<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999
REGISTRATION NO. 333-81987
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO THE
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>
<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.)
</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. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON ANY 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 THE DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<S> <C> <C>
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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PROSPECTUS
NOVEMBER , 1999
SLEEPMASTER L.L.C.
AND
SLEEPMASTER FINANCE CORPORATION
OFFER FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2009
IN AGGREGATE PRINCIPAL AMOUNT OF $115,000,000
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.
TRADING FORMAT:
- - There is no public market for the old notes or the exchange notes.
- - The old notes and the exchange notes may be traded in The Portal Market or
directly with qualified buyers.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 10.
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................................................ 10
Use of Proceeds............................................. 18
Capitalization.............................................. 19
Unaudited Pro Forma Consolidated Financial Data............. 20
Selected Historical Financial and Other Data................ 30
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 32
Business.................................................... 42
Management.................................................. 55
Security Ownership.......................................... 59
Relationships and Related Transactions...................... 61
Description of Indebtedness................................. 66
Description of the Notes.................................... 71
Exchange Offer.............................................. 119
United States Federal Income Tax Considerations............. 126
Plan of Distribution........................................ 127
Legal Matters............................................... 128
Experts..................................................... 128
Available Information....................................... 128
Index to Financial Statements............................... F-1
</TABLE>
------------------------
<PAGE> 5
PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer
and highlights the most important features of this exchange offer. 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 a later date
and time if we choose to extend this exchange
offer. 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 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:
- the 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 the
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 the Letter of
Transmittal, or facsimile, together with the old
notes and any other required documentation, to the
exchange agent at the address 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............. Sleepmaster has received an opinion from Kirkland &
Ellis that the exchange of old notes in accordance
with the terms of this exchange offer will 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 obligations incurred
under the new credit facility.
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 September 30, 1999, on a pro forma basis,
after giving effect to this offering of
exchange notes and our use of the net proceeds
from the old note offering and borrowings
related to the acquisitions of Herr and Star
and related costs and after giving pro forma
effect to the acquisition of Adam Wuest and
related costs,
- we would have had outstanding $45.4
million of senior debt (consisting of
our guarantee of guarantor senior debt),
- the guarantors would have had
outstanding $45.4 million of guarantor
senior debt and
- our nonguarantor subsidiary would have
had no debt.
As of September 30, 1999, on a pro forma basis,
the amount of additional total debt, all of
which may be senior debt, that any of we and/or
the guarantors may incur on a consolidated
basis is $33.0 million.
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 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 the 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 change of control events described in the
Section "Description of Notes" under the
heading "Optional Redemption" under the
sub-heading "Change of Control Call," 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 change of control events described in the
Section "Description of Notes" under the
heading "Purchase of Notes Upon a Change of
Control," 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.
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,
4
<PAGE> 9
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,
- 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 10 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,
- all or a portion of the States of Ohio, Indiana, West Virginia and the
Commonwealth of Kentucky,
- 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, Cincinnati, Ohio
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.
- Adam Wuest, Inc., which owns the license to manufacture Serta products in
all or a portion of the states of Ohio, Indiana, West Virginia and the
Commonwealth of Kentucky, on November 5, 1999.
RECENT DEVELOPMENTS
SENIOR SUBORDINATED NOTE OFFERING
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 $25.0 million, six-year revolving senior credit facility.
SENIOR CREDIT FACILITY
On November 5, 1999, we amended and restated this credit facility to
provide for borrowings of up to $70.0 million. The amended and restated credit
facility is secured by substantially all of our domestic assets and is
guaranteed by all of our domestic restricted subsidiaries and Sleepmaster
Holdings, L.L.C., our parent company. We used borrowings under this amended and
restated credit facility to finance the acquisition of Adam Wuest, Inc. and
intend to use future borrowings for working capital, general corporate purposes
and permitted acquisitions.
6
<PAGE> 11
------------------------
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.
The address of Sleepmaster L.L.C., Lower Road Associates, LLC and
Sleepmaster Finance Corporation is 2001 Lower Road, Linden, New Jersey 07036,
and our telephone number is (732) 381-5000. Herr Manufacturing Company is
located at 18 Prestige Lane, Lancaster, PA 17603. Herr can be reached by
telephone at (717) 392-4168. Star Bedding Products Limited is located at 53
Courtland Avenue, Concord, Ontario, LYK 3T2, Canada. Star can be reached by
telephone at (905) 761-1343. Palm Beach Bedding Company is located at 3774
Interstate Park Road North, Riviera Beach, FL 33404. Palm Beach can be reached
by telephone at (561) 840-8491. Adam Wuest, Inc. is located at 645 Linn Street,
Cincinnati, OH 45203. Adam Wuest, Inc. can be reached by telephone at (513)
421-4094.
7
<PAGE> 12
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 and its subsidiaries. The condensed financial data for the nine
months ended September 30, 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 this 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 summary unaudited pro forma financial
data of Sleepmaster and its subsidiaries. The unaudited pro forma financial data
for the year ended December 31, 1998 and as of and for the nine months ended
September 30, 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 its subsidiaries
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, Star and Adam Wuest and the
old note offering, including the application of the net proceeds therefrom, been
completed on the dates indicated or to project Sleepmaster and its subsidiaries'
results of operations for any future date or period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------
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 $80,706 $122,119
Gross profit............................. 22,265 25,024 41,263 29,536 46,351
Selling, general and administrative
expenses.............................. 14,130 15,044 25,794 18,335 29,461
Amortization of intangibles.............. 644 644 1,223 929 1,436
Operating income......................... 7,491 9,336 14,246 10,272 15,454
Interest expense, net (a)................ 2,578 4,663 7,096 5,317 8,300
Other (income) expense, net.............. 216 (97) (18) (23) 49
Income before income taxes and
extraordinary items................... 4,697 4,770 7,168 4,978 7,105
Net income (loss)........................ 4,606 2,757 4,148 2,884 922
OTHER DATA:
Gross margin............................. 37.3% 37.1% 37.4% 36.6% 38.0%
Adjusted EBITDA(b)....................... $ 8,534 $10,429 $ 16,335 $11,795 $ 17,953
Adjusted EBITDA margin................... 14.3% 15.5% 14.8% 14.6% 14.7%
Depreciation and amortization............ $ 1,043 $ 1,093 $ 2,089 $ 1,523 $ 2,499
Capital expenditures..................... $ 167 $ 572 $ 1,095 $ 639 $ 2,938
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
1998 SEPTEMBER 30, 1999
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
PRO FORMA FINANCIAL DATA:
Net sales................................................. $195,047 $168,649
Gross profit.............................................. $ 76,953 $ 65,935
Gross margin.............................................. 39.5% 39.1%
Adjusted EBITDA(b)........................................ $ 29,945 $ 25,161
Adjusted EBITDA margin.................................... 15.4% 14.9%
Depreciation and amortization............................. $ 5,467 $ 4,262
Capital expenditures...................................... $ 2,242 $ 3,302
Ratio of Adjusted EBITDA to cash interest expense......... 1.84x 2.05x
</TABLE>
(continued on following page)
8
<PAGE> 13
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 7,953 $ -
Net working capital(c).............................. $ 4,153 $ 4,444
Total assets........................................ $ 149,205 $204,419
Total debt.......................................... $ 121,415 $160,440
Redeemable cumulative preferred interests........... $ 19,959 $ 19,959
Members' deficit.................................... $ (19,023) $ (8,423)
</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 $228 and $440 for the nine months ended September 30, 1998
and 1999, respectively.
(b) Adjusted EBITDA represents, for any period, net income before interest
expense, income taxes, depreciation and amortization and other non-operating
income/expense. Adjusted 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 Adjusted EBITDA may be helpful
to investors. However, Adjusted 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 Adjusted
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 Adjusted 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) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities (excluding current portion of long-term debt).
9
<PAGE> 14
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information in this prospectus before you decide to purchase these notes.
SUBSTANTIAL LEVERAGE -- WE WILL HAVE SUBSTANTIAL DEBT FOLLOWING THIS OFFERING
AND, WE MAY NOT HAVE SUFFICIENT CASH FROM CASH FLOW FROM OPERATIONS AND
AVAILABLE BORROWINGS UNDER OUR NEW CREDIT FACILITY IN ORDER TO PAY INTEREST ON
OUR DEBT WHICH COULD PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
EXCHANGE NOTES.
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 September 30, 1999 after giving
pro forma effect to the acquisition of Adam Wuest and
(2) our ratio of earnings to fixed charges for the year ended December 31,
1998 and the nine months ended September 30, 1999 after giving pro
forma effect to the acquisitions of Herr, Star and Adam Wuest and the
old note offering, including the application of the net proceeds
therefrom.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1999
------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Senior debt............................................ $ 45.4
Total debt............................................. $160.4
Total debt as a percentage of capitalization........... 93.3%
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Pro forma ratio of earnings to fixed charges........... 1.42x 1.61x
</TABLE>
We may incur additional debt in the future as described in the Section entitled
"Description of the Notes" under the subheading "Limitation on Indebtedness",
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.
10
<PAGE> 15
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 SENIOR 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 AMENDED AND RESTATED CREDIT FACILITY AND THE
INDENTURE -- THE AMENDED AND RESTATED CREDIT FACILITY AND THE INDENTURE IMPOSE
SIGNIFICANT OPERATING RESTRICTIONS ON OUR BUSINESS.
The amended and restated credit facility restricts our ability to, among
other things:
- incur additional debt,
- pay dividends and make distributions,
- create liens,
- guarantee other debt,
- merge or consolidate with third parties,
- prepay subordinated debt,
- enter into transactions with affiliates,
- make capital expenditures,
- repurchase stock,
- enter into sale and leaseback transactions, and
- transfer and sell assets.
The indenture restricts our ability to, among other things:
- incur additional debt,
- pay dividends and make distributions,
- create liens,
- guarantee other debt,
- merge or consolidate with third parties,
- enter into transactions with affiliates,
- repurchase stock and
- transfer and sell assets.
For information regarding our fixed charge coverage ratio under the notes
which we must meet in order to incur additional debt under the indenture, please
turn to the section entitled "Description of the
11
<PAGE> 16
Notes" and look under the heading "Covenants" and the subheading "Limitation on
Indebtedness" on page 80. For information regarding various ratios we are
required to meet under the amended and restated credit facility, please turn to
the Section entitled "Description of Indebtedness" look under the heading "The
Amended and Restated Credit Facility" and the subheading "Affirmative, Negative
and Financial Covenants" on page 66.
SECURITY -- THE EXCHANGE NOTES WILL NOT BE SECURED BY ANY OF OUR ASSETS AND THE
AMENDED AND RESTATED 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
amended and restated 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 and its subsidiaries'
other debt permit Sleepmaster and its subsidiaries 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 those
instruments would be entitled to exercise the remedies available to a secured
lender under applicable law and pursuant to instruments governing the debt.
Accordingly, the lenders will have a prior claim on our assets. In any 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 assets remained, the assets
might be insufficient to satisfy the claims in full.
INTEGRATION OF THE RECENT ACQUISITIONS -- WE MAY NOT HAVE SUFFICIENT MANAGEMENT
AND FINANCIAL 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, Star on
May 18, 1999 and Adam Wuest on November 5, 1999. The integration and
consolidation of the recently acquired companies and any future acquisitions
have required and will continue to require substantial management and financial
resources. The diversion of these resources and the increased size of
Sleepmaster and its subsidiaries may make it more difficult for us to operate
our business as we have in the past. While we believe that our financial and
management resources are sufficient to accomplish any integration of the
recently acquired companies, we may not have sufficient funds and management may
not have the time to accomplish this integration and any attempt to integrate
the recently acquired companies may reduce our focus on Sleepmaster's New
Jersey-based business and thus affect the New Jersey business operations.
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 $195.0 million in fiscal year 1998.
We believe that the recently acquired subsidiaries will enhance our competitive
position and the business prospects of Sleepmaster and its subsidiaries.
However, due to our increased size and entry into new markets about which we are
less familiar we cannot assure you that competitive advantages will be realized,
that the combination of Sleepmaster and its subsidiaries and the recently
acquired companies will be successful or that management will be able to
profitably operate Sleepmaster and its subsidiaries 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. As was the case with our newly acquired
subsidiaries, we may not have sufficient management and financial resources to
integrate any future acquisitions and we may be unable to profitably operate
Sleepmaster and its subsidiaries.
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.
12
<PAGE> 17
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. 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 amended and restated 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 first quarter of fiscal
2000 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. Any failure
to fully implement our new systems could harm us by preventing us from meeting
our customers' requirements for electronic data interchange, which could cause
us to lose business and make it more difficult to get new business. Any failure
to hire additional accounting personnel could result in current personnel not
having adequate time to fulfill all of the duties Sleepmaster and its
subsidiaries require. Any failure to upgrade our accounting reporting systems
could result in delays in the completion of our financial statements, which
could make it difficult for us to meet our reporting obligations.
DEPENDENCE ON KEY SALES PERSONNEL -- LOSS OF KEY SALES 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 sales executives, including Charles Schweitzer
and Michael Reilly, could harm many of our client relationships, and thus our
sales. The employment agreements of most of our key executives expire on
November 1, 2001. However, employment agreements with key officers of our
recently acquired subsidiaries expire in February 2001, May 2002, November 2002
and February 2004. We do not maintain key person life insurance policies on any
of our executive officers.
13
<PAGE> 18
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 failure could harm our
manufacturing ability and thus our sales.
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. Sealy and
Simmons are larger, have greater financial resources and spend more on
advertising than we do and may be better able to withstand a change in market
conditions within the bedding industry. In addition, their size and resources
enable them to target our markets through extensive advertising to gain market
share. 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 and its subsidiaries
is concentrated. Specifically, sales to our top ten customers accounted for
approximately 40% of our net shipments in 1998 on a pro forma basis. However, no
customer accounted for more than 10% of sales on a pro forma basis in 1998.
We have recently experienced a substantial decline in sales to one of our
customers, Dial-a-Mattress. Dial-a-Mattress has informed us that it has reduced
purchases of our mattresses because of our unwillingness to sell them
Masterpiece mattresses. While we believe that Dial-a-Mattress will reconsider
its decision, we cannot assure you that this will be the case.
Our business also 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. 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.
DEPENDENCE ON LEGGETT & PLATT -- WE DEPEND HEAVILY UPON LEGGETT & PLATT FOR
INNER SPRING UNITS.
Leggett & Platt is our primary vendor, supplying us with approximately 43%
of our raw materials in 1998, including inner spring units which are necessary
components in 85% of our mattresses. 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 were to discontinue or delay supplying our
inner spring units for any reason, the discontinuance or delay would impair our
ability to manufacture mattresses and box springs.
14
<PAGE> 19
FLUCTUATIONS IN THE COST OF RAW MATERIALS -- FLUCTUATIONS IN THE COST OF RAW
MATERIALS COULD HARM US.
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 INTELLECTUAL PROPERTY THAT WE
LICENSE FROM SERTA.
We license several 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 those 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 the 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 or upon the
occurrence of bankruptcy events. A change of control includes the
consummation of a public equity offering which results in a sale of more
than 50% of our equity.
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 termination would have a significant negative impact on our
profitability cash flow and ability to service our debt.
EMPLOYEE MATTERS -- THE COLLECTIVE BARGAINING AGREEMENT COVERING EMPLOYEES AT
OUR LINDEN, NEW JERSEY FACILITY EXPIRES ON APRIL 30, 2000, STAR'S COLLECTIVE
BARGAINING AGREEMENT COVERING EMPLOYEES AT OUR CONCORD, ONTARIO, CANADA FACILITY
EXPIRES ON DECEMBER 31, 1999 AND ADAM WUEST'S COLLECTIVE BARGAINING AGREEMENT
EXPIRES ON DECEMBER 20, 2001. THE EXPIRATION OF THESE AGREEMENTS AND ANY
EMPLOYEE WORK STOPPAGES OR STRIKES COULD IMPAIR OUR BUSINESS.
We could be adversely affected by employee work stoppages or strikes. As of
September 30, 1999, we had 893 full-time employees. We employ approximately 411
employees pursuant to collective bargaining agreements with the United Steel
Workers Union. 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 work stoppages or strikes could decrease our cash flow and
ability to service our debt.
15
<PAGE> 20
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 73% by
Sleep Investor L.L.C. and 27% 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 44.6% 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 Sleepmaster Holdings and Sleep Investor 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 these transactions
might involve disproportionate risks to the holders of the exchange notes.
YEAR 2000 ISSUE -- IF WE, OR THIRD PARTIES WITH WHICH WE DO BUSINESS, FAIL TO
COMPLY WITH YEAR 2000 REMEDIATION REQUIREMENTS, SLEEPMASTER AND ITS SUBSIDIARIES
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 and computer systems may need to be upgraded or replaced in order to
comply with the "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. For a detailed discussion of our Year 2000 compliance
effort and the possible harm we could suffer, please see the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and look under the heading "Impact of the Year 2000 Issue" on page
40.
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 specific kinds of change of control events described
in the Section entitled "Description of the Notes" under the heading "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 amended and restated credit facility may not allow the
repurchases. As of September 30, 1999 on a pro forma basis, our total debt was
$160.4 million. In addition, corporate events, such as a leveraged
recapitalization that would increase the level of our debt, would not constitute
a change of control event under the indenture. The following highly leveraged
transactions may not constitute a change of control but may adversely affect
holders of exchange notes:
(1) a reorganization,
(2) a restructuring, or
16
<PAGE> 21
(3) a merger or similar transaction, including an acquisition of
Sleepmaster and Sleepmaster Finance Corporation by management or
affiliates, involving Sleepmaster and Sleepmaster Finance Corporation.
A transaction with management would not be a change of control so long as
no party other than management or Citicorp Venture Capital, Ltd. and its
affiliates acquired more than 50% of Sleepmaster's voting stock in the
transaction.
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 the 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 the debt and, at the time of the incurrence of the debt,
we:
- were insolvent or rendered insolvent by reason of the incurrence, or
- were engaged in a business or transaction for which the assets
remaining with Sleepmaster and its subsidiaries 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 the 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 the incurrence, or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital, or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay the 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.
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
17
<PAGE> 22
- 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 the debts as they
mature. There can be no assurance, however, as to what standard a court would
apply in making those 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 and its subsidiaries 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.
USE OF PROCEEDS
Sleepmaster and Sleepmaster Finance Corporation will not receive any
proceeds from this exchange offer.
18
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of Sleepmaster at
September 30, 1999 (1) on an actual basis and (2) pro forma as adjusted to give
effect to the acquisition of Adam Wuest. 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
SEPTEMBER 30, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt, including current portion:
Industrial revenue bonds(a)............................... $ 6,415 $ 8,440
Long term debt............................................ -- 37,000
Notes offered hereby...................................... 115,000 115,000
-------- --------
Total debt........................................ 121,415 160,440
-------- --------
Redeemable cumulative preferred interests, 9,999.96 units
outstanding(b)............................................ 19,959 19,959
Members' deficit:
Common interests
Class A, 8,000 units outstanding(c).................... 1,640 12,240
Class B, no units outstanding.......................... -- --
Accumulated deficit....................................... (20,663) (20,663)
-------- --------
Total members' deficit............................ (19,023) (8,423)
-------- --------
Total capitalization......................... $122,351 $171,976
======== ========
</TABLE>
- ---------------
(a) We are financially obligated under Palm Beach's variable rate industrial
revenue bonds due 2016. The industrial revenue bonds are collateralized by
land and buildings of Palm Beach and an irrevocable letter of credit up to
$7.0 million. We are also financially obligated under Adam Wuest's fixed
rate economic development revenue bonds maturing annually through 2010.
These economic development revenue bonds are collateralized by an
irrevocable letter of credit, expiring in September 2001, of $2.3 million,
which is in turn collateralized by the land and building of Adam Wuest
purchased with the proceeds of the bonds.
(b) 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."
(c) Sleepmaster Holdings L.L.C. contributed $9.8 million of common interests,
net of $0.2 million in fees, to finance, in part, the acquisition of Adam
Wuest and Adam Wuest Realty. Certain owners of Adam Wuest also contributed
$0.8 million of common interests in connection with this transaction.
19
<PAGE> 24
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, Star and Adam Wuest and the old note offering, including the application
of the net proceeds therefrom. The pro forma adjustments presented are based
upon available information and assumptions that Sleepmaster believes are
reasonable.
The unaudited pro forma consolidated balance sheet of Sleepmaster as of
September 30, 1999 gives effect to the acquisition of Adam Wuest as if it had
occurred on September 30, 1999. The unaudited pro forma consolidated statements
of income of Sleepmaster for the year ended December 31, 1998 and the nine
months ended September 30, 1999 give effect to the acquisitions of Palm Beach,
Herr, Star and Adam Wuest and the old note offering, including the application
of the net proceeds therefrom, as if the transactions had occurred as of January
1, 1998.
The pro forma financial data should be read in conjunction with the
historical consolidated financial statements of Sleepmaster, Palm Beach, Herr,
Star and Adam Wuest 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, Star and Adam Wuest 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.
20
<PAGE> 25
SLEEPMASTER L.L.C.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL PRO FORMA ADJUSTMENTS FOR AS
SLEEPMASTER ADAM WUEST(A) ADAM WUEST ADJUSTED
----------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents............... $ 7,953 $ -- $ 46,350(b) $ --
(56,500)(c)
2,197(d)
Accounts receivable..................... 21,458 4,152 25,610
Accounts receivable-other............... 1,067 -- 1,067
Inventories............................. 5,617 1,447 236(e) 7,300
Other current assets.................... 969 44 1,013
Deferred tax assets..................... 1,534 -- 1,534
-------- ------ --------
Total current assets.......... 38,598 5,643 36,524
Property, plant and equipment, net...... 16,364 3,216 (1,890)(f) 19,943
2,253(f)
Intangible assets....................... 78,676 -- 52,196(g) 130,872
Other assets............................ 5,517 263 1,250(b) 7,030
56,500(c)
(56,500)(h)
Deferred tax assets..................... 10,050 -- 10,050
-------- ------ --------
Total assets.................. $149,205 $9,122 $204,419
======== ====== ========
LIABILITIES AND MEMBERS' EQUITY
(DEFICIT):
Accounts payable........................ $ 12,741 $1,276 $ 2,197(d) $ 16,214
Accrued sales allowances and advertising
expenses.............................. 4,978 1,085 6,063
Accrued compensation.................... -- 709 709
Accrued expenses and other current
liabilities........................... 8,772 322 9,094
Current portion of long-term debt....... 380 130 510
-------- ------ --------
Total current liabilities..... 26,871 3,522 32,590
-------- ------ --------
Long-term debt.......................... 121,035 1,895 37,000(b) 159,930
Other liabilities....................... 363 -- 363
-------- ------ --------
Total non-current
liabilities................. 121,398 1,895 160,293
-------- ------ --------
Redeemable cumulative preferred
interests............................. 19,959 -- 19,959
Members' equity (deficit)............... (19,023) 3,705 10,600(b) (8,423)
52,196(i)
236(e)
363(f)
(56,500)(h)
-------- ------ --------
Total liabilities and members' equity
(deficit)............................. $149,205 $9,122 $204,419
======== ====== ========
</TABLE>
21
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma consolidated balance sheet gives effect to the following pro forma
adjustments:
(a) Represents the acquisition of Adam Wuest, derived from the unaudited
financial statements of Adam Wuest as of September 30, 1999, included
elsewhere in this prospectus, adjusted to eliminate certain assets and
liabilities not acquired or assumed by Sleepmaster and also to include
certain liabilities assumed from Adam Wuest Realty pursuant to the asset
purchase agreement, as follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
ADAM WUEST ADJUSTMENTS ADAM WUEST
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents....................... $ 3,519 $(3,519) $ --
Marketable securities........................... 3,455 (3,455) --
Accounts receivable............................. 4,199 (47)(1) 4,152
Inventories..................................... 1,447 -- 1,447
Prepaid assets.................................. 44 -- 44
------- ------- ------
Total current assets....................... 12,664 (7,021) 5,643
Property, plant and equipment, net.............. 3,216 -- 3,216
Other assets.................................... 545 (282)(2) 263
------- ------- ------
Total assets............................... $16,425 $(7,303) $9,122
======= ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Capital lease obligation........................ $ 95 $ (95) $ --
Accounts payable................................ 1,276 -- 1,276
Accrued advertising and sales allowances........ 1,085 -- 1,085
Accrued compensation............................ 709 -- 709
Accrued expenses................................ 450 (47)(1) 322
(81)(3)
Income taxes payable............................ 26 (26) --
Current portion of long-term debt............... -- 130(4) 130
------- ------- ------
Total current liabilities.................. 3,641 (119) 3,522
Long-term debt.................................. -- 1,895(4) 1,895
Capital lease obligation........................ 2,342 (2,342) --
Deferred compensation........................... 385 (385) --
------- ------- ------
Total liabilities.......................... 6,368 (951) 5,417
------- ------- ------
Stockholders' equity............................ 10,057 (6,352) 3,705
------- ------- ------
Total liabilities and stockholders'
equity................................... $16,425 $(7,303) $9,122
======= ======= ======
</TABLE>
- ---------------
(1) Reclassification of allowance for sales returns to conform to
Sleepmaster's presentation.
(2) Cash surrender value of officers' life insurance policies cancelled by
seller and receivable from related party settled by seller prior to the
acquisition.
(3) Cash portion of deferred compensation paid by the seller.
(4) Economic development revenue bonds assumed upon purchase of building
owned by Adam Wuest Realty and represented as a capital lease on the
books of Adam Wuest.
(b) Represents adjustments to reflect proceeds from the issuance of $37,000 term
debt, net of estimated closing costs of $1,250, $10,000 of common interests
contributed by Sleepmaster Holdings, net of related fees of $200, and $800
of common interests contributed by certain owners of Adam Wuest.
22
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(c) Represents adjustments to record the acquisition of Adam Wuest for $56,500,
including estimated costs of acquisition.
(d) Represents adjustment to reclassify temporary overdraft to accounts payable.
At time of acquisition, cash and cash equivalents were adequate to fund this
acquisition.
(e) Represents adjustment to inventory to eliminate LIFO valuation reserve.
(f) Represents adjustments to eliminate the net book value of the facility under
capital lease on the balance sheet of Adam Wuest and to record the net book
value of the owned land and building from the balance sheet of Adam Wuest
Realty.
(g) Represents adjustments to record the excess of purchase price over the
estimated fair values of the net assets acquired of Adam Wuest as follows:
<TABLE>
<S> <C>
Purchase price, including estimated costs of
acquisition............................................ $56,500
Net book value of net assets acquired.................. (3,705)
Net adjustment to carrying value of land and building
(adjustment (f))...................................... (363)
Inventory LIFO reserve adjustment...................... (236)
-------
Goodwill............................................... $52,196
=======
</TABLE>
This acquisition will be accounted for as a purchase business combination
and the purchase price will be allocated to the fair value 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 Adam Wuest at September 30, 1999, has been allocated to goodwill for the
purposes of this pro forma presentation. We believe that the only
identifiable intangible asset to which the purchase price will be allocated
is the Serta license acquired. However, we believe the license has a
perpetual life based on the agreement with Serta, Inc. since we have the
exclusive use of the license and the unilateral ability to terminate it.
Consequently, the amortization period for the license would be 40 years, the
same as the amortization period for goodwill.
(h) Represents the elimination entries required to reflect the consolidation of
Adam Wuest with Sleepmaster and its existing subsidiaries, Palm Beach, Herr
and Star.
(i) Represents adjustments to members' equity (deficit) as a result of the
acquisition of Adam Wuest as follows:
<TABLE>
<S> <C>
Goodwill (adjustment(g)).................................... $52,196
</TABLE>
23
<PAGE> 28
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 HISTORICAL HERR, STAR AND HERR, STAR AND
SLEEPMASTER BEACH(B) HERR(D) STAR(E) OLD NOTE OFFERING OLD NOTE OFFERING
----------- ------------- ------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $110,251 $ 7,056 $19,385 $15,236 $ (226)(f) $151,702
Cost of sales............ 68,988 4,338 11,587 9,446 (226)(f) 94,032
-------- ------- ------- ------- --------
Gross profit............ 41,263 2,718 7,798 5,790 57,670
Selling, general &
administrative
expenses................ 25,794 1,739 6,545 3,237 76(h) 35,936
(1,455)(i)
Amortization of
intangibles............. 1,223 -- 16 -- 991(j) 2,230
-------- ------- ------- ------- --------
Operating income........ 14,246 979 1,237 2,553 19,504
Interest expense,
net(a).................. 7,096 49 27 17 6,247(k) 13,436
Other (income) expense,
net..................... (18) (2,318) (150) -- 2,780(l) 294
-------- ------- ------- ------- --------
Income before income
taxes and
extraordinary items... 7,168 3,248 1,360 2,536 5,774
Provision for income
taxes................... 3,020 1,366(c) 532 935 (3,586)(m) 2,267
-------- ------- ------- ------- --------
Income before
extraordinary items..... $ 4,148 $ 1,882 $ 828 $ 1,601 $ 3,507
======== ======= ======= ======= ========
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
ADAM FOR AS
WUEST(N) ADAM WUEST ADJUSTED
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................ $43,573 $ (228)(p) $195,047
Cost of sales............ 24,246 (228)(p) 118,094
44(q)
------- --------
Gross profit............ 19,327 76,953
Selling, general &
administrative
expenses................ 13,228 (150)(r) 48,940
25(s)
(99)(t)
Amortization of
intangibles............. -- 1,305(u) 3,535
------- --------
Operating income........ 6,099 24,478
Interest expense,
net(a).................. 30 317(r) 16,960
(347)(r)
3,524(v)
Other (income) expense,
net..................... (6) 288
------- --------
Income before income
taxes and
extraordinary items... 6,075 7,230
Provision for income
taxes................... 2,552(o) (1,940)(w) 2,879
------- --------
Income before
extraordinary items..... $ 3,523 $ 4,351
======= ========
</TABLE>
24
<PAGE> 29
SLEEPMASTER L.L.C.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED
FOR HERR, STAR FOR HERR, STAR
HISTORICAL HISTORICAL HISTORICAL AND AND HISTORICAL
SLEEPMASTER HERR(B) STAR(E) OLD NOTE OFFERING OLD NOTE OFFERING ADAM WUEST(N)
----------- ---------- ---------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $122,119 $2,748 $5,753 $ (24)(f) $130,596 $38,068
Cost of sales............... 75,767 1,697 3,533 (24)(f) 80,969 21,760
(4)(g)
-------- ------ ------ -------- -------
Gross profit.............. 46,352 1,051 2,220 49,627 16,308
Selling general &
administrative expenses... 29,461 739 1,188 31,388 11,087
Amortization of
intangibles............... 1,436 3 -- 274(j) 1,713 --
-------- ------ ------ -------- -------
Operating income.......... 15,455 309 1,032 16,526 5,221
Interest expense, net(a).... 8,300 2 9 1,877(k) 10,188 71
Other (income) expense,
net....................... 49 (16) (9) 24 20
-------- ------ ------ -------- -------
Income before income taxes
and extraordinary
items................... 7,106 323 1,032 6,314 5,130
Provision for income
taxes..................... 3,016 126 351 (902)(m) 2,591 2,155(o)
-------- ------ ------ -------- -------
Income before
extraordinary items..... $ 4,090 $ 197 $ 681 $ 3,723 $ 2,975
======== ====== ====== ======== =======
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FOR ADAM WUEST AS ADJUSTED
-------------- -----------
<S> <C> <C>
Net sales................... $ (15)(p) $168,649
Cost of sales............... (15)(p) 102,714
--------
Gross profit.............. 65,935
Selling general &
administrative expenses... (76)(r) 42,344
19(s)
(74)(t)
Amortization of
intangibles............... 979(u) 2,692
--------
Operating income.......... 20,899
Interest expense, net(a).... 187(r) 12,827
(258)(r)
2,639(v)
Other (income) expense,
net....................... 44
--------
Income before income taxes
and extraordinary
items................... 8,028
Provision for income
taxes..................... (1,435)(w) 3,311
--------
Income before
extraordinary items..... $ 4,717
========
</TABLE>
25
<PAGE> 30
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 nine months ended September 30, 1999 give effect to the
following pro forma adjustments:
(a) Interest expense, net includes the amortization of deferred debt
issuance costs of $787 and $590 for the year ended December 31, 1998
and the nine months ended September 30, 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 nine months ended
September 30, 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 tax
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) Derived from the audited financial statements of Star for the year
ended December 31, 1998, included elsewhere in this prospectus and
from the unaudited financial statements of Star for the period from
January 1, 1999 through May 18, 1999.
(f)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Elimination of intercompany sales transactions $226 $24
</TABLE>
(g)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Decreased depreciation expense of Herr's factory
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............... $101 $4
</TABLE>
(h) Represents legal expenses associated with the debt incurred in
connection with the acquisition of Herr.
(i) 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 exist after the acquisition.
The duties and responsibilities of the officers have not
been diminished or caused other costs to be incurred to
offset the pro forma adjustment to compensation expense... 1,330
------
Total............................................. $1,455
------
</TABLE>
26
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF INCOME -- (CONTINUED)
(j) 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, Herr and Star 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 and Star for the year ended
December 31, 1998........................................ $991
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
Herr for the period from January 1, 1999 through
February 25, 1999 and Star for the period from January
1, 1999 to May 17, 1999................................. $274
</TABLE>
(k)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Interest expense on the notes....................... $12,650 $4,779
Amortization of issuance costs associated with the
old note offering over the life of the notes... 517 214
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 the acquisition debt is assumed to be
repaid from the proceeds from the old note
offering....................................... (6,622) (2,860)
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 the
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 the debt issuance costs are assumed to be
written off when the associated debt is repaid
from the proceeds from the old note offering... (281) (247)
Elimination of interest expense associated with
debt of Star not assumed by Sleepmaster........ (17) (9)
------- ------
Total................................ $ 6,247 $1,877
======= ======
</TABLE>
(l) Represents an adjustment to eliminate a gain recorded by Palm Beach
from the sale of a building prior to its acquisition. The building
was sold to an unrelated third party.
(m) Represents an adjustment to income tax expense for the effects of the
aforementioned adjustments (f) through (l) (42.0% effective tax rate
for the year ended December 31, 1998 and for the nine months ended
September 30, 1999).
(n) Derived from the audited financial statements of Adam Wuest for the
year ended December 31, 1998 and from the unaudited financial
statements of Adam Wuest for the period January 1, 1999 through
September 30, 1999, included elsewhere in this prospectus.
(o) Represents an adjustment to income tax expense (42.0% effective tax
rate) as a result of including the results of operations of Adam Wuest
indicated in adjustment (n). Prior to the
27
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF INCOME -- (CONTINUED)
acquisition, Adam Wuest had elected to include its taxable income with
that of its shareholders and consequently did not provide for income
taxes at the corporate level.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
(p) ----------------- ------------------
<S> <C> <C> <C>
Elimination of intercompany sales transactions involving Adam
Wuest....................................................... $ 228 $ 15
</TABLE>
(q) Represents an adjustment to eliminate LIFO inventory valuation method
upon acquisition.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
(r) ----------------- ------------------
<S> <C> <C> <C>
Represents the elimination of costs incurred and income earned
by Adam Wuest that Sleepmaster has not assumed:
Interest expense associated with related party capital lease
obligation.................................................. $ 347 $ 258
Expense associated with phantom stock compensation
arrangements for certain key employees and non-shareholder
officers that will not be continued after the acquisition.
This adjustment is solely as the result of changed
circumstances that will exist after the acquisition. The
duties and responsibilities of these employees will not be
diminished or cause other costs to be incurred to offset the
pro forma adjustment to compensation expense................ $ 150 $ 76
Interest income related to Adam Wuest's cash and cash
equivalents and marketable securities....................... $ (317) $ (187)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
(s) ----------------- ------------------
<S> <C> <C> <C>
Represents an adjustment to record fees associated with the
letter of credit collateralizing the economic development
revenue bonds of Adam Wuest Realty.......................... $25 $19
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
(t) ----------------- ------------------
<S> <C> <C> <C>
Represents an adjustment to depreciation expense to conform
depreciation rate with that of Adam Wuest Realty............ $99 $74
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
(u) ----------------- ------------------
<S> <C> <C> <C>
Amortization over 40 years of the excess of purchase price
over the estimated fair values of the net assets acquired of
Adam Wuest.................................................. $1,305 $979
</TABLE>
28
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF INCOME -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
(v) ----------------- ------------------
<S> <C> <C> <C>
Interest expense associated with debt incurred in connection
with the acquisition of Adam Wuest.......................... $3,201 $2,400
Interest expense on economic development revenue bonds assumed
in connection with the acquisition of Adam Wuest............ 115 83
Amortization of issuance costs associated with debt incurred
in connection with the acquisition of Adam Wuest............ 208 156
------ ------
$3,524 $2,639
====== ======
</TABLE>
If the variable rate of interest on the debt incurred in connection
with the acquisition of Adam Wuest were to increase by 1/8%, pro
forma net income would decrease by $27 and $20 for the year ended
December 31, 1998 and the nine months ended September 30, 1999,
respectively. If such variable rate were to decrease by 1/8%, pro
forma net income would increase by $27 and $20 for the year ended
December 31, 1998 and the nine months ended September 30, 1999,
respectively.
(w) Represents an adjustment to income tax expense for the effects of the
aforementioned adjustments (p) through (v) (42% effective rate for the
year ended December 31, 1998 and for the nine months ended September
30, 1999).
29
<PAGE> 34
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 those periods and as of those dates. The condensed
financial data for the nine months ended September 30, 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
the 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>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ ---------------------
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 $ 80,706 $ 122,119
Gross profit........................ 16,565 20,347 22,265 25,024 41,263 29,536 46,351
Selling, general and administrative
expenses.......................... 12,561 13,965 14,130 15,044 25,794 18,335 29,461
Amortization of intangibles......... 423 676 644 644 1,223 929 1,436
Operating income.................... 3,582 5,707 7,491 9,336 14,246 10,272 15,454
Interest expense, net(a)............ 308 2,304 2,578 4,663 7,096 5,317 8,300
Other (income) expense, net......... (114) 188 216 (97) (18) (23) 49
Income before income taxes and
extraordinary items............... 3,389 3,214 4,697 4,770 7,168 4,978 7,105
Net income.......................... 3,389 3,214 4,606 2,757 4,148 2,884 922
BALANCE SHEET DATA (AT END OF
PERIOD):
Net working capital(b).............. $ 1,160 $ (553) $ 736 $ 309 $ 2,749 $ 4,153
Total assets........................ 14,704 29,813 48,634 47,339 89,540 149,205
Total debt.......................... 3,900 17,989 44,031 39,102 70,696 121,415
Redeemable cumulative preferred
interests......................... -- -- 14,221 15,927 18,267 19,959
Members' equity (deficit)........... 4,240 2,717 (21,116) (20,092) (17,517) (19,023)
OTHER DATA:
Gross margin........................ 34.8% 37.0% 37.3% 37.1% 37.4% 36.6% 38.0%
Adjusted EBITDA (c)................. $ 4,348 $ 6,793 $ 8,534 $10,429 $ 16,335 $ 11,795 $ 17,953
Adjusted EBITDA margin.............. 9.1% 12.3% 14.3% 15.5% 14.8% 14.6% 14.7%
Depreciation and amortization....... $ 766 $ 1,086 $ 1,043 $ 1,093 $ 2,089 $ 1,523 $ 2,499
Capital expenditures................ $ 1,380 $ 292 $ 167 $ 572 $ 1,095 $ 639 $ 2,938
Cash flows from operating
activities........................ $ 2,860 $ 6,612 $ 5,583 $ 6,036 $ 8,874 $ 5,981 $ 11,724
Cash flows from investing
activities........................ $(1,293) $(25,235) $ (167) $ (505) $(33,851) $(33,443) $ (44,500)
Cash flows from financing
activities........................ $(1,249) $ 18,880 $ (6,129) $(4,955) $ 24,548 $ 26,984 $ 40,539
Ratio of earnings to fixed
charges(d)........................ 7.20x 2.25x 2.64x 1.97x 1.96x 1.89x 1.82x
</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 $228 and $440 for the
nine months ended September 30, 1998 and 1999, respectively.
(b) Represents total current assets, excluding cash and cash equivalents, less
total current liabilities, excluding current portion of long-term debt.
(c) Adjusted EBITDA represents, for any period, net income before interest
expense, income taxes, depreciation and amortization and other non-operating
income/expense. Adjusted EBITDA is presented because it is a
30
<PAGE> 35
widely accepted financial indicator of a company's ability to service and/or
incur indebtedness. We believe that presentation of Adjusted EBITDA may be
helpful to investors. However, Adjusted 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 Adjusted
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 Adjusted 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.
The following is a reconciliation of net income to Adjusted EBITDA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income before extraordinary
items........................... $3,389 $3,214 $4,606 $ 2,757 $ 4,148 $ 2,884 $ 4,089
Interest expense.................. 308 2,304 2,578 4,663 7,096 5,317 8,300
Provision for income taxes........ -- -- 91 2,013 3,020 2,094 3,016
Depreciation...................... 342 411 399 449 866 594 1,063
Amortization...................... 423 676 644 644 1,223 929 1,436
------ ------ ------ ------- ------- ------- -------
EBITDA............................ 4,462 6,605 8,318 10,526 16,353 11,818 17,904
------ ------ ------ ------- ------- ------- -------
Commissions earned on sales to
other Serta licensee
customers....................... (56) (32) (33) (30) (33) (28) (27)
Distributions to former
shareholder..................... -- 285 189 -- -- -- --
Other, net........................ (58) (65) 60 (67) 15 5 76
------ ------ ------ ------- ------- ------- -------
Other (income) expense............ (114) 188 216 (97) (18) (23) 49
------ ------ ------ ------- ------- ------- -------
Adjusted EBITDA................... $4,348 $6,793 $8,534 $10,429 $16,335 $11,795 $17,953
====== ====== ====== ======= ======= ======= =======
</TABLE>
(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 issuance costs, whether capitalized or expensed,
plus one-third of rental expense under operating leases, the portion that
has been deemed by Sleepmaster and its Subsidiaries to be representative of
an interest factor.
31
<PAGE> 36
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 THAT 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, substantially all of the
assets of Star on May 18, 1999 and substantially all of the assets of Adam Wuest
on November 5, 1999. The aggregate consideration for these four acquisitions
totaled approximately $136 million. In connection with these transactions, we
entered into employment contracts with the executive management of Palm Beach,
Herr, Star and Adam Wuest so that the existing management would continue to
operate their respective facilities and licensed territories.
Adam Wuest 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 all or a portion of the states of Ohio, Indiana, West
Virginia and the Commonwealth of Kentucky. Similar to Palm Beach, Herr and Star,
Adam Wuest distributes its products primarily through leading retailers
including furniture stores, sleep specialists, local retail outlets, department
stores and other institutional customers. Adam Wuest has captured approximately
a 20% market share of bedding products sold in Ohio, Indiana, West Virginia and
the Commonwealth of Kentucky. For the fiscal year ended December 31, 1998, Adam
Wuest's net sales were $43.6 million and its EBITDA was $6.6 million. For the
nine months ended September 30, 1999, Adam Wuest's net sales were $38.1 million
and its EBITDA was $5.6 million.
