net Loans 2,063,989
Premises and Equipment 57,765
Other Assets 125,780
----------
TOTAL ASSETS $3,000,775
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 623,046
Interest Bearing 1,875,364
----------
Total Deposits 2,498,410
Short-Term Credit Facilities 184,281
Accounts Payable and Accrued Liabilities 126,652
----------
TOTAL LIABILITIES $2,809,343
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 53,041
Retained Earnings 121,759
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 1,637
----------
TOTAL STOCKHOLDER'S EQUITY 191,432
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $3,000,775
==========
</TABLE>
I, Richard E. Brinkmann, Managing Director & Comptroller of the named bank do
hereby declare that this Statement of Condition has been prepared in conformance
with the instructions issued by the appropriate regulatory authority and is true
to the best of my knowledge and belief.
Richard E. Brinkmann, Managing Director & Controller
May 18, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 162 699
<SECURITIES> 0 0
<RECEIVABLES> 14,008 17,913
<ALLOWANCES> 1,437 1,828
<INVENTORY> 4,747 5,273
<CURRENT-ASSETS> 20,630 25,708
<PP&E> 12,419 16,220
<DEPRECIATION> 1,989 2,279
<TOTAL-ASSETS> 89,540 119,547
<CURRENT-LIABILITIES> 24,849 26,869
<BONDS> 0 0
18,267 18,815
0 0
<COMMON> 1,640 1,640
<OTHER-SE> (19,157) (18,330)
<TOTAL-LIABILITY-AND-EQUITY> 89,540 119,547
<SALES> 110,251 34,227
<TOTAL-REVENUES> 146,348 34,227
<CGS> 68,988 21,263
<TOTAL-COSTS> 96,004 30,019
<OTHER-EXPENSES> (17) (80)
<LOSS-PROVISION> 287 38
<INTEREST-EXPENSE> 7,096 2,028
<INCOME-PRETAX> 7,168 2,259
<INCOME-TAX> 3,020 884
<INCOME-CONTINUING> 4,148 1,375
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,148 1,375
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2009
OF
SLEEPMASTER L.L.C.
AND
SLEEPMASTER FINANCE CORPORATION
PURSUANT TO THE PROSPECTUS DATED , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999 UNLESS EXTENDED
(THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent:
<TABLE>
<S> <C> <C>
By Overnight Courier By Hand By Registered or Certified Mail:
and by Hand after 4:30 p.m. before 4:30 p.m.: United States Trust Company
on the Expiration Date: United States Trust Company of New York
United States Trust Company of New York P.O. Box 844
of New York 111 Broadway Cooper Station
770 Broadway, 13th Floor Lower Level New York, New York 10276-0844
New York, New York 10003 New York, New York 10006 Attn: Corporate Trust Services
Attn: Corporate Trust Services Attn: Corporate Trust Services
</TABLE>
By Facsimile:
212-780-0592
Attn: Corporate Trust Services
Confirm by phone:
(800) 548-6565
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT
800-548-6565 OR BY FACSIMILE AT 212-780-0592.
The undersigned hereby acknowledge receipt of the Prospectus dated ,
1999 (the "Prospectus") of Sleepmaster L.L.C. and Sleepmaster Finance
Corporation, a New Jersey limited liability company and a Delaware corporation,
respectively (the "Issuers"), and this Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Issuers' offer (the "Exchange
Offer") to exchange $1,000 in principal amount of its 11% Senior Subordinated
Notes due 2009 (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement, for each $1,000 in principal amount of its outstanding
11% Senior Subordinated Notes due 2009 (the "Notes"), of which $115,000,000
aggregate principal amount is outstanding. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Prospectus.
The undersigned hereby tenders the Notes described in Box 1 below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial Owners")
a duly completed and executed form of "Instruction to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying
this Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
<PAGE> 2
Subject to, and effective upon, the acceptance for exchange of the Tendered
Notes, the undersigned hereby exchanges, assigns, and transfers to, or upon the
order of, the Issuers, all right, title, and interest in, to, and under the
Tendered Notes.