32
<PAGE> 37
RESULTS OF OPERATIONS
The following table sets forth operating data of Sleepmaster as a
percentage of net sales for the fiscal years ended December 31, 1996, 1997 and
1998 and for the three and nine months ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------------------------
FOR THE QUARTER FOR THE NINE
FOR THE FISCAL YEARS ENDED MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------- -------------
1996 1997 1998 1998 1999 1998 1999
----- ----- ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 62.7 62.9 62.6 63.7 61.7 63.4 62.0
----- ----- ----- ----- ----- ----- -----
Gross profit.............................. 37.3 37.1 37.4 36.3 38.3 36.6 38.0
Operating expenses:
Selling, general and administrative
expenses................................ 23.6 22.3 23.4 21.8 23.4 22.7 24.1
Amortization of intangibles............... 1.1 1.0 1.1 1.1 1.2 1.2 1.2
----- ----- ----- ----- ----- ----- -----
Total operating expenses.................. 24.7 23.3 24.5 22.9 24.6 23.9 25.3
----- ----- ----- ----- ----- ----- -----
Operating income.......................... 12.6 13.8 12.9 13.4 13.7 12.7 12.7
Interest expense, net..................... 4.3 6.9 6.4 5.7 7.1 6.6 6.8
Other (income) expense, net............... 0.4 (0.1) -- -- 0.2 -- --
----- ----- ----- ----- ----- ----- -----
Income before income taxes and
extraordinary items..................... 7.9 7.1 6.5 7.7 6.4 6.1 5.8
Provision for income taxes................ 0.2 3.0 2.7 3.2 2.7 2.6 2.5
----- ----- ----- ----- ----- ----- -----
Income before extraordinary items......... 7.7 4.1 3.8 4.5 3.7 3.5 3.3
Extraordinary items....................... -- -- -- -- -- -- (2.6)
----- ----- ----- ----- ----- ----- -----
Net income................................ 7.7% 4.1% 3.8% 4.5% 3.7% 3.5% 0.7%
===== ===== ===== ===== ===== ===== =====
Depreciation expense...................... 0.7% 0.7% 0.8% 0.6% 0.8% 0.7% 0.9%
Adjusted EBITDA........................... 14.3% 15.5% 14.8% 15.1% 15.8% 14.6% 14.7%
</TABLE>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THREE AND NINE
MONTHS
ENDED SEPTEMBER 30, 1998
NET SALES
Net sales increased by 45.0%, or $14.9 million, to $48.1 million in the
three months (third quarter) ended September 30, 1999, from $33.2 million in the
third quarter of 1998 and rose 51.3%, or $41.4 million, to $122.1 million in the
nine months ended September 30, 1999 from $80.7 million in the nine months ended
September 30, 1998. A significant portion of the increase in both the third
quarter and nine months ended September 30, 1999 was due to the contributions of
net sales from Herr, acquired on February 26, 1999, and Star, acquired on May
18, 1999. Herr contributed $7.0 million and $14.9 million of net sales in the
third quarter and nine months ended September 30, 1999, respectively, and Star
contributed $4.7 million and $7.0 million of net sales in the third quarter and
nine months ended September 30, 1999, respectively. Excluding the acquisitions
of Herr and Star, net sales increased by 9.7%, or $3.2 million, in the third
quarter of 1999 and by 24.1%, or $19.5 million, in the nine months ended
September 30, 1999. Adjusting for the fact that the nine month period ended
September 30, 1998 includes only seven months of Palm Beach's results, the nine
month sales growth in 1999 was 14.1%. Better sales penetration with existing
customers, the addition of some new customers in Florida and the introduction of
the new Masterpiece line of bedding products in the first quarter of 1999 were
significant factors contributing to the strong sales growth. In addition,
generally higher unit sales volumes and higher average unit selling prices
resulting from shifts in product sales mix toward higher priced products
contributed to this increase.
33
<PAGE> 38
COST OF SALES
Cost of sales increased by 40.3%, or $8.5 million, to $29.7 million in the
third quarter of 1999 from $21.2 million in the third quarter of 1998 and by
48.1%, or $24.6 million, to $75.8 million in the nine months ended September 30,
1999 from $51.2 million in the nine months ended September 30, 1998. Cost of
sales as a percentage of net sales decreased to 61.7% in the third quarter of
1999 from 63.7% in the third quarter of 1998 and decreased to 62.0% in the nine
months ended September 30, 1999 from 63.4% in the nine months ended September
30, 1998. The reduction of cost of sales as a percentage of net sales in both
the third quarter and nine months ended September 30, 1999 was primarily due to
the impact of higher margin business generated by Palm Beach and Herr as well as
higher margins realized on sales of the Masterpiece line of bedding products
introduced in 1999. Margins were also favorably impacted by Sleepmaster's
successfully obtaining volume-related cost savings on raw material purchases as
a result of the acquisitions of Palm Beach, Herr and Star which serve to reduce
purchase costs and hence reduce the ratio of cost of sales to net sales.
Partially offsetting these higher margins were higher manufacturing costs for
Sleepmaster resulting from (1) the development and launch of the Masterpiece
line of bedding products during 1999 and (2) a realignment of direct and
indirect labor resources to extend production capabilities, together with the
associated costs. The Company's ongoing gross profit and pricing strategy is to
focus product sales mix towards higher priced and higher margin units and to
continue to leverage purchase volumes to drive volume-related purchase
discounts, thereby reducing cost of sales as a percentage of net sales and
increasing margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by 55.7%, or $4.0
million, to $11.2 million in the third quarter of 1999 from $7.2 million in the
third quarter of 1998 and by 60.7%, or $11.1 million, to $29.5 million in the
nine months ended September 30, 1999 from $18.3 million in the nine months ended
September 30, 1998. Selling, general and administrative expenses as a percentage
of net sales increased to 23.4% in the third quarter of 1999 from 21.8% in the
third quarter of 1998 and to 24.1% in the nine months ended September 30, 1999
from 22.7% in the nine months ended September 30, 1998. Several factors
contributed to the increase in selling, general and administrative expenses as a
percentage of net sales: (1) Palm Beach and Herr have higher fixed cost bases
than Sleepmaster and the second and third quarters of 1999 include the full
impact of Herr's fixed cost base on the consolidated results; (2) Palm Beach and
Herr have higher delivery expenses as a percentage of net sales due to the large
geographical territories they service compared with that of Sleepmaster; (3)
Palm Beach has certain contractual employment arrangements scheduled to expire
in March 2000 that contributed to the increase in selling, general and
administrative expenses as a percentage of net sales; and (4) promotional costs
increased in 1999 as a result of the market introduction of the Masterpiece
range of bedding products. Offsetting these costs is Sleepmaster's ability to
leverage its fixed delivery cost per unit with higher average selling prices at
the Linden facility. 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 $0.6 million in
the third quarter of 1999 from $0.4 million in the third quarter of 1998 and by
$0.5 million to $1.4 million in the nine months ended September 30, 1999 from
$0.9 million in the nine months ended September 30, 1998. These increases were
due to the acquisitions of Palm Beach on March 3, 1998, Herr on February 26,
1999 and Star on May 18, 1999.
OPERATING INCOME
Operating income increased by 48.1%, or $2.1 million, to $6.6 million in
the third quarter of 1999 from $4.4 million in the third quarter of 1998 and by
50.4%, or $5.2 million, to $15.4 million in the nine months ended September 30,
1999 from $10.3 million in the nine months ended September 30, 1998. As a
34
<PAGE> 39
result of the above factors, operating income as a percentage of net sales
increased to 13.7% in the third quarter of 1999 from 13.4% in the third quarter
of 1998.
INTEREST EXPENSE, NET
Interest expense increased by 80.8%, or $1.5 million, to $3.4 million in
third quarter of 1999 from $1.9 million in the third quarter of 1998 and by
56.1%, or $3.0 million, to $8.3 million in the nine months ended September 30,
1999 from $5.3 million in the nine months ended September 30, 1998. This
increase was due to the cost of additional debt financing incurred for the
acquisitions of Palm Beach and Herr and the issuance of senior subordinated
notes on May 18, 1999. See "______ Liquidity and Capital Resources". On the
basis of current plans, management expects interest expense for the remainder of
1999 to be higher than the prior periods.
PROVISION FOR INCOME TAXES
The provision for income taxes increased by $0.2 million, to $1.3, in the
third quarter of 1999 from $1.1 million in the third quarter of 1998 and by $0.9
million, to $3.0 million, in the nine months ended September 30, 1999 from $2.1
million in the nine months ended September 30, 1998. The provision for income
taxes resulted in an effective tax rate of 42.3% and 42.4% in the third quarter
and nine months ended September 30, 1999, respectively, compared with 41.8% and
42.1% for the corresponding periods in the prior year. The goodwill associated
with the acquisition of Herr is not deductible for tax purposes since the
Company acquired the capital stock of Herr, thereby increasing the effective tax
rate.
EXTRAORDINARY ITEMS
The extraordinary items recorded in the nine months ended September 30,
1999 consisted of the payment of $3.6 million in premiums on the redemption of
$20 million in aggregate principal amount of Series A and Series B 12%
Subordinated Notes and repayment of $69.2 million of borrowings under the
Company's former credit facility, together with the write-off of $1.9 million of
unamortized debt issuance costs relating to such redemption and repayment on May
18, 1999. See "______ Liquidity and Capital Resources". There were no
extraordinary items incurred during 1998.
NET INCOME
As a result of the above factors, the Company recorded net income of $1.8
million for the third quarter of 1999 compared with net income of $1.5 million
for the third quarter of 1998 and net income of $0.9 million for the nine months
ended September 30, 1999 compared with net income of $2.9 for the nine months
ended September 30, 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
35
<PAGE> 40
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, Palm Beach has
certain contractual employment arrangements, scheduled to expire in March 2000,
which 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.
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%.
36
<PAGE> 41
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.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of cash to fund liquidity needs is net cash provided
by operating activities and availability under our amended and restated 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
37
<PAGE> 42
Palm Beach. Sleepmaster's operating activities generated cash of $11.7 million
in the nine months ended September 30, 1999 compared with $6.0 million in the
nine months ended September 30, 1998. This increase in cash flows in the nine
months ended September 30, 1999 was primarily due to increased net income from
operations, before extraordinary items, and the acquisitions of Herr and Star.
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 $2.9 million in the
nine months ended September 30, 1999, as compared to $0.6 million in the nine
months ended September 30, 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 $4.5 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, Herr, Star and
Adam Wuest. The balance of the increase in capital expenditures is for machinery
and equipment. We anticipate future capital expenditures to be $4.0 million per
year for the existing factories. Management believes that annual capital
expenditure limitations under the amended and restated 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 $40.5 million of cash inflows from financing activities in the nine
months ended September 30, 1999, principally arising from net proceeds from the
issuance on May 18, 1999 of $115.0 million of 11% senior subordinated notes due
2009, as compared to $27.0 million of cash inflows from financing activities in
the nine months ended September 30, 1998. Cash inflows in the nine months ended
September 30, 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. The acquisition
was primarily funded with the net proceeds of the old note offering.
On November 5, 1999, Sleepmaster purchased substantially all the assets of
Adam Wuest. Adam Wuest is a leading producer and distributor of the full line of
Serta brand mattresses and box springs and owns the rights to manufacture Serta
products in all or a portion of the States of Ohio, Indiana, West Virginia and
the Commonwealth of Kentucky. This acquisition was funded primarily through the
expansion of its existing credit facility and a subordinated credit facility.
38
<PAGE> 43
DEBT
On May 18, 1999, we and Sleepmaster Finance Corporation issued $115.0
million of 11% senior subordinated notes due 2009. Sleepmaster used a portion of
the proceeds of the old note offering to prepay the old 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 credit facility with First Union National Bank. The credit
facility provided revolving credit facilities with aggregate availability of
$25.0 million. The revolving credit facility was scheduled to mature six years
after closing and included a sublimit of $8.0 million for letters of credit.
On November 5, 1999, we amended and restated this credit facility to
provide for borrowings of up to $70.0 million, consisting of a $33.0 million
six-year revolving credit facility and a $37.0 million amortizing term loan
facility. Borrowings under the amended and restated credit facility are
collateralized by substantially all of our domestic assets and are guaranteed by
all of our domestic restricted subsidiaries and Sleepmaster L.L.C. Similar to
the prior credit facility, the revolving credit facility includes a sublimit of
$15.0 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
(b) a letter of credit to back the economic development bonds currently
outstanding of $2.0 million and
(c) a $0.72 million letter of credit for a deposit on the Linden, New
Jersey facility.
Borrowings under the amended and restated 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 amended and restated credit facility
also imposes certain restrictions on Sleepmaster and requires Sleepmaster to
comply with financial ratios and tests described in the section entitled,
"Description of Indebtedness" under the heading "The Amended and Restated Credit
Facility".
On November 5, 1999 Sleepmaster Holdings L.L.C. entered into a subordinated
credit agreement with Citicorp Mezzanine Partners, L.P. with availability of
$10.0 million. In connection with the acquisition of Adam Wuest, Sleepmaster
Holdings L.L.C. borrowed $10.0 million under the subordinated credit agreement
and contributed the $10.0 million to Sleepmaster. Sleepmaster used the $10.0
million to finance the acquisition of Adam Wuest.
Sleepmaster, through its subsidiary Palm Beach, is obligated to the County
of Palm Beach, Florida pursuant to 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 September 30, 1999, $6.4 million of the bonds were outstanding. The bonds
mature in April 2016 and bear interest at a variable rate that was 3.95% at
September 30, 1999.
Sleepmaster, through its subsidiary Adam Wuest, is obligated to the County
of Hamilton, Ohio pursuant to economic revenue bonds issued on behalf of Adam
Wuest. On February 1, 1994, the County of Hamilton, Ohio issued Fixed Rate
Economic Development Revenue Funding Bonds, Series 1994 in the aggregate
principal amount of $3.0 million to finance the Adam Wuest, Inc. Project. As of
September 30, 1999, $2.0 million of the bonds were outstanding. The bonds mature
in September 2010 and bear interest at fixed rates ranging from 4.3% to 5.6%
depending on the maturity date of the bond series.
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.
39
<PAGE> 44
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."
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 amended and restated 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
five 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, Cincinnati, Ohio, 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 costs incurred in connection with
developing or obtaining internal-use software to be capitalized and other costs
to be expensed.
40
<PAGE> 45
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 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 nine months of
1999 by $1.0 million. The adoption of SOP 98-5 had an immaterial impact on our
consolidated financial position and results of operations for the nine months
ended September 30, 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 the 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 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 manufacturing processes that involve computer controlled
equipment using embedded micro-processor technology. As of August 31, 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. These costs have all been incurred during the first two quarters of
1999. As of August 20, 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. We have been informed by Serta that this
computer system is currently year 2000 compliant.
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 formal contingency plans for manual or delayed
information processing since we believe that our efforts to address the issue of
year 2000 compliance have been substantially completed to date and consistent
with our timetable. We are periodically reassessing our progress and the efforts
made to ensure compliance and may develop and implement contingency plans to the
extent considered necessary to ensure continuity of critical activities.
Depending on the needs assessed, such plans may include one or more of the
following elements: arranging for additional raw materials, supplies and
manufacturing capacity; the manufacture of certain inventory items in
anticipation of orders; arranging for the availability of appropriate staff
during critical periods, development of manual work-around procedures; and
reviewing data recovery disaster plans. 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
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.
41
<PAGE> 46
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 32.3%,
compared to a 7.7% 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 29.3%.
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,
- all or a portion of the States of Ohio, Indiana, West Virginia and the
Commonwealth of Kentucky,
- 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, Cincinnati, Ohio
and Concord, Ontario, Canada. For the nine months ended September 30, 1999, on a
pro forma basis, we generated net sales of $168.6 million and adjusted EBITDA of
$25.2 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 6.7%. 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 $3.9 billion. Since 1993, the combined market share of
the top three bedding manufacturers has increased from 49% to 54%.
42
<PAGE> 47
The following chart illustrates the growth in the domestic bedding
industry:
[Domestic Wholesale Mattress & Foundation Shipment Bar Graph]
[Shipments in Millions]
<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.
43
<PAGE> 48
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.
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
44
<PAGE> 49
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 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 as Sertapedic, private label and contract bedding products.
PROPRIETARY PRODUCTS
Serta has been a leader in developing 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 757,000 square feet in our five
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.
45
<PAGE> 50
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 five Serta licensees,
including the recently acquired Adam Wuest. 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 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 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 27% 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 Sleepmaster,
- 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.
46
<PAGE> 51
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 10 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.
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.
47
<PAGE> 52
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.
- 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.
48
<PAGE> 53
- 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
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.
49
<PAGE> 54
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.
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 40% of net shipments
in 1998 on a pro forma basis. No account represented more than 10% of sales on a
pro forma basis in 1998.
We have recently experienced a substantial decline in sales to one of our
customers, Dial-a-Mattress. Dial-a-Mattress has informed us that it has reduced
purchases of our mattresses because of our unwillingness to sell them
Masterpiece mattresses. While we believe that Dial-a-Mattress will reconsider
its decision, we cannot assure you that this will be the case.
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.
50
<PAGE> 55
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.
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:
<TABLE>
<CAPTION>
MARKET
SHARE
------
<S> <C>
Serta 16.7%
Sealy (Includes the Stearns and Foster brand) 21.7%
Simmons 15.7%
Other 45.9%
</TABLE>
- ---------------
Source: Company estimates derived from data from the International Sleep
Products Association, Furniture/Today and public filings.
51
<PAGE> 56
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
(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 five bedding manufacturing facilities in the United States and
one manufacturing facility in Concord, Ontario, Canada. Of our four current
facilities, one operates a single shift and the others operate two shifts daily.
We anticipate that three 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 757,000 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
52
<PAGE> 57
renew. We own our other facilities. The following table sets forth 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
Cincinnati, Ohio................................... 128,000 Owned
</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.
On August 24, 1999 we provided notice to terminate our agreement with our
exclusive distributor for our Linden facility due to the distributor's failure
to provide an adequate number of trucks for our shipments, among other reasons.
On October 29, 1999, we executed a five-year contract, which will become
effective on November 22, 1999, with a new distributor with a national presence
to replace our existing distributor. We anticipate that distribution costs at
our Linden facility will increase by approximately 8% as a result of the new
arrangement.
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,
inner spring units 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 and its subsidiaries quality inspection methods.
WARRANTIES; PRODUCT RETURNS
Our conventional bedding products generally offer limited warranties of ten
years against manufacturing defects, with 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.
53
<PAGE> 58
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 the liability could be material. We also dispose, primarily by
recycling, of small amounts of used oil.
EMPLOYEES
As of September 30, 1999, we employed 893 full-time employees, of whom
approximately 411 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, the collective bargaining agreement
covering employees at the Concord, Ontario, Canada facility expires on December
31, 1999 and the collective bargaining agreement covering employees of Adam
Wuest expires on December 20, 2001. 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
Sleepmaster's or its subsidiaries' business, financial condition or results of
operations. We are not currently involved in any material legal proceedings.
54
<PAGE> 59
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........................ 40 Executive Vice President and Chief Financial
Officer and Advisor
Michael Reilly....................... 50 Senior Vice President of Sales and Marketing
Timothy Dupont....................... 51 Vice President of Manufacturing
Michael Bubis........................ 44 President of Palm Beach and Advisor
David Thomas......................... 49 Advisor
John Weber........................... 35 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.
55
<PAGE> 60
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.
56
<PAGE> 61
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 the 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. These
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 the officer's death or disability, by
resolution of Sleepmaster's board of advisors, or upon the 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.
57
<PAGE> 62
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.
58
<PAGE> 63
SECURITY OWNERSHIP
The following table sets forth ownership 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>
Sleep Investor L.L.C. ...................................... 6,099 74.4%
2001 Lower Road
Linden, NJ 07036-6520
Citicorp Venture Capital, Ltd.(a) .......................... 3,852.3 46.9%
399 Park Avenue
New York, NY 10043
CCT Partners IV, L.P.(a) ................................... 677.5 8.3
399 Park Avenue
New York, NY 10043
PMI Mezzanine Fund L.P.(a)(b) .............................. 3,403.0 32.1
610 Newport Center Drive
Suite 1100
Newport Beach, CA 92660
Charles Schweitzer.......................................... 517.7 6.3
2001 Lower Road
Linden, NJ 07036-6520
James Koscica............................................... 280.0 3.4
2001 Lower Road
Linden, NJ 07036-6520
Michael Reilly.............................................. 280.0 3.4
2001 Lower Road
Linden, NJ 07036-6520
Timothy Dupont.............................................. 280.0 3.4
2001 Lower Road
Linden, NJ 07036-6520
Michael Bubis............................................... 466.0 5.7
3774 Interstate Park Road North
Riviera Beach, FL 33404
David Thomas(c)............................................. 4,716.3 57.5
399 Park Avenue
New York, NY 10043
John Weber(c)............................................... 4,578.3 55.8
399 Park Avenue
New York, NY 10043
Michael Bradley(d).......................................... 4,529.9 55.2
399 Park Avenue
New York, NY 10043
Robert Bartholomew(e)....................................... 3,403.0 32.1
610 Newport Center Drive
Suite 1100
Newport Beach, CA 92660
All directors and executive officers as a group (9
persons).................................................. 9,954.59 93.9
</TABLE>
59
<PAGE> 64
- ---------------
(a) Interests are held indirectly through Sleep Investor L.L.C.
(b) Consists of 1,000 class A common membership interests and warrants currently
exercisable for 2,403 common membership interests.
(c) 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 these common membership interests.
(d) Includes 3,852.3 common membership interests held by Citicorp Venture
Capital. Mr. Bradley disclaims beneficial ownership of these common
membership interests.
(e) 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 these common membership
interests and warrants.
60
<PAGE> 65
RELATIONSHIPS AND RELATED TRANSACTIONS
Each of the following descriptions is a summary of the documents listed
below. Therefore, each summary does not restate the document described in its
entirety. We urge you to read each document because it will provide more
information concerning the points highlighted below. A copy of any document
described below can be obtained by writing to Sleepmaster at the address located
in the section entitled "Prospectus Summary."
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 the 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, the
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),
61
<PAGE> 66
(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 the 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 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 the 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.
62
<PAGE> 67
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, the 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.
SLEEPMASTER HOLDINGS L.L.C. SECURITYHOLDERS AGREEMENT
In 1998, Sleepmaster Holdings L.L.C., Sleep Investor, PMI, Charles
Schweitzer, James Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
Richard Tauber and Douglas Phillips entered into an amended and restated
securityholders agreement dated as of March 3, 1998. On February 26, 1999, John
Herr and Stuart Herr executed a joinder to the amended and restated
securityholders agreement. On November 5, 1999, David Deye, Stephen Lund and
Citicorp Mezzanine Partners executed a joinder to the amended and restated
securityholders agreement. The amended and restated securityholders agreement
requires that Sleepmaster Holdings L.L.C., Sleep Investor, PMI and those
executives of Sleepmaster Holdings L.L.C. vote their membership interests and
take all other actions within their control so 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 transfers of membership interests of
Sleepmaster Holdings L.L.C.;
(3) grants first offer rights on 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 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.
63
<PAGE> 68
SLEEPMASTER HOLDINGS L.L.C. REGISTRATION RIGHTS AGREEMENT
In 1998, Sleepmaster Holdings L.L.C., Sleep Investor, PMI, Charles
Schweitzer, James Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
Richard Tauber and Douglas Phillips entered into an amended and restated
registration rights agreement dated as of March 3, 1998. On February 26, 1999,
John Herr and Stuart Herr executed a joinder to the amended and restated
registration rights agreement. On November 5, 1999, David Deye, Stephen Lund and
Citicorp Mezzanine Partners executed a joinder to the amended and restated
registration rights agreement. 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 the registrations, Sleepmaster Holdings L.L.C. has
agreed to indemnify all holders of registrable securities against 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 the membership interests to Sleep Investor.
In addition, Sleep Investor purchased 8,714 units of redeemable preferred
interests and 6,099 units of 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 September 30, 1999, $8.5 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
64
<PAGE> 69
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 an 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.
In connection with the purchase of substantially all of the assets of Adam
Wuest by Sleepmaster on November 5, 1999, Sleepmaster Holdings L.L.C. issued to
Citicorp Mezzanine Partners, L.P. warrants to purchase Class B common membership
interests of Sleepmaster Holdings L.L.C. The warrants are exercisable at any
time after June 30, 2007 and before June 30, 2009 at an exercise price of $0.01
per unit, subject to certain anti-dilution adjustments. If Sleepmaster Holdings
L.L.C. prepays in full the 14% subordinated note in aggregate principal amount
of $10.0 million on or prior to June 30, 2007, the warrants will not be
exercisable and will be terminated.
65
<PAGE> 70
DESCRIPTION OF INDEBTEDNESS
THE AMENDED AND RESTATED CREDIT FACILITY
The following is a summary of the material terms of the amended and
restated credit facility that Sleepmaster, Sleepmaster Holdings L.L.C., Palm
Beach, Herr, Lower Road Associates, LLC, Sleepmaster Finance Corporation, Adam
Wuest, and the lenders parties thereto and First Union National Bank, as a
lender and as an administrative agent entered into on November 5, 1999. The
following summary is qualified in its entirety by reference to the amended and
restated credit facility, copies of which will be made available to holders of
the exchange notes upon request.
STRUCTURE
The amended and restated credit facility provides revolving credit
facilities and an amortizing term loan facility with aggregate availability of
$70.0 million. The revolving credit facility will mature on October 29, 2005 and
includes a sublimit of $15.0 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 (b) a letter of credit to back the
economic revenue bonds currently outstanding of $2.0 million and (c) a $720,000
letter of credit issued to the landlord for a deposit on the Linden, New Jersey
facility. The amortizing term loan facility shall be repaid in 23 fiscal
quarterly installments and shall be fully amortized on September 30, 2005.
AVAILABILITY
Availability under the amended and restated 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 .
INTEREST
Borrowings under the revolving credit facility and the term loan facility
bear interest at a rate equal to:
- LIBOR plus an applicable percentage set forth in a table in the amended
and restated credit agreement 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 plus an applicable percentage set forth in a table in
the amended and restated credit agreement.
FEES
Sleepmaster has agreed to pay fees with respect to the amended and restated
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 annual administrative fee;
- letter of credit fees calculated on the aggregate face amount for each
letter of credit equal to
(1) the applicable percentage 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 amended and restated 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
66
<PAGE> 71
- 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 and Sleepmaster Holdings L.L.C.
COMMITMENT REDUCTIONS AND REPAYMENTS
Sleepmaster will be required to make mandatory prepayments upon receipt of
proceeds of 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 amended and reinstated 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 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 amended and reinstated credit facility requires Sleepmaster to
comply with specified financial ratios, including a maximum leverage ratio, a
minimum interest coverage ratio and a fixed charge coverage ratio.
The maximum leverage ratio requires that Sleepmaster Holdings, L.L.C.,
together with its subsidiaries, have a ratio of total debt to EBITDA of no more
than 6.0 to 1.0 until June 30, 2000. Thereafter, the required ratio will decline
by .50 on July 1, 2000, by .25 on each of October 1, 2000, July 1, 2001 and
October 1, 2001, by .50 on July 1, 2002 and by .25 on October 1, 2002.
Thereafter, the required ratio will be no greater than 3.75 to 1.0.
The minimum interest coverage ratio requires that Sleepmaster Holdings,
L.L.C., together with its subsidiaries, have a ratio of EBITDA to interest
expense of no less than 1.80 to 1.0 until June 30, 2001. Thereafter, the
required ratio will increase by .20 on July 1, 2001, by .25 on each of July 1,
2002, October 1, 2002 and October 1, 2003. Thereafter, the required ratio will
be no less than 2.75 to 1.0.
The fixed charge coverage ratio requires that Sleepmaster Holdings, L.L.C.,
together with its subsidiaries, have a ratio of EBITDA minus capital
expenditures to interest expense plus taxes, dividend payments and scheduled
payments on funded debt of no less than 1.10 to 1.0 until September 30, 2001.
The required ratio will increase to 1.15 to 1.0 for the period from October 1,
2001 to September 30, 2002 and will increase to 1.20 to 1.0 on October 1, 2002.
Thereafter, the required ratio will be no less than 1.20 to 1.0.
EVENTS OF DEFAULT
Affirmative, Negative and Financial Covenants. The new credit facility
contains customary events of default, including:
- non-payment of principal, interest or fees,
67
<PAGE> 72
- 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.
THE SUBORDINATED CREDIT FACILITY
The following is a summary of the material terms of the new subordinated
credit facility that Sleepmaster Holdings L.L.C. and Citicorp Mezzanine
Partners, L.P. entered into on November 5, 1999. The subordinated credit
facility, in the amount of $10.0 million, will mature on June 30, 2007 and was
issued in order to partially finance the acquisition of Adam Wuest. The
obligations under the subordinated credit facility are unsecured and are
subordinated to Sleepmaster Holdings L.L.C.'s obligations under the amended and
restated credit facility and the exchange notes. This summary is qualified in
its entirety by reference to the subordinated credit facility, copies of which
will be made available to holders of the exchange notes upon request.
Interest
Borrowings under the subordinated credit facility bear interest at a rate
equal to 14% per annum on the unpaid principal amount thereof from the date made
through maturity. Interest on such borrowings is payable semiannual in arrears
and must be paid by adding such interest to the then outstanding principal
amount of the notes until the payment in full of the amended and restated credit
facility.
Prepayments
To the extent permissible under any senior debt documents, Sleepmaster
Holdings L.L.C. may prepay the subordinated credit facility at any time in whole
or in part at 100% of the principal amount thereof plus accrued and unpaid
interest to the date of prepayment and a prepayment premium as set forth
therein. In addition, to the extent permissable under any senior debt documents,
Sleepmaster Holdings L.L.C. must apply an amount equal to 100% of the net
proceeds of certain equity issuances to the prepayment of the subordinated
credit facility and must at the option of the lender thereunder prepay the loan
upon a change of control of either Sleepmaster Holdings L.L.C. or Sleepmaster.
Covenants and Events of Default
The subordinated credit facility contains customary affirmative and
negative covenants, as well as standard events of default.
INDUSTRIAL REVENUE BONDS
Sleepmaster, through its subsidiary Palm Beach, is financially obligated to
the County of Palm Beach, Florida pursuant to 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 September 30, 1999, $6.4
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 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.
68
<PAGE> 73
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 the conversion. Palm Beach has not exercised its right to convert
the interest rate payable to a fixed rate. At September 30, 1999, the interest
rate on the bonds was 3.95%.
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) 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 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 the
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.
ECONOMIC DEVELOPMENT REVENUE FUNDING BONDS
Sleepmaster, through its subsidiary Adam Wuest, is obligated to the County
of Hamilton, Ohio pursuant to revenue bonds issued on behalf of Adam Wuest. On
February 1, 1994, the County of Hamilton, Ohio issued Fixed Rate Economic
Development Revenue Funding Bonds, Series 1994 in the aggregate principal amount
of $2,980,000 million to finance the Adam Wuest, Inc. Project. As of September
30, 1999, $2.0 million of the bonds were outstanding. The bonds mature in
September 2010 and bear interest at fixed rates ranging from 4.3% to 5.6%
depending on the maturity date of the bond series.
INTEREST RATES
The bonds bear interest at a fixed rate ranging from 4.3% to 5.6% depending
on the maturity date of the bond series. The bonds are payable in quarterly
installments of principal and interest through 2010.
REDEMPTION AND REPURCHASE
The County of Hamilton, Ohio, at Adam Wuest's option, may redeem the bonds
in whole or in part on interest payment dates at the redemption price set forth
below plus accrued interest to the redemption date:
(1) September 1, 2002 through August 31, 2003 at 101% and
(2) September 1, 2003 and thereafter at 100%
SECURITY
The bonds are collateralized by a letter of credit issued by Fifth Third
Bank and backed up by First Union National Bank for the benefit of the trustee
under the indenture relating to the bonds on the Adam Wuest manufacturing
faculties and a pledge of Adam Wuest'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
69
<PAGE> 74
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.
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 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. As of
September 30, 1999, $8.5 million principal amount of promissory notes were
outstanding.
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 the 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.
70
<PAGE> 75
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 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
71
<PAGE> 76
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 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 circumstances such as those described in
the Section "Covenants" under the heading "Limitation on Issuance of Guarantees
and Pledges for Indebtedness" in subsection (c), a guarantee of a guarantor may
be released from their obligation. Sleepmaster also may, at any
72
<PAGE> 77
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 described 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.
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
73
<PAGE> 78
(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 under a change of control
offer. Neither the board of directors of Sleepmaster or Sleepmaster Finance
Corporation nor the trustee may waive a holder's right to redeem its exchange
notes upon a change of control. 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)
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
74
<PAGE> 79
exchange notes seeking to accept the change of control offer. As of September
30, 1999, Sleepmaster had $6.4 million of senior debt outstanding. 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. A disposition of all
of the assets of Sleepmaster and Sleepmaster Finance Corporation, however, may
still not constitute a change of control.
The existence of a holder's right to require the issuers to repurchase the
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 transactions with Sleepmaster and
Sleepmaster Finance Corporation management or Affiliates if the 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) a reorganization,
(2) a restructuring, or
(3) a merger or similar transaction, including an acquisition of
Sleepmaster and Sleepmaster Finance Corporation by management or
affiliates, involving Sleepmaster and Sleepmaster Finance Corporation.
A transaction with management would not be a change of control so long as no
party other than management or Citicorp Venture Capital, Ltd. and its affiliates
acquired more than 50% of Sleepmaster's voting stock in the transaction.
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 the change of control offer.
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 described in the indenture, to
all existing and future Senior Indebtedness of Sleepmaster and
Sleepmaster Finance Corporation,
75
<PAGE> 80
(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 described 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
(1) payment, other than payments previously made pursuant to the provisions
described under "-- Defeasance or Covenant Defeasance of Indenture", or
(2) distribution of any assets of Sleepmaster of any kind or character,
excluding 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
(x) such default shall have been cured or waived or shall have ceased to
exist or
(y) 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
(1) payment, other than payments previously made pursuant to the provisions
described under "-- Defeasance or Covenant Defeasance of Indenture", or
76
<PAGE> 81
(2) distribution of any assets of Sleepmaster of any kind or character
may be made by Sleepmaster on account of the principal of, premium, if any, or
interest on, the exchange notes. This restriction excludes distributions of
permitted equity interests of subordinated securities. In addition, no payments
may be made 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
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. Distributions of permitted
equity
77
<PAGE> 82
interests or subordinated securities as well as payments previously made
pursuant to the provision described under the heading entitled "Defeasance or
Covenant Defeasance of Indenture" below are excluded from this restriction.
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. As of September 30, 1999, the amount of
indebtedness that Sleepmaster can incur which out ranks the exchange notes was
$33.0 million.
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 September 30, 1999 on a pro forma basis,
(1) the aggregate amount of Senior Indebtedness outstanding was
approximately $45.4 million, consisting of our guarantee of Senior
Guarantor Indebtedness,
(2) the aggregate amount of Senior Guarantor Indebtedness was $45.4
million,
(3) our non-guarantor Restricted Subsidiary had no Indebtedness outstanding
and
(4) no Subordinated Indebtedness or Pari Passu Indebtedness was
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 June 30, 1999, Sleepmaster
Finance Corporation had no Indebtedness outstanding, other than the exchange
notes. Sleepmaster Finance Corporation is prohibited from incurring any
indebtedness other than the notes and the exchange notes.
"SENIOR INDEBTEDNESS" means, except as provided below, the principal of,
premium, if any, and interest on any Indebtedness of Sleepmaster, whether
outstanding on the date of the indenture or thereafter created, incurred or
assumed, and whether at any time owing, actually or contingent. However, any
particular Indebtedness will not be considered Senior 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 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,
78
<PAGE> 83
(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,
(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.
79
<PAGE> 84
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
detailed 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 described 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;
- provided that any Indebtedness is made pursuant to an intercompany
note in the form attached to the indenture;
- provided, further, that
80
<PAGE> 85
(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;
(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. If not, 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
81
<PAGE> 86
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, 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,
82
<PAGE> 87
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:
(x) Sleepmaster's Capital Stock,
(y) 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,
(z) 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, are collectively referred to as "Restricted Payments." The amount
of any Restricted Payment, if made other than in cash, shall be the Fair
Market Value of the assets proposed to be transferred. The board of
directors of Sleepmaster shall determine the Fair Market Value of the
assets and the board's 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;
(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
83
<PAGE> 88
(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 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 to the extent, however, that the proceeds are used to
purchase, redeem or otherwise retire Capital Stock or
Subordinated Indebtedness as described below in clause (2) or (3)
of paragraph (b) below. The proceeds will not be included in
aggregate net cash proceeds. 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 will
also be excluded. Finally, in determining aggregate net cash
proceeds, the fair market value of property other than cash will
be included. The fair market value of property will be determined
by the board of directors of Sleepmaster in good faith and
evidenced by a board resolution in an officer's certificate
delivered to the trustee. 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, which opinion shall
provide a specific value which, or a range of values the lowest
point of which, is not lower than the value in the board
resolution, will be provided. The property must also be related,
ancillary or complementary to any business of Sleepmaster and its
Restricted Subsidiaries.
(C) the aggregate net cash proceeds 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. In determining aggregate net
cash proceeds, the fair market value of property other than cash
will be included. The fair market value of the property will be
determined by the board of directors of Sleepmaster in good faith
and evidenced by a board resolution in an officer's certificate
delivered to the trustee. 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 will be
provided. The property must also be related, ancillary or
complementary to any business of Sleepmaster and its Restricted
Subsidiaries to be included in the calculation. Also, 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 will be
excluded from the calculation 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 the debt securities or Redeemable
Capital Stock were issued after the date of the indenture, the
aggregate of net cash proceeds from their original issuance. The net
cash proceeds from the conversion or exchange of debt securities or
Redeemable Capital
84
<PAGE> 89
Stock financed, directly or indirectly, using funds borrowed from
Sleepmaster or any Subsidiary will be excluded from the
determination of aggregate net cash proceeds 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
85
<PAGE> 90
(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; provided, that any unused
amounts in any one calendar year may be 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
(1) 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
(2) 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;
86
<PAGE> 91
(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 the calendar year exceed the required Tax Amounts with
respect to the calendar year as determined by Sleepmaster's
accountants, Sleepmaster Holdings L.L.C. shall promptly pay to
Sleepmaster the excess; and provided further that all the
distributions or payments in respect of a calendar year are made no
later than 120 days after the end of the 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 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.
However, if a transaction described above 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
87
<PAGE> 92
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;
then the above restriction shall not apply.
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 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,
88
<PAGE> 93
(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.
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 the Restricted Subsidiary receives consideration at
the time of the Asset Sale at least equal to the Fair Market Value
of the shares or assets subject to the 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 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.
In calculating the amount of any liabilities pursuant to (x) above,
contingent liabilities, liabilities that are subordinated to or rank equally
with the exchange notes or any guarantee of the exchange notes and liabilities
that are incurred in connection with or in contemplation of the related Asset
Sale should be excluded.
(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
89
<PAGE> 94
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 described 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 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 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 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.
90
<PAGE> 95
(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 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
91
<PAGE> 96
(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 described in the indenture. (Section 1014)
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
92
<PAGE> 97
(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;
(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;
93
<PAGE> 98
(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.
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)
94
<PAGE> 99
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
(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.
95
<PAGE> 100
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 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, no Default or Event of Default will
have occurred and be continuing; provided, that 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 is treated as
having been incurred at the time of such transaction;
(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;
96
<PAGE> 101
(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
(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. In this
case, Sleepmaster, Sleepmaster Finance Corporation or any guarantor, as the case
97
<PAGE> 102
may be, would be discharged 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. However, Sleepmaster, Sleepmaster Finance
Corporation or a guarantor, as the case may be, will not be discharged from
obligations and covenants under the indenture and the exchange notes or its
guarantee, as the case may be, and the registration rights agreement if a
transaction 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. (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;
(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
98
<PAGE> 103
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, 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)
99
<PAGE> 104
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
(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
100
<PAGE> 105
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 or to realize
on 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 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
covenants 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, some
events described under "Events of Default", not including non-payment,
bankruptcy and insolvency events, 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
101
<PAGE> 106
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;
(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;
102
<PAGE> 107
(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
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, including consents obtained
in connection with a tender offer or exchange offer for exchange notes, 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
103
<PAGE> 108
in aggregate principal amount of the exchange notes then outstanding. However,
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;
(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 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 covenants, except to increase the
percentage of such outstanding exchange notes required for such actions
or to provide that 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;
104
<PAGE> 109
(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 restrictive covenants and provisions
of the indenture. (Section 1021)
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 limitations on the rights of the trustee, should it
become a creditor of Sleepmaster or Sleepmaster Finance Corporation, to obtain
payment of claims in cases, or to realize on 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 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;
105
<PAGE> 110
(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.
"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
106
<PAGE> 111
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.
"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
107
<PAGE> 112
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
(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,
108
<PAGE> 113
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,
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.
109
<PAGE> 114
"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 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
110
<PAGE> 115
(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).
"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),
111
<PAGE> 116
(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 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 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.
112
<PAGE> 117
"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.
"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.
113
<PAGE> 118
"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
(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
114
<PAGE> 119
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,
(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.
115
<PAGE> 120
"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.
"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
116
<PAGE> 121
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 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
117
<PAGE> 122
(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 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.
118
<PAGE> 123
EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions 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 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.
119
<PAGE> 124
We reserve the right, in our sole discretion,
(1) if any of the conditions 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 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.
120
<PAGE> 125
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.
121
<PAGE> 126
By the authority granted by The Depository Trust Company, any The
Depository Trust Company participant which has notes (1) credited to its The
Depository Trust Company account at any time and (2) 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 setting forth
the name and address of the holder, the certificate number(s) of such
notes and the principal amount of notes tendered. The notice of
guaranteed delivery may be made by facsimile transmission, mail or hand
delivery. The notice of guaranteed delivery should also state that the
tender is being made and guarantee 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
122
<PAGE> 127
(3) the exchange agent receives
(A) such properly completed and executed letter of transmittal, or
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 described 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 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,
including any required signature guarantees, on the letter of
transmittal by which such notes were tendered 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
123
<PAGE> 128
(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 THOSE 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
124
<PAGE> 129
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 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.
125
<PAGE> 130
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 may be subject to special rules not discussed below. Holders who
may be subject to special rules not discussed below include insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States.
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 and its subsidiaries, 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.
126
<PAGE> 131
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 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
127
<PAGE> 132
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. Kirkland & Ellis will issue an opinion for Sleepmaster and Sleepmaster
Finance Corporation with respect to the issuance of the exchange notes offered
hereby, including
1) the existence and good standing of each of Sleepmaster and Sleepmaster
Finance Corporation under its state of incorporation,
2) the authorization of the sale and issuance of the exchange notes by each
of Sleepmaster and Sleepmaster Finance Corporation, and
3) the enforceability of the exchange notes.
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. The audited financial statements of
Adam Wuest, Inc. included in this prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
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 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.
For a more complete understanding and description of each contract, agreement or
other document filed as an exhibit to the exchange offer registration statement,
we encourage you to read the documents contained in the exhibits.
128
<PAGE> 133
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 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 described in 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,
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), New Dawn(R), The
Rest of Your Days Depend On the Rest of Your Nights(R), Certified(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), Posture Pad(TM) and Adam
Wuest(TM) are trademarks used by Sleepmaster and its subsidiaries. Tradenames
and trademarks of other companies appearing in this prospectus are the property
of their respective holders.
129
<PAGE> 134
INDEX TO FINANCIAL STATEMENTS
SLEEPMASTER L.L.C. AND SUBSIDIARIES
<TABLE>
<S> <C>
SLEEPMASTER L.L.C.
Report of Independent Accountants........................... F-3
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-4
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996....................... F-5
Consolidated Statements of Changes in Members' Equity
(Deficit) for the Years Ended December 31, 1998, 1997
and 1996............................................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... F-7
Notes to Consolidated Financial Statements................ F-8
Unaudited Condensed Consolidated Balance Sheet as of
September 30, 1999..................................... F-19
Unaudited Condensed Consolidated Statements of Income for
the Three Months Ended
September 30, 1999 and 1998 and for the Nine Months
Ended September 30, 1999 and 1998...................... F-20
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and
1998................................................... F-21
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-22
PALM BEACH BEDDING COMPANY
Report of Independent Accountants......................... F-33
Balance Sheet as of December 31, 1997..................... F-34
Statements of Income for the Years Ended December 31, 1997
and 1996............................................... F-35
Statements of Stockholders' Equity for the Years Ended
December 31, 1997 and 1996............................. F-36
Statements of Cash Flows for the Years Ended December 31,
1997 and 1996.......................................... F-37
Notes to Financial Statements............................. F-38
HERR MANUFACTURING COMPANY
Report of Independent Accountants......................... F-42
Balance Sheet as of December 31, 1998..................... F-43
Statement of Income for the Year Ended December 31,
1998................................................... F-44
Statement of Stockholders' Equity for the Year Ended
December 31, 1998...................................... F-45
Statement of Cash Flows for the Year Ended December 31,
1998................................................... F-46
Notes to Financial Statements............................. F-47
STAR BEDDING PRODUCTS (1986) LIMITED
Auditors' Report.......................................... F-51
Consolidated Balance Sheet as at December 31, 1998........ F-52
Consolidated Statement of Income and Retained Earnings for
the Year Ended December 31, 1998....................... F-53
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1998...................................... F-54
Notes to Consolidated Financial Statements................ F-55
Unaudited Condensed Consolidated Balance Sheet as of March
31, 1999............................................... F-59
Unaudited Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 1999 and 1998......... F-60
Unaudited Condensed Consolidated Cash Flows for the Three
Months Ended March 31, 1999 and 1998................... F-61
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-62
</TABLE>
F-1
<PAGE> 135
<TABLE>
<S> <C>
ADAM WUEST, INC.
Report of Independent Public Accountants................................................................. F-63
Balance Sheets as of December 31, 1998 and 1997.......................................................... F-64
Statements of Income for the Years Ended December 31, 1998, 1997 and 1996................................ F-65
Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996.................. F-66
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996............................ F-67
Notes to the Financial Statements........................................................................ F-68
Unaudited Condensed Balance Sheet as of September 30, 1999............................................... F-72
Unaudited Condensed Statements of Income for the Nine Months Ended September 30, 1999 and 1998........... F-73
Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998....... F-74
Notes to the Unaudited Condensed Financial Statements for the Nine Months Ended September 30, 1999 and
1998.................................................................................................. F-75
</TABLE>
F-2
<PAGE> 136
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, except as to
Note 18, which is as of May 18, 1999
F-3
<PAGE> 137
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-4
<PAGE> 138
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-5
<PAGE> 139
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-6
<PAGE> 140
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-7
<PAGE> 141
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-8
<PAGE> 142
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
Intangible assets include goodwill, which represents the excess of purchase
price over the fair value of net assets acquired, and licenses, which are
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.
F-9
<PAGE> 143
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs
The Company expenses advertising costs, consisting principally of
cooperative advertising with dealers and retailers, when the revenue from sales
to customers is recorded. Advertising costs for the years ended 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 tangible and
intangible net assets acquired, aggregating $4,472,000, has been recorded as
goodwill and is being amortized over 40 years.
F-10
<PAGE> 144
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.................................................... 4,472,000
Serta license agreement..................................... 23,647,110
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 for financial reporting purposes.
F-11
<PAGE> 145
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-12
<PAGE> 146
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>
F-13
<PAGE> 147
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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-14
<PAGE> 148
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 would 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, if material. No
adjustment was recorded when the Warrants were issued, since management
considered the fair value of the Warrants to be immaterial.
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-15
<PAGE> 149
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 step-up in the tax bases of the Company's assets
and liabilities as a result of 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>
F-16
<PAGE> 150
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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>
F-17
<PAGE> 151
SLEEPMASTER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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.
On April 30, 1999, Sleepmaster Finance Corporation was formed solely for
the purpose of acting as co-issuer of $115,000,000 of 11% Senior Subordinated
Notes (the "Notes") due 2009 to be issued during the second quarter of 1999.
Sleepmaster Finance Corporation is a wholly owned subsidiary of Sleepmaster and
has no assets or operations.
On May 18, 1999, the Company issued the Notes described above. 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).
As of May 18, 1999, the Company and each of its direct and indirect wholly
owned subsidiaries will fully and unconditionally guarantee, on a joint and
several basis, the obligation to pay the principal and interest with respect to
the Notes. To the extent the Company acquires future subsidiaries, only the
Company's direct and indirect domestic subsidiaries will be obligated to
guarantee the Notes. Star is a foreign subsidiary and, as such, will become a
non-guarantor subsidiary. The Company expects to generate the funds necessary to
satisfy its debt service obligations from either its own operations or by
distributions or advances from its subsidiaries. There are no contractual or
legal restrictions that limit the Company's ability to obtain cash from its
subsidiaries for the purpose of meeting its debt service obligations, including
the payment of principal and interest on the Notes.
Since the Company conducts its own operations separately from those of its
subsidiary and at December 31, 1998 there were no non-guarantor direct or
indirect subsidiaries, management has presented in note 17 summarized
Company-only financial information as of and for the year ended December 31,
1998.
F-18
<PAGE> 152
SLEEPMASTER L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,953,094
Accounts receivable....................................... 21,457,907
Accounts receivable -- other.............................. 1,067,053
Inventories............................................... 5,617,101
Other current assets...................................... 968,622
Deferred tax assets....................................... 1,533,567
------------
Total current assets.............................. 38,597,344
Property, plant and equipment, net.......................... 16,364,400
Intangible assets........................................... 78,676,560
Other assets................................................ 5,516,633
Deferred tax assets......................................... 10,049,959
------------
Total assets...................................... $149,204,896
============
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 12,741,216
Accrued sales allowances and advertising expenses......... 4,978,300
Other current liabilities................................. 8,772,039
Current portion of long-term debt......................... 380,000
------------
Total current liabilities......................... 26,871,555
------------
Long-term debt.............................................. 121,035,000
Other liabilities........................................... 362,563
------------
Total long-term liabilities....................... 121,397,563
------------
Redeemable cumulative preferred interests................... 19,959,184
Members' deficit............................................ (19,023,406)
------------
Total liabilities and members' deficit............ $149,204,896
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 153
SLEEPMASTER L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales............................... $48,132,048 $33,202,886 $122,118,796 $80,705,539
Cost of sales........................... 29,697,813 21,162,119 75,767,376 51,169,404
----------- ----------- ------------ -----------
Gross profit....................... 18,434,235 12,040,767 46,351,420 29,536,135
----------- ----------- ------------ -----------
Operating expenses
Selling, general and administrative
expenses........................... 11,253,332 7,226,917 29,461,034 18,335,592
Amortization of intangibles........... 599,971 369,626 1,436,252 928,717
----------- ----------- ------------ -----------
Total operating expenses........... 11,853,303 7,596,543 30,897,286 19,264,309
----------- ----------- ------------ -----------
Operating income........................ 6,580,932 4,444,224 15,454,134 10,271,826
Interest expense, net................... 3,423,991 1,893,685 8,299,921 5,317,359
Other expense (income), net............. 85,745 (15,724) 49,494 (23,586)
----------- ----------- ------------ -----------
Income before income taxes and
extraordinary items.............. 3,071,196 2,566,263 7,104,719 4,978,053
Provision for income taxes.............. 1,297,991 1,072,025 3,015,573 2,094,097
----------- ----------- ------------ -----------
Income before extraordinary
items............................ 1,773,205 1,494,238 4,089,146 2,883,956
Extraordinary items, net of income
taxes................................. -- -- (3,166,968) --
----------- ----------- ------------ -----------
Net income......................... $ 1,773,205 $ 1,494,238 $ 922,178 $ 2,883,956
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 154
SLEEPMASTER L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 922,178 $ 2,883,956
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization.......................... 2,498,745 1,523,330
Loss on sale of asset.................................. 3,411 --
Extraordinary items.................................... 3,166,968 --
Deferred income taxes.................................. 3,713,518 1,390,327
Other non-cash charges................................. 471,133 259,276
Changes in operating assets and liabilities, net of
acquisitions:
Increase in accounts receivable...................... (5,468,602) (2,408,434)
Decrease in accounts receivable -- other............. 131,952 60,476
Decrease in inventories.............................. 168,219 722,016
Increase in other current assets..................... (381,413) (302,908)
Increase in other assets............................. (185,881) (134,672)
Increase in accounts payable......................... 1,465,746 2,741,656
Increase (decrease) in accrued liabilities........... 5,230,584 (859,288)
(Decrease) increase in other liabilities............. (12,733) 105,116
------------ ------------
Net cash provided by operating activities.............. 11,723,825 5,980,851
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (2,937,555) (638,737)
Proceeds from sale of assets.............................. 10,700 --
Acquisitions, net of cash acquired........................ (41,573,060) (32,804,621)
------------ ------------
Net cash used in investing activities.................. (44,499,915) (33,443,358)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior subordinated notes....... 115,000,000 --
Proceeds from long-term debt.............................. -- 38,053,360
Payments on long-term debt................................ (64,280,544) (11,133,091)
Borrowings under revolving line of credit................. -- 7,396,328
Payments on revolving line of credit...................... -- (7,397,328)
Loan origination fees/bond issuance costs................. (5,787,017) (701,343)
Penalties on early extinguishment of debt................. (3,645,000) --
Distributions............................................. (747,906) (234,240)
Capital contribution...................................... -- 1,000,000
------------ ------------
Net cash provided by financing activities.............. 40,539,533 26,983,686
------------ ------------
Effect of exchange rate changes on cash and cash
equivalents............................................... 27,956 --
Net increase (decrease) in cash and cash equivalents........ 7,791,399 (478,821)
Cash and cash equivalents at beginning of period............ 161,695 591,683
------------ ------------
Cash and cash equivalents at end of period.................. $ 7,953,094 $ 112,862
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 155
SLEEPMASTER L.L.C. AND SUBSIDIARIES
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 September 30, 1999 and the results of their operations and
of their cash flows for the interim periods presented. 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 elsewhere in this prospectus.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Raw materials............................................... $4,389,263
Work-in-process............................................. 311,851
Finished goods.............................................. 915,987
----------
Total inventories................................. $5,617,101
==========
</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 $1,000,000 for the
nine months ended September 30, 1999. There was no impact on pre-tax income for
the three months ended September 30, 1999. The adoption of SOP 98-5 had an
immaterial impact on the Company's consolidated financial position and results
of operations.
4. ACQUISITIONS
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.
On May 18, 1999, 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 as of May 18, 1999) in cash and a promissory note issued by
Sleepmaster
F-22
<PAGE> 156
SLEEPMASTER L.L.C. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Holdings L.L.C. (the Company's Parent) in the amount of CAN $1,000,000
(approximately US $680,000 as of May 18, 1999).
On November 5, 1999, the Company acquired substantially all the assets of
Adam Wuest, Inc. ("Adam Wuest") and Adam Wuest Realty, Inc. ("Adam Wuest
Realty") for approximately $56,250,000 in cash. In order to finance the
acquisition of Adam Wuest and Adam Wuest Realty, the Company amended and
restated its credit facility as discussed in Note 5.
These acquisitions were accounted for under the purchase method and,
accordingly, Herr's and Star's results are included in the consolidated
financial statements since their respective dates of acquisition. The assets
acquired and liabilities assumed have been recorded at their estimated fair
values at the dates of acquisition. The excess of the purchase price over the
estimated fair values of the net assets acquired has been recorded as goodwill
and is being amortized over 40 years.
A summary of the purchase price allocations are as follows:
<TABLE>
<CAPTION>
ADAM WUEST
AND ADAM
HERR STAR WUEST REALTY
----------- ----------- ------------
<S> <C> <C> <C>
Current assets.......................... $ 3,277,130 $ 2,464,978 $ 5,878,715
Property, plant and equipment........... 3,224,727 820,103 3,579,021
Other assets............................ 2,500 2,379 262,733
Goodwill................................ 19,599,730 15,390,084 52,196,011
Current liabilities..................... (1,057,693) (1,450,347) (3,521,480)
Long-term debt.......................... -- -- (1,895,000)
----------- ----------- -----------
Total......................... $25,046,394 $17,227,197 $56,500,000
=========== =========== ===========
</TABLE>
The following unaudited pro forma income statement data for the nine month
periods ended September 30, 1999 and 1998 has been prepared as if the
acquisitions of Palm Beach, Herr, Star and Adam Wuest and Adam Wuest Realty
occurred as of the beginning of each period presented. The following also gives
effect to the issuance of $115,000,000 of 11% senior subordinated notes (see
Note 5) and the application of proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales......................................... $168,649 $147,202
Income before extraordinary items................. 4,717 4,090
Net income........................................ 1,550 923
</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 acquisitions been consummated at the beginning of each period
presented, nor are they necessarily indicative of future consolidated results.
5. DEBT
During the first quarter of 1999, the Company amended and restated its
credit facility to provide for an aggregate amount of borrowings of up to
$86,000,000 and used a portion of this increased facility to finance its
acquisition of Herr on February 26, 1999. The terms of the amended facility were
substantially equivalent to those of the prior credit facility.
F-23
<PAGE> 157
SLEEPMASTER L.L.C. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
On May 18, 1999, the Company issued $115,000,000 of 11% senior subordinated
notes due 2009 (the "Notes"). A portion of the proceeds of the note offering was
used to prepay the existing credit facility, redeem the Company's Series A and
Series B Senior Subordinated Notes due 2007 and complete the acquisition of
Star. In connection with the repayment of the credit facility and Series A and
Series B Senior Subordinated Notes, the Company wrote-off unamortized debt
issuance costs and incurred prepayment penalties. These transactions resulted in
an extraordinary loss of $3,167,000 net of the associated income tax benefit of
$2,293,000. Also on May 18, 1999, the Company entered into a new six-year
$25,000,000 revolving credit facility which replaced the prior credit facility.
The new credit facility includes a letter of credit sublimit of $8,000,000.
Borrowings under the new credit facility bear interest at floating rates based
on LIBOR or applicable alternative base rates. The new credit facility imposes
certain restrictions on the Company and requires compliance with certain
financial ratios and other requirements customary to credit facilities of this
nature.
On November 5, 1999, the Company expanded and restated this credit facility
to $70,000,000, comprising a $33,000,000 six-year revolving credit facility and
a $37,000,000 amortizing term loan facility, under substantially the same terms
as the prior credit facility except that the letter of credit sublimit was
increased to $15,000,000. Borrowings under this amended and restated credit
facility were used to finance the acquisition of Adam Wuest and Adam Wuest
Realty.
6. GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
As of May 18, 1999, Sleepmaster and each of the domestic wholly owned
subsidiaries ("Guarantor Subsidiaries") has fully and unconditionally
guaranteed, on a joint and several basis, the obligation to pay principal and
interest with respect to the Notes. The Company generates funds necessary to
satisfy its debt service obligations from either its own operations or by
distributions or advances from its subsidiaries. There are no contractual or
legal restrictions that could limit the Company's ability to obtain cash from
its subsidiaries for the purpose of meeting its debt service obligations,
including the payment of principal and interest on the Notes. Although holders
of the Notes will be direct creditors of Sleepmaster's principal direct
subsidiaries by virtue of the guarantees, Sleepmaster has a foreign subsidiary
("Non-Guarantor Subsidiary") that is not included among the Guarantor
Subsidiaries and such subsidiary will not be obligated with respect to the
Notes. As a consequence, the claims of creditors of the Non-Guarantor Subsidiary
will effectively have priority with respect to the assets and earnings of such
companies over the claims of creditors of Sleepmaster, including the holders of
the Notes.
The following supplemental consolidating condensed financial statements
present:
1. Consolidating condensed balance sheets as of September 30, 1999 and
December 31, 1998, consolidating condensed statements of operations for
the three months and nine months ended September 30, 1999 and 1998,
respectively, and cash flows for the nine months ended September 30,
1999 and 1998.
2. Sleepmaster, combined Guarantor Subsidiaries and Non-Guarantor
Subsidiary with their investments in subsidiaries accounted for using
the equity method.
3. Elimination entries necessary to consolidate Sleepmaster and all of its
subsidiaries.
Management does not believe that separate financial statements of the
Guarantor Subsidiaries are material to investors in the Notes.
F-24
<PAGE> 158
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 6,808,968 $ 96,372 $ 1,047,754 $ -- $ 7,953,094
Accounts receivable............. 11,210,259 8,096,895 2,272,410 (121,657) 21,457,907
Accounts receivable -- other.... 748,938 318,115 -- -- 1,067,053
Intercompany (payable)
receivable .................. (14,253,694) 13,890,267 383,066 (19,639) --
Inventories..................... 2,228,284 2,944,520 444,297 -- 5,617,101
Other current assets............ 429,841 505,356 33,425 -- 968,622
Deferred tax assets............. 1,385,297 148,270 -- -- 1,533,567
------------ ----------- ----------- ------------ ------------
Total current assets.... 8,557,893 25,999,795 4,180,952 (141,296) 38,597,344
Property, plant and equipment,
net............................. 3,774,548 11,791,770 798,082 -- 16,364,400
Intangible assets................. 17,241,057 46,233,286 15,202,217 -- 78,676,560
Investment in subsidiaries........ 75,073,927 -- -- (75,073,927) --
Other assets...................... 5,333,396 180,860 2,377 -- 5,516,633
Deferred tax assets............... 10,873,247 (823,288) -- -- 10,049,959
------------ ----------- ----------- ------------ ------------
Total assets............ $120,854,068 $83,382,423 $20,183,628 $(75,215,223) $149,204,896
============ =========== =========== ============ ============
LIABILITIES AND MEMBERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................ $ 5,940,008 $ 6,090,072 $ 832,793 $ (121,657) $ 12,741,216
Accrued sales allowances and
advertising expenses......... 3,966,166 868,340 143,794 -- 4,978,300
Other current liabilities....... 2,521,220 5,126,270 1,124,549 -- 8,772,039
Current portion of long-term
debt......................... -- 380,000 -- -- 380,000
------------ ----------- ----------- ------------ ------------
Total current
liabilities........... 12,427,394 12,464,682 2,101,136 (121,657) 26,871,555
------------ ----------- ----------- ------------ ------------
Long-term debt.................... 115,000,000 6,035,000 -- -- 121,035,000
Other liabilities................. 322,040 40,523 -- -- 362,563
------------ ----------- ----------- ------------ ------------
Total long-term
liabilities........... 115,322,040 6,075,523 -- -- 121,397,563
------------ ----------- ----------- ------------ ------------
Redeemable cumulative preferred
interests....................... 19,959,184 -- -- -- 19,959,184
Members' equity (deficit)......... (26,854,550) 64,842,218 18,082,492 (75,093,566) (19,023,406)
------------ ----------- ----------- ------------ ------------
Total liabilities and
members' equity
(deficit)............. $120,854,068 $83,382,423 $20,183,628 $(75,215,223) $149,204,896
============ =========== =========== ============ ============
</TABLE>
F-25
<PAGE> 159
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED
GUARANTOR
SLEEPMASTER SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 40,666 $ 152,846 $ (31,817) $ 161,695
Accounts receivable................. 8,200,142 4,371,373 (1,200) 12,570,315
Accounts receivable -- other........ 737,292 461,710 -- 1,199,002
Intercompany (payable) receivable... (4,996,492) 4,964,262 32,230 --
Inventories......................... 2,507,895 2,238,679 -- 4,746,574
Other current assets................ 228,088 118,549 -- 346,637
Deferred tax assets................. 1,468,505 137,472 -- 1,605,977
------------ ----------- ------------ ------------
Total current assets........ 8,186,096 12,444,891 (787) 20,630,200
Property, plant and equipment, net.... 2,046,379 8,383,132 -- 10,429,511
Intangible assets..................... 17,762,443 27,540,062 -- 45,302,505
Investment in subsidiaries............ 32,810,750 -- (32,810,750) --
Other assets.......................... 1,601,561 178,182 -- 1,779,743
Deferred tax assets................... 12,027,794 (630,047) -- 11,397,747
------------ ----------- ------------ ------------
Total assets................ $ 74,435,023 $47,916,220 $(32,811,537) $ 89,539,706
============ =========== ============ ============
LIABILITIES AND MEMBERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.................... $ 6,263,995 $ 3,667,574 $ (787) $ 9,930,782
Accrued sales allowances and
advertising expenses............. 4,306,180 400,070 -- 4,706,250
Other current liabilities........... 1,158,900 1,923,413 -- 3,082,313
Current portion of long-term debt... 6,750,000 380,000 -- 7,130,000
------------ ----------- ------------ ------------
Total current liabilities... 18,479,075 6,371,057 (787) 24,849,345
------------ ----------- ------------ ------------
Long-term debt........................ 57,245,544 6,320,000 -- 63,565,544
Other liabilities..................... 345,805 29,491 -- 375,296
------------ ----------- ------------ ------------
Total long-term
liabilities............... 57,591,349 6,349,491 -- 63,940,840
------------ ----------- ------------ ------------
Redeemable cumulative preferred
interests........................... 18,266,940 -- -- 18,266,940
Members' equity (deficit)............. (19,902,341) 35,195,672 (32,810,750) (17,517,419)
------------ ----------- ------------ ------------
Liabilities and members'
equity (deficit).......... $ 74,435,023 $47,916,220 $(32,811,537) $ 89,539,706
============ =========== ============ ============
</TABLE>
F-26
<PAGE> 160
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $21,755,172 $22,025,784 $4,718,016 $ (366,924) $ 48,132,048
Cost of sales.......................... 14,401,368 12,799,578 2,863,791 (366,924) 29,697,813
----------- ----------- ---------- ----------- ------------
Gross profit..................... 7,353,804 9,226,206 1,854,225 -- 18,434,235
----------- ----------- ---------- ----------- ------------
Operating expenses
Selling, general and administrative
expenses........................... 4,941,391 5,408,252 903,689 -- 11,253,332
Amortization of intangibles.......... 160,871 296,804 142,296 -- 599,971
----------- ----------- ---------- ----------- ------------
Total operating expenses......... 5,102,262 5,705,056 1,045,985 -- 11,853,303
----------- ----------- ---------- ----------- ------------
Operating income....................... 2,251,542 3,521,150 808,240 -- 6,580,932
Interest expense, net.................. 3,363,998 57,888 2,105 -- 3,423,991
Other expense (income), net............ 103,400 (19,969) 2,314 -- 85,745
----------- ----------- ---------- ----------- ------------
(Loss) income before income
taxes......................... (1,215,856) 3,483,231 803,821 -- 3,071,196
(Benefit) provision for income taxes... (480,120) 1,488,734 289,377 -- 1,297,991
(Income) loss from equity investees,
net of tax........................... (2,508,941) -- -- 2,508,941 --
----------- ----------- ---------- ----------- ------------
Net income (loss)................ $ 1,773,205 $ 1,994,497 $ 514,444 $(2,508,941) $ 1,773,205
=========== =========== ========== =========== ============
</TABLE>
F-27
<PAGE> 161
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMBINED
GUARANTOR
SLEEPMASTER SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales.............................. $21,528,603 $11,965,658 $(291,375) $33,202,886
Cost of sales.......................... 13,963,199 7,490,295 (291,375) 21,162,119
----------- ----------- --------- -----------
Gross profit...................... 7,565,404 4,475,363 -- 12,040,767
----------- ----------- --------- -----------
Operating expenses
Selling, general and administrative
expenses.......................... 4,142,297 3,084,620 -- 7,226,917
Amortization of intangibles.......... 161,023 208,603 -- 369,626
----------- ----------- --------- -----------
Total operating expenses.......... 4,303,320 3,293,223 -- 7,596,543
----------- ----------- --------- -----------
Operating income....................... 3,262,084 1,182,140 -- 4,444,224
Interest expense, net.................. 1,827,582 66,103 -- 1,893,685
Other (income) expense, net............ (18,890) 3,166 -- (15,724)
----------- ----------- --------- -----------
Income before income taxes........ 1,453,392 1,112,871 -- 2,566,263
Provision for income taxes............. 603,132 468,893 -- 1,072,025
(Income) loss from equity investees,
net of tax........................... (643,978) -- 643,978 --
----------- ----------- --------- -----------
Net income (loss)................. $ 1,494,238 $ 643,978 $(643,978) $ 1,494,238
=========== =========== ========= ===========
</TABLE>
F-28
<PAGE> 162
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................. $59,000,097 $56,596,148 $7,018,779 $ (496,228) $122,118,796
Cost of sales............. 38,782,298 33,202,585 4,278,721 (496,228) 75,767,376
----------- ----------- ---------- ----------- ------------
Gross profit.... 20,217,799 23,393,563 2,740,058 -- 46,351,420
----------- ----------- ---------- ----------- ------------
Operating expenses
Selling, general and
administrative
expenses............. 13,809,317 14,237,502 1,414,215 -- 29,461,034
Amortization of
intangibles.......... 482,625 811,331 142,296 -- 1,436,252
----------- ----------- ---------- ----------- ------------
Total operating
expenses........... 14,291,942 15,048,833 1,556,511 -- 30,897,286
----------- ----------- ---------- ----------- ------------
Operating income.......... 5,925,857 8,344,730 1,183,547 -- 15,454,134
Interest expense,
net..................... 8,125,871 165,136 8,914 -- 8,299,921
Other expense (income),
net..................... 54,034 (14,102) 9,562 -- 49,494
----------- ----------- ---------- ----------- ------------
(Loss) income before
income taxes and
extraordinary
items................ (2,254,048) 8,193,696 1,165,071 -- 7,104,719
(Benefit) provision for
income taxes)........... (908,787) 3,504,933 419,427 -- 3,015,573
(Income) loss from equity
investees, net of tax... (5,434,407) -- -- 5,434,407 --
----------- ----------- ---------- ----------- ------------
Income (loss) before
extraordinary
items................ 4,089,146 4,688,763 745,644 (5,434,407) 4,089,146
Extraordinary items, net
of income taxes......... (3,166,968) -- -- -- (3,166,968)
----------- ----------- ---------- ----------- ------------
Net income (loss)....... $ 922,178 $ 4,688,763 $ 745,644 $(5,434,407) $ 922,178
=========== =========== ========== =========== ============
</TABLE>
F-29
<PAGE> 163
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMBINED
GUARANTOR
SLEEPMASTER SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales............................. $56,414,360 $24,583,214 $ (292,035) $80,705,539
Cost of sales......................... 36,317,888 15,143,551 (292,035) 51,169,404
----------- ----------- ----------- -----------
Gross profit..................... 20,096,472 9,439,663 -- 29,536,135
----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative
expenses......................... 12,006,713 6,328,879 -- 18,335,592
Amortization of intangibles......... 483,071 445,646 -- 928,717
----------- ----------- ----------- -----------
Total operating expenses......... 12,489,784 6,774,525 -- 19,264,309
----------- ----------- ----------- -----------
Operating income...................... 7,606,688 2,665,138 -- 10,271,826
Interest expense, net................. 5,175,417 141,942 -- 5,317,359
Other (income) expense, net........... (22,067) (1,519) -- (23,586)
----------- ----------- ----------- -----------
Income before income taxes....... 2,453,338 2,524,715 -- 4,978,053
Provision for income taxes............ 1,030,402 1,063,695 -- 2,094,097
(Income) loss from equity investees,
net of tax.......................... (1,461,020) -- 1,461,020 --
----------- ----------- ----------- -----------
Net income (loss)................ $ 2,883,956 $ 1,461,020 $(1,461,020) $ 2,883,956
=========== =========== =========== ===========
</TABLE>
F-30
<PAGE> 164
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................ $ 922,178 $ 4,688,763 $ 745,644 $(5,434,407) $ 922,178
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................ 1,004,541 1,277,795 216,409 -- 2,498,745
Loss on sale of asset........................ -- 3,411 -- -- 3,411
Extraordinary items.......................... 3,166,968 -- -- -- 3,166,968
Deferred income taxes........................ 3,531,075 182,443 -- -- 3,713,518
Other non-cash charges....................... 464,531 6,602 -- -- 471,133
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable........................ (3,010,117) (2,109,033) (329,400) (20,052) (5,468,602)
Accounts receivable -- other............... (11,646) 143,598 -- -- 131,952
Inventories................................ 279,611 (139,719) 28,327 -- 168,219
Other current assets....................... (201,753) (193,328) 13,668 -- (381,413)
Other assets............................... (185,881) -- -- -- (185,881)
Accounts payable........................... (323,987) 1,703,033 86,700 -- 1,465,746
Accrued liabilities........................ 1,022,306 3,543,816 664,462 -- 5,230,584
Intercompany payable (receivable).......... 9,257,202 (8,926,005) (383,066) 51,869 --
Other liabilities.......................... (23,765) 11,032 -- -- (12,733)
------------ ----------- ---------- ----------- ------------
Net cash provided by (used in) operating
activities................................. 15,891,263 192,408 1,042,744 (5,402,590) 11,723,825
------------ ----------- ---------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................... (2,249,910) (664,699) (22,946) -- (2,937,555)
Proceeds from sale of assets................... -- 10,700 -- -- 10,700
Acquisitions, net of cash acquired............. (42,263,177) -- -- 690,117 (41,573,060)
Net activity in investment in subsidiaries..... (5,434,407) -- -- 5,434,407 --
------------ ----------- ---------- ----------- ------------
Net cash (used in) provided by investing
activities................................. (49,947,494) (653,999) (22,946) 6,124,524 (44,499,915)
------------ ----------- ---------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior subordinated
notes........................................ 115,000,000 -- -- -- 115,000,000
Payments on long-term debt..................... (63,995,544) (285,000) -- -- (64,280,544)
Loan origination fees/bond issuance costs...... (5,787,017) -- -- -- (5,787,017)
Penalties on early extinguishment of debt...... (3,645,000) -- -- -- (3,645,000)
Distributions.................................. (747,906) -- -- -- (747,906)
------------ ----------- ---------- ----------- ------------
Net cash provided by (used in) financing
activities................................. 40,824,533 (285,000) -- -- 40,539,533
------------ ----------- ---------- ----------- ------------
Effect of exchange rate changes on cash and cash
equivalents.................................... -- -- 27,956 -- 27,956
Net increase (decrease) in cash and cash
equivalents.................................... 6,768,302 (746,591) 1,047,754 721,934 7,791,399
Cash and cash equivalents at beginning of
period......................................... 40,666 842,963 -- (721,934) 161,695
------------ ----------- ---------- ----------- ------------
Cash and cash equivalents at end of period....... $ 6,808,968 $ 96,372 $1,047,754 $ -- $ 7,953,094
============ =========== ========== =========== ============
</TABLE>
F-31
<PAGE> 165
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMBINED
GUARANTOR
SLEEPMASTER SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................. $ 2,883,956 $1,461,020 $(1,461,020) $ 2,883,956
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 873,452 649,878 -- 1,523,330
Deferred income taxes................. 1,095,692 294,635 -- 1,390,327
Other non-cash charges................ 254,141 5,135 -- 259,276
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable................. (1,432,862) (975,572) -- (2,408,434)
Accounts receivable -- other........ 62,738 (2,262) -- 60,476
Inventories......................... 591,037 130,979 -- 722,016
Other current assets................ (201,691) (101,217) -- (302,908)
Other assets........................ (174,716) 40,044 -- (134,672)
Accounts payable.................... 1,103,351 1,638,305 -- 2,741,656
Accrued liabilities................. (1,978,747) 1,119,459 -- (859,288)
Intercompany payable (receivable)... 3,936,994 (3,936,994) -- --
Other liabilities................... 82,998 22,118 -- 105,116
------------ ---------- ----------- ------------
Net cash provided by operating
activities.......................... 7,096,343 345,528 (1,461,020) 5,980,851
------------ ---------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................... (565,881) (72,856) -- (638,737)
Acquisition, net of cash acquired........ (32,810,750) -- 6,129 (32,804,621)
Net activity in investment in
subsidiaries.......................... (1,461,020) -- 1,461,020 --
------------ ---------- ----------- ------------
Net cash used in investing
activities.......................... (34,837,651) (72,856) 1,467,149 (33,443,358)
------------ ---------- ----------- ------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt............. 38,053,360 -- -- 38,053,360
Payments on long-term debt............... (10,943,091) (190,000) -- (11,133,091)
Borrowings under revolving line of
credit................................ 7,396,328 -- -- 7,396,328
Payments on revolving line of credit..... (7,397,328) -- -- (7,397,328)
Loan origination fees.................... (701,343) -- -- (701,343)
Distributions............................ (234,240) -- -- (234,240)
Capital contribution..................... 1,000,000 -- -- 1,000,000
------------ ---------- ----------- ------------
Net cash provided by (used in)
financing activities................ 27,173,686 (190,000) -- 26,983,686
------------ ---------- ----------- ------------
Net change in cash and cash equivalents.... (567,622) 82,672 6,129 (478,821)
Cash and cash equivalents at beginning of
period................................... 591,683 6,129 (6,129) 591,683
------------ ---------- ----------- ------------
Cash and cash equivalents at end of
period................................... $ 24,061 $ 88,801 $ -- $ 112,862
============ ========== =========== ============
</TABLE>
F-32
<PAGE> 166
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-33
<PAGE> 167
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-34
<PAGE> 168
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-35
<PAGE> 169
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-36
<PAGE> 170
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-37
<PAGE> 171
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 advertising costs, consisting principally of
cooperative advertising with dealers and retailers, when the revenue from sales
to customers is recorded. Advertising costs for the years ended December 31,
1997 and 1996 approximated $2,236,000 and $1,905,000, respectively.
F-38
<PAGE> 172
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-39
<PAGE> 173
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-40
<PAGE> 174
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-41
<PAGE> 175
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-42
<PAGE> 176
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-43
<PAGE> 177
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-44
<PAGE> 178
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-45
<PAGE> 179
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-46
<PAGE> 180
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-47
<PAGE> 181
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 advertising costs, consisting principally of
cooperative advertising with dealers and retailers, when the revenue from sales
to customers is recorded. 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-48
<PAGE> 182
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-49
<PAGE> 183
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-50
<PAGE> 184
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-51
<PAGE> 185
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-52
<PAGE> 186
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-53
<PAGE> 187
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-54
<PAGE> 188
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-55
<PAGE> 189
STAR BEDDING PRODUCTS (1986) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
Foreign Currency Translation
The Company's functional currency is the Canadian dollar. Assets and
liabilities are translated into U.S. dollars using the current exchange rates in
effect at the balance sheet date, while revenues and expenses are translated at
the average exchange rate during the period. The resulting translation
adjustments are recorded as a component of accumulated other comprehensive
income within the retained earnings section of shareholder's equity. Foreign
currency transaction gains and losses are charged or credited to income as
incurred.
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
F-56
<PAGE> 190
STAR BEDDING PRODUCTS (1986) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
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.
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>
F-57
<PAGE> 191
STAR BEDDING PRODUCTS (1986) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
8. RELATED PARTY TRANSACTIONS
For reporting purposes herein, related parties are the company's director
and companies controlled by the director.
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-58
<PAGE> 192
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-59
<PAGE> 193
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-60
<PAGE> 194
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-61
<PAGE> 195
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-62
<PAGE> 196
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Adam Wuest, Inc.:
We have audited the accompanying balance sheets of Adam Wuest, Inc. (an
Ohio corporation) as of December 31, 1998 and 1997, and the related statements
of income, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Adam Wuest, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
Cincinnati, Ohio,
January 22, 1999 (Except with respect to the matter discussed in Note 11, for
which the date is August 19, 1999)
Arthur Andersen LLP
F-63
<PAGE> 197
ADAM WUEST, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,276,109 $ 7,704,695
Marketable securities..................................... 5,672,194 --
Trade receivables, less allowance for doubtful accounts of
$279,000 and $196,000 in 1998 and 1997, respectively.... 3,512,083 2,765,807
Inventories............................................... 945,594 1,119,822
Prepaid expenses.......................................... 96,388 26,702
----------- -----------
Total current assets.................................... 12,502,368 11,617,026
----------- -----------
Property, plant and equipment (Note 6):
Facility under capital lease.............................. 3,150,000 3,150,000
Leasehold improvements.................................... 283,743 278,624
Machinery and equipment................................... 2,359,704 2,372,049
Furniture and fixtures.................................... 710,050 684,889
Deposits on fixed assets.................................. 85,921 --
----------- -----------
6,589,418 6,485,562
Less -- accumulated depreciation.......................... (3,361,500) (2,918,538)
----------- -----------
3,227,918 3,567,024
----------- -----------
Other assets................................................ 568,551 492,490
----------- -----------
Total assets............................................ $16,298,837 $15,676,540
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of related party capital lease obligation
(Note 6)................................................ $ 94,652 $ 94,652
Accounts payable.......................................... 907,175 734,389
Accrued advertising....................................... 867,608 675,945
Accrued sales allowances.................................. 119,567 112,210
Accrued compensation...................................... 753,373 782,423
Accrued expenses.......................................... 553,125 429,680
Income taxes payable...................................... 47,619 58,048
Dividends payable......................................... 2,422,000 2,456,191
----------- -----------
Total current liabilities............................... 5,765,119 5,343,538
----------- -----------
Long-term liabilities:
Related party capital lease obligation (Note 6)........... 2,428,687 2,533,212
----------- -----------
Deferred compensation (Note 9)............................ 227,130 66,130
----------- -----------
Total long-term liabilities............................. 2,655,817 2,599,342
----------- -----------
Commitments and contingencies (Notes 6 and 10)
Stockholders' equity:
Common stock, no par, 18,106 shares authorized; issued and
outstanding
--Voting -- 9,732 in 1998 and 1997
--Non-voting -- 1,081 in 1998 and 1997.................. 1,031,597 1,031,597
Additional paid-in-capital................................ 8,181 8,181
Retained earnings......................................... 6,838,123 6,693,882
----------- -----------
Total stockholders' equity.............................. 7,877,901 7,733,660
----------- -----------
Total liabilities and stockholders' equity.............. $16,298,837 $15,676,540
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
balance sheets.
F-64
<PAGE> 198
ADAM WUEST, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net sales (Note 5)................................. $ 43,572,710 $41,255,302 $36,590,204
Cost of goods sold................................. 24,245,947 24,090,099 23,053,292
------------ ----------- -----------
Gross profit.................................. 19,326,763 17,165,203 13,536,912
Selling, general and administrative expenses....... 13,227,576 12,874,993 11,749,190
------------ ----------- -----------
Operating income.............................. 6,099,187 4,290,210 1,787,722
------------ ----------- -----------
Other income (Expense):
Interest income.................................. 317,235 274,581 198,566
Interest expense................................. (346,617) (340,239) (350,932)
Other, net....................................... 5,560 6,234 (47,022)
------------ ----------- -----------
(23,822) (59,424) (199,388)
------------ ----------- -----------
Net income.................................... $ 6,075,365 $ 4,230,786 $ 1,588,334
============ =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-65
<PAGE> 199
ADAM WUEST, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995...................... $1,031,597 $8,181 $ 6,208,553 $ 7,248,331
Net income...................................... -- -- 1,588,334 1,588,334
Dividends....................................... -- -- (1,390,825) (1,390,825)
---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1996...................... 1,031,597 8,181 6,406,062 7,445,840
Net income...................................... -- -- 4,230,786 4,230,786
Dividends....................................... -- -- (3,942,966) (3,942,966)
---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1997...................... 1,031,597 8,181 6,693,882 7,733,660
Net income...................................... -- -- 6,075,365 6,075,365
Dividends....................................... -- -- (5,931,124) (5,931,124)
---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1998...................... $1,031,597 $8,181 $ 6,838,123 $ 7,877,901
========== ====== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-66
<PAGE> 200
ADAM WUEST, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 6,075,365 $ 4,230,786 $ 1,588,334
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation................................... 519,518 544,464 481,276
Changes in certain assets and liabilities--
Marketable securities........................ (5,672,194) -- --
Accounts receivable.......................... (746,276) 555,157 320,438
Inventories.................................. 174,228 34,661 (55,456)
Prepaid expenses and other assets............ (145,747) (99,184) (126,365)
Accounts payable............................. 172,786 (47,659) 258,551
Accrued expenses and deferred compensation... 454,415 723,429 (414,437)
Income taxes payable......................... (10,429) 27,629 (2,819)
----------- ----------- -----------
Net cash provided by operating
activities.............................. 821,666 5,969,283 2,049,522
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............... (180,412) (569,819) (440,362)
----------- ----------- -----------
Net cash used in investing activities..... (180,412) (569,819) (440,362)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term obligations.................. (104,525) (187,995) (199,880)
Dividends......................................... (5,965,315) (1,486,775) (1,442,350)
----------- ----------- -----------
Net cash used in financing activities..... (6,069,840) (1,674,770) (1,642,230)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents.... (5,428,586) 3,724,694 (33,070)
Cash and cash equivalents, beginning of year........ 7,704,695 3,980,001 4,013,071
----------- ----------- -----------
Cash and cash equivalents, end of year.............. $ 2,276,109 $ 7,704,695 $ 3,980,001
=========== =========== ===========
Supplemental disclosures:
Cash payments for interest........................ $ 346,617 $ 340,239 $ 350,932
=========== =========== ===========
Cash payments for taxes........................... $ 90,000 $ 36,000 $ 62,000
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-67
<PAGE> 201
ADAM WUEST, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997 AND FOR THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(1) THE COMPANY
Adam Wuest, Inc. (the Company), founded in 1850, is the nation's oldest
family-owned mattress manufacturer. The Company currently owns three Serta
licenses: Cincinnati, Cleveland and Indianapolis and operates as Serta Mattress
Company, a Division of Adam Wuest, Inc. The Company's principal products are
Serta brand bedding, but it also manufactures its own brand bedding. The
Company's customers are primarily retail outlets who sell to the end users and
its primary market areas are Ohio, Indiana, eastern Kentucky and West Virginia.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Recognition of Revenues -- The Company recognizes revenue from the sale
of its products at the time of shipment. Accruals for returns, discounts,
rebates and other allowances are recorded as a reduction in sales. The Company's
bedding products offer limited warranties of up to ten years for manufacturing
defects. The Company's annual costs for warranty claims are nominal.