Please issue the Exchange Notes exchanged for Tendered Notes in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as appropriate)
to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Notes to the Issuers or cause ownership of the Tendered
Notes to be transferred to, or upon the order of, the Issuers, on the books of
the registrar for the Notes and deliver all accompanying evidences of transfer
and authenticity to, or upon the order of, the Issuers upon receipt by the
Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon acceptance by the Issuer of the Tendered Notes
pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Tendered Notes, all in
accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Issuers upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer-Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any Beneficial Owner(s), and
every obligation of the undersigned or any Beneficial Owners hereunder shall be
binding upon the heirs, representatives, successors, and assigns of the
undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Issuers will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Notes are acquired by the Issuers as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Issuers or the
Exchange Agent as necessary or desirable to complete and give effect to the
transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) except as otherwise disclosed in
writing herewith, neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Issuer, and
(iv) the undersigned and each Beneficial Owner acknowledge and agree that any
person participating in the Exchange Offer with the intention or for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the "Securities
Act"), in connection with a secondary resale of the Exchange Notes acquired by
such person and cannot rely on the position of the Staff of the Securities and
Exchange Commission (the "Commission") set forth in the no-action letters that
are discussed in the section of the Prospectus entitled "The Exchange Offer." In
addition, by accepting the Exchange Offer, the undersigned hereby (i) represents
and warrants that, if the undersigned or any Beneficial Owner of the Notes is a
Participating Broker-Dealer, such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other trading
activities and has not entered into any arrangement or understanding with the
Issuers or any affiliate of the Issuers (within the meaning of Rule 405 under
the Securities Act) to distribute the New Notes to be received in the Exchange
Offer, and (ii) acknowledges that, by receiving New Notes for its own account in
exchange for Notes, where such Notes were
2
<PAGE> 3
acquired as a result of market-making activities or other trading activities,
such Participating Broker-Dealer will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
"Use of Guaranteed Delivery" BELOW (Box 4).
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE
TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF NOTES TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED NOTE HOLDER(S), CERTIFICATE PRINCIPAL AMOUNT AGGREGATE
EXACTLY AS NAME(S) APPEAR(S) ON NOTE CERTIFICATE(S) NUMBER(S) OF REPRESENTED BY PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) NOTES* CERTIFICATE(S) TENDERED**
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Notes. All
other tenders must be in integral multiples of $1,000 of principal
amount. Unless otherwise indicated in this column, the principal amount
of all Note Certificates identified in this Box 1 or delivered to the
Exchange Agent herewith shall be deemed tendered. See Instruction 4.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNER(S)
- -------------------------------------------------------------------------------------------------------------------------
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES
BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED NOTES
ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT
AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and any untendered Notes to:
Name(s):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Tax Identification or
Social Security No.:
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Institution which Guaranteed Delivery:__________________________________
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
4
<PAGE> 5
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
X Signature Guarantee
- ----------------------------------------------- (If required by Instruction 5)
X
- ----------------------------------------------- Authorized Signature
(SIGNATURE OF REGISTERED X
HOLDER(S) OR AUTHORIZED SIGNATORY) -----------------------------------------------
Note: The above lines must be signed by the
registered holder(s) of Notes as their name(s) Name:
appear(s) on the Notes or by persons(s) -----------------------------------------------
authorized to become registered holder(s) (PLEASE PRINT)
(evidence of which authorization must be
transmitted with this Letter of Transmittal). Title:
If signature is by a trustee, executor, -----------------------------------------------
administrator, guardian, attorney-in-fact,
officer, or other person acting in a fiduciary Name of Firm:
or representative capacity, such person must -----------------------------------------
set forth his or her full title below. See (MUST BE AN ELIGIBLE INSTITUTION AS DEFINED IN
Instruction 5. INSTRUCTION 2)
Name(s): Address:
- ---------------------------------------------- -----------------------------------------------
- ----------------------------------------------- -----------------------------------------------
-----------------------------------------------
Capacity: (INCLUDE ZIP CODE)
- -----------------------------------------------
- ----------------------------------------------- Area Code and Telephone Number:
-----------------------------------------------
Street Address:
- ---------------------------------------- Dated:
- ----------------------------------------------- -----------------------------------------------
- -----------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- -----------------------------------------------
Tax Identification or Social Security Number:
- -----------------------------------------------
</TABLE>
BOX 7
BROKER-DEALER STATUS
- --------------------------------------------------------------------------------
[ ] Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes for
its own account as a result of market-making activities or other trading
activities.