(b) Cash and Cash Equivalents -- Cash and cash equivalents include cash on
hand and highly liquid investments with original maturities of three months or
less.
(c) Marketable Securities -- Marketable securities as of December 31, 1998
consist primarily of tax-free bonds. The Company classifies all marketable
securities as available for sale. Accordingly, these securities are recorded at
market value which approximated historical cost at December 31, 1998. Realized
gains or losses are included in earnings upon sale of the securities and are
calculated based on the proceeds received less the applicable original cost.
These net gains were nominal for the year ended December 31, 1998.
(d) Inventories -- Inventories are stated at the lower of cost or market.
Cost is determined using the last-in, first-out (LIFO) method. If the lower of
first-in, first-out (FIFO) cost or market method had been used, the inventory
would have been approximately $236,000 and $280,000 higher at December 31, 1998
and 1997, respectively and cost of goods sold would have been approximately
$44,000 more and $68,000 less for the years ended December 31, 1998 and 1997,
respectively. The impact to cost of goods sold would have been nominal for the
year ended December 31, 1996.
Inventories consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Raw materials........................................ $532,770 $ 727,201
Work-in-process...................................... 78,769 48,777
Finished goods....................................... 334,055 343,844
-------- ----------
$945,594 $1,119,822
======== ==========
</TABLE>
(e) Property, Plant and Equipment -- Property, plant and equipment are
carried at cost and depreciated over their estimated useful lives using the
straight-line method. Depreciation is provided over the lease term for assets
under capital lease. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Facility under capital lease................................ 20 years
Leasehold improvements...................................... 3-10 years
Machinery and equipment..................................... 5-10 years
Furniture and fixtures...................................... 3-5 years
</TABLE>
Expenditures for repairs and maintenance are charged to expense as
incurred.
F-68
<PAGE> 202
ADAM WUEST, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The Company reviews the carrying value of these assets whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Impairments are recognized when the expected undiscounted future
cash flows are less than the carrying amount of the asset. 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. Based on its
most recent analysis, the Company believes no impairments exist at December 31,
1998.
(f) Advertising -- The Company expenses the costs of advertising as
incurred. The Company expenses the costs associated with a cooperative
advertising program when the revenue from sales to customers is recorded.
Advertising expense for the years ended December 31, 1998, 1997, and 1996
approximated $5,353,000, $5,375,000 and $4,827,000, respectively.
(g) 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.
(h) New Pronouncements -- In February 1998, the American Institute of
Certified Public Accountants Accounting Standards Executive Committee issued
Statement of Position No. 98-1 ("SOP 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. The Company is
required to adopt this SOP January 1, 1999. The implementation of SOP 98-1 will
not have a material impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), which requires comprehensive income and the associated
income tax expense or benefit to be reported in a financial statement that is
displayed with the same prominence as other financial statements with an
aggregate amount of comprehensive income reported in the same financial
statement. "Other Comprehensive Income" refers to revenues, expenses, gains and
losses that, under generally accepted accounting principles, are included in
comprehensive income but not in net income. The Company adopted this statement
in the first quarter of fiscal 1998 with no impact on the Company's reported
financial position, results of operations, cash flows or related disclosures.
(i) Litigation -- The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of business. The
Company believes that any liability that may be finally determined will not have
a material effect on its financial position, results of operations or its cash
flows.
(j) Reclassifications -- Certain reclassifications have been made to the
prior years' financial statements to conform with the 1998 presentation.
(3) INCOME TAXES
Effective December 1, 1994, the Company elected for federal and certain
state income tax purposes to include its taxable income with that of its
shareholders (an S corporation election). Accordingly, net income reported by
the Company for the years ended December 31, 1998, 1997 and 1996 does not
include provisions for federal and state income tax, which would otherwise be
included in the determination of net income.
Deferred taxes result from reporting certain income and expense items in
different years for financial reporting purposes than for income tax purposes.
In the event that the S Corporation election is terminated, federal and certain
state future tax benefits applicable to these differences would be reflected
F-69
<PAGE> 203
ADAM WUEST, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
in the accompanying financial statements. The components of the net future tax
benefits would be as follows:
<TABLE>
<CAPTION>
12/31/98 12/31/97
--------- ---------
<S> <C> <C>
Capital lease............................................ $(233,448) $(193,729)
Depreciation............................................. 205,196 166,871
Currently non-deductible expenses and reserves........... 531,598 376,503
--------- ---------
$ 503,346 $ 349,645
========= =========
</TABLE>
(4) LINE OF CREDIT
The Company has a $4,000,000 unsecured line of credit with its bank which
matures in January 2000 and bears interest at the lesser of prime or the LIBOR
rate plus 175 basis points. No amounts were outstanding on the line of credit at
December 31, 1998 or 1997.
(5) SIGNIFICANT CUSTOMER
Approximately 15%, 11% and 11% of gross sales in 1998, 1997 and 1996,
respectively, were with one customer. This customer accounted for approximately
15% and 18% of the Company's trade receivables at December 31, 1998 and 1997,
respectively.
(6) CAPITAL LEASE OBLIGATIONS
The Company leases its primary manufacturing and office facilities from an
entity related to the Company by common ownership (Lessor). The lease expires in
2010 and includes two five-year renewal options. The fair value of the
obligation approximates its carrying value. The minimum lease payments under the
capital lease at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.................................................... $ 362,500
2000.................................................... 362,500
2001.................................................... 362,500
2002.................................................... 362,500
2003.................................................... 362,500
Thereafter.............................................. 2,528,251
-----------
4,340,751
Less-amount representing interest....................... (1,817,412)
-----------
Present value of lease payments......................... 2,523,339
Less-current portion.................................... (94,652)
-----------
$ 2,428,687
===========
</TABLE>
The Company is jointly liable with the Lessor on Economic Development
Revenue Bonds with an outstanding balance of $2,145,000 and $2,231,000 at
December 31, 1998 and 1997, respectively. The interest rates on the bonds range
from 4.3% to 5.6% depending on the maturity date of the bond series. The bonds
are payable in quarterly installments of principal and interest through 2010 and
are secured by an irrevocable letter of credit expiring in September 2001. The
letter of credit is secured by the building purchased with the proceeds of the
bonds.
F-70
<PAGE> 204
ADAM WUEST, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(7) LICENSE AGREEMENT
Serta, Inc. ("Serta") is a national non-profit organization consisting of
twelve 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 by both parties or if the Company does not comply with the provisions
of the license agreement. The company expenses the costs associated with the
license agreement as paid. In 1998, 1997 and 1996, the Company expensed
approximately $1,556,000, $1,572,000 and $1,288,000, respectively, in license
and advertising fees to Serta.
(8) EMPLOYEE BENEFIT PLANS
(a) The Company has a profit sharing plan covering salaried employees who
have met certain age and length of service requirements. The plan includes
provisions which permit eligible employees to defer a portion of their
compensation up to a stipulated amount. Company contributions are at the
discretion of the Board of Directors and approximated $224,000, $179,000 and
$171,000 in 1998, 1997 and 1996, respectively.
(b) Union employees of the Company are covered by union sponsored
multi-employer pension plans. The Company's contributions to these plans
approximated $181,000, $179,000 and $180,000 in 1998, 1997 and 1996,
respectively. These contributions are determined in accordance with provisions
of negotiated labor contracts. Based on recent reports provided by the plan
trustees, these plans are fully funded.
(9) PHANTOM STOCK PLAN
The Company maintains a phantom stock plan (the Plan) to provide incentive
compensation for non-shareholder officers and key employees. The Plan is
administered by the Company's Board of Directors which has exclusive power to
grant shares.
Phantom shareholders are paid on a current basis an amount equal to their
phantom shares multiplied by the dividend rate per share paid to the common
stockholders. In addition, an amount equal to 125% of the undistributed net
income per share is deferred for each of the phantom shareholders. Payments of
the deferred compensation amounts generally will commence at the earlier of the
employee's termination, death, retirement or a change in control of the Company.
Such payments shall be made quarterly over a period of five years. Participants
vest in their deferred compensation benefits after five years of participation
in the plan. At its discretion, the Company may terminate the plan at any time
prior to vesting by the participants. As of December 31, 1998 and 1997 there
were 963 phantom shares in the plan. Compensation expense related to the Plan
approximated $300,000, $198,000 and $67,000 in 1998, 1997 and 1996,
respectively.
(10) STOCK REPURCHASE AGREEMENT
The Company and the shareholders have the first right of refusal to
purchase the shares of stock offered for sale by any other shareholders. The
repurchase price would be based upon the Company's adjusted net book value per
share as defined in the agreements.
(11) SUBSEQUENT EVENT
On August 19, 1999, the Company executed a letter of intent to initiate the
sale of certain of its net assets, including the facility leased from a related
party under a capital lease arrangement, to Sleepmaster LLC (a Serta licensee)
for approximately $56,250,000.
F-71
<PAGE> 205
ADAM WUEST, INC.
CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,518,817
Marketable securities..................................... 3,455,145
Trade receivables, less allowance for doubtful accounts of
approximately $300,000................................. 4,199,059
Inventories............................................... 1,446,719
Prepaid expenses.......................................... 43,937
-----------
Total current assets.............................. 12,663,677
Property, plant and equipment, net.......................... 3,215,832
Other assets................................................ 544,733
-----------
Total assets...................................... $16,424,242
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of related party capital lease
obligation............................................. $ 94,652
Accounts payable.......................................... 1,275,501
Accrued sales allowances and advertising expenses......... 1,085,128
Accrued compensation...................................... 708,609
Accrued expenses.......................................... 450,242
Income taxes payable...................................... 26,092
-----------
Total current liabilities......................... 3,640,224
-----------
Long-term liabilities:
Related party capital lease obligation.................... 2,342,126
Deferred compensation..................................... 384,830
-----------
Total long-term liabilities....................... 2,726,956
-----------
Commitments and Contingencies
Stockholders' Equity:
Common stock, no par, 18,106 shares authorized; issued and
outstanding
-- Voting-9,732
-- Non-voting-1,081.................................... 1,031,597
Additional paid-in-capital................................ 8,181
Retained earnings......................................... 9,017,284
-----------
Total stockholders' equity........................ 10,057,062
-----------
Total liabilities and stockholders' equity........ $16,424,242
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
balance sheet.
F-72
<PAGE> 206
ADAM WUEST, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net sales................................................... $38,067,871 $33,292,861
Cost of goods sold.......................................... 21,759,958 18,537,346
----------- -----------
Gross profit........................................... 16,307,913 14,755,515
Selling, general and administrative expenses................ 11,086,616 9,967,099
----------- -----------
Operating income....................................... 5,221,297 4,788,416
----------- -----------
Other income (expense):
Interest income........................................... 186,828 249,022
Interest expense.......................................... (257,841) (261,291)
Other, net................................................ (20,189) (21,370)
----------- -----------
(91,202) (33,639)
----------- -----------
Net income............................................. $ 5,130,095 $ 4,754,777
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-73
<PAGE> 207
ADAM WUEST, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 5,130,095 $ 4,754,777
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation........................................... 374,982 412,317
Changes in certain assets and liabilities --
Marketable securities................................ 2,217,049 (5,452,472)
Accounts receivable.................................. (686,976) (1,030,915)
Inventories.......................................... (501,125) (2,685)
Prepaid expenses and other assets.................... 76,269 (26,722)
Accounts payable..................................... 368,326 1,158,222
Accrued expenses and deferred compensation........... 108,006 213,151
Income taxes payable................................. (21,527) (36,313)
----------- -----------
Net cash provided by (used in) operating
activities..................................... 7,065,099 (10,640)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (362,896) (88,892)
----------- -----------
Net cash used in investing activities............. (362,896) (88,892)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term obligations.......................... (86,561) (78,393)
Dividends................................................. (5,372,934) (5,088,033)
----------- -----------
Net cash used in financing activities............. (5,459,495) (5,166,426)
----------- -----------
Increase (decrease) in cash and cash equivalents............ 1,242,708 (5,265,958)
Cash and cash equivalents, beginning of period.............. 2,276,109 7,704,695
----------- -----------
Cash and cash equivalents, end of period.................... $ 3,518,817 $ 2,438,737
=========== ===========
Supplemental disclosures:
Cash payments for interest................................ $ 257,841 $ 261,291
=========== ===========
Cash payments for taxes................................... $ 88,000 $ 116,000
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-74
<PAGE> 208
ADAM WUEST, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements have been omitted.
The information contained herein reflect all normal and recurring
adjustments which, in the opinion of management, are necessary for the nine
months ended September 30, 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. It is suggested that
these unaudited interim financial statements be read in conjunction with the
Company's annual financial statements and the notes thereto for the year ended
December 31, 1998.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business Activities -- The Company is principally engaged in the
manufacture and sale of Serta Brand bedding. The Company's customers are
primarily retail outlets who sell to the end users. The Company's primary market
areas are Ohio, Indiana, eastern Kentucky and West Virginia.
(b) Inventories -- Inventories are stated at the lower of cost or market.
Cost is determined using the last-in, first-out (LIFO) method. Inventories
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Raw materials............................................... $ 880,765
Work-in-process............................................. 73,592
Finished goods.............................................. 492,362
----------
Total inventories...................................... $1,446,719
==========
</TABLE>
(c) Property, Plant and Equipment -- The Company provides for depreciation
of its property, plant and equipment using the straight-line method.
The estimated lives of the various classes of assets are as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Facility under capital lease................................ 20
Leasehold improvements...................................... 3 to 10
Machinery and equipment..................................... 5 to 10
Furniture and fixtures...................................... 3 to 5
</TABLE>
Expenditures for repairs and maintenance of property, plant and equipment
are charged to expense as incurred.
The components of property, plant and equipment include:
<TABLE>
<S> <C>
Facility under capital lease from related party............. $3,150,000
Leasehold improvements...................................... 295,659
Machinery and equipment..................................... 2,720,703
Furniture and fixtures...................................... 736,217
----------
6,902,579
Less-accumulated depreciation............................... (3,686,747)
----------
$3,215,832
==========
</TABLE>
(d) Advertising -- The Company expenses advertising costs as incurred.
(e) 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
F-75
<PAGE> 209
ADAM WUEST, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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) Marketable Securities -- Marketable securities consist primarily of tax
free bonds. The Company classifies all marketable securities as available for
sale. Accordingly, these securities are recorded at market value as determined
by published yearend market quotes and unrealized holding gains and losses are
included as a separate component of stockholders' equity until realized.
Realized gains and losses are included in earnings upon the sale of a marketable
security and are calculated based upon the proceeds received less the original
cost. Net realized and unrealized gains were nominal for the periods ended
September 30, 1999 and 1998.
(g) New Pronouncements -- In February 1998, the American Institute of
Certified Public Accountants Accounting Standards Executive Committee issued
Statement of Position No. 98-1 ("SOP 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. The Company adopted
this SOP January 1, 1999. The implementation of SOP 98-1 did not have a material
impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), which requires comprehensive income and the associated
income tax expense or benefit to be reported in a financial statement that is
displayed with the same prominence as other financial statements with an
aggregate amount of comprehensive income reported in the same financial
statement. "Other Comprehensive Income" refers to revenues, expenses, gains and
losses that, under generally accepted accounting principles, are included in
comprehensive income but not in net income. The Company adopted this statement
in the first quarter of fiscal 1998 with no impact on the Company's reported
financial position, results of operations, cash flows or related disclosures.
(h) Litigation -- The Company is subject to various claims, lawsuits, and
administrative proceedings arising in the ordinary course of business. The
Company believes that any liability that may be finally determined will not have
a material effect on its financial position, results of operations, or its cash
flows.
(i) Reclassifications -- Certain reclassifications have been made to the
prior years' financial statements to conform with the 1999 presentation.
(3) INCOME TAXES-
Effective December 1, 1994, the Company elected for federal and certain
state income tax purposes to include its taxable income with that of its
shareholders (an S Corporation election). Accordingly, subsequent to December 1,
1994, net income reported by the Company does not include a provision for
federal and state income tax which would otherwise be included in the
determination of net income.
(4) LINE OF CREDIT-
The Company has a $4,000,000 unsecured line of credit with its bank which
matures in January 2000 and bears interest at the lesser of prime or the LIBOR
rate plus 175 basis points. No amounts were outstanding on the line of credit at
September 30, 1999 and 1998.
(5) PENDING SALE-
On August 19, 1999, the Company executed a letter of intent to initiate the
sale of certain of its net assets, including the facility leased from a related
party under a capital lease agreement, to Sleepmaster LLC (a Serta licensee) for
approximately $56,250,000. The accompanying interim financial statements do not
reflect any adjustments related to the sale of the net assets.
F-76
<PAGE> 210
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$115,000,000
[SERTA LOGO]
SLEEPMASTER
11% SENIOR SUBORDINATED NOTES DUE 2009
-------------------------------------
PROSPECTUS
-------------------------------------
[ ], 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 211
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 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> 212
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> 213
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 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> 214
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> 215
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the 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 November 12, 1999.
Sleepmaster L.L.C.
By: *
------------------------------------
Name: Charles Schweitzer
Title: Executive Advisor,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on November 12, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* 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)
* Advisor
- ---------------------------------------------
Robert Bartholomew
* Advisor
- ---------------------------------------------
John D. Weber
* Advisor
- ---------------------------------------------
David F. Thomas
* Advisor
- ---------------------------------------------
Michael Bradley
* Advisor
- ---------------------------------------------
Michael Bubis
</TABLE>
- ---------------
* Executed by power of attorney.
II-5
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the 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 November 12, 1999.
Sleepmaster Finance Corporation
By: *
------------------------------------
Name: Charles Schweitzer
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on November 12, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* 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)
* Director
- ---------------------------------------------
Robert Bartholomew
* Director
- ---------------------------------------------
John D. Weber
* Director
- ---------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------
Michael Bradley
* Director
- ---------------------------------------------
Michael Bubis
</TABLE>
- ---------------
* Executed by power of attorney.
II-6
<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the 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 November 12, 1999.
Palm Beach Bedding Company
By: *
------------------------------------
Name: Michael Bubis
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on November 12, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* 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)
* Director
- ---------------------------------------------
Robert Bartholomew
* Director
- ---------------------------------------------
John D. Weber
* Director
- ---------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------
Michael Bradley
* Director
- ---------------------------------------------
Michael Bubis
</TABLE>
- ---------------
* Executed by power of attorney
II-7
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the 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 November 12, 1999.
Herr Manufacturing Company
By: *
------------------------------------
Name: Stuart W. Herr
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on November 12, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* 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)
* Director
- ---------------------------------------------
Robert Bartholomew
* Director
- ---------------------------------------------
John D. Weber
* Director
- ---------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------
Michael Bradley
* Director
- ---------------------------------------------
Michael Bubis
</TABLE>
- ---------------
* Executed by power of attorney
II-8
<PAGE> 219
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the 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 November 12, 1999.
Lower Road Associates, LLC
By: *
------------------------------------
Name: Charles Schweitzer
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on November 12, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* 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)
* Advisor
- ---------------------------------------------
Robert Bartholomew
* Advisor
- ---------------------------------------------
John D. Weber
* Advisor
- ---------------------------------------------
David F. Thomas
* Advisor
- ---------------------------------------------
Michael Bradley
* Advisor
- ---------------------------------------------
Michael Bubis
</TABLE>
- ---------------
* Executed by power of attorney
II-9
<PAGE> 220
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.*
3.11 Certificate of Incorporation of Adam Wuest Corporation dated
October 14, 1999.**
3.12 Amendment No. 1 to the Certificate of Incorporation of Adam
Wuest Corporation dated October 21, 1999.**
3.13 Amendment No. 2 to the Certificate of Incorporation for AWI
Corporation (previously Adam Wuest Corporation) dated
November 5, 1999.**
3.14 By-laws of Adam Wuest Corporation.**
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.*
4.2 Executed Regulation S Note.*
4.3 Executed 144A Note.*
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.*
</TABLE>
<PAGE> 221
<TABLE>
<C> <S> <C>
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.*
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.*
</TABLE>
<PAGE> 222
<TABLE>
<C> <S> <C>
10.22 Loan Agreement, dated as of April 1, 1996, between Palm
Beach Bedding Company and Palm Beach County, Florida,
relating to the 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.*
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 Amended and Restated Credit Agreement, dated as of November
5, 1999, by and among Sleepmaster L.L.C., as borrower,
Sleepmaster Holdings L.L.C. and our domestic restricted
subsidiaries, as guarantors, 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.*
10.39 License Agreement and Memorandum of Agreement, each dated
December 1, 1969, between Serta Associates, Inc. covering
portions of Ohio, Kentucky and West Virginia, as
amended.**
</TABLE>
<PAGE> 223
<TABLE>
<C> <S> <C>
10.40 License Agreement and Memorandum of Agreement, each dated November 4, 1989, between Serta, Inc. and Adam
Wuest, Inc. covering Ohio, as amended.**
10.41 License Agreement and Memorandum of Agreement, each dated December 1, 1990, between Serta, Inc. and Adam
Wuest, Inc. covering Indiana, as amended.**
10.42 Subordinated Credit Agreement, dated as of November 5, 1999 by and between Sleepmaster Holdings, L.L.C.,
as borrower and Citicorp Mezzanine Partners, L.P., as lender.**
10.43 Asset Purchase Agreement among Adam Wuest, Inc., Adam Wuest Realty, Inc., Sleepmaster L.L.C. and AWI
Corporation dated as of November 5, 1999.**
10.44 Subordinated Note issued by Sleepmaster Holdings L.L.C. to Citicorp Mezzanine Partners, L.P. on November
5, 1999, in aggregate principal amount of $10.0 million.**
10.45 Warrant Agreement dated as of November 5, 1999 between Sleepmaster L.L.C. and Citicorp Mezzanine
Partners, L.P.**
10.46 Form of Unit Purchase Warrant issued by Sleepmaster Holdings L.L.C. to Citicorp Mezzanine Partners L.P.
on November 5, 1999.**
10.47 Trust Indenture dated as of February 1, 1994 by and among Hamilton County, Ohio, the Fifth Third Bank, as
trustee.**
10.48 Loan Agreement, dated as of February 1, 1994, between Hamilton County, Ohio, Adam Wuest, Inc. and Adam
Wuest Realty, Inc. relating to the Hamilton County, Ohio Fixed Rate Economic Development Revenue Bonds
(Adam Wuest, Inc. Project, Series 1994) originally outstanding in the aggregate principal amount of
$2,980,000.**
10.49 Letter of Credit issued on November 5, 1999 by First Union National Bank to Fifth Third Bank on behalf of
Adam Wuest Corporation in the amount of $2,284,425.**
10.50 Mortgage and Security Agreement, dated as of May 18, 1999 by and between Palm Beach Bedding Company, as
Grantor, and First Union National Bank, as Agent.**
10.51 First Amendment to the Mortgage and Security Agreement, dated November 5, 1999 by and between Palm Beach
Bedding Company, as Grantor, and First Union National Bank, as Agent.**
10.52 Mortgage and Security Agreement, dated as of May 18, 1999 by and between Herr Manufacturing Company, as
Grantor, and First Union National Bank, as Agent.**
10.53 First Amendment to Mortgage and Security Agreement, dated as of November 5, 1999 by and between Herr
Manufacturing Company, as Grantor, and First Union National Bank, as Agent.**
10.54 Mortgage and Security Agreement, dated as of November 5, 1999 by and between Adam Wuest Corporation, as
Grantor, and First Union National Bank, as Lender.**
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).*
23.3 Consent of Arthur Andersen LLP.**
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 previously.
** Filed herewith.
<PAGE> 1
EXHIBIT 3.11
STATE OF DELAWARE
Office of the Secretary of State
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "ADAM WUEST CORPORATION", FILED IN THIS OFFICE ON THE
FOURTEENTH DAY OF OCTOBER, A.D. 1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
[Delaware Secretary of State Seal]
AUTHENTICATION: 0028076
DATE: 10/15/99
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
ADAM WUEST CORPORATION
ARTICLE ONE
The name of the corporation is Adam Wuest 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 Kirkland & Ellis
153 East 53rd Street, 39th Fl.
New York, NY 10022
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.
<PAGE> 1
EXHIBIT 3.12
State of Delaware
Office of the Secretary of State
PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "ADAM WUEST CORPORATION", CHANGING ITS NAME FROM "ADAM WUEST CORPORATION" TO
"AWI CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-FIRST DAY OF OCTOBER, A.D.
1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL]
/s/ Edward J. Freel
-------------------------
Edward J. Freel, Secretary of State
3111373 8100 AUTHENTICATION: 0041268
991446508 DATE: 10-22-99
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/21/1999
991446508 - 3111373
CERTIFICATE OF CORRECTION
OF THE
CERTIFICATE OF INCORPORATION
OF
ADAM WUEST CORPORATION
-------------------------------
(Pursuant to Section 103(f) of the General Corporation Law
of the State of Delaware)
I, the undersigned, being the Executive Vice President of Adam Wuest
Corporation, do hereby certify that the Certificate of Incorporation filed on
October 14, 1999 contained and inaccurate record. The Certificate of
Incorporation was erroneously filed with and incorrect corporate name.
ARTICLE ONE provide that:
ARTICLE ONE "The name of the Corporation is Adam Wuest Corporation
(hereinafter called the "Corporation")."
ARTICLE ONE should read as follows:
ARTICLE ONE "The name of the corporation is AWI Corporation
(hereinafter call the "Corporation")."
I have duly executed this Certificate of Correction of the Certificate
of Incorporation as of this 21st day of October 1999.
/s/ JAMES P. KOSCICA
-----------------------------
James P. Koscica
Executive Vice President
<PAGE> 1
EXHIBIT 3.13
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "AWI CORPORATION", CHANGING ITS NAME FROM "AWI CORPORATION" TO "ADAM WUEST
CORPORATION", FILED IN THIS OFFICE ON THE FIFTH DAY OF NOVEMBER, A.D. 1999, AT
12 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
[SEAL] ------------------------------------
Edward J. Freel, Secretary of State
3111373 8100 AUTHENTICATION: 0066946
991471930 DATE: 11-05-99
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:00 PM 11/05/1999
991471930 - 3111373
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AWI CORPORATION
UNDER SECTION 242 OF THE DELAWARE CORPORATION LAW
Pursuant to Sections 242 of the Delaware Corporation Law of the State of
Delaware, the undersigned, being the Secretary of AWI Corporation, a Delaware
corporation (the "Corporation") does hereby certify the following:
FIRST: The name of the Corporation is AWI Corporation.
SECOND: The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of Delaware on October 14, 1999.
THIRD: The Certificate of Incorporation of the Corporation is
hereby amended to effect a change in Article I thereof, relating to the name of
the Corporation, accordingly Article I of the Certificate of Incorporation shall
be amended to read in its entirety as follows:
ARTICLE I
"The name of the Corporation is Adam Wuest Corporation."
FOURTH: The amendment to the Certificate of Incorporation of the
Corporation effected hereby was approved by the Board of Directors of the
Corporation, and by written consent of the sole stockholder of the Corporation.
IN WITNESS WHEREOF, the undersigned affirms as true the foregoing under
penalties of perjury, and has executed this Certificate this 5th day of November
1999.
AWI Corporation
By: /s/ James P. Koscica
-------------------------
Name: James P. Koscica
Title: Secretary
<PAGE> 1
EXHIBIT 3.14
BY-LAWS
OF
ADAM WUEST CORPORATION
(FORMERLY KNOWN AS AWI 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
<PAGE> 3
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment 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
<PAGE> 4
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 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
<PAGE> 5
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 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.
<PAGE> 6
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 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
<PAGE> 7
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. 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
<PAGE> 8
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.
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,
<PAGE> 9
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.
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
<PAGE> 10
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, 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
<PAGE> 11
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 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
<PAGE> 12
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 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
<PAGE> 13
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.
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 10.35
- --------------------------------------------------------------------------------
$70,000,000
AMENDED AND RESTATED
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 November 5, 1999
FIRST UNION SECURITIES, INC.,
as Sole Arranger
and
HELLER FINANCIAL, INC.,
as Syndication Agent
IBJ WHITEHALL BANK & TRUST COMPANY,
as Documentation Agent
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS......................................................................................................1
Section 1.1 Defined Terms................................................................................1
Section 1.2 Other Definitional Provisions...............................................................25
Section 1.3 Accounting Terms............................................................................26
ARTICLE II THE LOANS; AMOUNT AND TERMS....................................................................................27
Section 2.1 Revolving Loans.............................................................................27
Section 2.2 Term Loan...................................................................................29
Section 2.3 Letter of Credit Subfacility................................................................30
Section 2.4 Fees........................................................................................34
Section 2.5 Commitment Reductions.......................................................................35
Section 2.6 Prepayments.................................................................................36
Section 2.7 Minimum Principal Amount of Tranches........................................................38
Section 2.8 Default Rate and Payment Dates..............................................................38
Section 2.9 Conversion Options..........................................................................38
Section 2.10 Computation of Interest and Fees............................................................39
Section 2.11 Pro Rata Treatment and Payments.............................................................39
Section 2.12 Non-Receipt of Funds by the Administrative Agent............................................41
Section 2.13 Inability to Determine Interest Rate........................................................42
Section 2.14 Illegality..................................................................................42
Section 2.15 Requirements of Law.........................................................................43
Section 2.16 Indemnity...................................................................................44
Section 2.17 Taxes.......................................................................................45
Section 2.18 Indemnification; Nature of Issuing Lender's Duties..........................................47
Section 2.19 Replacement of Lenders......................................................................48
ARTICLE III REPRESENTATIONS AND WARRANTIES................................................................................49
Section 3.1 Financial Condition.........................................................................49
Section 3.2 No Change...................................................................................49
Section 3.3 Corporate Existence; Compliance with Law....................................................49
Section 3.4 Corporate Power; Authorization; Enforceable Obligations; No Consents........................49
Section 3.5 No Legal Bar; No Default....................................................................50
Section 3.6 No Material Litigation......................................................................50
Section 3.7 Investment Company Act......................................................................50
Section 3.8 Margin Regulations..........................................................................51
Section 3.9 ERISA.......................................................................................51
Section 3.10 Environmental Matters.......................................................................51
Section 3.11 Use of Proceeds.............................................................................52
Section 3.12 Subsidiaries................................................................................52
Section 3.13 Ownership...................................................................................53
Section 3.14 Indebtedness................................................................................53
Section 3.15 Taxes.......................................................................................53
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.16 Intellectual Property.......................................................................53
Section 3.17 Solvency....................................................................................54
Section 3.18 Investments.................................................................................54
Section 3.19 Security Documents..........................................................................54
Section 3.20 Location of Collateral......................................................................54
Section 3.21 No Burdensome Restrictions..................................................................54
Section 3.22 Brokers' Fees...............................................................................54
Section 3.23 Labor Matters...............................................................................55
Section 3.24 Accuracy and Completeness of Information....................................................55
Section 3.25 Year 2000 Issue.............................................................................55
Section 3.26 Insurance...................................................................................55
ARTICLE IV CONDITIONS PRECEDENT...........................................................................................56
Section 4.1 Conditions to Closing Date and Initial Loans................................................56
Section 4.2 Conditions to All Extensions of Credit......................................................61
ARTICLE V AFFIRMATIVE COVENANTS...........................................................................................62
Section 5.1 Financial Statements........................................................................62
Section 5.2 Certificates; Other Information.............................................................63
Section 5.3 Payment of Obligations......................................................................65
Section 5.4 Conduct of Business and Maintenance of Existence............................................65
Section 5.5 Maintenance of Property; Insurance..........................................................65
Section 5.6 Inspection of Property; Books and Records; Discussions......................................66
Section 5.7 Notices.....................................................................................67
Section 5.8 Environmental Laws..........................................................................67
Section 5.9 Financial Covenants.........................................................................68
Section 5.11 Compliance with Law.........................................................................70
Section 5.12 Pledged Assets..............................................................................70
Section 5.13 Year 2000 Compliance........................................................................70
Section 5.14 Further Assurances..........................................................................71
ARTICLE VI NEGATIVE COVENANTS.............................................................................................71
Section 6.1 Indebtedness................................................................................71
Section 6.2 Liens.......................................................................................72
Section 6.3 Guaranty Obligations........................................................................73
Section 6.4 Nature of Business..........................................................................73
Section 6.5 Consolidation, Merger, Sale of Assets, Permitted Acquisitions, etc..........................73
Section 6.6 Advances, Investments and Loans.............................................................74
Section 6.7 Transactions with Affiliates................................................................74
Section 6.8 Ownership of Subsidiaries; Restrictions.....................................................74
Section 6.9 Fiscal Year; Organizational Documents; Material Contracts...................................74
Section 6.10 Limitation on Restricted Actions............................................................75
Section 6.11 Restricted Payments.........................................................................75
Section 6.12 Prepayments of Indebtedness, etc............................................................76
Section 6.13 Sale Leasebacks.............................................................................76
Section 6.14 No Further Negative Pledges.................................................................76
Section 6.15 Consolidated Capital Expenditures...........................................................76
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 6.16 Subordinated Debt...........................................................................77
Section 6.17 Operating Leases............................................................................77
Section 6.18 Parent Holding Company and Sleepmaster Finance Corporation..................................77
Section 6.19 Serta Licenses..............................................................................77
ARTICLE VII EVENTS OF DEFAULT.............................................................................................78
Section 7.1 Events of Default...........................................................................78
Section 7.2 Acceleration; Remedies......................................................................80
ARTICLE VIII THE AGENT....................................................................................................81
Section 8.1 Appointment.................................................................................81
Section 8.2 Delegation of Duties........................................................................81
Section 8.3 Exculpatory Provisions......................................................................81
Section 8.4 Reliance by Administrative Agent............................................................82
Section 8.5 Notice of Default...........................................................................82
Section 8.6 Non-Reliance on Administrative Agent and Other Lenders......................................83
Section 8.7 Indemnification.............................................................................83
Section 8.8 Administrative Agent in Its Individual Capacity.............................................84
Section 8.9 Successor Administrative Agent..............................................................84
Section 8.10 Release of Collateral.......................................................................84
Section 8.11 Syndication and Documentation Agents........................................................84
ARTICLE IX MISCELLANEOUS..................................................................................................85
Section 9.1 Amendments and Waivers......................................................................85
Section 9.2 Notices.....................................................................................86
Section 9.3 No Waiver; Cumulative Remedies..............................................................87
Section 9.4 Survival of Representations and Warranties..................................................87
Section 9.5 Payment of Expenses and Taxes...............................................................87
Section 9.6 Successors and Assigns; Participations; Purchasing Lenders..................................88
Section 9.7 Adjustments; Set-off........................................................................90
Section 9.8 Table of Contents and Section Headings......................................................91
Section 9.9 Counterparts................................................................................92
Section 9.10 Effectiveness...............................................................................92
Section 9.11 Severability................................................................................92
Section 9.12 Integration.................................................................................92
Section 9.13 Governing Law...............................................................................92
Section 9.14 Consent to Jurisdiction and Service of Process..............................................92
Section 9.15 Arbitration.................................................................................93
Section 9.16 Confidentiality.............................................................................94
Section 9.17 Acknowledgments.............................................................................95
Section 9.18 Waivers of Jury Trial.......................................................................95
Section 9.19 Binding Effect; Termination of this Credit Agreement; Termination of
Existing Credit Agreement...................................................................95
ARTICLE X GUARANTY........................................................................................................96
Section 10.1 The Guaranty................................................................................96
Section 10.2 Bankruptcy..................................................................................96
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 10.3 Nature of Liability.........................................................................97
Section 10.4 Independent Obligation......................................................................97
Section 10.5 Authorization...............................................................................97
Section 10.6 Reliance....................................................................................98
Section 10.7 Waiver......................................................................................98
Section 10.8 Limitation on Enforcement...................................................................99
Section 10.9 Confirmation of Payment.....................................................................99
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Schedules
---------
<S> <C>
Schedule 1.1(a) Form of Account Designation Letter
Schedule 1.1(b) Liens
Schedule 1.1(c) Permitted Adjustments
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 Revolving Note
Schedule 2.2(d) Form of Term Note
Schedule 2.9 Form of Notice of Conversion/Extension
Schedule 2.17 Form of Section 2.17 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 3.26 Insurance
Schedule 4.1(b) Form of Secretary's Certificate
Schedule 4.1(i) Form of Solvency Certificate
Schedule 4.1(w) Form of Financial Covenant Compliance Certificate
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
</TABLE>
v
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 5, 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, the Guarantors, the Lenders and the Administrative
Agent are party to that Credit Agreement, dated as of May 18, 1999 (the
"Existing Credit Agreement") pursuant to which the Lender has agreed to make
loans and other financial accommodations to the Borrower in the amount of up to
$25,000,000 in the terms and conditions contained therein.
WHEREAS, the Borrower has requested that the Lenders increase the amount
of loans and other financial accommodations available to the Borrower to an
amount of up to $70,000,000, as more particularly described herein;
WHEREAS, the Lenders have agreed to amend and restate the Existing Credit
Agreement and make such increased 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).
<PAGE> 8
"Acquisition" shall mean the purchase of the assets of Adam Wuest, Inc.
pursuant to that Asset Purchase Agreement dated as of November 5, 1999 by and
among the Borrower, Adam Wuest, Inc. and Adam Wuest Realty, Inc. as parties
thereto.
"Acquisition Documents" shall mean the Asset Purchase Agreement dated as
of November 5, 1999 between the Borrower and Adam Wuest, Inc., the Employment
and Unit Purchase Agreements dated as of November 5, 1999 by and among AWI
Corporation, the Parent, the Borrower, Sleep Investor L.L.C. and each of David
Deye and Stephen D. Lund, the Employment Agreement dated as of November 5, 1999
by and among the Borrower, AWI Corporation and James P. Fanning, the Indemnity
Escrow Agreement and the Adjustment Escrow Agreement each dated as of November
5, 1999 by and among Adam Wuest, Inc., Adam Wuest Realty, Inc., Bank One Trust
Company, N.A. and AWI Corporation, and the Bill of Sale and the Assignment and
Assumption Agreement each dated as of November 5, 1999, among AWI Corporation,
Adam Wuest, Inc., and Adam Wuest Realty, Inc. as each of the foregoing may be
amended or modified together with all schedules and exhibits related thereto.
"Adam Wuest" means Adam Wuest, Inc., an Ohio corporation.
"Adam Wuest Bond Indenture" shall mean that certain Trust Indenture dated
as of February 1, 1994 between County of Hamilton, Ohio, as Issuer and The Fifth
Third Bank, as Trustee.
"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
2
<PAGE> 9
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 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":
3
<PAGE> 10
<TABLE>
<CAPTION>
LIBOR Rate
Margin for
Alternate Loans
Leverage Base Rate and Letter of Commitment
Level Ratio Margin Credit Fee Fee
- -------------- ---------------------------------------- ----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
I greater than or equal to 5.50 2.00% 3.25% 0.50%
- -------------- ---------------------------------------- ----------------------- ----------------------- ----------------------
< 5.50 to 1.0 but
II greater than or equal to 5.00 to 1.0 1.75% 3.00% 0.50%
- -------------- ---------------------------------------- ----------------------- ----------------------- ----------------------
< 5.00 to 1.0 but
III greater than or equal to 4.50 to 1.0 1.50% 2.75% 0.50%
- -------------- ---------------------------------------- ----------------------- ----------------------- ----------------------
< 4.50 to 1.0 but
IV greater than or equal to 4.00 to 1.0 1.25% 2.50% 0.50%
- -------------- ---------------------------------------- ----------------------- ----------------------- ----------------------
< 4.00 to 1.0 but
V greater than or equal to 3.00 to 1.0 1.00% 2.25% 0.50%
- -------------- ---------------------------------------- ----------------------- ----------------------- ----------------------
VI < 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.
"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.
4
<PAGE> 11
"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(b).
"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-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
5
<PAGE> 12
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 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)), to own (directly or
indirectly) at least 33% of the Voting Stock on a fully diluted as if converted
basis of the Parent or 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 (A) 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 (B)
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.
"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, the Term Loan
Commitment and the LOC Commitment, individually or collectively, as appropriate.
6
<PAGE> 13
"Commitment Fee" shall have the meaning set forth in Section 2.4(a).
"Commitment Percentage" shall mean the Revolving Commitment Percentage,
the Term Loan 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 (i) 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 and (ii) capital expenditures of up to $5,250,000 made on
behalf of the Parent and its Subsidiaries in connection with the construction of
a new manufacturing facility in Cincinnati, Ohio.
"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 of Capital Lease
Obligations, as determined in accordance with GAAP.
"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.
"Consolidated Net Worth" means as of any date with respect to the
Parent and its Subsidiaries on a consolidated basis, Consolidated Total Assets
minus Consolidated Total Liabilities, as determined in accordance with GAAP.
7
<PAGE> 14
"Consolidated Total Assets" means, as of any date with respect to the
Parent and its Subsidiaries on a consolidated basis, total assets, as determined
in accordance with GAAP.
"Consolidated Total Liabilities" means, as of any date with respect to
the Parent and its Subsidiaries on a consolidated basis, total liabilities, as
determined in accordance with GAAP.
"Consolidated Working Capital" means, at any time, the excess of (i)
current assets of the Parent and its Subsidiaries on a consolidated basis at
such time less (ii) current liabilities of the Parent and its Subsidiaries on a
consolidated basis at such time, all as determined in accordance with GAAP. The
term "Consolidated Working Capital" shall not include (i) cash and (ii) current
maturities of long-term Indebtedness.
"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 liabilities and 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.
8
<PAGE> 15
"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.
"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 May 18, 1999
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
9
<PAGE> 16
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.
"Excess Cash Flow" means, with respect to any fiscal year period of the
Parent and its Subsidiaries on a consolidated basis, an amount equal to (a)
Consolidated EBITDA for such period minus (b) capital expenditures made during
such period minus (c) increases (or plus decreases) in Consolidated Working
Capital for such period minus (d) Scheduled Funded Debt Payments made during
such period minus (e) Consolidated Interest Expense during such period minus (f)
amounts paid in respect of federal, state, local and foreign income, value added
and similar taxes with respect to such period minus (g) voluntary prepayments
made in accordance with Section 2.6(a) made during such period minus (h)
Restricted Payments actually made during such period pursuant to Section
6.11(c)(i) and (v).
"Excluded Equity Issuance" shall mean any issuance by any Credit Party of
shares of its Capital Stock to members of management which result in Net Cash
Proceeds in an aggregate amount for all such issuances not to exceed $1,000,000.
"Existing Credit Agreement" shall have the meaning set forth in the
recitals hereto.
"Existing Letters of Credit" shall mean that (i) 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
approximately $6,900,000 to support the PBBC Industrial Development Bonds, (ii)
Irrevocable Letter of Credit No. SM410694C issued by First Union to Fifth Third
Bank for the account of Adam Wuest Corporation in the amount of $2,284,425 and
(iii) Irrevocable Letter of Credit No. SM408849C issued by First Union to Hartz
Mountain in the amount of $720,462.
"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 September 8, 1999
addressed to the Borrower from the Administrative Agent, as amended, modified or
otherwise supplemented.
10
<PAGE> 17
"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. Notwithstanding the foregoing, for purposes
of calculating the Fixed Charge Coverage Ratio of the Parent and its
Subsidiaries for the first three complete fiscal quarters to occur after the
Closing Date, the Fixed Charge Coverage Ratio shall be determined by annualizing
the components thereof such that for the first complete fiscal quarter to occur
after the Closing Date such components would be multiplied by four (4), the
first two complete fiscal quarters would be multiplied by two (2) and the first
three complete fiscal quarters would be multiplied by one and one-third (1e).
"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. For purposes of determining the Leverage Ratio only, the term "Funded
Debt" shall not include Indebtedness owing in respect of the PIK Subordinated
Debt.
"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 2.18(a).
"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
11
<PAGE> 18
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)
any Additional Credit Party which executes 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 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
12
<PAGE> 19
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. Notwithstanding the foregoing, for purposes of calculating the
Interest Coverage Ratio of the Parent and its Subsidiaries for the first three
complete fiscal quarters to occur after the Closing Date, the Interest Coverage
Ratio shall be determined by annualizing the Consolidated Interest Expense
component thereof such that for the first complete fiscal quarter to occur after
the Closing Date such components would be multiplied by four (4), the first two
complete fiscal quarters would be multiplied by two (2) and the first three
complete fiscal quarters would be multiplied by one and one-third (1 e).
"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.
"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
13
<PAGE> 20
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 2.4(c).
"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 Letters 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).
14
<PAGE> 21
"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:
<TABLE>
<S> <C>
LIBOR Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
</TABLE>
"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).
15
<PAGE> 22
"Loan" shall mean a Revolving Loan and/or the Term Loan, as appropriate.
"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 2.3(c) 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 2.3(e).
"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.
16
<PAGE> 23
"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 (i) with respect to the Term Loan, the last
scheduled quarterly payment date for the Term Loan set forth in Section 2.2(b)
and (ii) with respect to the Revolving Loans, the Revolving Commitment
Termination Date.
"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 Revolving Notes and/or the Term Notes,
collectively, separately or individually, as appropriate.
"Notice of Borrowing" shall mean the written notice of borrowing as
referenced and defined in Section 2.1(b)(i).
"Notice of Conversion" shall mean the written notice of extension or
conversion as referenced and defined in Section 2.9.
"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 2.3(c).
17
<PAGE> 24
"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 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;
18
<PAGE> 25
(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 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;
19
<PAGE> 26
(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 shall mean that certain Junior
Subordinated Note dated as of the Closing Date executed by the Parent in favor
of Nancourt, Inc. (formerly known as Star Bedding Products (1986) Limited) 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.
"PIK Subordinated Debt" shall mean pay in kind subordinated debt issued
by the Parent to Citicorp Mezzanine Partners, L.P. in an aggregate initial
amount not to exceed $10,000,000 on terms and conditions reasonably satisfactory
to the Administrative Agent.
"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, 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 Amended and Restated 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.
20
<PAGE> 27
"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 PBBC 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 greater than 50% 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, 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
21
<PAGE> 28
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 declaration (other than with
respect to pay-in-kind preferred equity in existence as of the Closing Date) or
payment of a 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 Commitment Termination Date" shall mean October 29, 2005.
"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).
"Revolving Loans" shall have the meaning set forth in Section 2.1.
"Revolving Note" or "Revolving Notes" shall mean the promissory notes of
the Borrower in favor of each of the Lenders evidencing the Revolving Loans
provided pursuant to
22
<PAGE> 29
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.
"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
Lease Obligations during the applicable period ending on the date of
determination).
"Security Agreement" shall mean the Amended and Restated 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, (d) the Standard License Agreement and the Memoranda of
Agreement, each dated December 1, 1969 between Adam Wuest, Inc. and Serta, Inc.,
(e) the Standard License Agreement dated November 4, 1989 between Adam Wuest,
Inc. and Serta, Inc., (f) the Standard License Agreement and the Memorandum of
Agreement, each dated as of December 1, 1998 between Adam Wuest, Inc. and Serta,
Inc., (g) Standard Canadian License Agreement dated as of May 18, 1999 between
Serta, Inc. and Star Bedding Products Limited, (h) License Agreement and the
Memorandum Agreement, each dated December 1, 1969 between Adam Wuest, Inc. and
Serta, Inc., (i) Memorandum of Agreement dated December 22, 1983 between Serta,
Inc. and Adam Wuest, Inc. and (j) 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.
23
<PAGE> 30
"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.
"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 Credit Agreement" shall mean the Subordinated Credit
Agreement dated as of November 5, 1999 by and between the Parent and Citicorp
Mezzanine Partners, L.P.
"Subordinated Debt" shall mean (i) the Subordinated Notes, (ii) the PIK
Subordinated Debt and (iii) 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 2.17(a).
"Term Loan" shall have the meaning set forth in Section 2.2(a).
"Term Loan Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make its portion of the Term Loan in a principal
amount equal to such Lender's Term Loan Commitment Percentage of the Term Loan
Committed Amount (and for purposes of making determinations of Required Lenders
hereunder after the Closing Date, the principal amount outstanding on the Term
Loan).
24
<PAGE> 31
"Term Loan Commitment Percentage" shall mean, for any Lender, the
percentage identified as its Term Loan 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.
"Term Loan Committed Amount" shall have the meaning set forth in Section
2.2(a).
"Term Note" or "Term Notes" shall mean the promissory notes of the
Borrower in favor of each of the Lenders evidencing the portion of the Term Loan
provided pursuant to Section 2.2(d), individually or collectively, as
appropriate, as such promissory notes may be amended, modified, restated,
supplemented, extended, renewed or replaced from time to time.
"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 $2,000,000.
"Transfer Effective Date" shall have the meaning set forth in each
Commitment Transfer Supplement.
"2.17 Certificate" shall have the meaning set forth in Section 2.17.
"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.
"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.
25
<PAGE> 32
(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 sale or disposition as
contemplated by Section 6.5, (A) income statement items (whether positive or
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.
26
<PAGE> 33
ARTICLE II
THE LOANS; AMOUNT AND TERMS
SECTION 2.1 REVOLVING LOANS.
(a) Revolving Commitment. During the Commitment Period, subject to
the terms and conditions hereof, each Lender severally agrees to make
revolving credit loans ("Revolving 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 Revolving 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 Revolving Loans plus outstanding LOC
Obligations shall not exceed the Revolving Committed Amount. For purposes
hereof, the aggregate amount available hereunder shall be THIRTY-THREE
MILLION DOLLARS ($33,000,000) (as such aggregate maximum amount may be
reduced from time to time as provided in Section 2.5, the "Revolving
Committed Amount"). Revolving 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.
(b) Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a
Revolving 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 Revolving 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
Revolving 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
27
<PAGE> 34
thereof and each such Lender's share thereof. All Revolving
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 Revolving 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 Revolving 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.
(c) Repayment. The principal amount of all Revolving Loans shall be
due and payable in full on the Revolving Commitment Termination Date.
(d) Interest. Subject to the provisions of Section 2.9, Revolving
Loans shall bear interest as follows:
(i) Alternate Base Rate Loans. During such periods as
Revolving 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 Revolving 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 Revolving Loans shall be payable in arrears on each
Interest Payment Date.
(e) Revolving Notes. Each Lender's Revolving Commitment Percentage
of the Revolving 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).
28
<PAGE> 35
SECTION 2.2 TERM LOAN.
(a) Term Loan. Subject to the terms and conditions hereof and
in reliance upon the representations and warranties set forth
herein, each Lender severally agrees to make available to the
Borrower on the Closing Date such Lender's Term Loan Commitment
Percentage of a term loan in Dollars (the "Term Loan") in the
aggregate principal amount of THIRTY-SEVEN MILLION DOLLARS
($37,000,000) (the "Term Loan Committed Amount") for the purposes
hereinafter set forth. The Term Loan may consist of Alternate Base
Rate Loans or LIBOR Rate Loans, or a combination thereof, as the
Borrower may request; provided that the Term Loans made on the
Closing Date shall bear interest at the Alternate Base Rate until
three (3) Business Days after the Closing Date. The Borrower shall
request the initial Term 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. Amounts repaid on the Term Loan may not
be reborrowed. LIBOR Rate Loans shall be made by each Lender at its
LIBOR Lending Office and Alternate Base Rate Loans at its Domestic
Lending Office.
(b) Repayment of Term Loan. The principal amount of the Term
Loan shall be repaid in 23 consecutive fiscal quarterly installments
as follows, unless accelerated sooner pursuant to Section 7.2:
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZATION PAYMENT TERM LOAN PRINCIPAL AMORTIZATION
DATES PAYMENT
----------------------------------- -----------------------------------
<S> <C>
March 31, 2000 $1,125,000
----------------------------------- -----------------------------------
June 30, 2000 $1,125,000
----------------------------------- -----------------------------------
September 29, 2000 $1,125,000
----------------------------------- -----------------------------------
December 29, 2000 $1,125,000
----------------------------------- -----------------------------------
March 30, 2001 $1,125,000
----------------------------------- -----------------------------------
June 29, 2001 $1,125,000
----------------------------------- -----------------------------------
September 28, 2001 $1,125,000
----------------------------------- -----------------------------------
December 31, 2001 $1,125,000
----------------------------------- -----------------------------------
March 29, 2002 $1,866,666
----------------------------------- -----------------------------------
June 28, 2002 $1,866,666
----------------------------------- -----------------------------------
September 30, 2002 $1,866,666
----------------------------------- -----------------------------------
December 31, 2002 $1,866,666
----------------------------------- -----------------------------------
March 31, 2003 $1,866,666
----------------------------------- -----------------------------------
</TABLE>
29
<PAGE> 36
<TABLE>
<S> <C>
----------------------------------- -----------------------------------
June 30, 2003 $1,866,666
----------------------------------- -----------------------------------
September 30, 2003 $1,866,666
----------------------------------- -----------------------------------
December 31, 2003 $1,866,666
----------------------------------- -----------------------------------
March 31, 2004 $1,866,666
----------------------------------- -----------------------------------
June 30, 2004 $1,866,666
----------------------------------- -----------------------------------
September 30, 2004 $1,866,666
----------------------------------- -----------------------------------
December 31, 2004 $1,866,666
----------------------------------- -----------------------------------
March 31, 2005 $1,866,666
----------------------------------- -----------------------------------
June 30, 2005 $1,866,666
----------------------------------- -----------------------------------
September 30, 2005 $1,866,676
----------------------------------- -----------------------------------
</TABLE>
(c) Interest on the Term Loan. Subject to the provisions of Section
2.8, the Term Loan shall bear interest as follows:
(i) Alternate Base Rate Loans. During such periods as the
Term Loan 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 the Term Loan
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 the Term Loan shall be payable in arrears on each
Interest Payment Date.
(d) Term Notes. Each Lender's Term Loan Commitment Percentage of the
Term Loan outstanding as of the Closing Date shall be evidenced by a duly
executed promissory note of the Borrower to such Lender in substantially
the form of Schedule 2.2(d).
SECTION 2.3 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
FIFTEEN
30
<PAGE> 37
MILLION DOLLARS ($15,000,000) (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, that 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 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 $100,000. 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
31
<PAGE> 38
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 Agent of its intent to
otherwise reimburse the Issuing Lender, the Borrower shall be deemed to
have requested a Revolving 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.
32
<PAGE> 39
(e) Repayment with Revolving Loans. On any day on which the Borrower
shall have requested, or been deemed to have requested, a Revolving Loan
to reimburse a drawing under a Letter of Credit, the Administrative Agent
shall give notice to the Lenders that a Revolving Loan has been requested
or deemed requested in connection with a drawing under a Letter of
Credit, in which case a Revolving 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 Revolving 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 Revolving Loans
otherwise required 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 Revolving 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 Revolving 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
33
<PAGE> 40
(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
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 2.3(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 2.4 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.
34
<PAGE> 41
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.
(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 2.5 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 Revolving Loans made on the
effective date thereof, the sum of the then outstanding aggregate
principal amount of the Revolving Loans plus outstanding LOC Obligations
would exceed the Revolving Committed Amount.
(b) Mandatory Reductions. On any date that the Revolving Loans are
required to be prepaid pursuant to the terms of Section 2.6(b) (ii),
(iii) and (iv), the Revolving Committed Amount shall be automatically
permanently reduced by the amount of such required prepayment and/or
reduction.
35
<PAGE> 42
(c) Revolving Commitment Termination Date. The Revolving Commitment
and the LOC Commitment shall automatically terminate on the Revolving
Commitment Termination Date.
SECTION 2.6 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 Revolving Loans and Term 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). Subject to the foregoing terms, amounts prepaid under this
Section 2.6(a) shall be applied as the Borrower may elect; provided that
if the Borrower fails to specify the application of an optional
prepayment then such prepayment shall be applied first to Revolving Loans
and then pro rata to the remaining principal installments of the Term
Loans, in each case first to Alternate Base Rate Loans and then to LIBOR
Rate Loans in direct order of Interest Period maturities. All prepayments
under this Section 2.6(a) shall be subject to Section 2.16, but otherwise
without premium or penalty. Interest on the principal amount prepaid
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 Revolving Loans may be reborrowed
in accordance with the terms hereof. Amounts prepaid on the Term Loans
may not be reborrowed.
(b) Mandatory Prepayments.
(i) Revolving Committed Amount. If at any time after the
Closing Date, the sum of the aggregate principal amount of
outstanding Revolving Loans plus outstanding LOC Obligations shall
exceed the Revolving Committed Amount, the Borrower immediately
shall prepay the Revolving Loans and (after all Revolving 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 (vi) 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
36
<PAGE> 43
certificate that it intends to use such Net Cash Proceeds to
acquire fixed or capital assets in replacement of the disposed
assets within 180 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 (vi) below) or (B) any Equity
Issuance, other than an Excluded 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.
(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 (vi) below).
(v) Excess Cash Flow. Within 90 days after the end of each
fiscal year (commencing with the fiscal year ending December 31,
2000), the Borrower shall prepay the Loans in an amount equal to 50%
of the Excess Cash Flow earned during such prior fiscal year;
provided, however, that no prepayment shall be required pursuant to
this Section 2.6(b)(v), if the Leverage Ratio shall be less than or
equal to 3.25 to 1.0 as of the end of such fiscal year (such
prepayment to be applied as set forth in clause (vi) below).
(vi) Application of Mandatory Prepayments. All amounts
required to be paid pursuant to this Section 2.6(b) shall be applied
with respect to all amounts prepaid pursuant to Sections 2.6(b)(ii)
through (v), (1) first to the Term Loan (ratably to the remaining
principal installments thereof), and (2) second to the Revolving
Loans and (after all Revolving 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 2.6(b) shall be subject to Section 2.16 and be
accompanied by interest on the principal amount prepaid through the
date of prepayment.
(vii) Prepayment Account. If the Borrower is required to make
a mandatory prepayment of LIBOR Rate Loans under this Section
2.6(b), the Borrower shall have the right, in lieu of making such
prepayment in full, to
37
<PAGE> 44
deposit an amount equal to such mandatory prepayment with the
Administrative Agent in a cash collateral account maintained
(pursuant to documentation reasonably satisfactory to the
Administrative Agent) by and in the sole dominion and control of the
Administrative Agent. Any amounts so deposited shall be held by the
Administrative Agent as collateral for the prepayment of such LIBOR
Rate Loans and shall be applied to the prepayment of the applicable
LIBOR Rate Loans at the end of the current Interest Periods
applicable thereto. At the request of the Borrower, amounts so
deposited shall be invested by the Administrative Agent in Cash
Equivalents maturing prior to the date or dates on which it is
anticipated that such amounts will be applied to prepay such LIBOR
Rate Loans; any interest earned on such Cash Equivalents will be for
the account of the Borrower and the Borrower will deposit with the
Administrative Agent the amount of any loss on any such Cash
Equivalents to the extent necessary in order that the amount of the
prepayment to be made with the deposited amounts may not be reduced.
SECTION 2.7 MINIMUM PRINCIPAL AMOUNT OF TRANCHES.
All borrowings, payments and prepayments in respect of the Revolving
Loans and Term 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 2.8 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 2.9 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 2.9. 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,
38
<PAGE> 45
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 2.9(a);
provided, that no LIBOR Rate Loan may be continued as such when any
Default or Event of Default has occurred and is continuing, 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 2.10 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 2.11 PRO RATA TREATMENT AND PAYMENTS.
(a) Each borrowing of Revolving 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 2.4, second, to interest then due and
owing in respect of the Notes and, third, to principal then due and owing
hereunder and under the Notes. Each payment on account of any fees
pursuant to Section 2.4 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
39
<PAGE> 46
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 2.14 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
2.6(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 2.17(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
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;
40
<PAGE> 47
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 whomever may be
lawfully entitled to receive such surplus.
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 2.11(b).
SECTION 2.12 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 Funds
Effective Rate.
41
<PAGE> 48
(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 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 2.12 shall be conclusive in the absence of manifest error.
SECTION 2.13 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 2.14 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
42
<PAGE> 49
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
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 2.15 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
43
<PAGE> 50
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 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 2.15 shall survive the
termination of this Agreement and payment of the Notes and all other
amounts payable hereunder.
SECTION 2.16 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
44
<PAGE> 51
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.
SECTION 2.17 TAXES.
(a) All payments made by the Borrower hereunder or under any Note
will be, except as provided in Section 2.17(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 2.17 (any such
certificate, a "2.17 Certificate") and (y) two accurate and
45
<PAGE> 52
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 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 2.17(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 2.17(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 2.17(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 2.17, the Borrower agrees
to pay additional amounts and to indemnify each Lender in the manner set
forth in Section 2.17(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 2.17 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
46
<PAGE> 53
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 2.17,
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 2.17 shall require a Lender to disclose or
detail the basis of its calculation of the 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 2.17 to the Borrower or any
other party.
(e) The agreements in this Section 2.17 shall survive the
termination of this Agreement and the payment of the Notes and all other
amounts payable hereunder.
SECTION 2.18 INDEMNIFICATION; NATURE OF ISSUING LENDER'S DUTIES.
(a) In addition to its other obligations under Section 2.5, 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,
47
<PAGE> 54
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, 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 2.18 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 2.18 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 2.18, 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 2.19 REPLACEMENT OF LENDERS.
If any Lender delivers a notice pursuant to Section 2.14, 2.15 or 2.17
(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 2.19 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 2.13, 2.14, 2.15 or 9.5 while such Replaced Lender was a Lender).
48
<PAGE> 55
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:
SECTION 3.1 FINANCIAL CONDITION.
The balance sheets and the related statements of income and of cash flows
of the Borrower 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 Borrower 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
49
<PAGE> 56
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 has been duly executed
and delivered on behalf of the Borrower or any other Credit Party, as the case
may be. Each Credit Document to which it is a party constitutes a legal, valid
and binding obligation of the Borrower and each other Credit Party, 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.
50
<PAGE> 57
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.
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").
51
<PAGE> 58
(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.
(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 or any other Credit
Party, 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) finance the Acquisition including the fees and expenses incurred in
connection therewith, (ii) provide for working capital, capital expenditures and
other general corporate purposes, (iii) refinance existing indebtedness, and
(iv) finance acquisitions as permitted by the terms hereof. The Letters of
Credit shall be used only as referred to in Section 2.3(a) 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
52
<PAGE> 59
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).
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 6.14 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.
53
<PAGE> 60
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 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 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.
54
<PAGE> 61
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 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
in and following the year 2000 have been completed in all material respects as
of the date hereof (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.
SECTION 3.26 INSURANCE.
The present insurance coverage of the Credit Parties is outlined as to
carrier, policy number, expiration date, type and amount on Schedule 3.26(b).
The Credit Parties maintain insurance in accordance with past practices against
such risks and in such amounts as historically in effect.
55
<PAGE> 62
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) duly executed Notes for the
account of each Lender, (iii) counterparts of the Security Agreement, and
the Pledge Agreement, and the Mortgage Instruments in each case
conforming to the requirements of 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
56
<PAGE> 63
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) Baker & Hostetler, Ohio 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.
(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 Administrative
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
57
<PAGE> 64
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 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
58
<PAGE> 65
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.
(g) Fees. The Administrative Agent shall have received all fees, if
any, owing pursuant to the Fee Letter and Section 2.4.
(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) PIK Subordinated Debt. The Borrower shall have received gross
proceeds from the issuance of the PIK Subordinated Debt in an amount not
less than $10,000,000.
(m) Consents. The Administrative Agent shall have received evidence
that all governmental, shareholder and material third party consents
(including the Serta Consents) and approvals necessary in connection with
the financings and other transactions contemplated hereby have been
obtained and all applicable waiting periods
59
<PAGE> 66
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.
(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) 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.
(r) Due Diligence. The Administrative Agent and the Arranger shall
have completed, in form and scope satisfactory thereto, their due
diligence on the Credit Parties.
(s) Environmental Reports. The Administrative Agent shall have
received satisfactory environmental reviews of all real property owned by
the Credit Parties.
(t) 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.
(u) 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.
(v) Acquisition and Acquisition Documents. The Acquisition shall
have been consummated in accordance with the terms of the documentation
related thereto. There shall not have been any material modification,
amendment, supplement or waiver to the
60
<PAGE> 67
Acquisition Documents without the prior written consent of the
Administrative Agent, including, but not limited to, any modification,
amendment, supplement or waiver relating to the amount or type of
consideration to be paid in connection with the Acquisition and the
contents of all disclosure schedules and exhibits, and the Acquisition
shall have been consummated in accordance with the terms of the
Acquisition Documents (without waiver of any material conditions
precedent to the obligations of the buyer thereunder). The Administrative
Agent shall have received final copies of the Acquisition Documents,
together with all exhibits and schedules thereto, certified by an officer
of the Borrower.
(w) Financial Covenant Compliance Certificate. The Administrative
Agent shall have received a certificate in substantially the form of
Schedule 4.1(w) executed by a responsible officer of the Borrower as of
the Closing Date demonstrating pro forma compliance with (i) the
financial covenants set forth in Section 5.9 (a), (b) and (c) as if the
Acquisition had occurred on the first day of the four fiscal quarter
period most recently ended prior to the Closing Date and (ii) the
indebtedness incurrence tests set forth in Section 1008 of the Indenture
and Section 6.1(b) of the Subordinated Credit Agreement after giving
effect to the incurrence of the Credit Party Obligations.
(x) 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 Revolving 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.
61
<PAGE> 68
(d) Additional Conditions to Revolving 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 Term Loans. If such Loan is made
pursuant to Section 2.2, all conditions set forth in such Section shall
have been satisfied.
(f) Additional Conditions to Letters of Credit. If such Extension of
Credit is made pursuant to Section 2.3, 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.
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
Borrower and its consolidated Subsidiaries and within one hundred twenty
(120) 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 as at the end of such fiscal year and with
respect to each of the foregoing, the related consolidated and
consolidating statements of income and retained earnings and of cash
flows of the Borrower and its consolidated Subsidiaries and for the
Parent 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;
62
<PAGE> 69
(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 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 and each of the Lenders:
63
<PAGE> 70
(a) concurrently with the delivery of the financial statements of
the Parent 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;
(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 a calculation of Excess Cash Flow
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
64
<PAGE> 71
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.
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-
65
<PAGE> 72
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 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.
(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
66
<PAGE> 73
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:
(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
67
<PAGE> 74
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 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:
68
<PAGE> 75
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through and including 6.00 to 1.0
June 30, 2000
July 1, 2000 through and including 5.50 to 1.0
September 30, 2000
October 1, 2000 through and including 5.25 to 1.0
June 30, 2001
July 1, 2001 through and including 4.75 to 1.0
September 30, 2001
October 1, 2001 through and including 4.50 to 1.0
June 30, 2002
July 1, 2002 through and including 4.00 to 1.0
September 30, 2002
October 1, 2002 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 1.80 to 1.0
June 30, 2001
July 1, 2001 through and including 2.00 to 1.0
June 30, 2002
July 1, 2002 through and including 2.25 to 1.0
September 30, 2002
October 1, 2002 through and including 2.50 to 1.0
September 30, 2003
October 1, 2003 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 1.10 to 1.0
September 30, 2001
October 1, 2001 through and including 1.15 to 1.0
September 30, 2002
October 1, 2001 and thereafter 1.20 to 1.0
</TABLE>
(d) Consolidated Net Worth. Consolidated Net Worth as of the last
day of each month shall be greater than or equal to (i) 80% of the
Consolidated Net Worth as of
69
<PAGE> 76
the Closing Date, plus, (ii) 50% of positive Consolidated Net Income
following the Closing Date, plus (iii) 100% of Equity Issuances on or
following the Closing Date.
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 and excluding assets in the
nature of stock of Serta Inc. to the extent the same is prohibited from
being pledged or assigned) 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
70
<PAGE> 77
Year 2000 Compliant, except to the extent that such failure could not reasonably
be expected to have a Material Adverse Effect.
SECTION 5.14 FURTHER ASSURANCES.
(a) As soon as practicable, but in any event within 30 days following the
Closing Date, the Credit Parties shall have obtained a solvency opinion from
Valuation Research in favor of the Administrative Agent and the Lenders in form
and substance satisfactory to the Administrative Agent and the Lenders.
(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 the Program Product License
Agreement dated as of December 15, 1996 by and between OHM Systems, Inc. and the
Borrower.
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 and described on 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;
(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
71
<PAGE> 78
the time of such refinancing; and (iii) the total amount of all such
Indebtedness shall not exceed $1,500,000 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 dated as of May 18, 1999 by and among Star Bedding
Products Limited, Cecil Brauer and the Borrower;
(k) Indebtedness in respect of the PIK Subordinated Debt; and
(l) other Indebtedness of the Borrower and its Subsidiaries which
does not exceed $1,500,000 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 (whether real or personal, tangible or
intangible), whether now owned or hereafter acquired, except for Permitted
Liens.
72
<PAGE> 79
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;
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,
73
<PAGE> 80
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 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,
74
<PAGE> 81
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) to
repurchase membership interests held by management in an aggregate amount not to
exceed $2,500,000 in the aggregate during the term of this Agreement, (ii) to
pay taxes of the Credit Parties to the extent actually incurred and/or due and
payable, (iii) to pay other expenses of the Parent in an aggregate amount not to
exceed $50,000, (iv) 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) after May 18, 2002, to make payments owing under
the Permitted Seller Debt.
75
<PAGE> 82
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,
the Adam Wuest Bond 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.
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 $6,000,000 for all such persons in the aggregate during such fiscal
year; provided, however, that 50% of any amounts not utilized during any fiscal
year may be carried forward to the immediately following fiscal year only.
76
<PAGE> 83
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
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 interest payments in respect of the Existing Seller Debt and may make
payments in respect of the Permitted Seller Debt as set forth in Section
6.11(c)(iv) and 6.11(c)(v). 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 99.9% 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 consent of the Required Lenders
(which consent will not be unreasonably withheld), and (ii) the delivery to the
Administrative Agent of a copy of such Serta License, 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.
77
<PAGE> 84
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 $500,000 in the aggregate for the Credit
Parties beyond the period of grace (not to exceed 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 $500,000 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
78
<PAGE> 85
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 $400,000 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 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
79
<PAGE> 86
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 (i) the PBBC Bond Indenture or
any of the other "Bond Documents" (as such term is defined therein) or
(ii) the Adam Wuest Bond Indenture or any of the other documents related
thereto; 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 and/or the Senior Subordinated
Credit Agreement) or (ii) the subordination provisions of the
Subordinated Notes or the PIK Subordinated Debt 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 or the
PIK Subordinated Debt, as applicable.
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 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
80
<PAGE> 87
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 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
81
<PAGE> 88
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. 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 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.
82
<PAGE> 89
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 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.
83
<PAGE> 90
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.
SECTION 8.11 SYNDICATION AND DOCUMENTATION AGENTS.
Notwithstanding any other provision hereof, each of the Syndication Agent
and the Documentation Agent identified on the cover page of this Agreement, in
their respective capacities as such, shall have no duties or responsibilities
and shall incur no liability under this Agreement or the other Credit Documents
84
<PAGE> 91
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 (other than in connection with an
assignment or participation made in accordance with Section
9.6) or extend the expiration date of any Lender's
Commitment, in each case without the written consent of all
of the Lenders or
(ii) amend, modify or waive any provision of this Section 9.1
or reduce the percentages 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
85
<PAGE> 92
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.
86
<PAGE> 93
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 any such Lender, as determined by a
court of competent jurisdiction.
87
<PAGE> 94
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 2.15, 2.16,
2.17 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
the transferor Lender would have been entitled to receive in respect of
the amount of the
88
<PAGE> 95
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".
89
<PAGE> 96
(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 2.17 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
90
<PAGE> 97
principal and interest under any Note) to any Federal Reserve Bank in
accordance with applicable laws.
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
91
<PAGE> 98
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, 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
92
<PAGE> 99
with, the law of the State of North Carolina.
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
93
<PAGE> 100
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 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
94
<PAGE> 101
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 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.
SECTION 9.19 BINDING EFFECT; TERMINATION OF THIS CREDIT AGREEMENT;
TERMINATION OF EXISTING CREDIT AGREEMENT.
(a) This Credit Agreement shall become effective at such time
when all of the conditions set forth in Section 5.1 have been satisfied
or waived by the Lenders and it shall have been executed by each Credit
Party and the Administrative Agent, and the Administrative Agent shall
have received copies hereof (telefaxed or otherwise) which,
95
<PAGE> 102
when taken together, bear the signatures of each Lender, and thereafter
this Credit Agreement shall be binding upon and inure to the benefit of
each Credit Party, the Administrative Agent and each Lender and their
respective successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans,
LOC Obligations or any other amounts payable hereunder or under any of
the other Credit Documents shall remain outstanding, no Letters of
Credit shall be outstanding, all of the Credit Party Obligations have
been irrevocably satisfied in full and all of the Commitments hereunder
shall have expired or been terminated.
(c) The Credit Parties and the Lenders (including the Issuing
Lender) party to the Existing Credit Agreement each hereby agrees that,
at such time as this Credit Agreement shall have become effective
pursuant to the terms of subsection (a) above, (i) the Existing Credit
Agreement automatically shall be deemed amended and restated in its
entirety by this Credit Agreement, (ii) the Commitments under the
Existing Credit Agreement and as defined therein automatically shall be
terminated and replaced with the Commitments hereunder and (iii) all of
the promissory notes executed by the Borrower in connection with the
Existing Credit Agreement automatically shall be canceled and replaced
by the Notes.
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 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
96
<PAGE> 103
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, 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
97
<PAGE> 104
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 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.
98
<PAGE> 105
(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.
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.
99
<PAGE> 106
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,
a New Jersey limited liability company
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:
100
<PAGE> 107
Title:
STAR BEDDING PRODUCTS
By:
Name:
Title:
AWI CORPORATION,
a Delaware corporation
By:
Name:
Title:
AGENT AND LENDERS: FIRST UNION NATIONAL BANK,
- ------------------ as Administrative Agent and as a Lender
By:
Name:
Title:
HELLER FINANCIAL, INC.
By:
Name:
Title:
IBJ WHITEHALL BANK & TRUST COMPANY
By:
Name:
Title:
FIFTH THIRD BANK
By:
101
<PAGE> 108
Name:
Title:
FIRST SOURCE FINANCIAL LLP,
By First Source Financial Inc., its manager
By:
Name:
Title:
102
<PAGE> 1
EXHIBIT 10.39
STANDARD LICENSE AGREEMENT
SERTA, INC.
THIS AGREEMENT, dated this 1st day of December, 1969 by and between SERTA,
Associates, INC., a Delaware corporation (hereinafter referred to as "Serta"),
and Adam Wuest, Inc., Cincinnati, Ohio, an Ohio 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 December 1, 1969 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:
"Voting shares" shall mean the issued and outstanding voting shares in a
corporation and the voting rights or beneficial interest in its voting
shares.
"Majority shares" shall mean such number of the voting shares in a
corporation as shall amount to more than one-half thereof.
"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.
-4-
<PAGE> 5
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 its control
stockholder;
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.
(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, by sale or otherwise, of the majority shares in Licensee.
-5-
<PAGE> 6
(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 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.
(iv) 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) (i),
10(c)(iii) or 10(c)(iv) 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 a legatee or heir through inheritance,
intrust 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, 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.
-6-
<PAGE> 7
(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 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 prepaid, and shall be addressed to Serta at 911 Evans
Street, Cincinnati, Ohio 45204. 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.
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 ASSOCIATES, INC.
By
- ----------------------------- ---------------------------
Secretary President
SEAL
ATTEST: ADAM WUEST, INC.
By
- ----------------------------- ---------------------------
Secretary President
SEAL
-9-
<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
Adam Wuest, Inc.
911 Evans Street
Cincinnati, Ohio 45204
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
-2-
<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.
-3-
<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
------------------------------
President.
ATTEST:
- --------------------------------------
Secretary.
SEAL
ADAM WUEST, INC
By
------------------------------
President.
ATTEST:
/s/
- --------------------------------------
Secretary.
SEAL
-4-
<PAGE> 1
EXHIBIT 10.40
CLEVELAND
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
Adam Wuest, Inc.
(check as appropriate)
( X ) corporation ( ) partnership
( ) sole proprietorship ( ) limited partnership
an Ohio 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.
-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 911 Evans Street,
Cincinnati, Ohio 45204. 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/ William H. Foster By /s/ Ray R. Unger
- ----------------------------- ---------------------------
Secretary President
SEAL
ATTEST: HERR MANUFACTURING CO.
/s/ Mary Jane Deye By /s/ David W. Deye
- ----------------------------- ---------------------------
Secretary President
SEAL
-9-
<PAGE> 10
MEMORANDUM OF AGREEMENT
SERTA ASSOCIATES, INC.
THIS MEMORANDUM OF AGREEMENT dated this 22nd day of December, 1983,
by and between SERTA ASSOCIATES, INC., a Delaware corporation, party of the
first part, hereinafter sometimes referred to as "Serta," and
Adam Wuest, Inc.
911 Evans Street
Cincinnati, Ohio 45204
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
-2-
<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.
-3-
<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/ Ray Unger
------------------------------
President.
Executed and delivered Nov. 24, 1969
ATTEST:
/s/ Keith Main
- --------------------------------------
Secretary.
SEAL
HERR MANUFACTURING CO.
By /s/ David W. Deye
------------------------------
President.
ATTEST:
/s/
- --------------------------------------
Secretary.
SEAL
-4-
<PAGE> 1
EXHIBIT 10.41
Indianapolis
STANDARD LICENSE AGREEMENT
SERTA, INC.
THIS AGREEMENT, dated this 1st day of December, 1990 by and between SERTA,
INC., a Delaware corporation (hereinafter referred to as "Serta"), and
Adam Wuest, Inc.
(check as appropriate)
( X ) corporation ( ) partnership
( ) sole proprietorship ( ) limited partnership
a Ohio 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 December 1, 1990 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 Indianapolis 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.
-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 911 Evans Street,
Cincinatti, Ohio 45204. 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/ William H. Foster By /s/ Edward Lilly
- ----------------------------- ---------------------------
Secretary President
SEAL
ATTEST: HERR MANUFACTURING CO.
/s/ Mary Jane Deye By /s/ David W. Deye
- ----------------------------- ---------------------------
Secretary President
SEAL
-9-
<PAGE> 10
MEMORANDUM OF AGREEMENT
SERTA ASSOCIATES, INC.
THIS MEMORANDUM OF AGREEMENT dated this 1st day of December, 1990, by
and between SERTA ASSOCIATES, INC., a Delaware corporation, party of the first
part, hereinafter sometimes referred to as "Serta," and
Adam Wuest, Inc.
911 Evans Street
Cincinnati, Ohio 45204
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
-2-
<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.
-3-
<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/
------------------------------
President.
ATTEST:
/s/ William Foster
- --------------------------------------
Secretary.
SEAL
HERR MANUFACTURING CO.
By /s/ David W. Deye
------------------------------
President.
ATTEST:
/s/ Mary Jane Deye
- --------------------------------------
Secretary.
SEAL
-4-
<PAGE> 1
EXHIBIT 10.42
EXECUTION COPY
SUBORDINATED CREDIT AGREEMENT
DATED AS OF
NOVEMBER 5, 1999
SLEEPMASTER HOLDINGS L.L.C.
AS BORROWER
AND
CITICORP MEZZANINE PARTNERS, L.P.
AS LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. DEFINITIONS...........................................................................................1
SECTION 1.1 Certain Defined Terms.........................................................1
SECTION 1.2 Accounting Terms.............................................................17
ARTICLE 2. AMOUNT AND TERMS OF NOTE AND LOAN....................................................................17
SECTION 2.1 Loan and Note................................................................17
SECTION 2.2 Interest on the Loan.........................................................17
SECTION 2.3 Prepayments and Payments.....................................................18
SECTION 2.4 Use of Proceeds..............................................................20
SECTION 2.5 Fees.........................................................................20
ARTICLE 3. CONDITIONS TO LOAN...................................................................................20
SECTION 3.1 Conditions to Loan...........................................................20
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.......................................................................22
SECTION 4.1 Organization and Good Standing...............................................22
SECTION 4.2 Authorization and Power......................................................22
SECTION 4.3 No Conflicts or Consents.....................................................22
SECTION 4.4 Enforceable Obligations......................................................22
SECTION 4.5 No Event of Default..........................................................23
SECTION 4.6 Use of Proceeds; Margin Stock................................................23
SECTION 4.7 No Financing of Regulated Corporate Takeovers................................23
SECTION 4.8 Compliance with Law..........................................................23
SECTION 4.9 Capital Structure and Subsidiaries...........................................23
SECTION 4.10 Investment Company Act.......................................................23
SECTION 4.11 Public Utility Holding Company Act...........................................23
SECTION 4.12 Financial Condition..........................................................23
SECTION 4.13 Senior Debt Documents........................................................24
SECTION 4.14 Acquisition..................................................................24
ARTICLE 5. AFFIRMATIVE COVENANTS................................................................................24
SECTION 5.1 Financial Statements and Other Reports.......................................24
SECTION 5.3 Payment of Taxes; Tax Consolidation..........................................25
SECTION 5.4 Maintenance of Properties; Insurance.........................................26
SECTION 5.5 Inspection...................................................................26
SECTION 5.6 Compliance with Laws, Etc....................................................26
SECTION 5.7 Maintenance of Accurate Records, Etc.........................................26
SECTION 5.8 Lender Meeting...............................................................27
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6. NEGATIVE COVENANTS...................................................................................27
SECTION 6.1 Indebtedness..........................................................................27
SECTION 6.2 Limitation on Transactions with Affiliates............................................30
SECTION 6.3 Restricted Payments...................................................................31
SECTION 6.4 Mergers...............................................................................35
SECTION 6.5 Asset Sales; Sale of Subsidiary Stock.................................................36
SECTION 6.6 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries..........................................................................37
SECTION 6.7 Limitation on Liens...................................................................38
SECTION 6.8 Limitations on Unrestricted Subsidiaries..............................................39
ARTICLE 7. EVENTS OF DEFAULT....................................................................................41
SECTION 7.1 Failure To Make Payments When Due.....................................................41
SECTION 7.2 Default in Other Agreements...........................................................41
SECTION 7.3 Breach of Certain Covenants and Agreements............................................41
SECTION 7.4 Breach of Warranty....................................................................42
SECTION 7.5 Involuntary Bankruptcy; Appointment of Receiver, Etc..................................42
SECTION 7.6 Voluntary Bankruptcy; Appointment of Receiver, Etc....................................42
SECTION 7.7 Judgments and Attachments.............................................................42
SECTION 7.8 Agreements............................................................................42
ARTICLE 8. SUBORDINATION........................................................................................43
SECTION 8.1 Note Subordinate to Senior Debt.......................................................43
SECTION 8.2 Payment Over of Proceeds Upon Dissolution.............................................43
SECTION 8.3 No Payment in Certain Circumstances...................................................45
SECTION 8.4 Acceleration Rights; Remedies.........................................................46
SECTION 8.5 Payments Otherwise Permitted..........................................................46
SECTION 8.6 Subrogation to Rights of Holders of Senior Debt.......................................46
SECTION 8.7 Provisions Solely to Define Relative Rights...........................................47
SECTION 8.8 No Waiver of Subordination Provisions. ..............................................47
SECTION 8.9 Reliance on Judicial Order. .........................................................47
SECTION 8.10 Amendment. ..........................................................................48
SECTION 8.11 Remedies. ...........................................................................48
ARTICLE 9. MISCELLANEOUS........................................................................................48
SECTION 9.1 Participations in Loan and Note.......................................................48
SECTION 9.2 Expenses..............................................................................48
SECTION 9.3 Indemnity.............................................................................49
SECTION 9.4 Amendments and Waivers................................................................50
SECTION 9.5 Independence of Covenants.............................................................50
SECTION 9.6 Notices...............................................................................50
SECTION 9.7 Survival of Warranties and Certain Agreements.........................................51
SECTION 9.8 Failure or Indulgence Not Waiver; Remedies Cumulative.................................52
SECTION 9.9 Severability..........................................................................52
SECTION 9.10 Headings..............................................................................52
SECTION 9.11 APPLICABLE LAW........................................................................52
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9.12 Successors and Assigns; Subsequent Holders of Notes...................................52
SECTION 9.13 Consent to Jurisdiction and Service of Process........................................52
SECTION 9.14 Waiver of Jury Trial..................................................................53
SECTION 9.15 Counterparts; Effectiveness...........................................................53
SECTION 9.16 Entirety..............................................................................54
</TABLE>
Exhibit A - Form of Note
Exhibit B - Form of Registration Rights Agreement
Exhibit C - Form of Securityholders Agreement
Exhibit D - Form of Warrant
Exhibit E - Form of Warrant Agreement
Schedule 4.13 - Capital Stock; Subsidiaries
<PAGE> 5
SUBORDINATED CREDIT AGREEMENT (the "Agreement") dated as of November 5,
1999 by and among SLEEPMASTER HOLDINGS L.L.C., a New Jersey limited liability
company (the "Company"), and CITICORP MEZZANINE PARTNERS, L.P., a Delaware
limited partnership (the "Lender").
WHEREAS the Company has requested that the Lender lend to the Company
$10,000,000 to partially finance the Acquisition (as defined below), and the
Lender is willing to agree to lend such amount on the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Company and the Lender agree as
follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at
the time such Person becomes a Restricted Subsidiary or (b) 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.
"Acquisition" means the acquisition by AWI Corporation of substantially
all of the assets of and the assumption by AWI Corporation of certain of the
liabilities of each of Adam Wuest, Inc. and Adam Wuest Realty, Inc., in
accordance with the terms of the Purchase Agreement.
"Affiliate" means, with respect to any specified Person: (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (b) 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
(c) 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. Neither the Lender nor any Affiliate of Lender
(other than CVC) shall be treated as an Affiliate of any Credit Party or CVC.
<PAGE> 6
"Asset Sales" 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: (a) any
Capital Stock of any Restricted Subsidiary; (b) all or substantially all of the
properties and assets of any division or line of business of Sleepmaster or any
Restricted Subsidiary; or (c) 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 (i) that is permitted by the provisions
described under Section 6.5 hereof, (ii) 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 this
Agreement, (iii) to an Unrestricted Subsidiary to the extent permitted by the
terms of Section 6.3; (iv) that is of obsolete equipment in the ordinary course
of business, or (v) 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 (a) the sum
of the products of (i) 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 (ii) the amount of each such principal payment by (b)
the sum of all such principal payments.