5
<PAGE> 6
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
PAYORS' NAMES: SLEEPMASTER L.L.C. AND SLEEPMASTER FINANCE CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or entity whose
number you enter in Part 1 below. See instructions if your name has changed.)
-----------------------------------------------------------------------------------------
Address
-----------------------------------------------------------------------------------------
SUBSTITUTE City, State and ZIP Code
-----------------------------------------------------------------------------------------
FORM W-9 List account number(s) here (optional)
-----------------------------------------------------------------------------------------
DEPARTMENT OF THE PART 1 -- PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION Social Security
TREASURY NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY Number or TIN
SIGNING AND DATING BELOW
INTERNAL REVENUE SERVICE
-----------------------------------------------------------------------------------------
PART 2 -- Check the box if you are NOT subject to backup withholding under the
provisions of section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have
not been notified that you are subject to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal Revenue Service has notified you
that you are no longer subject to backup withholding. [ ]
- ----------------------------------------------------------------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I PART 3 --
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS
TRUE, CORRECT AND COMPLETE. Awaiting TIN [ ]
SIGNATURE ------------------------ DATE--------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
6
<PAGE> 7
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute Form
W-9, and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at its address set forth herein, and either
certificates for Tendered Notes must be received by the Exchange Agent at its
address set forth herein or such Tendered Notes must be transferred pursuant to
the procedures for book-entry transfer described in the Prospectus under the
caption "Exchange Offer -- Book-Entry Transfer" (and a confirmation of such
transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New
York City time, on the Expiration Date. The method of delivery of certificates
for Tendered Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent is at the election and risk of the tendering holder and
the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. Instead of delivery by mail, it is recommended
that the Holder use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure timely delivery. No Letter of
Transmittal or Notes should be sent to the Issuers. Neither the Issuers nor the
registrar are under any obligation to notify any tendering holder of the
Issuers' acceptance of Tendered Notes prior to the closing of the Exchange
Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes
but whose Notes are not immediately available, and who cannot deliver their
Notes, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date must tender their Notes according to
the guaranteed delivery procedures set forth below, including completion of Box
4. Pursuant to such procedures: (i) such tender must be made by or through a
firm which is a member of a recognized Medallion Program approved by the
Securities Transfer Association Inc. (an "Eligible Institution") and the Notice
of Guaranteed Delivery must be signed by the holder; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the holder and the
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by mail or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of the Tendered Notes and the principal amount
of Tendered Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal together with the certificate(s)
representing the Notes and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed Letter of Transmittal, as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all Tendered
Notes in proper form for transfer, must be received by the Exchange Agent within
five New York Stock Exchange trading days after the Expiration Date. Any holder
who wishes to tender Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Notes prior to 5:00 p.m., New York City
time, on the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the validity or effect a
revocation of any Letter of Transmittal form properly completed and executed by
an Eligible Holder who attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes
who is not the registered holder must arrange promptly with the registered
holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered holder of the Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner form accompanying this Letter of Transmittal.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder should fill
in the principal amount tendered in the column labeled "Aggregate Principal
Amount Tendered" of the box entitled "Description of Notes Tendered" (Box 1)
above. The entire principal amount of Notes delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Notes held by the holder is not tendered, then Notes for
the principal amount of Notes not tendered and Exchange Notes issued in exchange
for any Notes tendered and accepted will be sent to the Holder at his or her
registered address,
7
<PAGE> 8
unless a different address is provided in the appropriate box on this Letter of
Transmittal, as soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be issued
(and any untendered principal amount of Notes is to be reissued) in the name of
the registered holder(s), then such registered holder(s) need not and should not
endorse any Tendered Notes, nor provide a separate bond power. In any other
case, such registered holder(s) must either properly endorse the Tendered Notes
or transmit a properly completed separate bond power with this Letter of
Transmittal, with the signature(s) on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed
or accompanied by appropriate bond powers, in each case, signed as the name(s)
of the registered holder(s) appear(s) on the Tendered Notes, with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered 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, unless waived by the
Issuers, evidence satisfactory to the Issuers of their authority to so act must
be submitted with this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in
the applicable box (Box 3), the name and address to which the Exchange Notes
and/or substitute Notes for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the taxpayer identification or social security number of the person named must
also be indicated.