"Bankruptcy Code" means Title 11 of the United States Code, as now and
hereafter in effect, or any successor statute.
"Board of Advisors" means the Board of Advisors of any Credit Party or a
Subsidiary of any Credit Party, as applicable, or any duly authorized committee
of that Board of Advisors.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or Sleepmaster, as the case
may be, to have been duly adopted by the applicable Board of Advisors and to be
in full force and effect on the date of such certification, and delivered to the
Lender.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close.
"Capital Lease Obligations" 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
- 2 -
<PAGE> 7
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.
"Cash" means such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts.
"Cash Flows" means, with respect to the principal amount of the Loan
repaid, collectively, (a) the principal amount so repaid, (b) the interest paid
on such principal, whether paid prior to the date of the repayment of such
principal or on the date of the repayment of such principal and (c) any premium
payable pursuant to Section 2.5(b) to reach the required Internal Rate of
Return. In the event of a partial repayment of principal, the interest
previously paid on such principal shall be calculated, as of the date of each
payment of interest, by multiplying the total amount of interest paid on such
date by a fraction, (i) the denominator of which is the total outstanding and
unpaid principal of the Loan as of the date on which such interest payment was
made and (ii) the numerator of which is the amount of principal being repaid for
which Cash Flows are calculated.
"Change in Control" means the occurrence of any of the following events:
(a) 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 Sleepmaster;
(b) during any period of two consecutive years, individuals who (i) at the
beginning of such period constituted the Board of Advisors of the Company or
Sleepmaster (together with any new advisors whose election to such board or
whose nomination for election by the securityholders of the Company or
Sleepmaster was approved by a vote of a majority of the advisors then still in
office who were either advisors 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 Advisors then in office or (ii)
were designated by the Permitted Holders cease for any reason to constitute a
majority of such Board of Advisors then in office; (c) the Company or
Sleepmaster 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 Sleepmaster, in any such event pursuant to
a transaction in which the outstanding Voting Stock of the Company or
Sleepmaster is converted into or exchanged for Cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of the Company or Sleepmaster is changed into or exchanged for (A) Voting Stock
of the surviving corporation which is not Redeemable Capital Stock or (B) Cash,
securities and other property (other than Capital Stock of the surviving
corporation) in an amount which could be paid by the Company or Sleepmaster, as
the case may be, as a Restricted Payment as described under Section 6.3 (and
such amount shall be treated as a Restricted Payment subject to the provisions
of Section 6.3 hereof and (ii) 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%
- 3 -
<PAGE> 8
of the total outstanding Voting Stock of the surviving corporation; or (d) the
Company or Sleepmaster is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies with the
provisions under Section 6.5 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 the Company or Sleepmaster 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.
"Closing Date" means November 5, 1999.
"Common Stock" means, with respect to any Person, Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"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 Consolidated basis, all determined in accordance with GAAP,
less all non-Cash items increasing Consolidated Net Income for such period and
less all Cash payments during such period relating to non-Cash 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 non-Cash 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 this Agreement) to (i) the
incurrence of the Indebtedness giving rise to the need to make such calculation
and (if applicable) the application of the Net Cash 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;
(ii) the incurrence, repayment or retirement of any other Indebtedness by the
Credit Parties 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); (iii) 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 (iv) any
acquisition or disposition by the Credit Parties 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 (A) in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and (1) 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 (2) which was not outstanding
during the period for which the computation is being made but which bears, at
the option of such
- 4 -
<PAGE> 9
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 (B) 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, (i) amortization of debt discount, (ii) the net costs
associated with Interest Rate Agreements and Currency Hedging Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers acceptance financing
and (v) accrued interest, plus (b) (i) 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 (ii) 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)(iv) 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 any Existing Indebtedness.
"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, (a) all extraordinary gains or losses net of
taxes (less all fees and expenses relating thereto), (b) 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, (c) 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, (d) any gain
or loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (e) 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, (f) 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 securityholders, (g) 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 this Agreement, or (h) any net gain arising from the acquisition of
any securities or extinguishment, under GAAP, of any Indebtedness of such
Person.
- 5 -
<PAGE> 10
"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.
"Contested Claim" means any Tax, Indebtedness, Contingent Liabilities or
other claim or liability, (a) the validity or amount of which is being
diligently contested in good faith by appropriate proceedings, (b) which has
been bonded or for which appropriate reserves, to the extent required by GAAP,
have been established, and (c) with respect to which any right to execute upon
or sell any assets of the Company or its Subsidiaries has not matured or has
been and continues to be effectively enjoined, superseded, or stayed.
"Contingent Liabilities" means, as applied to any Person, any Guarantees,
endorsements, agreements to purchase or provide funds for the payment of
obligations of others, or other liabilities which would be classified as
contingent liabilities in accordance with GAAP.
"Contractual Obligations" means, as applied to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust, or other instrument, document or
agreement to which such Person is a party or by which it or any of its property
is bound.
"Credit Parties" means the Company and Sleepmaster.
"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.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"Disinterested Advisor" means, with respect to any transaction or series
of related transactions, a member of the Board of Advisors of the Company or
Sleepmaster, as applicable, who
- 6 -
<PAGE> 11
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Issuance" has the meaning set forth in Section 2.3(a)(ii).
"Event of Default" means each of the events set forth in Article 7
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
"Existing Indebtedness" means Indebtedness of the Company, Sleepmaster
and their respective Subsidiaries (other than the Senior Credit Agreement) in
existence on the Closing Date, until such amounts are repaid.
"Existing Preferred Interests" means, collectively, the Company's Series
A Preferred Interests, to the extent issued and outstanding on the Closing Date.
"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 Advisors of the Company or Sleepmaster, as
applicable, acting in good faith and shall be evidenced by a Board Resolution.
"Fiscal Quarter" means any fiscal quarter of the Company and its
Subsidiaries for financial accounting purposes, which Fiscal Quarters end on
March 31, June 30, September 30 and December 31 of each calendar year.
"Fiscal Year" means the fiscal year of the Credit Parties for financial
accounting purposes, which fiscal year ends on December 31 of each calendar
year.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied, which are in effect on the date of this Agreement.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including,
- 7 -
<PAGE> 12
without limitation, letters of credit and reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"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 (a)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (b) 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, (c) 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), (d) 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 (e) otherwise to assure a creditor against loss.
"Guarantor" means any Subsidiary which is a guarantor under the
Subordinated Notes Documents.
"Incur" means create, issue, incur, assume, Guarantee, or otherwise
become directly or indirectly liable for the payment of or otherwise incur,
contingently or otherwise; provided, however, that any Indebtedness or Capital
Stock of a Person existing at the time such Person becomes a Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Subsidiary at the time it becomes a Subsidiary. The terms
"Incurred" and "Incurrence" shall have correlative meanings. The accretion of
principal of a non-interest bearing or other discount security shall not be
deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication,
(a) 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, (b) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (c) 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, (d) all obligations under Interest Rate Agreements or Currency
Hedging Agreements of such Person, (e) all Capital Lease Obligations of such
Person, (f) all Indebtedness referred to in clauses (a) through (e) 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, (g) all Guaranteed Debt of such Person, (h) 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, (i) Preferred
- 8 -
<PAGE> 13
Stock of the Company, Sleepmaster or any Restricted Subsidiary of Sleepmaster or
any Guarantor and (j) any amendment, supplement, modification, deferral,
renewal, extension, refunding or refinancing of any liability of the types
referred to in clauses (a) through (i) 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 Advisors of the issuer of such Redeemable Capital
Stock.
"Initial Interest Payment Date" means April 5, 2000.
"Interest Notes" has the meaning set forth in Section 2.2(b).
"Interest Payment Date" means the last day of each Interest Period.
"Interest Period" means initially the period commencing on the Closing
Date and ending on the Initial Interest Payment Date, and, thereafter, each
six-month period; provided, that:
(i) if an Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day; and
(ii) no Interest Period shall extend beyond the Maturity Date.
"Interest Rate Agreement" 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.
"Internal Rate of Return" shall mean the discount rate compounded
semi-annually on an annual basis at which the present value as of the Closing
Date of Cash Flows of the principal of the Loan repaid discounted back to the
Closing Date equals the principal of the Loan so repaid.
"Investments" 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.
"Lender" has the meaning assigned to that term in the introduction to
this Agreement and shall include any assignees of the Loan or Note pursuant to
the terms and conditions of Section 10.1 hereof.
"Lien" means any mortgage or deed of trust, charge, pledge, lien
(statutory or otherwise), privilege, security interest, assignment, deposit,
arrangement, easement, hypothecation,
- 9 -
<PAGE> 14
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.
"Loan" means the loan made by the Lender to the Company pursuant to
Section 2.1 hereof.
"Loan Documents" shall mean this Agreement, the Note, the Registration
Rights Agreement, the Securityholders Agreement, the Warrant, the Warrant
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, each as amended, supplemented or modified
from time to time.
"Majority Owned Restricted Subsidiary" means any Restricted Subsidiary at
least 90% of the Capital Stock of which is beneficially owned by Sleepmaster.
"Margin Stock" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System as in effect from time to
time.
"Material Adverse Effect" means, (a) any material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of Sleepmaster or the Company and its
Subsidiaries taken as a whole, (b) a material impairment of the ability of the
Company, Sleepmaster or any of their respective Subsidiaries to perform under
any Loan Document, or (c) a material impairment of the rights of or benefits
available to the Lender under any Loan Document.
"Maturity Date" means June 30, 2007.
"Net Cash Proceeds" means with respect to any Asset Sale or Equity
Issuance by any Person, the proceeds thereof (without duplication in respect of
all Asset Sales or Equity Issuances) 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, Sleepmaster or any Restricted
Subsidiary) net of (a) in the case of any Asset Sale (i) brokerage commissions
and other reasonable fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
Taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company, Sleepmaster or any Restricted Subsidiary)
owning a beneficial interest in the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by the Company, 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 the Company,
Sleepmaster or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities,
- 10 -
<PAGE> 15
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, and (b) in the case
of any Equity Issuance, attorney's fees, accountant's fees, underwriters' or
placement agents' fees, discounts, commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and Taxes
paid or payable as a result thereof.
"Note" means one or more of the notes of the Company issued pursuant to
the terms and conditions of Sections 2.1, 2.2(b)(ii) or 9.1 hereof,
substantially in the form of Exhibit A hereto,as amended, replaced, supplemented
or modified from time to time.
"Obligations" means all obligations of every nature of the Credit Parties
from time to time owed to the Lender under the Loan Documents.
"Officer's Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its Chief Executive
Officer, its President or its Chief Financial Officer; provided, that every
Officer's Certificate with respect to the compliance with a condition precedent
to the making of a Loan hereunder shall include (a) a statement that the officer
or officers making or giving such Officer's Certificate have read such condition
and any definitions or other provisions contained in this Agreement relating
thereto, (b) a statement of the signers that they have made or have caused to be
made such examination or investigation as they deem necessary to enable them to
certify that such condition has been complied with, and (c) a statement that
such condition has been complied with.
"Pari Passu Indebtedness" means (a) with respect to the Company,
Indebtedness of the Company pari passu in right of payment to the Note, and (b)
with respect to Sleepmaster or any Guarantor, Indebtedness pari passu in right
of payment to the Subordinated Notes.
"Permitted Holders" means (a) CVC and its Affiliates (provided that for
purposes of this provision only the definition of "Affiliate" shall not include
clauses (b) or (c) included in the definition thereof) and (b) 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 Investments" means (a) Investments in any Majority Owned
Restricted Subsidiary or any Person which, as a result of such Investment, (i)
becomes a Majority Owned Restricted Subsidiary or (ii) 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; (b)
Indebtedness of Sleepmaster or a Restricted Subsidiary described under clauses
(iv), (v) and (vi) of the definition of "Permitted Indebtedness;" (c)
Investments in any Existing Indebtedness; (d) Temporary Cash Investments; (e)
Investments acquired by Sleepmaster or any Restricted Subsidiary in connection
with an Asset Sale permitted under Section 6.5 herein to the extent such
Investments are non-Cash proceeds as permitted under such Section; (f)
Investments in existence on the date of this Agreement; and (g) Investments, in
addition to those listed in clauses (a) to (f), 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
- 11 -
<PAGE> 16
equal to the Fair Market Value (as determined by the Sleepmaster's Board of
Advisors) at the time of Investment.
"Person" means and includes natural persons, corporations, limited
partnerships, limited liability companies, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Potential Event of Default" means a condition or event which, after
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable grace or cure
period.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Purchase Agreement" means the Asset Purchase Agreement, dated as of
November 5, 1999, by and among AWI Corporation, a Delaware corporation, as
purchaser, Sleepmaster L.L.C., a New Jersey limited liability company and each
of Adam Wuest, Inc., an Ohio corporation and Adam Wuest Realty, Inc., an Ohio
corporation, as sellers, as amended, restated or modified from time to time.
"Purchase Money Obligations" 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 Closing Date;
provided, that (a) 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, (b) 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 (c) (i) 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 (ii) 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
Subordinated Notes or is redeemable at the option of the holder thereof at any
time
- 12 -
<PAGE> 17
prior to such final Stated Maturity (other than upon a change of control of the
Company or Sleepmaster in circumstances where the holders of the Subordinated
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.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement, dated as of March 3, 1998, among the Company and
certain other securityholders of the Company to which the Lender has become a
party through a Joinder dated as of the date hereof, in the form of Exhibit B
hereto, as the same may be amended, modified or restated from time to time in
accordance with the terms thereof.
"Requirements of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Restricted Payment" with respect to any Person means (a) declare or pay
any dividend on, or make any distribution on account of, any shares of Capital
Stock (other than dividends or distributions payable solely in shares of
Qualified Capital Stock or in options, warrants or other rights to acquire
shares of such Qualified Capital Stock); (b) purchase, redeem, defease or
otherwise acquire or retire for value, directly or indirectly, Capital Stock,
any Capital Stock of any Subsidiary (other than Capital Stock of any Wholly
Owned Restricted Subsidiary 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
such Person, or options, warrants or other rights to acquire any of the
aforementioned Capital Stock; (c) 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; (d) declare or pay any dividend or distribution on any Capital
Stock of any Restricted Subsidiary to any Person (other than (i) to Sleepmaster
or any of its Wholly Owned Restricted Subsidiaries or (ii) dividends or
distributions made by a Restricted Subsidiary on a pro rata basis to all
securityholders of such Restricted Subsidiary); or (e) make any Investment in
any Person (other than any Permitted Investments); provided, that 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 Advisors
of the Company or Sleepmaster, as applicable.
"Restricted Subsidiary" means any Subsidiary of Sleepmaster that has not
been designated by the Board of Advisors of Sleepmaster as an Unrestricted
Subsidiary pursuant to and in compliance with Section 6.8 herein.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
- 13 -
<PAGE> 18
"Senior Agent" means First Union National Bank, as administrative agent
under the Senior Credit Agreement.
"Senior Credit Agreement" means the Amended and Restated Credit
Agreement, dated as of November 5, 1999, by and among Sleepmaster, the Company,
certain subsidiaries of Sleepmaster as guarantors thereto, the Lenders party
thereto and the Senior Agent, as a lender and administrative agent, including
any related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced, increased or refinanced from time to time.
"Senior Debt" means, with respect to the Company, (a) the obligations of
the Company with respect to the Senior Credit Agreement and (b) any other
Indebtedness permitted to be incurred by the Company under the terms of this
Agreement, unless the instrument under which such Indebtedness is incurred
expressly provides that it is Subordinated Indebtedness. Notwithstanding
anything to the contrary in the foregoing, Senior Debt shall not include (i) any
obligation of the Company to, in respect of or imposed by any environmental,
landfill, waste management or other regulatory governmental agency, statute, law
or court order, (ii) any liability for federal, state, local or other taxes owed
or owing by the Company, (iii) any Indebtedness of the Company to any of the
Company's Subsidiaries or other Affiliates, (iv) any trade payables or (v) any
Indebtedness that is incurred in violation of this Agreement on or after the
date of this Agreement.
"Senior Debt Documents" means, collectively, the Senior Credit Agreement,
and all "Credit Documents" (as defined in the Senior Credit Agreement).
"Senior Default" means an "Event of Default" as defined in the Senior
Credit Agreement.
"Sleepmaster" means Sleepmaster, L.L.C., a Delaware limited liability
company and substantially-owned subsidiary of the Company.
"Sleep Investor" means Sleep Investor L.L.C., a Delaware limited
liability company and parent of the Company.
"Sleep Investor Promissory Notes" means the notes of the Company issued
to Sleep Investor on November 14, 1996, as amended, in an initial principal
amount of $7,000,000 and the note of the Company issued to Sleep Investor on or
following May 18, 1999 in an amount equal to the Retroactive Notes (as defined
in the Senior Credit Agreement), in each case together with the pay-in-kind
interest notes issued thereon.
"Special Preferred Stock" means Preferred Stock of Sleepmaster, in an
aggregate amount not to exceed $40 million, which after the date of issuance of
the Subordinated Notes are issued to and held solely by CVC or the Company;
provided, that (a) dividends on such Preferred Stock are not payable until the
earlier of the Stated Maturity of the Subordinated Notes and the date on which
the Subordinated Notes have been repaid in full and (b) such Preferred Stock is
not Redeemable Capital Stock.
- 14 -
<PAGE> 19
"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.
"Securityholders Agreement" means the Amended and Restated
Securityholders Agreement, dated as of March 3, 1998, among the Company and
certain other securityholders of the Company to which the Lender has become a
party through a Joinder dated as of the date hereof, in the form of Exhibit C
hereto, as the same may be amended, modified or restated from time to time in
accordance with the terms thereof.
"Subordinated Indebtedness" means (a) with respect to the Company,
Indebtedness of the Company subordinated in right of payment to the Note, and
(b) with respect to Sleepmaster or any Guarantor, Indebtedness subordinated in
right of payment to the Subordinated Notes.
"Subordinated Notes" means the 11% Senior Subordinated Notes due 2009
originally issued by Sleepmaster on May 18, 1999 in an initial aggregate
principal amount of $115,000,000, and any notes issued in exchange, substitution
or replacement therefor.
"Subordinated Notes Documents" means the indentures under which the
Subordinated Notes were issued and all other instruments, agreements and other
documents evidencing or governing the Subordinated Notes or providing for any
Guarantee or other rights in respect thereof.
"Subsidiary" of a Person means (a) 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, (b)
any limited partnership of which such Person or any Subsidiary of such Person is
a general partner, or (c) 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" or "Taxes" means all taxes, assessments, fees, levies, imposts,
duties, penalties, deductions, withholdings, or other charges of any nature
whatsoever from time to time or at any time imposed by any law or any
Governmental Authority.
"Tax Amounts" means, with respect to a calendar year or portion thereof,
an amount equal to the sum of (a) the federal income tax that would be imposed
on the Taxable Income 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 (b) 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
- 15 -
<PAGE> 20
income tax purposes of state and local income taxes described in clause (b)
(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 the Company to allow Sleep Investor 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 were available to offset the taxable income of
Sleepmaster and were not previously taken into account hereunder for prior
years.
"Temporary Cash Investments" means (a) 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, (b) 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, (c) 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 or 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 (d) 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.
"Transactions" has the meaning set forth in Section 4.3.
"Unrestricted Subsidiary" means any Subsidiary of Sleepmaster (other than
a Guarantor) designated as such pursuant to and in compliance with Section 6.8
herein.
"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 or board of advisors, as applicable, 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).
"Warrant" means, collectively, one or more warrants to purchase shares of
Common Stock issued by the Company in connection with this Agreement,
substantially in the form of Exhibit D hereto, as the same may be amended,
modified, or restated from time to time.
- 16 -
<PAGE> 21
"Warrant Agreement" means the Warrant Agreement dated as of the date
hereof by and between the Company and the Lender in the form of Exhibit E
hereto, as the same may be amended, modified, or restated from time to time.
SECTION 1.2 Accounting Terms. For purposes of this Agreement, unless
otherwise specified, all accounting terms used herein or in any other Loan
Document shall be interpreted, all accounting determinations and computations
hereunder or thereunder shall be made, and all financial statements required to
be delivered hereunder or thereunder shall be prepared in accordance with GAAP.
ARTICLE 2. AMOUNT AND TERMS OF NOTE AND LOAN
SECTION 2.1 Loan and Note.
(a) Loan. Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of the Company herein set
forth, the Lender hereby agrees to lend to the Company on the Closing Date, an
amount equal to $10,000,000.
(b) Payment of Loan. The unpaid principal amount of the Loan plus all
accrued and unpaid interest thereon and all other amounts owed hereunder with
respect thereto (including pursuant to Section 2.5(b)) shall be paid in full in
Cash on the Maturity Date.
(c) Note. On the Closing Date, the Company shall execute and deliver to
the Lender the Note dated as of the Closing Date, to evidence the Loan made on
such date, in the aggregate principal amount of $10,000,000.
SECTION 2.2 Interest on the Loan.
(a) Rate of Interest. Except as provided in Section 2.2(d) below, the
Loan shall bear interest on the unpaid principal amount thereof from the date
made through maturity (whether by acceleration or otherwise) at a rate equal to
14.00% per annum.
(b) Interest Payments.
(i) Interest shall be payable with respect to the Loan, in arrears
on and to each Interest Payment Date commencing on the Initial Interest
Payment Date, and upon any prepayment of the Loan (to the extent of
accrued interest on the principal amount of the Loan so prepaid) and at
maturity of the Loan; provided, that no accrued interest payable hereunder
shall be paid in Cash prior to 3 months following the repayment in full of
all obligations of the Company with respect to the Senior Credit
Agreement..
(ii) On any Interest Payment Date after the Closing Date ("PIK
Interest Dates"), the Company may, at its election, pay the unpaid accrued
interest with respect to the Loan due on any PIK Interest Date by (A)
issuing to the Lender or any other holder of the Note one or more Notes
(the "Interest Notes") in an aggregate principal amount equal to such
- 17 -
<PAGE> 22
unpaid accrued interest to be paid on such PIK Interest Date, or (B)
adding such unpaid accrued interest to the then outstanding principal
amount of the Loan, in either case, minus the amount of such interest paid
in Cash; provided, that no accrued interest payable hereunder shall be
paid in Cash prior to 3 months following the repayment in full of all
obligations of the Company with respect to the Senior Credit Agreement.
(iii) All Interest Notes shall have the same terms and conditions as
the Note issued pursuant to Section 2.1.
(c) Post-Default Interest. Following the occurrence and during the
continuance of an Event of Default or Senior Default, to the extent permitted by
applicable law, the Loan and Interest Notes shall bear interest at a rate equal
to 2.00% per annum in excess of the rate of interest otherwise payable under
this Agreement for the Loan.
(d) Computation of Interest. Interest on the Loan shall be computed on
the basis of a 360-day year. In computing such interest, the date or dates of
the making of the Loan shall be included and the date of payment shall be
excluded.
SECTION 2.3 Prepayments and Payments.
(a) Prepayments.
(i) Voluntary Prepayments. Subject to Article 8 and the Senior
Debt Documents, the Company may, upon not less than five (5) Business
Days and not more than thirty-five (35) Business Days prior written
notice to the Lender (which notice shall be irrevocable), at any time and
from time to time, prepay the Loan, in whole or in part, in an aggregate
minimum amount of $1,000,000 and integral multiples of $100,000 in excess
of such amount. All voluntary prepayments under this Section 2.3(a)(i)
shall include the premiums payable pursuant to Section 2.5(b). Voluntary
prepayments hereunder shall be credited against the Loan pursuant to the
terms and conditions of Section 2.3(a)(iii). Amounts of the Loan so
prepaid may not be reborrowed.
(ii) Mandatory Prepayments.
(A) Equity Issuance. Subject to Article 8 and the Senior Debt
Documents, to the extent not (x) required by the Senior Credit Agreement
to prepay any Senior Debt and/or reduce the commitments for the Senior
Debt, (y) required by the Subordinated Notes Documents to prepay
Indebtedness thereunder, or (z) voluntarily used by the Company or
Sleepmaster to prepay or repay any Senior Debt and/or reduce the
commitments for the Senior Credit Agreement, upon any issuance of Capital
Stock (other than Redeemable Capital Stock) of the Company or Sleepmaster
in one or more public offerings (such issuance, an "Equity Issuance") and
to the extent permissible under the Senior Debt Documents, the Company
shall apply an amount equal to 100% of the Net Cash Proceeds of such
Equity Issuance to the prepayment of the Loan, all as provided in
subsection 2.3(a)(iii) below. Concurrently with the making of any
prepayment pursuant to this subsection 2.3(a)(ii)(A), the Company shall
deliver to the Lender an Officer's Certificate
- 18 -
<PAGE> 23
demonstrating the derivation of Net Cash Proceeds of the Equity Issuance.
The Company shall provide Lender at least ten (10) Business Days notice
prior to any prepayment under this subsection 2.3(a)(ii)(A). All mandatory
prepayments under this Section 2.3(a)(ii)(A) shall include the premiums
payable pursuant to Section 2.5(b).
(B) Change in Control. Simultaneously with the occurrence of a
Change in Control (the "Change in Control Date"), the Lender shall have
the right, but not the obligation, to require the prepayment of the Loan
in whole; provided, that such right shall be subject to the terms of
Article 8 and the Senior Debt Documents. Within thirty (30) days following
a Change in Control Date, the Company shall give a written notice to the
Lender stating that a Change in Control has occurred. The Lender shall,
within ten (10) Business Days receipt of such notice, notify the Company
if it will require a prepayment hereunder. All mandatory prepayments under
this Section 2.3(a)(ii)(B) shall include the premiums payable pursuant to
Section 2.5(b).
(iii) Application of Prepayments. All prepayments (whether voluntary
or mandatory) shall include payment of accrued interest on the principal
amount of the Loan so prepaid and shall be applied to payment of interest
and fees before application to principal. All mandatory prepayments which
are applied to principal on the Note will be applied to the scheduled
installments in inverse order of maturity thereof. All voluntary
prepayments which are applied to principal will be applied to each
scheduled installment on a pro rata basis.
(b) Manner and Time of Payment. All payments by the Company hereunder and
under the Note of principal, interest, premium, and fees shall be made without
defense, set off, or counterclaim, in same day funds and delivered to the Lender
not later than 2:00 P.M. (New York time) on the date due at 399 Park Avenue,
14th Floor, New York, New York, or such other place designated in writing by the
Lender and delivered to the Company, for the account of the Lender. Funds
received by the Lender after such time shall be deemed to have been paid by the
Company on the next succeeding Business Day.
(c) Payments on Non-Business Days. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a day which is not a
Business Day, the payment shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the payment of
interest hereunder or under the Note.
(d) Notation of Payment. The Lender agrees that before disposing of the
Note held by it, or any part thereof (other than by granting participations
therein), the Lender will make a notation thereon of all principal payments
previously made thereon and of the date to which interest thereon has been paid
and will notify the Company of the name and address of the transferee of that
Note; provided, that the failure to make (or any error in the making of) a
notation of the Loan made under such Note or to notify the Company of the name
and address of a transferee shall not limit or otherwise affect the obligation
of the Company hereunder or under such Note with respect to the Loan and
payments of principal or interest on such Note.
- 19 -
<PAGE> 24
SECTION 2.4 Use of Proceeds.
(a) Loan. The proceeds of the Loan to be made on the Closing Date shall
be used by the Company to partially finance the consideration in the Acquisition
and for general corporate purposes.
(b) Margin Regulations. No portion of the proceeds of any borrowing under
this Agreement shall be used by any Credit Party in any manner which might cause
the borrowing or the application of such proceeds to violate Regulations T, U or
X or any other regulation of the Board of Governors of the Federal Reserve
System, or to violate the Exchange Act, in each case as in effect on the date or
dates of such borrowing and such use of proceeds.
SECTION 2.5 Fees.
(a) On the Closing Date, the Company shall pay to the Lender a
nonrefundable closing fee in the amount of $200,000. Such closing fee shall be
nonrefundable under all circumstances.
(b) In connection with any prepayment or repayment of any portion of the
Loans (whether at maturity, pursuant to this Article 2 or otherwise), the
Company shall pay a premium on the principal amount of the Loan so prepaid or
repaid, as the case may be, such that the Internal Rate of Return on such
principal amount of the Loan so prepaid or repaid (without giving effect to any
fees paid pursuant to Sections 2.5(b) or 3.1(f), the Warrant or any increase in
interest as a result of Section 2.2(c)) is equal to (i) 18% per annum if such
prepayment or repayment occurs prior to November 5, 2002 or (ii) 20% per annum
if such prepayment or repayment occurs on or after November 5, 2002.
ARTICLE 3. CONDITIONS TO LOAN
SECTION 3.1 Conditions to Loan. The obligation of the Lender to make the
Loan hereunder on the Closing Date is subject to the satisfaction of all of the
following conditions:
(a) Organizational Documents. On or before the Closing Date, the Lender
shall have received the following items, each of which shall be in form and
substance satisfactory to the Lender and, unless otherwise noted, dated the
Closing Date:
(i) a certified copy of the certificate of formation of the each of
the Credit Parties certified by the Secretary of the State of the relevant
Credit Party's state of organization, together with a good standing
certificate from the Secretary of State of the relevant Credit Party's
state of incorporation to be dated a recent date prior to the Closing
Date;
(ii) a copy of the limited liability company agreement of each of
the Credit Parties, such copy certified as of the Closing Date by the
Secretary or an Assistant Secretary of the relevant Credit Party;
- 20 -
<PAGE> 25
(iii) Board Resolutions of each of the Credit Parties and, if
necessary, shareholders, approving and authorizing the execution, delivery
and performance of the Loan Documents to which the relevant Credit Party
is a party and any other documents, instru ments, and certificates
required to be executed by each party thereto in connection therewith,
certified as of the Closing Date by the Secretary or an Assistant
Secretary of the relevant Credit Party as being in full force and effect
without modification or amendment;
(iv) signature and incumbency certificates of the officers of the
Company executing the Loan Documents; and
(v) executed copies of the Loan Documents and such other documents
and information as the Lender may reasonably request.
(b) Proceedings Satisfactory. On or before the Closing Date, all
corporate and other proceedings taken or to be taken in connection with the
Transactions and all documents incidental thereto not previously found
acceptable by the Lender shall be reasonably satisfactory in form and substance
to the Lender and the Lender shall have received all such counterpart originals
or certified copies of such documents as the Lender may reasonably request.
(c) Representations and Warranties. Concurrently with the making of the
Loans, each of the Credit Parties shall have delivered to the Lenders an
Officer's Certificate in form and substance satisfactory to the Required Lenders
to the effect that the representations and warranties in Article 4 are true,
correct and complete in all respects on and as of the Closing Date to the same
extent as though made on and as of such date.
(d) Potential Event of Default; Event of Default. No event shall have
occurred and be continuing or would result from the consummation of the
borrowing contemplated hereby which would constitute an Event of Default or
Potential Event of Default.
(e) No Injunction, etc. No order, judgment, or decree of any court,
arbitrator or governmental authority shall enjoin or restrain the Lender from
making the Loan.
(f) Regulations T, U or X. The making of the Loan shall not violate
Regulations T, U or X of the Federal Reserve Board.
(g) Acquisition. The Acquisition shall have been consummated on terms and
conditions satisfactory to the Lender, the fees and expenses paid in connection
therewith shall be satisfactory to the Lender and the conditions precedent to
the Acquisition set forth in the Purchase Agreement shall have been satisfied or
waived.
(h) Fees and Expenses. The Lender shall have received payment in full for
all expenses (including reasonable attorney's fees) incurred in connection with
the negotiation and execution of this Agreement and the Loan Documents and the
closing fee required by Section 2.5.
(i) Senior Debt Documents. The Lender shall have received certified
copies of each of the Senior Debt Documents, and all of such Senior Debt
Documents shall be satisfactory,
- 21 -
<PAGE> 26
in form and substance, to the Lender. All of the conditions contained in the
Senior Credit Agreement as in effect on the Closing Date will have been
satisfied or waived with the consent of the Lender.
(j) Material Adverse Change. No change which could reasonably be expected
to have a Material Adverse Effect shall have occurred since December 31, 1998.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make
the Loan, each of the Credit Parties represents and warrants to the Lender that:
SECTION 4.1 Organization and Good Standing. Each Credit Party is a
limited liability company, duly organized and existing in good standing under
the laws of its jurisdiction of organization. Each Credit Party has the limited
liability company power and authority to own its properties and assets and to
transact the business in which it is engaged and is duly qualified as a foreign
limited liability company and in good standing in all states in which it is
required to be so qualified, except where failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect.
SECTION 4.2 Authorization and Power. Each Credit Party, to the extent it
is a party thereto, has the limited liability company power and requisite
authority, and has taken all limited liability company action necessary, to
execute, deliver and perform its obligations under the Loan Documents.
SECTION 4.3 No Conflicts or Consents. The execution, delivery, and
performance by each Credit Party of its obligations under the Loan Documents and
the Senior Debt Documents, the consummation of any of the transactions
contemplated thereby, and the consummation of the Acquisition (collectively, the
"Transactions"), and compliance with the terms and provisions hereof or thereof
will not contravene or conflict with any provision of law to which any Credit
Party is subject or any material judgment, license, order, or permit applicable
to any Credit Party, or any material Contractual Obligations of any Credit
Party, or violate any provision of the certificate of formation or limited
liability company agreement of any Credit Party, which could reasonably be
expected, in any case, to have a Material Adverse Effect. No consent, approval,
authorization, or order of any Governmental Authority or other Person is
required in connection with the consummation of the Transactions, except for
such required consents, approvals, and authorizations which (a) have been
obtained by the relevant Credit Party or permanently waived in writing, or (b)
the failure to obtain could not reasonably be expected to have a Material
Adverse Effect.
SECTION 4.4 Enforceable Obligations. The Loan Documents have been duly
executed and delivered by each Credit Party (to the extent such Credit Party is
a party thereto) and are, or will be, the legal and binding obligations of each
Credit Party, enforceable in accordance with their respective terms, subject to
applicable laws of bankruptcy, insolvency, and similar laws affecting creditors'
rights and the application of general rules at equity.
- 22 -
<PAGE> 27
SECTION 4.5 No Event of Default. No event has occurred and is continuing
which constitutes a Potential Event of Default or an Event of Default.
SECTION 4.6 Use of Proceeds; Margin Stock. The proceeds of the Loan will
be used solely for the purposes specified herein. None of such proceeds will be
used to, or to reduce or retire any Indebtedness which was originally incurred
to, purchase or carry a Margin Stock, or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of Regulations
T, U or X. No Credit Party has taken nor will take any action which might cause
any of the Loan Documents to violate Regulations T, U or X, or any other
regulations of the Board of Governors of the Federal Reserve System or to
violate Section 8 of the Exchange Act or any rule or regulation thereunder, in
each case as now in effect or as the same may hereafter be in effect.
SECTION 4.7 No Financing of Regulated Corporate Takeovers. No proceeds of
the Loan will be used to acquire any security in any transaction which is
subject to Sections 13 or 14 of the Exchange Act, including particularly (but
without limitation) Sections 13(d) and 14(d) thereof.
SECTION 4.8 Compliance with Law. Each Credit Party is in compliance with
all laws, except where failure to so comply could not reasonably be expected to
have a Material Adverse Effect.
SECTION 4.9 Capital Structure and Subsidiaries.
(a) As of the Closing Date, the authorized Capital Stock of the Company
is as set forth on Schedule 4.13. Except as set forth on Schedule 4.13, as of
the Closing Date, all outstanding shares of each class of such Capital Stock
were duly authorized and validly issued, and are fully paid and nonassessable.
As of the Closing Date, other than the Warrants or as set forth in Schedule
4.13, there are no outstanding securities, rights, or other agreements of any
nature that require any Credit Party or any of their respective Subsidiaries to
issue any of its Capital Stock.
(b) Schedule 4.13 sets forth a true and complete list of each
Subsidiary of each of the Credit Parties and each such Subsidiary's jurisdiction
of incorporation.
SECTION 4.10 Investment Company Act. No 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 4.11 Public Utility Holding Company Act. No Credit Party is a
"holding company", an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
SECTION 4.12 Financial Condition. Immediately after the consummation of
the Transactions to occur on the Closing Date, (a) the fair value of the assets
of each Credit Party, at a fair valuation, will exceed its debts and
liabilities, subordinated, contingent or otherwise; (b) the present fair
saleable value of the property of each Credit Party will be greater than the
amount that will be required to pay the probable liability of its debts and
other liabilities, subordinated,
- 23 -
<PAGE> 28
contingent or otherwise, as such debts and other liabilities become absolute and
matured; (c) each Credit Party will be able to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (d) each Credit Party will not have unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the Closing
Date.
SECTION 4.13 Senior Debt Documents. The Company has delivered to the
Lender true and correct copies of the Senior Debt Documents as in effect on the
date hereof. The representations and warranties of the Company contained in the
Senior Debt Documents are true and correct in all material respects. There exist
no material defaults with respect to the Senior Debt Documents nor any basis for
the exercise by any party thereto of any rights of acceleration, cancellation,
rescission, or any rights of offset.
SECTION 4.14 Acquisition. The transactions contemplated by the Purchase
Agreement have been consummated in accordance with the terms of the Purchase
Agreement, and nothing has come to the Credit Parties' attention that would
indicate that any of the representations and warranties contained in such
agreement are not true and correct in all material respects and, except as
otherwise disclosed to the Lender, none of the material terms thereof have been
modified, amended, or waived.
ARTICLE 5. AFFIRMATIVE COVENANTS
Each of the Credit Parties covenants and agrees that, until the Loan and
the Note and all other amounts due under this Agreement have been paid in full,
unless the Lender shall otherwise give prior written consent, the Credit Parties
shall jointly and severally perform all covenants contained in this Article 5:
SECTION 5.1 Financial Statements and Other Reports. The Credit Parties
will deliver to the Lender:
(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 Company, a copy
of the consolidated and consolidating balance sheet of the Company and its
consolidated Subsidiaries and within one hundred twenty (120) days after the end
of each fiscal year of the Company, a copy of the consolidated and consolidating
balance sheet of Sleepmaster and its consolidated Subsidiaries as at the end of
such fiscal year and with respect to each of the foregoing, the related
consolidated and consolidating statements of income and retained earnings and of
cash flows of the Company and its consolidated Subsidiaries and for Sleepmaster
and its consolidated Subsidiaries for such year, audited by a firm of
independent certified public accountants of nationally recognized standing
reasonably acceptable to the Lender, 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;
- 24 -
<PAGE> 29
(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
Company, a company-prepared consolidated balance sheet and a company-prepared
consolidating balance sheet of the Company and its consolidated Subsidiaries and
of Sleepmaster 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 Company and its consolidated subsidiaries and for Sleepmaster
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);
(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 forty-five (45) days after the end thereof), a
company-prepared consolidated balance sheet of the Company and its consolidated
Subsidiaries and for Sleepmaster 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 Company and its consolidated Subsidiaries and
for Sleepmaster 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); and
(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 Sleepmaster for the next fiscal year on a
month-by-month basis, in form and detail reasonably acceptable to the Lender,
together with a summary of the material assumptions made in the preparation of
such annual budget or plan.
all such financial statements are 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 GAAP.
SECTION 5.2 Corporate Existence, Etc. Except as otherwise expressly
permitted herein, each of the Credit Parties will, and shall cause each of its
Subsidiaries to, at all times preserve and maintain in full force and effect its
corporate or limited liability company existence, as the case may be, and good
standing under the laws of its state or jurisdiction of incorporation, except
when the failure to so preserve or maintain could not reasonably be expected to
have a Material Adverse Effect.
SECTION 5.3 Payment of Taxes; Tax Consolidation.
- 25 -
<PAGE> 30
(a) Each of the Credit Parties and any consolidated group of which any
Credit Party is a member will, and will cause each of their respective
Subsidiaries to, pay all Taxes imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income, or property
before any material penalty accrues thereon, prior to the time when any material
penalty or fine shall be incurred with respect thereto; provided, that no such
Taxes need be paid with respect to any Contested Claim.
(b) None of the Credit Parties will, or will permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person other than the Credit Parties, or any of their
Subsidiaries or such other Person as may be reasonably acceptable to the Lender.
SECTION 5.4 Maintenance of Properties; Insurance. Except as permitted by
the terms and conditions of Section 6.5, each Credit Party will maintain or
cause to be maintained in good repair, working order and condition all material
properties used or useful in the business of the Credit Parties, ordinary wear
and tear excepted, and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof. Each Credit Party will
keep its insurable properties adequately insured at all times in accordance with
past practice; maintain such other insurance, to such extent and against such
risks, including fire and other risks insured against by extended coverage,
including public liability insurance against claims for personal injury or death
or property damage occurring upon, in, about or in connection with the use of
any properties owned, occupied or controlled by it, and maintain such other
insurance as may be required by law.
SECTION 5.5 Inspection. No more than twice during each annual period
following the Closing Date, the Company shall permit, and shall cause each of
its Subsidiaries to permit, representatives of the Lender to visit and inspect
any of their respective properties, to examine their respective corporate,
financial and operating records, and make copies thereof or abstracts therefrom,
and to discuss their respective affairs, finances and accounts with their
respective directors, officers, and independent public accountants, all at such
reasonable times during normal business hours and as often as may be reasonably
requested, upon reasonable advance notice to the Company; provided, when an
Event of Default exists the Lender may do any of the foregoing at the expense of
the Company at any time during normal business hours and without advance notice.
SECTION 5.6 Compliance with Laws, Etc. Each Credit Party shall comply
with, and shall cause each of their respective Subsidiaries to comply with, in
all material respects, all Requirements of Law of any Governmental Authority
having jurisdiction over it or its business, except as may be contested in good
faith or as to which a bona fide dispute may exist.
SECTION 5.7 Maintenance of Accurate Records, Etc. Each Credit Party shall
maintain, and will cause each of its Subsidiaries to maintain, proper books of
records and accounts, in which full, true and correct entries in conformity with
GAAP consistently applied shall be made of all financial transactions and
matters involving the assets and business of each Credit Party and its
Subsidiaries.
- 26 -
<PAGE> 31
SECTION 5.8 Lender Meeting. Each Credit Party will participate in a
meeting with the Lender once during each Fiscal Year to be held at a location
and a time selected by each Credit Party and reasonably acceptable to the
Lender.
ARTICLE 6. NEGATIVE COVENANTS
The Company covenants and agrees that until the Loans and the Note and
all other Obligations due at the time of such termination or payment have been
paid in full, unless the Lender shall otherwise give prior written consent, the
Company shall perform all covenants in this Article 6:
SECTION 6.1 Indebtedness.
(a) The Company shall not, directly or indirectly, Incur any Indebtedness
(including, without limitation, Acquired Indebtedness) other than (i)
Indebtedness under this Agreement, (ii) Senior Debt, (iii) Indebtedness in
respect of indemnities of advisors and officers of the Company, (iv)
Indebtedness in respect of Existing Preferred Interests and (v) Permitted Seller
Debt and Existing Seller Debt (each as defined in the Senior Credit Agreement).
(b) The Company shall not permit Sleepmaster or any of Sleepmaster's
Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including, without limitation, Acquired Indebtedness) unless such Indebtedness
is Incurred by Sleepmaster 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, Sleepmaster and, to the extent
specifically set forth below, its Restricted Subsidiaries may Incur each and all
of the following (collectively, the "Permitted Indebtedness"):
(i) Indebtedness of Sleepmaster (and Guarantees thereof by the
Guarantors) under the Senior Debt Documents 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 6.5, 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;
(ii) Existing Indebtedness outstanding on the Closing Date;
(iii) Indebtedness represented by the Note and this Agreement;
- 27 -
<PAGE> 32
(iv) 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 provided for in the Subordinated Notes
Documents and is unsecured and is Subordinated Indebtedness of Sleepmaster;
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
(iv);
(v) Indebtedness of a Majority Owned Restricted Subsidiary
owing to Sleepmaster or another Majority Owned Restricted Subsidiary;
provided, that any such Indebtedness is made pursuant to an intercompany note
in the form provided for in the Subordinated Notes Documents; 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 (v), 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 (v);
(vi) Guarantees of any Restricted Subsidiary made in
accordance with the Subordinated Notes Documents;
(vii) 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, 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;
(viii) 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 (viii) 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 (viii) did not in each case
- 28 -
<PAGE> 33
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;
(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
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;
(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 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 Subordinate Indebtedness, such new
Indebtedness is made subordinated to the Subordinated Notes or such Guarantee
at least to the same extent as the Indebtedness being refinanced and (2) in
the case of Indebtedness that is Subordinated Indebtedness or Pari Passu
Indebtedness, such refinancing does not reduce the Average Life to Stated
Maturity or the Stated Maturity of such Indebtedness;
(xi) 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 this Agreement or the Subordinated Notes Documents;
(xii) 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, 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;
(xiii) Indebtedness arising from agreements of Sleepmaster or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar
- 29 -
<PAGE> 34
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 (A) 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 (A))
and (B) 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;
(xiv) 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
(xv) Indebtedness of Sleepmaster in addition to that described
in clauses (i) through (xiv) above, and any 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 6.1, 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 second
paragraph hereof; provided, that Sleepmaster would be permitted to Incur such
item of Indebtedness (or portion thereof) pursuant to such other clause or the
second paragraph hereof, as the case may be, at such time of reclassification
except for Redeemable Capital Stock outstanding on the date of this Agreement.
SECTION 6.2 Limitation on Transactions with Affiliates. The Company shall
not, and shall not permit, cause, or suffer Sleepmaster or any Restricted
Subsidiary of Sleepmaster 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 or Sleepmaster (other than the Company,
Sleepmaster or a Majority Owned Restricted Subsidiary of Sleepmaster) unless
such transaction or series of related transactions is entered into in good faith
and in writing and (a) (i) such transaction or series of related transactions is
on terms that are no less favorable to the Company, 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 (ii) the Company or Sleepmaster, in the case of such a transaction involving
Sleepmaster or any Restricted Subsidiary, delivers an officers' certificate to
the Lender certifying that such transaction or series of related transactions
complies with clause (a)(i) of this Section, (b) 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 Advisors of the Board of Advisors of the Company
or Sleepmaster, in the case of such a transaction involving Sleepmaster
- 30 -
<PAGE> 35
or any Restricted Subsidiary, or in the event there is only one Disinterested
Advisor, by such Disinterested Advisor, and (c) with respect to any transaction
or series of related transactions involving aggregate value in excess of $10
million, the Company or Sleepmaster, in the case of such a transaction involving
Sleepmaster or any Restricted Subsidiary, delivers to the Lender 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, Sleepmaster or such Restricted Subsidiary from a financial point
of view; provided, that this provision shall not apply to (i) employment
agreements and employee benefit arrangements with any officer or director or
advisor of the Company, Sleepmaster or any Restricted Subsidiary of Sleepmaster,
including under any unit purchase, unit option or unit incentive plans, entered
into in the ordinary course of business and consistent with the past practices
of the Company, Sleepmaster or such Restricted Subsidiary, (ii) transactions
pursuant to agreements in effect on the date of this Agreement, including
amendments thereto entered into after that date; provided, that the terms of any
such amendment are not less favorable to the Company, Sleepmaster or such
Restricted Subsidiary than the terms of such agreement prior to such amendment
or (iii) any Permitted Payment or Restricted Payment which is permitted to be
made under Section 6.3.
SECTION 6.3 Restricted Payments. (a) The Company will not, directly or
indirectly, make any Restricted Payments other than with respect to (i)
Permitted Seller Debt (as defined in the Senior Credit Agreement) and (ii)
repurchases of management units pursuant to the terms and conditions of any
employment agreements between the Company or any of its Subsidiaries and the
management of the Company or any of its Subsidiaries.
(b) The Company will not permit Sleepmaster or any Restricted Subsidiary
of Sleepmaster to, directly or indirectly, make a Restricted Payment unless:
(i) 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;
(ii) 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 Section 6.1 herein; and
(iii) after giving effect to the proposed Restricted Payment, the
aggregate amount of all such Restricted Payments declared or made after the
date of the Subordinated Notes Documents 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 Subordinated
Notes Documents and ending on the last day of Sleepmaster's last Fiscal
Quarter ending prior to the date of the Restricted
- 31 -
<PAGE> 36
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 Advisors of Sleepmaster in good faith and
evidenced by a Board Resolution set forth in an officer's certificate
delivered to the Lender 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
Lender), 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; 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 Subordinated Notes Documents 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 (ii) or (iii) of paragraph (c) 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 Advisors of Sleepmaster in good faith and
evidenced by a Board Resolution set forth in an officer's certificate
delivered to the Lender 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 Lender),
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 this Agreement 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 Subordinated Notes Documents 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 Subordinated Notes Documents,
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
- 32 -
<PAGE> 37
financed, directly or indirectly, using funds borrowed from Sleepmaster or
any Subsidiary until and to the extent such borrowing is repaid); and
(E) (1) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the date of the
Subordinated Notes Document, 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 (2) 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.
(c) 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 (xi) 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 (b) of this Section 6.3 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 (b) of this Section 6.3;
(ii) 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 (iii)(B) of
paragraph (b) of this Section 6.3;
(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 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 (iii)(B) of
paragraph (b) of this Section 6.3;
(iv) the refinancing of any Subordinated Indebtedness, including
the repurchase, redemption, defeasance, retirement, acquisition for value or
payment of principal of any Subordinated Indebtedness (other than Redeemable
Capital Stock) through the substantially concurrent issuance of new
Subordinated Indebtedness; provided, that any such new Subordinated
Indebtedness (A) shall be in a principal amount that does not exceed the
- 33 -
<PAGE> 38
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 (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 Subordinated Notes 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 date of the Subordinated Notes Documents;
provided, that immediately following such purchase or redemption the
Consolidated Fixed Charge Coverage Ratio of Sleepmaster is not less than
2.0:1;
(vi) the declaration or payment of dividends or other
distributions, or the making of loans, to the Company for (A) reasonable and
customary salary, bonus and other benefits payable to officers, employees and
consultants of the Company consistent with past practice, (B) reasonable fees
and expenses paid to members of the Board of Advisors of the Company
consistent with past practice, (C) general corporate overhead expenses of the
Company in the ordinary course of business consistent with past practice, (D)
management, consulting or advisory fees paid to the Company to permit the
Company 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 the Company
or Sleepmaster held by any member or former member of the Company's or
Sleepmaster's (or any of the Sleepmaster's Restricted Subsidiaries')
management pursuant to any management equity subscription agreement,
securityholders agreement or unit option agreement, in each case as in effect
as of the date of this Agreement; provided, (1) 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 (2) 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 the Company from any issuance or
reissuance of Capital Stock by the Company 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 (iii)(B) of paragraph (b) of this
Section 6.3 to the extent used pursuant to this clause (vi)(E) of paragraph
(c) of this Section 6.3) 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;
- 34 -
<PAGE> 39
(vii) distributions to the Company 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 the Company 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 (vii) with
respect to such calendar year exceed the required Tax Amounts with respect to
such calendar year as determined by Sleepmaster's accountants, the Company
shall promptly pay to Sleepmaster such excess; 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 this Agreement, the Incurrence of
which satisfied the covenant set forth in the first paragraph of Section
6.1(b);
(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 Sleepmaster
to the Company in an amount equal to the current Cash interest payments then
due on the Sleep Investor Promissory Notes as in effect on the Closing 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
(xi) additional Restricted Payments, other than those listed
above, not to exceed $5 million in the aggregate while the Note is
outstanding.
SECTION 6.4 Mergers. (a) The Company shall not consolidate or merge with
or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any Person unless, (i)
the entity formed by or surviving any such consolidation or merger (if other
than the Company), or to which such conveyance or other disposition shall have
been made the ("Surviving Entity"), is a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the Surviving Entity assumes all of the Obligations by written
instrument reasonably satisfactory to the Lender; and (iii) immediately after
giving effect to such transaction on a pro forma basis and treating any
Indebtedness which becomes an obligation of the Company or the Surviving Entity,
as applicable, as a result of such transaction as having been incurred by the
Company or the Surviving Entity, as applicable, at the time of the transaction,
no Potential Event of Default or Event of Default shall have occurred and be
continuing.
(b) The Company shall not permit Sleepmaster to consolidate or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any Person unless, (i)
the entity formed by or surviving any such consolidation or merger (if other
than Sleepmaster), or to which such conveyance or other disposition shall have
been made the ("Sleepmaster Surviving Entity"), is a corporation organized and
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) immediately after giving effect
- 35 -
<PAGE> 40
to such transaction and the use of any Net Cash Proceeds therefrom on a pro
forma basis as if such transaction had occurred at the beginning of the
applicable four-quarter period, Sleepmaster or the Sleepmaster Surviving Entity,
as applicable, could incur at least $1.00 of Indebtedness pursuant to Section
6.1(b); and (iii) immediately after giving effect to such transaction on a pro
forma basis and treating any Indebtedness which becomes an obligation of
Sleepmaster or the Sleepmaster Surviving Entity, as applicable, as a result of
such transaction as having been incurred by Sleepmaster or the Sleepmaster
Surviving Entity, as applicable, at the time of the transaction, no Potential
Event of Default or Event of Default shall have occurred and be continuing.
SECTION 6.5 Asset Sales; Sale of Subsidiary Stock.
(a) The Company shall not permit Sleepmaster or any Restricted
Subsidiary of Sleepmaster to, directly or indirectly, consummate any Asset
Sales, unless:
(i) at least 75% of the consideration from such Asset Sale is
received in Cash or Temporary Cash Investments (provided, that the 75%
limitation 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);
(ii) 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 Advisors of Sleepmaster and evidenced in a Board
Resolution); and
(iii) an amount equal to 100% of the Net Cash Proceeds from such
Asset Sale is applied by Sleepmaster (or such Restricted Subsidiary, as the
case may be):
(A) first, to the extent Sleepmaster elects (or is required by
the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior
Debt pursuant to the Senior Debt Documents or invest the Net Cash Proceeds
in properties and other assets that (as determined by the Board of Advisors
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 this Agreement or in businesses reasonably related thereto, within
one year from the later of the date of such Asset Sale and the receipt of
such Net Cash Proceeds;
(B) second, to the extent of the balance of such Net Cash
Proceeds after application in accordance with clause (A), to prepay, repay,
redeem or purchase Indebtedness pursuant to the Subordinated Notes
Documents, within one year from the later of the date of such Asset Sale and
the receipt of such Net Cash Proceeds; and
(C) third, to the extent of the balance of such Net Cash
Proceeds after application in accordance with clauses (A) and (B) and to the
extent permissible pursuant to the Senior Debt Documents, to prepay, repay,
redeem or purchase the Loan.
- 36 -
<PAGE> 41
Pending the final application of any such Net Cash Proceeds, Sleepmaster
or such Restricted Subsidiary may invest such Net Cash Proceeds in any manner
that is not prohibited by this Agreement or the Subordinated Notes Documents.
For the purposes of this Section 6.5, the following are deemed to be Cash
or Temporary Cash Investments: 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 Subordinated 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).
(b) The Company shall not permit Sleepmaster or any Restricted Subsidiary
of Sleepmaster to issue, sell or transfer any Capital Stock, except (i) if after
giving effect to such issuance, sale or transfer of Capital Stock such
Restricted Subsidiary would be a Majority Owned Restricted Subsidiary, (ii) for
Capital Stock issued or sold to, held by or transferred to Sleepmaster or a
Wholly Owned Restricted Subsidiary, and (iii) 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 (b) shall not
apply upon the acquisition of all the outstanding Capital Stock of such
Restricted Subsidiary in accordance with the terms of this Agreement.
(c) 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 (i) upon the
acquisition of all the outstanding Capital Stock of such Restricted Subsidiary
in accordance with the terms of this Agreement or (ii) if after giving effect to
such acquisition such Restricted Subsidiary would be a Majority Owned
Subsidiary.
(d) 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 Section 6.3 herein if made on the date of such
issuance or sale. Any such Investment shall be deemed a Restricted Payment.
SECTION 6.6 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries. The Company will not cause or permit Sleepmaster or 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 Sleepmaster or any Restricted Subsidiary to (a) pay dividends or
make any other distribution on its Capital Stock or any other interest or
- 37 -
<PAGE> 42
participation in or measured by its profits, (b) pay any Indebtedness owed to
the Company, 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 does not prohibit any encumbrance or restriction (i)
pursuant to an agreement in effect on the date of this Agreement; (ii) with
respect to a Restricted Subsidiary that is not a Restricted Subsidiary of
Sleepmaster on the date of this Agreement, 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; (iii) under the Senior Debt Documents as in
effect on the date of this Agreement, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof; (iv) under the Subordinated Notes Documents; (v) under any
applicable law, rule, regulation or order; (vi) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (vii) 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; (viii) 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 (ix) under any agreement that extends, renews, refinances or replaces the
agreements containing the encumbrances or restrictions in the foregoing clauses
(i) through (viii), or in this clause (ix); 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 6.7 Limitation on Liens. The Company shall not, and shall not
cause or permit Sleepmaster or any of its Restricted Subsidiaries to, directly
or indirectly, create, incur or affirm any Lien of any kind securing any
Subordinated Indebtedness or Pari Passu 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,
Sleepmaster or any Restricted Subsidiary owned on the date of this Agreement or
acquired after the date of this Agreement, or assign or convey any right to
receive any income or profits therefrom, unless the Notes or the Subordinates
Notes, as the case may be (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
Note or the Subordinated Notes, as the case may be, 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
Subordinated Indebtedness or Pari Passu 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 6.1 herein;
provided, 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, Sleepmaster or its Restricted Subsidiaries;
- 38 -
<PAGE> 43
(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 (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 or Sleepmaster, as the case
may be, incurred in connection with such refinancing; provided, 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, Sleepmaster or its Restricted Subsidiaries;
(c) Liens in favor of the Company, Sleepmaster or any Restricted
Subsidiary of Sleepmaster;
(d) Liens on property existing at the time of acquisition thereof by the
Company, 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 this Agreement; and
(f) Liens securing Indebtedness incurred pursuant to clause (x) of the
third paragraph of Section 6.1 herein where the Liens securing the Indebtedness
being refinanced were permitted under this Agreement and Subordinated Notes
Documents.
Notwithstanding the foregoing, any Lien securing the Notes or the
Subordinated Notes granted pursuant to this covenant shall be automatically and
unconditionally released and discharged upon the release by the holders of the
Subordinated Indebtedness or Pari Passu Indebtedness, as the case may be,
described above of their Lien on the property or assets of the Company,
Sleepmaster or any Restricted Subsidiary of Sleepmaster (including any deemed
release upon payment in full of all obligations under such Pari Passu
Indebtedness or Subordinated Indebtedness), at such time as the holders of all
such Subordinated Indebtedness and Pari Passu Indebtedness also release their
Lien on the property or assets of the Company, Sleepmaster or such Restricted
Subsidiary of Sleepmaster, or upon any sale, exchange or transfer to any Person
not an Affiliate of the Company or Sleepmaster of the property or assets secured
by such Lien, or of all of the Capital Stock held by the Company, Sleepmaster or
any Restricted Subsidiary of Sleepmaster in, or all or substantially all the
assets of, any Restricted Subsidiary creating such Lien.
SECTION 6.8 Limitations on Unrestricted Subsidiaries.
The Company may permit Sleepmaster to designate after the Closing Date
any Subsidiary (other than a Guarantor) as an "Unrestricted Subsidiary" under
this Agreement (a "Designation") only if:
- 39 -
<PAGE> 44
(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 second paragraph of Section 6.3 herein in an
amount (the "Designation Amount") equal to the greater of (i) the net book value
of Sleepmaster's interest in such Subsidiary calculated in accordance with GAAP
or (ii) the Fair Market Value of Sleepmaster's interest in such Subsidiary as
determined in good faith by Sleepmaster's Board of Advisors;
(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 Subordinated 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.
In the event of any such Designation, Sleepmaster shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to Section 6.3
hereof for all purposes of this Agreement in the Designation Amount.
The Company shall not cause or permit Sleepmaster or any Restricted
Subsidiary of Sleepmaster 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.
The Company may permit Sleepmaster to revoke any Designation of a
Subsidiary as an Unrestricted Subsidiary (a "Revocation") only if:
- 40 -
<PAGE> 45
(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 Section 6.1 herein.
All Designations and Revocations must be evidenced by a Board Resolution
of Sleepmaster delivered to the Lender certifying compliance with the foregoing
provisions.
ARTICLE 7. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default") shall
occur and be continuing:
SECTION 7.1 Failure To Make Payments When Due. (i) Failure to pay any
installment of principal of the Loan when due, whether at Stated Maturity, by
acceleration, by notice of prepayment, by operation of Section 2.3 or otherwise;
or (ii) failure to pay any interest on any Loan or any other amount due under
this Agreement and such default continues for a period of thirty (30) Business
Days; or
SECTION 7.2 Default in Other Agreements. (a) Failure of any Credit Party
to pay when due any principal of or interest on any Indebtedness in excess of
$10,000,000 in principal outstanding and the expiration of any applicable grace
periods or (b) any breach or default by any Credit Party, including a Senior
Default, and the expiration of any applicable grace periods under any evidences
of Indebtedness in excess of $10,000,000 in the aggregate; provided, that as a
result of any such failure to pay such Indebtedness under clause (a) above, or
any such breach or default under clause (b) above, the Indebtedness thereunder
shall have become due and payable prior to its Stated Maturity and such
Indebtedness shall be automatically accelerated or accelerated upon by the
holders of any such Indebtedness; or
SECTION 7.3 Breach of Certain Covenants and Agreements. Failure of any
Credit Party to perform or comply in any material respect with (a) any term or
condition contained in Section 2.3(a), or Article 6 (other than a failure to
purchase the Note when required under Sections 2.3(a)(ii)(B) or 6.5), or (b) any
other term contained in this Agreement, and (i) in the case of clause (a), such
failure shall not have been remedied or waived within thirty (30) days after
receipt of written notice from the Lender of such default (other than any
occurrence described in the other provisions of this Article 7 for which a
different grace or cure period is specified or which constitutes an immediate
Event of Default), and (ii) in the case of clause (b), such failure shall not
have been
- 41 -
<PAGE> 46
remedied or waived within sixty (60) days after receipt of written notice from
the Lender of such default (other than any occurrence described in the other
provisions of this Article 7 for which a different grace or cure period is
specified or which constitutes an immediate Event of Default); or
SECTION 7.4 Breach of Warranty. Any representation or warranty made by
any Credit Party in any Loan Document or in any statement or certificate at any
time given by any Credit Party in writing pursuant hereto or thereto or in
connection herewith or therewith shall be false in any material respect on the
date as of when made; or
SECTION 7.5 Involuntary Bankruptcy; Appointment of Receiver, Etc. (a) A
court having jurisdiction in the premises shall enter a decree or order for
relief in respect of any Credit Party in an involuntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, which decree or order is not stayed; or any other
similar relief shall be granted and remain unstayed under any applicable federal
or state law; or (b) an involuntary case is commenced against any Credit Party
under any applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over any Credit Party or over
all or a substantial part of any of its property, shall have been entered; or an
interim receiver, trustee or other custodian of any Credit Party or all or a
substantial part of its property is involuntarily appointed; or a warrant of
attachment, execution or similar process is issued against any substantial part
of the property of any Credit Party, and the continuance of any such events in
this clause (b) for sixty (60) days unless dismissed, bonded, stayed, vacated,
or discharged; or
SECTION 7.6 Voluntary Bankruptcy; Appointment of Receiver, Etc. Any
Credit Party shall have an order for relief entered with respect to it or
commence a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a receiver, trustee
or other custodian for all or a substantial part of its property; the making by
any Credit Party of any assignment for the benefit of creditors the admission by
any Credit Party in writing of its inability to pay its debts as such debts
become due; or the Board of Advisors of any Credit Party (or any committee
thereof) adopts any Board Resolution or otherwise authorizes action to approve
any of the foregoing; or
SECTION 7.7 Judgments and Attachments. Any money judgment, writ or
warrant of attachment, or similar process involving in any individual case or in
the aggregate at any time an amount in excess of $10,000,000 (not covered by
insurance) shall be entered or filed against any Credit Party or any of its
respective assets by a final, nonappealable order of a court of competent
jurisdiction, shall remain outstanding, undischarged, unvacated, unbonded or
unstayed for a period of sixty (60) days following such entry or filing; or
SECTION 7.8 Agreements. Any material provision of any Loan Document shall
cease to be a valid and binding obligation against the Company or the Company
shall so state in writing.
- 42 -
<PAGE> 47
THEN, subject to the terms of Article 8, (i) upon the occurrence of any
Event of Default described in the foregoing Section 7.5 or 7.6 (but expressly
excluding the other Events of Default in this Article VII), the unpaid principal
amount of and accrued interest on the Loan shall automatically become
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Company, and the obligations of the Lender hereunder shall thereupon terminate,
and (ii) upon the occurrence of any other Event of Default, the Lender may, by
written notice to the Company, declare the Loan to be, and the same shall
forthwith become, due and payable, as specified below, together with accrued
interest thereon, and if such Event of Default results from a failure to comply
with Section 2.3(a), together with the prepayment premium applicable thereto, if
any, and the obligations of the Lender hereunder shall thereupon terminate.
ARTICLE 8. SUBORDINATION
SECTION 8.1 Note Subordinate to Senior Debt. Each of the Credit Parties
covenants and agrees, and the Lender covenants and agrees, that, to the extent
and in the manner hereinafter set forth in this Article 8, the payment of the
principal of and interest, premiums and fees on the Note or in connection with
this Agreement both before and after the commencement of a bankruptcy
proceeding, and all other sums or obligations due and payable by the Credit
Parties to the Lender hereunder (collectively with the Note and this Agreement,
the "Subordinated Obligations"), are to the extent provided in this Article 8
hereby expressly made subordinate and subject in right of payment to the prior
payment in Cash in full of all Senior Debt.
SECTION 8.2 Payment Over of Proceeds Upon Dissolution.
(a) In the event of any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization, adjustment, composition or other
similar case or proceeding in connection therewith, relative to any Credit Party
or to its creditors, as such, or to its assets, or any liquidation, dissolution
or other winding up of any Credit Party whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy, or any assignment for the
benefit of creditors or any other marshaling of assets and liabilities of any
Credit Party (collectively, "Bankruptcy Events"), then and in any such event:
(i) the holders of Senior Debt shall be entitled to receive
payment in Cash in full of all amounts due or to become due on or in respect
of all such Senior Debt, before the Lender is entitled to receive any
payment or distribution, whether in Cash, securities or other property, on
account of the Subordinated Obligations;
(ii) any payment or distribution of assets of any Credit Party
of any kind or character, whether in Cash, property or securities, by
set-off or otherwise, to which the Lender would be otherwise entitled but
for the provisions of this Article 8, including any such payment or
distribution which may be payable or deliverable by reason of the payment of
any other Indebtedness of any Credit Party being subordinated to the payment
of the Subordinated Obligations of any Credit Party (except for any such
payment or distribution of securities which, if debt securities, are
subordinated to at least the same extent as such
- 43 -
<PAGE> 48
Subordinated Obligations to the payment of all Senior Debt then outstanding
and which, in any case, do not mature or become subject to a mandatory
repurchase, mandatory defeasance or similar mandatory redemption obligation
prior to one year following the maturity of such Senior Debt ("Junior
Securities")) 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 such
Senior Debt or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of
such Senior Debt may have been issued, ratably according to the aggregate
amounts remaining unpaid on account of the principal of, and interest on, such
Senior Debt held or represented by each, to the extent necessary to make
payment in Cash in full of all such Senior Debt remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Debt; and
(iii) in the event that, notwithstanding the foregoing provisions
of this Article 8, the Lender shall have received any such payment or
distribution of assets of any Credit Party of any kind or character, whether
in Cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of the Credit Parties being subordinated to the payment of
Subordinated Obligations (but excluding any Junior Securities) before all
Senior Debt is paid in full or payment thereof provided for, then and in such
event such payment or distribution shall be held in trust for the benefit of
the holders of Senior Debt and paid over or delivered forthwith directly to
the holders of all Senior Debt or their representative or representatives or
to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Debt may have been issued, ratably according to
the aggregate amounts remaining unpaid on the principal of, and interest on,
such Senior Debt held or represented by each, to the extent necessary to pay
all such Senior Debt in full in Cash, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Debt; provided,
that if the Lender is ordered by any court of competent jurisdiction to pay
such payment or distribution to such trustee in bankruptcy, receiver,
liquidating trustee or otherwise, then the Lender shall have no liability to
the holders of Senior Debt pursuant to the provisions of this Section 8.2(a)
for complying with such order.
(b) The Senior Agent or any other agent for or trustee of any Senior Debt
created after the Closing Date shall have the right to request the Lender to
file and, in the event the Lender fails to do so within 14 days, is hereby
authorized to file a proper claim or proof of debt in the form required in any
Bankruptcy Event for and on behalf of the Lender or any other holder of the Note
(including on behalf of each such holder with respect to any such rights
received by such holders from holders of Indebtedness of the Credit Parties due
to such Indebtedness being subordinated to the Subordinated Obligations), to
accept and receive any payment or distribution which may be payable or
deliverable at any time upon or in respect of the Subordinated Obligations in an
amount not in excess of the Senior Debt then outstanding and to take such other
action as may be reasonably necessary to effectuate the foregoing. Each holder
of the Note shall provide to the Senior Agent all information and documents
reasonably necessary to present claims or seek enforcement as aforesaid. The
Lender and any other holder of the Note shall retain the right to vote to accept
or reject any plan of partial or complete liquidation, reorganization,
arrangement, composition or extension); provided, that such holder shall not
take any action or vote in any way so as to contest the enforceability of this
- 44 -
<PAGE> 49
Article 8, the Senior Debt or any other agreement or instrument to the extent
evidencing or relating to the Senior Debt. The Senior Agent shall retain the
right to vote its Senior Debt and otherwise act in any such Bankruptcy Event
(including the right to vote to accept or reject any plan of partial or complete
liquidation, reorganization, arrangement, composition or extension); provided,
that the Senior Agent shall not take any action or vote in any way so as to
contest the enforceability of this Article 8, the Subordinated Obligations or
any other agreement or instrument to the extent evidencing or relating to the
Subordinated Obligations.
(c) If, notwithstanding the provisions of this Agreement, there shall
occur any consolidation of any Credit Party with, or any Acquisition of any
Credit Party into, another corporation or the liquidation or dissolution of any
Credit Party following any conveyance, transfer or lease of its properties and
assets substantially as an entirety to another corporation, such consolidation,
Acquisition or liquidation shall not be deemed a dissolution, winding up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of such Credit Party for the purposes of
this Article 8; provided, that no other Bankruptcy Event shall have occurred and
be continuing at the time of such consolidation, Acquisition or liquidation.
SECTION 8.3 No Payment in Certain Circumstances.
(a) In the event that (i) any Credit Party shall fail to pay when due,
upon acceleration or otherwise, any principal, interest, premiums or fees with
respect to Senior Debt of the Company (a "Payment Default") which Payment
Default shall not have been cured or waived, or (ii) any Credit Party shall fail
to comply with the covenants contained in the Senior Debt Documents or any event
of default (other than a Payment Default) under the Senior Debt Documents shall
occur and be continuing, which default shall not have been cured or waived (a
"Covenant Default"), and the Company and the Lender receive written notice of
such Covenant Default from the Senior Agent (a "Blockage Notice") (provided,
that no such Blockage Notice shall be required with respect to a Payment
Default), then no payment or other amount on account of the Subordinated
Obligations shall be made by any Credit Party or received by the holders of the
Subordinated Obligations (x) in the case of any Payment Default, unless and
until such Senior Debt shall have been paid in full or until such Payment
Default shall have been cured or waived, or (y) in the case of any Covenant
Default, from the earlier of the date on which the Company or the Lender
receives such Blockage Notice until the earlier of (1) 179 days after such date
and (2) the date, if any, on which the Senior Debt to which such Covenant
Default relates is paid in full or such Covenant Default is waived by the
holders of such Senior Debt or otherwise cured (a "Blockage Period"); provided,
that (A) only one Blockage Period consisting of an aggregate of 179 days may
exist in any 360-day period, and (B) no Covenant Default that previously served
as the basis for a Blockage Notice or that was in existence during a prior
Blockage Period may serve as the basis for a subsequent Blockage Notice unless
such Covenant Default was subsequently cured for a period of at least 90
consecutive days.
(b) In the event that, notwithstanding the foregoing, any Credit Party
shall make or the holders of the Subordinated Obligations shall receive any
payment or other amount prohibited by the foregoing provisions of this Section
8.3, then and in such event such payment or other amount shall be held in trust
for the benefit of the holders of Senior Debt and paid over and delivered
- 45 -
<PAGE> 50
forthwith to such holders of Senior Debt. The provisions of this Section 8.3
shall not apply to any payment with respect to which Section 8.2 would be
applicable.
SECTION 8.4 Acceleration Rights; Remedies. If an Event of Default shall
exist at any time that any Senior Debt shall be outstanding, neither the Lender
nor any other holder of the Note shall take any action, judicial or otherwise,
to accelerate or to collect payment on, or redeem, retire, purchase or otherwise
acquire the Subordinated Obligations or to pursue any other remedy with respect
to the Subordinated Obligations prior (including joining with any creditor to
commence any bankruptcy proceeding) to the earlier of:
(a) the payment in full of all Senior Debt;
(b) the occurrence or commencement of a Bankruptcy Event (with respect to
which the provisions of Section 8.2 shall govern);
(c) the expiration of 90 days immediately following the receipt by the
holders of the Senior Debt (or agents representing all such holders) of notice
of the occurrence of such Event of Default from the holder or holders entitled
to accelerate payments on the Subordinated Obligations, and such holder's or
holders' good faith intention to declare the unpaid amount of all Subordinated
Obligations to be immediately due and payable in accordance with the Loan
Documents, unless, during such period the Senior Agent or such holder shall have
caused such Event of Default to be cured; and
(d) the acceleration of the maturity of the Senior Debt;
provided, that any amount received by the Lender as a result of or following any
acceleration permitted above, prior to payment in full of the Senior Debt, shall
be and paid to the holders of Senior Debt (or the agent or agents therefor) in
accordance with the provisions of this Article 8.
SECTION 8.5 Payments Otherwise Permitted. Nothing contained in this
Article 8 or elsewhere in this Agreement or in the Note shall prevent any Credit
Party, at any time except during a Bankruptcy Event as set forth in Section 8.2
or under the conditions described in Section 8.3, from making payments at any
time of principal of and interest on the Loan required or permitted by the terms
of the Note or this Agreement or any other amount payable by such Credit Party
under the Note or this Agreement.
SECTION 8.6 Subrogation to Rights of Holders of Senior Debt. Subject to,
and solely effective following, the final and indefeasible payment in full of
all Senior Debt, the Lender shall be subrogated to the rights of the holders of
such Senior Debt to receive payments and distributions of Cash, property and
securities applicable to such Senior Debt until the principal of and interest on
the Loan and the Note shall be paid in full. For purposes of such subrogation,
no payments or distributions to the holders of such Senior Debt of any Cash,
property or securities to which the Lender would be entitled except for the
provisions of this Article 8, and no payments over pursuant to the provisions of
this Article 8 to the holders of such Senior Debt by the Lender shall, as among
any Credit Party, its creditors (other than holders of such Senior Debt) and the
Lender, be deemed to be a payment or distribution by such Credit Party to or on
account of such Senior Debt.
- 46 -
<PAGE> 51
SECTION 8.7 Provisions Solely to Define Relative Rights. The provisions
of this Article 8 are solely for the purpose of defining the relative rights of
the holders of the Subordinated Obligations on the one hand and the holders of
Senior Debt on the other hand. Nothing contained in this Article 8 or elsewhere
in this Agreement or in the Note is intended to or shall (i) impair, as among
any Credit Party, its creditors (other than holders of Senior Debt) and the
Lender, the obligation of such Credit Party, which is absolute and
unconditional, to pay to the Lender the principal of, and premium and interest
on, and any other amount payable by such Credit Party under, the Note or this
Agreement as and when the same shall become due and payable in accordance with
its terms; or (ii) affect the relative rights against such Credit Party of the
Lender and its creditors (other than the holders of Senior Debt); or (iii)
prevent the Lender from accelerating the Loan and exercising all other remedies
otherwise permitted by applicable law upon default under this Agreement, subject
to the terms of Section 8.4, or the rights, if any, under this Article 8 of the
holders of Senior Debt (x) upon the occurrence of a Bankruptcy Event, to
receive, pursuant to and in accordance with Section 8.2, Cash, property and
securities otherwise payable or deliverable to the Lender, or (y) under the
conditions specified in Section 8.3, to prevent or receive any payment
prohibited by such Section.
SECTION 8.8 No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Debt 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 Credit Party or by any act or failure to act,
in good faith, by any such holder, or by any noncompliance by any Credit Party
with the terms, provisions and covenants of this Agreement, regardless of any
knowledge thereof any such holder may have or be otherwise charged with. Without
in any way limiting the generality of the foregoing, the holders of Senior Debt
may at any time and from time to time, without the consent of or notice to the
Lender, without incurring responsibility to the Lender and without impairing or
releasing the subordination provided in this Article 8 or the obligations
hereunder of the Lender and such holders to the holders of Senior Debt, do any
one or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment of, or renew, increase, modify or alter, Senior
Debt or any instrument evidencing the same or any agreement under which Senior
Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any
Person liable in any manner for the collection of Senior Debt; and (iv) exercise
or refrain from exercising or waiving any rights, powers or remedies against any
Credit Party and any other Person.
The provisions of this Article 8 are intended to be for the benefit of,
have been relied upon by and shall be enforceable directly by the holders of
Senior Debt.
SECTION 8.9 Reliance on Judicial Order. Upon any payment or distribution
of assets of any Credit Party referred to in this Article 8, the Lender shall be
entitled to rely upon any unstayed, final, nonappealable order or decree entered
by any court of competent jurisdiction in which a Bankruptcy Event is pending
for the purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of Senior Debt in such payment or
distribution, the holders of Senior Debt and other Indebtedness of such Credit
Party, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 8.
- 47 -
<PAGE> 52
SECTION 8.10 Amendment. Any material amendment to the provisions of this
Article 8 shall not be effective against any holder of Senior Debt without such
holder's consent.
SECTION 8.11 Remedies. The holders of Senior Debt shall be entitled to
enforce their rights under this Article 8 specifically, to recover damages by
reason of any breach of any provisions of this Article 8 and to exercise all
other rights existing in their favor. The Lender acknowledges and agrees that
money damages may not be an adequate remedy for any breach of the provisions of
this Article 8 and that holders of Senior Debt may apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief (without posting bond or other security) in order to enforce or prevent
any violation of the provisions of this Article 8.
ARTICLE 9. MISCELLANEOUS
SECTION 9.1 Participations in Loan and Note.
(a) The Lender shall have the right at any time, to sell, assign,
transfer, or negotiate all or any part of the Loan or Note to one or more
Persons; provided, that the Lender shall at all times retain at least 51% of the
aggregate principal amount of the Loan. In the case of any sale, assignment,
transfer, or negotiation of all or part of the Loan or Note as authorized under
this Section 9.1(a), the assignee, transferee, or recipient shall have, to the
extent of such sale, assignment, transfer, or negotiation, the same rights,
benefits, and obligations as it would if it were a Lender with respect to such
Loan or Note.
(b) Subject to Section (a) above, the Lender may grant participations in
all or any part of the Loan or Note to one or more Persons.
(c) In connection with any sales, assignments, or transfers of any Loan
or Note referred to in Section 9.1(a), the Lender shall give notice to the
Company and Persons holding a majority of the outstanding principal amount of
the Senior Debt and the Senior Agent of the identity of such parties and obtain
agreements from the purchasers, assignees and transferees, as the case may be
(the "Assignees"), that all information given to such parties will be held in
strict confidence pursuant to a confidentiality agreement reasonably
satisfactory to the Company. The Company shall maintain a register on which it
will record the name and address of the Lender and all Assignees and shall be
entitled to treat the holder or holders of record as the Lender for all purposes
hereunder.
(d) In the event of an assignment by the Lender, or any subsequent
assignment, the term "Lender" herein shall be deemed to refer to each such
Lender, the term "Note" shall be deemed to refer to each "Note", and any action
requiring the consent of the Lender shall be deemed to require the consent of
Persons holding in excess of 50% of the outstanding principal amount of the
Note.
SECTION 9.2 Expenses. Whether or not the transactions contemplated hereby
shall be consummated, the Company agrees to pay promptly (i) all the actual and
reasonable costs and expenses of preparation of the Loan Documents and all the
costs of furnishing all opinions by counsel for the Company (including, without
limitation, any opinions requested by the Lender as to any legal matters arising
hereunder), and of the Company's performance of and compliance with all
- 48 -
<PAGE> 53
agreements and conditions contained herein on its part to be performed or
complied with; (ii) the reasonable fees, expenses, and disbursements of counsel
to the Lender in connection with the negotiation, preparation, execution, and
administration of the Loan Documents, and the Loan hereunder, and any amendments
and waivers hereto or thereto; and (iii) after the occurrence of an Event of
Default, all costs and expenses (including reasonable attorneys' fees) incurred
by the Lender in enforcing any Obligations of or in collecting any payments due
from any Credit Party hereunder or under the Note by reason of such Event of
Default or in connection with any Refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a workout, or any
insolvency or bankruptcy proceedings.
SECTION 9.3 Indemnity. In addition to the payment of expenses pursuant to
the terms and conditions of Section 9.2 hereof, whether or not the transactions
contemplated hereby shall be consummated, each Credit Party (each an
"Indemnitor") agrees to indemnify, pay, and hold the Lender and any holder of
the Note, and the officers, directors, employees, agents, and Affiliates of the
Lender and such holders (collectively, the "Indemnitees") harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of one counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto), which may
be imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement, the other Loan Documents, the
Lender's agreement to make the Loan or the use or intended use of the proceeds
of any of the Loan hereunder, including, without limitation, any of the
foregoing arising pursuant to any Environmental Laws (the "Indemnified
Liabilities"); provided, that the Indemnitor shall not have any obligation to an
Indemnitee hereunder with respect to an Indemnified Liability to the extent that
such Indemnified Liability arises from the gross negligence or willful
misconduct of that Indemnitee. Each Indemnitee shall give the Indemnitor prompt
written notice of any claim that might give rise to Indemnified Liabilities
setting forth a description of those elements of such claim of which such
Indemnitee has knowledge; provided, that any failure to give such notice shall
not affect the obligations of the Indemnitor unless (and then solely to the
extent) the Indemnitor is prejudiced. The Indemnitor shall have the right at any
time during which such claim is pending to select counsel to defend and control
the defense thereof and settle any claims for which it is responsible for
indemnification hereunder (provided that the Indemnitor will not settle any such
claim without (i) the appropriate Indemnitee's prior written consent which
consent shall not be unreasonably withheld or (ii) obtaining an unconditional
release of the appropriate Indemnitee from all claims arising out of or in any
way relating to the circumstances involving such claim) so long as in any such
event, the Indemnitor shall have stated in a writing delivered to the Indemnitee
that, as between the Indemnitor and the Indemnitee, the Indemnitor is
responsible to the Indemnitee with respect to such claim to the extent and
subject to the limitations set forth herein; provided, that the Indemnitor shall
not be entitled to control the defense of any claim in the event that in the
reasonable opinion of counsel for the Indemnitee there are one or more material
defenses available to the Indemnitee which are not available to the Indemnitor;
provided, further, that with respect to any claim as to which the Indemnitee is
controlling the defense, the Indemnitor will not be liable to any Indemnitee for
any settlement of any claim pursuant to this Section 9.3 that is effected
without its prior written consent. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, each Credit
Party
- 49 -
<PAGE> 54
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.
SECTION 9.4 Amendments and Waivers. No amendment, modification,
termination or waiver of any provision of this Agreement or of the Note, or
consent to any departure by the Company therefrom, shall in any event be
effective without the written concurrence of the Lender and each of the Credit
Parties and an opinion of counsel of the Company to the effect that such
amendment, modification, termination, or waiver does not violate Article 8 and
the Senior Credit Agreement; provided, that no amendment, modification, waiver,
or consent shall, unless in writing and signed by all the Lenders, do any of the
following: (a) increase or subject the Lender to any additional obligations; (b)
reduce the principal of, or interest on the Note or any fees, premiums, or other
amounts payable hereunder; (c) postpone any date fixed for any payment of
principal of, or premium or interest on, the Note or any fees or other amounts
payable hereunder; or (d) amend this Section 9.4. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on such Credit Party in any case shall
entitle any Credit Party to any further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver, or consent
effected in accordance with this Section 9.4 shall be binding upon each holder
of the Note at the time outstanding and each future holder of the Note.
SECTION 9.5 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant shall
not avoid the occurrence of an Event of Default or Potential Event of Default if
such action is taken or condition exists.
SECTION 9.6 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 delivered personally, mailed by certified or registered mail,
return receipt requested and postage prepaid, sent via a nationally recognized
overnight courier, or via facsimile. Such notices, demands and other
communications will be sent to the address indicated below:
To the Company:
Sleepmaster Holdings L.L.C.
2001 Lower Road
Linden, NJ 07036-6520
Attention: Mr. Charles Schweitzer
Facsimile: (732) 381-3925
- 50 -
<PAGE> 55
with copies (which shall not
constitute notice to the Company) to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
Attention: John Weber
Telecopy No: (212) 888-2940
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022-4675
Attention: Kimberly P. Taylor, Esq.
Telecopy No.: (212) 446-4900
To the Lender:
c/o Citicorp Capital Investors, Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
Attention: Richard E. Mayberry, Jr.
Telecopy No.: (212) 888-2940
with a copy (which shall not
constitute notice to the Lender) to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022-4675
Attention: Eunu Chun, 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;
provided, that the failure to deliver copies of notices as indicated above shall
not affect the validity of any notice. Any such communication shall be deemed to
have been received (i) when delivered, if personally delivered, or sent by
nationally-recognized overnight courier or sent via facsimile or (ii) on the
third Business Day following the date on which the piece of mail containing such
communication is posted if sent by certified or registered mail.