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the transfer and
exchange of Tendered Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, the amount of such transfer taxes will be billed directly
to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide the
Issuers (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Issuers are not provided with the correct TIN, the
Holder may be subject to backup withholding and a $50 penalty imposed by the
Internal Revenue Service. (If withholding results in an over-payment of taxes, a
refund may be obtained.) Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
8
<PAGE> 9
withholding and reporting requirements. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue Service
has notified the holder that such holder is no longer subject to backup
withholding. If the Tendered Notes are registered in more than one name or are
not in the name of the actual owner, consult the "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for information on
which TIN to report.
The Issuers reserve the right in its sole discretion to take whatever steps
are necessary to comply with the Issuers' obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Notes will be determined by the Issuers in its sole discretion, which
determination will be final and binding. The Issuers reserve the right to reject
any and all Notes not validly tendered or any Notes the Issuers' acceptance of
which would, in the opinion of the Issuers or their counsel, be unlawful. The
Issuers also reserve the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Notes as to any ineligibility of any
holder who seeks to tender Notes in the Exchange Offer. The interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Issuer shall 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 the Issuer
shall determine. Neither the Issuers, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Notes, nor shall any of them 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 properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
10. WAIVER OF CONDITIONS. The Issuers reserve the absolute right to
amend, waive or modify any of the conditions in the Exchange Offer in the case
of any Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will be
accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder
whose Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF
NOTES. Subject to the terms and conditions of the Exchange Offer, the Issuers
will accept for exchange all validly tendered Notes as soon as practicable after
the Expiration Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Issuers shall be
deemed to have accepted tendered Notes when, as and if the Issuers have given
written or oral notice (immediately followed in writing) thereof to the Exchange
Agent. If any Tendered Notes are not exchanged pursuant to the Exchange Offer
for any reason, such unexchanged Notes will be returned, without expense, to the
undersigned at the address shown in Box 1 or at a different address as may be
indicated herein under "Special Delivery Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer."
9
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
11% SENIOR SUBORDINATED NOTES DUE 2009
OF
SLEEPMASTER L.L.C.
AND
SLEEPMASTER FINANCE CORPORATION
PURSUANT TO THE PROSPECTUS DATED , 1999
This form must be used by a holder of 11% Senior Subordinated Notes due
2009 (the "Notes") of Sleepmaster L.L.C. and Sleepmaster Finance Corporation, a
New Jersey limited liability company and a Delaware corporation, respectively
(the "Companies"), who wishes to tender Notes to the Exchange Agent pursuant to
the guaranteed delivery procedures described in "The Exchange
Offer -- Guaranteed Delivery Procedures" of the Companies' Prospectus, dated May
19, 1999 (the "Prospectus") and in Instruction 2 to the related Letter of
Transmittal. Any holder who wishes to tender Notes pursuant to such guaranteed
delivery procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to the Expiration Date of the Exchange Offer.
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999 UNLESS EXTENDED
(THE "EXPIRATION DATE").
United States Trust Company
(the "Exchange Agent")
<TABLE>
<S> <C> <C>
By Overnight Courier and by Hand By Hand before 4:30 pm: By Registered or Certified Mail:
after 4:30 pm on the Expiration United States Trust Company United States Trust Company
Date: of New York of New York
United States Trust Company 111 Broadway P.O. Box 844
of New York Lower Level Cooper Station
770 Broadway, 13th Floor New York, New York 10006 New York, New York 10276-0844
New York, New York 10003 Attn: Corporate Trust Services Attn: Corporate Trust Services
Attn: Corporate Trust Services
</TABLE>
By Facsimile:
212-780-0592
Attn: Corporate Trust Services
Confirm by phone:
(800) 548-6565
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS NOTICE OF GUARANTEED DELIVERY OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT
800-548-6565, OR BY FACSIMILE AT 212-780-0592.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Companies, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<S> <C> <C>
CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or Date:
Authorized Signatory: ----------------------------------------------,
- ---------------------------------- 1999
- -------------------------------------------------
- ------------------------------------------------- Address:
Name(s) of Registered Holder(s): -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
- -------------------------------------------------
- ------------------------------------------------- Area Code and Telephone No.:
--------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Notes or on a security position
listing as the owner of Notes, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility described in the
prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures" and in the Letter of Transmittal) and any other required documents,
all by 5:00 p.m., New York City time, on the fifth New York Stock Exchange
trading day following the Expiration Date.
<TABLE>
<S> <C>
Name of firm:
------------------------------------------
-----------------------------------------------
(AUTHORIZED SIGNATURE)
Address: Name:
- ----------------------------------------------- -----------------------------------------------
(PLEASE PRINT)
Title:
- ----------------------------------------------- -----------------------------------------------
(INCLUDE ZIP CODE)
Area Code and
Tel. No.: Dated: , 1999
- -----------------------------------------------
</TABLE>
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST BE
MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE> 4
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face of
the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of the Notes, the signature must correspond with the name shown on the security
position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
4
<PAGE> 1
EXHIBIT 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
SLEEPMASTER L.L.C. AND SLEEPMASTER FINANCE CORPORATION
11% SENIOR SUBORDINATED NOTES DUE 2009
To Registered Holder and/or Participant of the Book-Entry Transfer
Facilities:
The undersigned hereby acknowledges receipt of the Prospectus, dated
, 1999 (the "Prospectus") of Sleepmaster L.L.C. and Sleepmaster
Finance Corporation, a New Jersey limited liability company and a Delaware
corporation, respectively (the "Companies"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Companies' offer (the "Exchange Offer"). Capitalized terms used but not defined
herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 11% Senior Subordinated Notes due 2009 (the "Notes")
held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (FILL IN AMOUNT):
$ of the 11% Senior Subordinated Notes due 2009
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF ANY):
$
[ ] NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instruct you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE) ,
(ii) the undersigned is acquiring the Exchange Notes in the ordinary course of
business of the undersigned, (iii) the undersigned is not participating, does
not participate, and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) the undersigned
acknowledges that 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 of 1933, as amended (the
"Act"), in connection with a secondary resale transaction of the Exchange Notes
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission set forth in no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange Offer --
Resales of the Exchange Notes," and (v) the undersigned is not an "affiliate,"
as defined in Rule 405 under the Act, of the Companies; (b) to agree, on behalf
of the undersigned, as set forth in the Letter of Transmittal; and (c) to take
such other action as necessary under the Prospectus or the Letter of Transmittal
to effect the valid tender of such Notes.
<PAGE> 2
SIGN HERE
Name of beneficial owner(s):
- --------------------------------------------------------------------------------
Signature(s):
- --------------------------------------------------------------------------------
Name (please print):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone number:
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
2