SECTION 9.7 Survival of Warranties and Certain Agreements. (a) All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loan hereunder and
the execution and delivery of the Note and shall continue (but, with respect to
representations and warranties, such representations and warranties are made
only as of the date when made pursuant to Section 4) until repayment of the Note
and the Obligations in full; provided, that if all or any part of such payment
is set aside, the
- 51 -
<PAGE> 56
representations and warranties in the Loan Documents shall continue as if no
such payment had been made.
(b) Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Credit Parties set forth in Sections 9.2 and 9.3
shall survive the payment of the Loans and the Note and the termination of this
Agreement.
SECTION 9.8 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any Lender or any holder of any Note in the
exercise of any power, right or privilege hereunder or under the Note shall
impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing under this
Agreement or the Note are cumulative to and not exclusive of, any rights or
remedies otherwise available.
SECTION 9.9 Severability. In case any provision in or obligation under
this Agreement or the Note shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 9.10 Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 9.11 APPLICABLE LAW. THIS AGREEMENT AND THE NOTE SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 9.12 Successors and Assigns; Subsequent Holders of Notes. This
Agreement shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
the successors and assigns of the Lender. The terms and provisions of this
Agreement and all other certificates delivered pursuant to Section 3 shall inure
to the benefit of any assignee or transferee of the Note pursuant to Section
9.1(a), and in the event of such transfer or assignment, the rights and
privileges herein conferred upon the Lender shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof. The Company's rights or any interest therein hereunder may not be
assigned without the written consent of the Lender.
SECTION 9.13 Consent to Jurisdiction and Service of Process. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY OR THE LENDER WITH RESPECT TO THIS
AGREEMENT, ANY NOTE OR ANY WARRANT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT
OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK LOCATED IN THE CITY OF NEW
YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH CREDIT PARTY AND THE
LENDER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
- 52 -
<PAGE> 57
UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT SUBJECT, HOWEVER, TO RIGHTS OF APPEAL. EACH CREDIT PARTY AND
THE LENDER DESIGNATES AND APPOINTS CORPORATION SERVICE COMPANY, 375 HUDSON
STREET, NEW YORK, NEW YORK 10014 AND SUCH OTHER PERSONS AS MAY HEREAFTER BE
SELECTED BY SUCH CREDIT PARTY OR THE LENDER, AS APPLICABLE, IRREVOCABLY AGREEING
IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY SUCH CREDIT PARTY OR THE LENDER, AS APPLICABLE, TO BE EFFECTIVE
AND BINDING SERVICE IN EVERY RESPECT, A COPY OF SUCH PROCESS SO SERVED SHALL BE
SENT BY AIR COURIER TO SUCH CREDIT PARTY OR THE LENDER, AS APPLICABLE, AT ITS
ADDRESS PROVIDED IN SECTION 9.6 HEREOF, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY ANY CREDIT PARTY OR THE LENDER, AS
APPLICABLE, REFUSES TO ACCEPT SERVICE, EACH CREDIT PARTY AND THE LENDER HEREBY
AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING
HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF THE PARTIES HERETO TO BRING PROCEEDINGS AGAINST
ANY OTHER PARTY HERETO IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 9.14 Waiver of Jury Trial. EACH CREDIT PARTY AND THE LENDER
HEREBY WAIVES, 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 ANY OTHER LOAN DOCUMENT OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. NOTWITHSTANDING ANYTHING
CONTAINED IN THIS AGREEMENT TO THE CONTRARY, NO CLAIM MAY BE MADE BY ANY PARTY
HERETO AGAINST ANY OTHER PARTY HERETO FOR ANY LOST PROFITS OR ANY SPECIAL,
INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT
(OTHER THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL FRAUD) IN CONNECTION WITH,
ARISING OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED HEREUNDER
OR UNDER THE OTHER LOAN DOCUMENTS, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH; EACH CREDIT PARTY AND THE LENDER HEREBY WAIVES, RELEASES
AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES. EACH CREDIT
PARTY AND THE LENDER AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT
OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE PARTIES HERETO WOULD NOT ENTER INTO
THIS AGREEMENT IF THIS SECTION WERE NOT PART OF THIS AGREEMENT.
SECTION 9.15 Counterparts; Effectiveness. This Agreement and any
amendments, waivers, consents, or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered
- 53 -
<PAGE> 58
shall be deemed an original, but all such counterparts together shall constitute
but one and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto, and written or
telephonic notification of such execution and authorization of delivery thereof
has been received by the Company and the Lender.
SECTION 9.16 Entirety. This Agreement and the other Loan Documents embody
the entire agreement among the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof.
* * * * *
- 54 -
<PAGE> 59
IN WITNESS WHEREOF, the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
SLEEPMASTER HOLDINGS L.L.C.
By:
-----------------------
Name:
Title:
CITICORP MEZZANINE PARTNERS, L.P.
By: Citicorp Capital Investors, Ltd.
Its: General Partner
By:
-----------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.43
EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
SLEEPMASTER L.L.C.,
AWI CORPORATION
(as Purchaser)
ADAM WUEST, INC.
AND
ADAM WUEST REALTY, INC.
(as Sellers)
================================================================================
November 2, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. ACQUISITION OF THE SUBJECT ASSETS; ASSUMPTION OF THE ASSUMED LIABILITIES
AND PURCHASE PRICE............................................................1
1A. Purchase of the Subject Assets. ..............................................1
1B. Excluded Assets...............................................................4
1C. Assumed Liabilities...........................................................5
1D. Liabilities Not Assumed.......................................................6
1E. Purchase Price................................................................7
1F. Determination of Closing Net Working Capital..................................8
1G. Working Capital Purchase Price Adjustment.....................................9
1H. Elections.....................................................................9
1I. Closing Date..................................................................9
SECTION 2. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT THE CLOSING........................10
2A. Representations and Warranties; Covenants....................................10
2B. Opinion of the Sellers' Counsel..............................................10
2C. Litigation...................................................................10
2D. Consents and Approvals.......................................................10
2E. Escrow Agreements............................................................10
2F. Material Adverse Change......................................................10
2G. Employment and Unit Purchase Agreement.......................................10
2H. Real Estate Matters..........................................................11
2I. Closing Documents............................................................12
2J. Financing....................................................................13
2K. Transfer Taxes...............................................................13
2L. Release of Liens.............................................................13
2M. Transactions with Affiliates.................................................13
2N. Phantom Stock Plan...........................................................13
2O. Conveyancing Documents.......................................................13
2P. Substitution Agreement.......................................................14
2Q. Waiver.......................................................................14
SECTION 3. CONDITIONS OF THE SELLERS' OBLIGATIONS AT THE CLOSING...........................14
3A. Representations and Warranties; Covenants....................................14
3B. Escrow Agreements............................................................14
3C. Employment and Unit Purchase Agreements......................................14
3D. Litigation...................................................................14
3E. Opinion of the Purchaser's Counsel...........................................14
3F. Closing Documents............................................................14
3G. HSR Act......................................................................15
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
3H. Conveyancing Documents.......................................................15
3I. Waiver.......................................................................15
SECTION 4. PRE-CLOSING COVENANTS AND AGREEMENTS............................................15
4A. Best Efforts; Further Assurances.............................................15
4B. Third Party Notices and Consents.............................................15
4C. Operation of Business........................................................15
4D. Full Access..................................................................16
4E. Press Release and Public Announcements......................................16
4F. HSR Act......................................................................17
4G. Compliance with Agreements and Laws..........................................17
4H. Payment of Obligations.......................................................17
4I. Notice of Material Developments..............................................17
4J. Exclusivity..................................................................17
4K. Certain Pre-Closing Tax Matters..............................................18
4L. Certain Real Property Matters................................................18
4M. Change of Name...............................................................18
SECTION 5. COVENANTS AND AGREEMENTS........................................................19
5A. Confidentiality..............................................................19
5B. Noncompete, Nonsolicitation..................................................19
5C. Record Retention.............................................................20
5D. Accounts Receivable; Mail....................................................20
5E. Insurance Coverage...........................................................21
5F. Employees....................................................................21
5G. Union Matters................................................................21
5H. Multiemployer Plan Withdrawal Liability - ERISA Section 4204.................21
5I. Employee Benefit Plans.......................................................22
5J. Sales Taxes..................................................................23
SECTION 6. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY...........................23
6A. Organization, Corporate Power and Licenses...................................23
6B. Capital Stock and Related Matters; Subsidiaries..............................23
6C. Authorization; No Breach. ...................................................24
6D. Consents.....................................................................24
6E. Financial Statements.........................................................24
6F. Absence of Undisclosed Liabilities...........................................25
6G. Product Warranty.............................................................25
6H. Product Liability............................................................25
6I. No Material Adverse Effect...................................................25
6J. Indebtedness.................................................................26
6K. Absence of Certain Developments..............................................26
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
6L. Assets.......................................................................27
6M. Tax Matters..................................................................28
6N. Contracts and Commitments....................................................29
6O. Intellectual Property Rights.................................................31
6P. Litigation, etc..............................................................32
6Q. Brokerage....................................................................32
6R. Insurance....................................................................32
6S. Employees....................................................................33
6T. ERISA........................................................................33
6U. Compliance with Laws; Permits................................................35
6V. Environmental and Safety Matters.............................................35
6W. Affiliate Transactions.......................................................36
6X. Real Property................................................................36
6Y. Tangible Property............................................................39
SECTION 7. INTENTIONALLY OMITTED...........................................................39
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................................39
8A. Organization, Power and Authority. ..........................................39
8B. Authorization; No Breach. ...................................................39
8C. Consents.....................................................................40
8D. Brokerage....................................................................40
8E. Financing....................................................................40
SECTION 9. INDEMNIFICATION AND OTHER AGREEMENTS............................................40
9A. Survival of Representations and Warranties...................................40
9B. General Indemnification. ....................................................41
SECTION 10. DEFINITIONS....................................................................44
SECTION 11. TERMINATION....................................................................51
11A. Conditions of Termination....................................................51
11B. Effect of Termination........................................................51
SECTION 12. MISCELLANEOUS..................................................................51
12A. Fees and Expenses............................................................51
12B. Remedies.....................................................................51
12C. Consent to Amendments; Waivers...............................................52
12D. Successors and Assigns.......................................................52
12E. Severability.................................................................52
12F. Counterparts.................................................................52
12G. Descriptive Headings; Interpretation.........................................52
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
12H. Entire Agreement.............................................................53
12I. No Third-Party Beneficiaries.................................................53
12J. Cooperation on Tax Matters...................................................53
12K. Schedules and Exhibits.......................................................53
12L. Governing Law................................................................53
12M. Notices......................................................................53
12N. Jurisdiction and Venue.......................................................54
12O. Waiver of Right to Jury Trial................................................55
12P. No Strict Construction.......................................................55
12Q. Guarantee....................................................................55
</TABLE>
- iv -
<PAGE> 6
EXHIBITS AND SCHEDULES
Exhibits:
Exhibit A - Adjustment Escrow Agreement
Exhibit B - Indemnity Escrow Agreement
Exhibit C - Opinion of the Sellers' Counsel
Exhibit D - Assignment and Assumption Agreement
Exhibit E - Bill of Sale
Exhibit F - Opinion of the Purchaser's Counsel
Disclosure Schedules (with Section references):
Allocation Schedule -1E(iii)
Consents Schedule -2D, 6D
Real Property Schedule -2I, 6X
Assumed Plans -5I
Sales Tax -5J
Foreign Qualifications Schedule -6A
Capitalization Schedule -6B
Authorization Schedule -6C
Consents Schedule -6D
Financial Statements Schedule -6E
Disclosed Liabilities Schedule -6F
Product Warranty Schedule -6G
Indebtedness Schedule -6J
Developments Schedule -6K
Liens Schedule -6L
Tax Schedule -6M
Contracts Schedule -6N
Intellectual Property Schedule -6O
Litigation Schedule -6P
Brokerage Schedule -6Q
Insurance Schedule -6R
Employees Schedule -6S
Employee Benefits Schedule -6T
Permits Schedule -6U
Environmental Schedule -6V
Affiliate Transactions Schedule -6W
Real Property Schedule -6X
Tangible Property -6Y
- v -
<PAGE> 7
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made as of
November 2, 1999, by and among AWI Corporation, a Delaware corporation (the
"Purchaser"), Sleepmaster L.L.C., a New Jersey limited liability company
("Sleepmaster"), Adam Wuest, Inc., an Ohio corporation (the "Company"), Adam
Wuest Realty, Inc., an Ohio corporation ("Adam Wuest Realty", and Adam Wuest
Realty and the Company are sometimes collectively referred to herein as the
"Sellers" and each individually as a "Seller"). The Company, Adam Wuest Realty,
Sleepmaster and the Purchaser 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 meanings given to such terms in Section 10
below.
WHEREAS, the Company is a licensee of Serta, Inc. ("Serta") and
is engaged in the business of manufacturing and distributing Serta brand
mattresses and box springs (the "Business");
WHEREAS, Adam Wuest Realty owns certain real property located at
645 Linn Street in Cincinnati, Ohio; and
WHEREAS, the Company and Adam Wuest Realty wish 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.
SECTION 1. ACQUISITION OF THE SUBJECT ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES AND PURCHASE PRICE.
1A. Purchase of the Subject Assets. On the terms and subject to
the conditions set forth in this Agreement, on the Closing Date, the (x) Company
agrees to sell, transfer, assign, convey and deliver to the Purchaser free and
clear of all liens and encumbrances (other than Permitted Liens), and the
Purchaser agrees to purchase, acquire and accept from the Company, all of its
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 on the date of the Reference Balance Sheet, of every
type and description, real, personal and mixed, tangible and intangible,
wherever located and whether or not reflected on the Books and Records of the
Company and (y) Adam Wuest Realty agrees to sell, transfer, assign, convey and
deliver to the Purchaser free and clear of all liens and encumbrances (other
than Permitted Liens), and the Purchaser agrees to purchase, acquire and accept
from Adam Wuest Realty, all of its right, title and interest in and to the Owned
Real Property (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 1B. Except as specifically excluded
pursuant to Section 1B, the Subject Assets include, without limitation, all of
Sellers' right, title and interest in or to the following:
<PAGE> 8
(i) Owned Real Property. All land, together with all buildings,
structures, improvements and fixtures located thereon, and all easements and
other rights and interests appurtenant thereto, owned by the Sellers and used in
the Business (the "Owned Real Property");
(ii) Leased Real Property. All of the Sellers' right, title and
interest in all leases, subleases, licenses, concessions and other agreements
(written or oral) (the "Leases"), pursuant to which the Company or Adam Wuest
Realty holds or grants a leasehold or subleasehold estate in, or is granted the
right to use or occupy, any land, buildings, structures, improvements, fixtures
or other interest in real property which is used in the Business (the "Leased
Real Property");
(iii) Leasehold Improvements. All buildings, structures,
improvements and fixtures located on any Leased Real Property which are owned by
the Sellers, regardless or whether title to such buildings, structures,
improvements or fixtures are subject to reversion to the landlord or other third
party upon the expiration or termination of the Lease for such Leased Real
Property (the "Leasehold Improvements");
(iv) Inventory. All inventories or raw materials,
work-in-process, finished goods, consigned goods, merchandise, products under
research and development, 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, or located at suppliers' premises or customers' premises on
consignment, in each case, which are used or held for use 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 Sellers against suppliers of such inventories (the
"Inventory");
(v) 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 Sellers with
respect to any third party collection proceedings or any other Actions or
Proceedings which have been commenced in connection therewith (the "Accounts
Receivable");
(vi) Tangible Personal Property. In addition to the Inventory
separately described above, 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 or at suppliers'
premises or customers' premises on consignment, or otherwise used or held for
use 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;
(vii) Personal Property Leases. All of the Sellers' right, title
and interest in all leases, subleases, licenses, concessions and other
agreements (written or oral) of tangible personal property as to which (i)
either Seller is the lessor or sublessor or (ii) either Seller is lessee or
sublessee, in each case together with any options to purchase or sell the
underlying property (all of the foregoing, the "Personal Property Leases");
- 2 -
<PAGE> 9
(viii) Business Contracts. In addition to the Real Property
Leases, the Personal Property Leases and the Accounts Receivable separately
described above, all other contracts and agreements entered into in the ordinary
course of business to which the Company or Adam Wuest Realty 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");
(ix) Prepaid Expenses. All prepaid expenses relating to the
Business;
(x) Intellectual Property. All Intellectual Property owned or
used by the Sellers (including everything listed on the Intellectual Property
Schedule 6O 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;
(xi) 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 United States
Regulatory Body or other agency with respect thereto (collectively, the
"Business Licenses");
(xii) Vehicles. All motor vehicles owned or leased by the
Company, described on the Tangible Property Schedule 6Y hereto, and used or held
for use in the conduct of the Business;
(xiii) Security Deposits. All security deposits deposited by or
on behalf of either of the Sellers as lessee or sublessee, under the Real
Property Leases or the Personal Property Leases;
(xiv) Balance Sheet Assets. Those assets, properties and rights
of the Sellers reflected on the Financial Statements (as defined in Section 6E)
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;
(xv) Books and Records. All Books and Records of the Company and
Adam Wuest Realty;
(xvi) Property Plans. All site plans, surveys, soil and
substratus studies, architectural drawings, plans and specifications,
engineering, electrical and mechanical plans and studies, floor plans, landscape
plans, appraisals, feasibility studies, environmental studies and other plans
and studies of any kind if existing and in the possession or subject to the
control of the Company or Adam Wuest Realty relating to the Real Property
(collectively, "Property Plans");
- 3 -
<PAGE> 10
(xvii) Warranties. All rights of the Sellers 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
Sellers for the Business, or affecting the property, machinery or equipment used
in the conduct of the Business, or relating to the Owned Real Property or Leased
Real Property or any property leased pursuant to the Personal Property Leases;
(xviii)Telephone Numbers. All transferable telephone exchange
numbers;
(xix) Claims. All claims, deposits, prepayments, warranties,
guaranties, 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 Liabilities or the Excluded Assets;
(xx) 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 Business or the Subject Assets.
(xxi) Customer Information. All lists and records pertaining to
customers, suppliers, distributors, personnel and agents (past or current) 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;
(xxii) Going Concern. All right, title and interest of the
Sellers in the Business as a going concern, including its goodwill (if any) and
all other intangible assets associated with the Business;
(xxiii) Certifications. All certifications, ratings, listings and
similar rights or benefits obtained from any customer or product certification
organization;
(xxiv) Employee Benefit Plans. All assets maintained pursuant to
or in connection with each of the Employee Benefit Plans to be assumed by the
Purchaser pursuant to Section 5I hereto, including (but not limited to) any
trusts, trust funds, insurance contracts or other funding arrangements
maintained on account of any such Employee Benefit Plan; and
(xxv) Other Assets. All other property used in or relating to the
Business owned by the Sellers as to which either of them has any right
(irrespective of title), on the Closing Date other than the Excluded Assets.
1B. 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 Sellers' interest in each of the following
(the "Excluded Assets"):
(i) Cash and Cash Equivalents. All cash and cash equivalents
wherever maintained or held (including short term investments);
- 4 -
<PAGE> 11
(ii) Other Matters. All rights of each of the Company and Adam
Wuest Realty, under this Agreement and the documents and other papers delivered
to any of the Company or Adam Wuest Realty by the Purchaser pursuant to this
Agreement;
(iii) 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 either the
Company or Adam Wuest Realty; and
(iv) Records. All of the Sellers' books and records not
constituting Books and Records.
1C. 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 ordinary course obligations and Liabilities
of the Sellers relating to the Business to the extent existing on the Closing
Date (the "Assumed Liabilities") including, without limitation:
(i) Balance Sheet Liabilities. All undischarged current
Liabilities and obligations of the Company 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 (a) are properly recorded thereon and (b) have been incurred in the
ordinary course of business consistent with past custom and practice without
violation of this Agreement; provided that Assumed Liabilities shall not include
any Indebtedness or any Liabilities for Income Taxes or to Affiliates, other
than the Liabilities to Affiliates set forth on the Affiliate Transactions
Schedule 6W attached hereto.
(ii) Lease Obligations. All obligations of the Company under the
Personal Property Leases and the Real Property Leases arising and to be
performed on or after the Closing Date;
(iii) Obligations Under Contracts and Licenses. All obligations
of the Company under the Business Contracts and Business Licenses arising and to
be performed on or after the Closing Date;
(iv) Obligations Under the IRB. Up to $2,106,000 of the Company's
and Adam Wuest Realty's obligations under the IRB;
(v) Certain Employee Benefit Plans. The Liabilities set forth in
Section 5I hereof related to certain Employee Benefit Plans; and
(vi) Collective Bargaining Agreement. The Liabilities set forth
in Section 5G hereof related to the collective bargaining agreement.
In the event of any claim against the Purchaser with respect to
any of the Assumed Liabilities hereunder, the Purchaser shall have, and the
Sellers hereby assign to the Purchaser, any
- 5 -
<PAGE> 12
defense, counterclaim, or right of setoff which would have been available to the
Sellers if such claim had been asserted against the Sellers.
1D. Liabilities Not Assumed. The Purchaser will not assume or
have any responsibility with respect to the following Liabilities (the "Excluded
Liabilities") of the Sellers, which are excluded and shall not be assumed or
discharged by the Purchaser:
(i) any Liabilities and obligations of the Sellers (or any
consolidated, affiliated or unitary group of which either Seller is a member)
with respect to Income Taxes for any period, or for Sales Taxes properly due and
payable at any time prior to the Closing Date;
(ii) any Liabilities of the Sellers to any Affiliate of the
Sellers except for current wages, accrued bonuses and benefits (other than those
relating to the Phantom Stock Plan);
(iii) any Liabilities arising out of or in connection with the
Company's Phantom Stock Plan;
(iv) any Liabilities and obligations arising out of or in
connection with the withdrawal of the Company from the Central States Southeast
and Southwest Areas Pension Fund;
(v) except with respect to the Employee Benefit Plans to be
assumed by the Purchaser pursuant to Section 5I hereto, any Liabilities,
obligations or responsibilities relating to or arising under any "employee
benefit plan" (as defined in Section 3(3) of ERISA) or any other employee
benefit plan, program or arrangement at any time maintained or contributed to by
the Company or any trade or business (whether or not incorporated) which is or
has ever been under common control, or which is or has ever been treated as a
single employer, with the Company under Section 414 of the Code (an "ERISA
Affiliate"), or with respect to which the Company or any ERISA Affiliate has any
Liability or potential Liability;
(vi) any Liabilities relating to the Excluded Assets;
(vii) any Liabilities of the Sellers with respect to Indebtedness
(other than up to $2,106,000 of obligations under the IRB);
(viii) any Liabilities relating to the capital stock of the
Sellers or any stockholders or other agent to which either of the Sellers is
party;
(ix) any Liabilities of the Sellers correlating to amounts
required to be paid by the Sellers pursuant to Section 1E or incurred in
connection with the completion of the transactions contemplated hereby,
including the fees and expenses of Mann, Armistead & Epperson;
(x) any Liabilities and obligations arising out of or in
connection with any oral pension arrangements;
- 6 -
<PAGE> 13
(xi) any Liabilities and obligations in connection with Gay Laney
v. Adam Wuest, Inc., Case No. C-1-99-407, United States District Court, Southern
District of Ohio, or Sylvia Stallworth v. Adam Wuest, Inc., EEOC Charge No.
221990240, OCRC Charge No. 25103198 (27457) 112598, or any other claims asserted
by either Gay Laney or Sylvia Stallworth; and
(xii) without limitation by the specific enumeration of the
foregoing, any Liabilities not assumed by the Purchaser pursuant to the
provisions of Section 1C.
The assumption by the Purchaser of said Liabilities shall not
create any third party beneficiary rights. The Sellers shall pay and discharge
when due out of their own funds, with no right of contribution or recourse
against the assets of the Purchaser, or contest in good faith at no cost or
expense to the Purchaser or its Affiliates, all of those Liabilities of the
Sellers which the Purchaser has not agreed to assume pursuant to the provisions
of this Section 1D.
1E. Purchase Price.
(i) Subject to adjustment pursuant to Section 1G, the aggregate
purchase price (the "Purchase Price") for the Subject Assets to be purchased by
the Purchaser from the Sellers hereunder shall be $56,250,000 (the "Cash
Payment") plus the assumption by the Purchaser of the Assumed Liabilities.
(ii) The Cash Payment shall be paid to the Sellers by the
Purchaser as follows:
(a) the Purchaser shall deliver one million dollars
($1,000,000) (the "Adjustment Escrow Fund") to The First National Bank
of Chicago, escrow agent (the "Escrow Agent"), on the Closing Date as
security for any Liability of the Company pursuant to the purchase price
adjustment in Section 1G below. The Adjustment Escrow Fund shall be held
by the Escrow Agent pursuant to the terms and conditions of the
Adjustment Escrow Agreement attached as Exhibit A hereto;
(b) the Purchaser shall deliver three million dollars
($3,000,000) (the "Indemnity Escrow Fund") to the Escrow Agent on the
Closing Date 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 attached as
Exhibit B hereto; and
(c) the Purchaser shall pay the balance of the Cash
Payment on the Closing Date by wire transfer of immediately available
funds to an account designated by the Company in writing not less than
three (3) Business Days prior to Closing by Notice to the Purchaser.
(iii) 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 1E(iii) (the "Allocation Schedule") or as otherwise
agreed to in writing by the Parties (the
- 7 -
<PAGE> 14
"Purchase Price Allocation"). Each of the Parties 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.
1F. 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 day immediately preceding the
Closing Date, as determined in accordance with Sections 1F(ii), (iii) and (iv)
below.
(ii) Closing Balance Sheet. On or before the 60th day after the
Closing Date, the Company will prepare a balance sheet as of the close of
business on the day immediately preceding the Closing Date (without giving
effect to any of the transactions contemplated hereby), which shall be audited
by Arthur Andersen LLP (the "Company'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 Company will
promptly deliver a copy of the Closing Balance Sheet to the Purchaser. The
Company shall pay all fees and expenses in connection with the preparation of
the Closing Balance Sheet, including the fees of the Company's Accountant. The
Closing Balance Sheet shall (x) be prepared in accordance with GAAP consistent
with the preparation of the historical financial statements of the Company and
(y) fairly present the financial position of the Company as of the Closing Date.
During such 60-day period, the Purchaser will provide the Company and the
Company's Accountant reasonable access to the Company's records. To facilitate
the preparation of the Closing Balance Sheet and the calculation of Closing Net
Working Capital, during the 30-day period immediately following the Company's
delivery of the Closing Balance Sheet, the Company will use commercially
reasonable best efforts to provide the Purchaser and PricewaterhouseCoopers LLP
(the "Purchaser's Accountant") reasonable access to the Company's Accountant,
and the work papers 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 Company's delivery of the Closing Balance Sheet, the Purchaser may
give the Company a written notice stating in reasonable detail the Purchaser'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 Purchaser does not give the Company 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 1F(i) above.
(iii) Dispute and Amicable Resolution. If the Purchaser gives a
timely Objection Notice as described in Section 1F(ii) above, then the Purchaser
and the Company shall negotiate in good faith to resolve their disputes
regarding the Closing Balance Sheet.
(iv) 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
- 8 -
<PAGE> 15
a firm of certified 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 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 1F(i)
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.
(v) Instructions to Escrow Agent. Upon the final determination of
the Closing Net Working Capital, the Purchaser and the Company 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.
1G. Working Capital Purchase Price Adjustment. If the Target Net
Working Capital exceeds the Closing Net Working Capital by an amount greater
than $50,000, then not later than the third business day after the Closing Net
Working Capital is finally determined pursuant to Section 1F, the Company will
pay to the Purchaser an amount equal to the entire amount of 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 Company
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 by an amount greater than
$50,000, then not later than the third business day after the Closing Net
Working Capital is finally determined pursuant to Section 1F above, the
Purchaser will pay to the Company an amount equal to the entire amount of such
excess in immediately available funds to the account specified by the Company.
Any amount to be paid pursuant to this Section 1G will be treated as an
adjustment to the Purchase Price for all purposes.
1H. 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 as may reasonably be
requested by the Purchaser in connection with the Closing.
1I. Closing Date. The consummation of the purchase and sale of
the Subject Assets (the "Closing") shall be held at 10:00 a.m. (E.S.T.) on
November 5, 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, then promptly following the
satisfaction or waiver of such conditions (such date and time of the Closing
being herein referred to as the "Closing Date") at the offices of Moore & Van
Allen, 100 North Tryon Street, Floor 47, Charlotte, North Carolina.
- 9 -
<PAGE> 16
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:
2A. Representations and Warranties; Covenants. The
representations and warranties contained in Section 6 hereof shall be true and
correct in all material respects at and as of the Closing as though then made
and as though the Closing Date was substituted for the date of this Agreement
throughout such representations and warranties, and each of the Company and Adam
Wuest Realty shall have performed in all material respects all of the covenants
required to be performed by such Seller hereunder prior to the Closing.
2B. Opinion of the Sellers' Counsel. The Purchaser shall have
received from Taft, Stettinius & Hollister LLP, 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. Each of the Company and Adam Wuest
Realty 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 such Person 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 required to be obtained in connection with the
transactions contemplated hereby, including the consents of Serta, Inc. and, if
applicable, its stockholders. All applicable waiting periods under the HSR Act
shall have expired or been terminated.
2E. Escrow Agreements. Each of the Company, 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 the date of the Reference
Balance Sheet, there shall not have occurred any material adverse change,
including any litigation, in the business, assets, financial condition, results
of operations or cash flows of the Company.
2G. Employment and Unit Purchase Agreements. The Purchaser shall
have entered into the Employment and Unit Purchase Agreements simultaneously
with the execution of this Agreement and such Employment and Unit Purchase
Agreements shall become effective as of the Closing Date and shall not have been
amended or modified.
- 10 -
<PAGE> 17
2H. Real Estate Matters.
(i) Title Insurance. Purchaser shall have obtained no later than
five (5) days prior to the Closing, a commitment for an ALTA Owner's Title
Insurance Policy 1970 Form B (or other form of policy acceptable to Purchaser)
for each Owned Real Property issued by a title insurance company satisfactory to
Purchaser (the "Title Company"), together with a copy of all documents
referenced therein (the "Title Commitment").
At Closing, the Company and Adam Wuest Realty shall have caused
the Title Company to issue title insurance policies (which may be in the form of
a mark-up of a pro forma of the Title Commitments) in accordance with the Title
Commitments, insuring Purchaser's fee simple title to each Owned Real Property
as of the Closing Date (including all recorded appurtenant easements insured as
a separate legal parcel) with gap coverage from the Company and Adam Wuest
Realty through the date of recording, subject only to Permitted Liens, in such
amount as Purchaser reasonably determines to be the value of the Real Property
insured thereunder (the "Title Policies"). Each of the Title Policies shall have
the creditor's rights exception deleted, and shall include an extended coverage
endorsement (insuring over the general or standard exceptions) and all other
endorsements reasonably requested by Purchaser and Purchaser's lender
("Lender"). The Purchaser shall pay all fees, costs and expenses with respect to
the Title Commitments and Title Policies.
(ii) Surveys. Purchaser shall have obtained no later than five
(5) days prior to the Closing, a survey for each Owned Real Property, dated no
earlier than the date of this Agreement, prepared by a licensed surveyor
satisfactory to Purchaser, and conforming to 1997 ALTA/ACSM Minimum Detail
Requirements for Urban Land Title Surveys, including Table A Items Nos. 1, 2, 3,
4, 6, 7(a), 7(b)(1), 8, 9, 10, 11 and 12, and such other standards as the Title
Company and Purchaser requires as a condition to the removal of any survey
exceptions from the Title Policies, and certified to Purchaser, Lender and the
Title Company, in a form satisfactory to each of such parties (the "Surveys").
The Surveys shall not disclose any encroachment from or onto any of the Real
Property or any portion thereof or any other survey defect which has not been
cured or insured over to Purchaser's reasonable satisfaction prior to the
Closing. The Purchaser shall pay all fees, costs and expenses with respect to
the Surveys.
(iii) Consents. The Company shall have obtained and delivered to
Purchaser a written consent for the assignment of each of the Leases, and if
requested by Lender, an agreement regarding the subordination to Lender of such
landlord's lien against personal property on the applicable demised premises,
consent to a waiver of landlord liens, collateral assignment of lease or
leasehold mortgage from the landlord or other party whose consent thereto is
required under such Lease, and such other matters as Lender may reasonably
require (the "Lease Consents") in form and substance satisfactory to Purchaser
and Lender.
(iv) FIRPTA Affidavit. The Company and Adam Wuest Realty shall
deliver to Purchaser affidavits dated as of the Closing Date and in form and
substance required under Section 1445 of the Internal Revenue Code so that
Purchaser is not required to withhold any portion of the Purchase Price
thereunder (the "FIRPTA Affidavit").
- 11 -
<PAGE> 18
(v) Condition of Real Property. All Owned Real Property shall be
in substantially the same condition and repair as that on the date of this
Agreement, reasonable wear and tear excepted. The physical condition of the
Owned Real Property on the date of this Agreement (including, without
limitation, the environmental condition thereof) shall be satisfactory to the
Purchaser. The Purchaser shall have the right to enter onto the Owned Real
Property from time to time during the period expiring three (3) business days
before the Closing Date (the "Inspection Period") during daylight hours and upon
reasonable advance notice to the Sellers, for the purpose of performing such
inspections of the physical condition of the Owned Real Property as the
Purchaser may deem desirable (the "Purchaser's Inspections"). The Purchaser
hereby agrees to indemnify, defend (by counsel reasonably acceptable to the
Sellers) and hold harmless the Sellers from and against any and all claims,
causes of action, liens, losses, damages, judgments, settlements, and expenses
(including, without limitation, reasonable attorneys' fees, court costs and
expenses) which may be suffered or incurred by the Sellers as a result of the
entry onto the Owned Real Property by the Purchaser or its agents or contractors
for purposes of conducting the Purchaser's Inspections. The Purchaser agrees to
repair and restore, at the Purchaser's expense, any damage to the Owned Real
Property caused by the Purchaser's Inspections. The Purchaser also agrees not to
drill, bore or otherwise perform any invasive testing of the Owned Real Property
without the prior written consent of the Sellers, which the Sellers agree shall
not be withheld or delayed unreasonably.
2I. Closing Documents. At the Closing, the Sellers shall have
delivered to the Purchaser all of the following:
(i) a certificate of an officer of each of the Company and Adam
Wuest Realty, dated as of the Closing Date, stating that the conditions
specified in Sections 2A, 2C, 2D, 2F and 2N have been fully satisfied;
(ii) good standing certificates of the Company and Adam Wuest
Realty from its jurisdiction of incorporation and each jurisdiction in which
such entity is qualified to do business as a foreign corporation, in each case
dated within 5 days prior to the Closing Date;
(iii) a copy of the Company's and Adam Wuest Realty's articles of
incorporation (including any amendments thereto), certified by the appropriate
official in its jurisdiction of incorporation;
(iv) the code of regulations of each of the Company and Adam
Wuest Realty and a Secretary's Certificate of each of the Company and Adam Wuest
Realty certifying all authorizing resolutions (including directors and
shareholders and any committees of the foregoing) and the incumbency of the
directors and officers of such Person executing this Agreement and any other
agreements contemplated by this Agreement;
(v) copies of all Consents;
(vi) a limited warranty deed with respect to each Owned Real
Property, conveying to Purchaser fee simple title to such Owned Real Property,
subject only to Permitted Liens, and in form and substance satisfactory to
Purchaser;
- 12 -
<PAGE> 19
(vii) an assignment and assumption of lease with respect to each
of the Leases in form and substance satisfactory to Purchaser;
(viii) the Title Policies, in accordance with Section 2H(i),
together with any affidavits, indemnities and other agreements or assurances
reasonably required by the Title Company to issue the Title Policies;
(ix) the Lease Consents in accordance with Section 2H(iii);
(x) the FIRPTA Affidavits in accordance with Section 2H(iv); and
(xi) such other documents relating to the transactions
contemplated by this Agreement as the Purchaser or its special counsel may
reasonably request.
2J. 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.
2K. Transfer Taxes. All sales and transfer taxes, recording
charges and similar taxes, fees or charges imposed as a result of the sale and
transfer of the Owned Real Property to the Purchaser (collectively, the
"Transfer Taxes"), together with any interest, penalties or additions to such
Transfer Taxes shall be paid one-half by the Company and Adam Wuest Realty and
one-half by the Purchaser. The Company, Adam Wuest Realty and the Purchaser
shall cooperate in a timely manner making all filings, returns, reports and
forms as necessary or appropriate to comply with the provisions of all
applicable laws in connection with the payment of such Transfer Taxes, and shall
cooperate in good faith to minimize, to the fullest extent possible under such
laws, the amount of any such Transfer Taxes payable in connection therewith.
2L. Release of Liens. Each of the Company and Adam Wuest Realty
shall have obtained releases of all Liens (other than any Permitted Liens)
relating to the Subject Assets and shall have delivered satisfactory evidence,
as determined by the Purchaser, of such releases to the Purchaser.
2M. Transactions with Affiliates. All transactions, agreements or
other arrangements with the Sellers or any of their respective Affiliates to
which any of the Subject Assets is subject, other than this Agreement, shall
have been terminated.
2N. Phantom Stock Plan. The Company's Phantom Stock Plan shall
have been terminated and all benefits thereunder canceled or paid, and the
Purchaser shall have received a waiver of Section 12 of such plan and a release
from any Liability with respect thereto from each of the participants
thereunder.
2O. Conveyancing Documents. The Sellers shall have executed and
delivered to the Purchaser an assignment and assumption agreement (an
"Assignment and Assumption
- 13 -
<PAGE> 20
Agreement") substantially in the form of Exhibit D hereto and a bill of sale (a
"Bill of Sale") substantially in the form of Exhibit E hereto.
2P. Substitution Agreement. The Sellers shall have provided to
the Purchaser a substitution agreement duly executed by the Company and its
Union, upon terms satisfactory to the Purchaser, pursuant to which the Union
shall have agreed to substitute the Purchaser for the Seller in, and to continue
to be bound by, the collective bargaining agreement now in effect between the
Company and the Union.
2Q. 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 Closing as though then made
and as though the Closing Date was substituted for the date of this Agreement
throughout such representations and warranties, and the Purchaser shall have
performed in all material respects all of the covenants required to be performed
by the Purchaser at or prior to the Closing.
3B. Escrow Agreements. Each of the Purchaser, the Company 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 and Unit Purchase Agreements. The Purchaser shall
have entered into the Employment and Unit Purchase Agreements and such
Employment and Unit Purchase 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 Company shall have
received from Kirkland & Ellis, special counsel to the Purchaser, an opinion
with respect to the matters set forth in Exhibit F attached hereto, which shall
be addressed to the Company and Adam Wuest Realty and dated as of the Closing
Date.
3F. Closing Documents. At the Closing, the Purchaser shall have
delivered to the Company 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, and such other documents relating
- 14 -
<PAGE> 21
to the transactions contemplated by this Agreement as the Company or its counsel
may reasonably request.
3G. HSR Act. All applicable waiting periods under the HSR Act
shall have expired or been terminated.
3H. Conveyancing Documents. The Purchaser shall have executed and
delivered to the Sellers the Assignment and Assumption Agreement and the Bill of
Sale.
3I. Waiver. Any condition specified in this Section 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 Entity 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 use their
respective commercially reasonable best efforts to (i) give required notices to
third parties, (ii) obtain any required Consents (including the consents of
Serta, Inc. and, if required, its stockholders), and (iii) take any actions
reasonably required by any third party, in each case in connection with the
matters contemplated by this Agreement. The Purchaser shall assist the Sellers
in obtaining the Consents and giving such notices by providing such information
and undertakings as reasonably may be required. Notwithstanding the foregoing,
neither the provisions of Section 4A nor this Section 4B shall require any of
the Parties to make any payment to a third party to obtain any Consent which
payment is not otherwise required by pre-existing commitments, other than the
payment of reasonable legal and administrative fees.
4C. Operation of Business. 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 use commercially
reasonable best efforts to preserve the goodwill and organization of the
Business and the relationships with its customers, suppliers, employees and
other
- 15 -
<PAGE> 22
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:
(i) it 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 6K below or that would otherwise result in a
breach of any of the representations, warranties or covenants made by the
Company in this Agreement;
(ii) 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, salaried employees and
sales representatives, and (3) maintain satisfactory relationships with each of
its material suppliers and customers; and
(iii) the Company shall not sell, assign, transfer, lease,
license, or abandon any of its assets (other than assets of insignificant value,
both individually and in the aggregate), tangible or intangible other than in
the ordinary course of business consistent with past custom and practice for a
fair consideration or as otherwise contemplated by this Agreement.
4D. Full Access. The Sellers shall afford, and cause their
affiliates, officers, directors, employees, attorneys, accountants, advisors and
other agents (the "Company Representatives") to afford, to the Purchaser, its
financing sources and the Purchaser's accounting, legal and other
representatives, subject to the Confidentiality Agreement, full and complete
access at all reasonable times to all premises, properties and Company
Representatives of the Sellers 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 Representatives) concerning the Sellers and their affairs
and operations as requested by the Purchaser or its representatives or agents.
4E. Press Release and Public Announcements. Neither of the
Sellers nor any of their respective representatives shall make any public
announcement with respect to this Agreement or the transactions contemplated
hereby (other than to the Sellers' advisors, representatives and agents, on a
need-to-know basis, for purposes of evaluating and negotiating the transactions
contemplated by this Agreement) without the prior written consent of the
Purchaser. The Purchaser agrees that it shall use reasonable efforts to consult
with the Company and provide the Company with reasonable opportunity to comment
on the form, substance and timing of, and use reasonable efforts to agree upon
the text of, any press release, before issuing any such press release or
otherwise making public statements with respect to this Agreement or the
transactions contemplated hereby and in making any filings with any federal or
state governmental or regulatory agency; provided that the Purchaser may make
any public announcement or issue any press release with respect to this
Agreement or the transactions contemplated hereby only if and to the extent it
believes in good faith such announcement or press release is required by
applicable law (including the rules and regulations of the Securities and
Exchange Commission).
- 16 -
<PAGE> 23
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 as promptly as practicable 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 Sellers shall, (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, the Sellers shall 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 in the possession
of the Company or Adam Wuest Realty, or conduct at the Purchaser's 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 Sellers shall pay and discharge
when due all Taxes, assessments and governmental charges imposed upon their
properties or upon the income or profits therefrom (in each case before the same
becomes delinquent and before penalties accrue thereon) and all valid claims for
labor, materials or supplies.
4I. Notice of Material Developments. Each Party shall give
written notice to the other Parties as soon as possible of (i) any material
variances in any of its representations or warranties contained in this
Agreement, (ii) any material breach of any covenant hereunder by such Party, and
(iii) any other development which would render any of the conditions in Section
2 or 3 incapable of being satisfied.
4J. Exclusivity. None of the Sellers or any of their respective
representatives, officers, directors, agents, stockholders or Affiliates (all
such persons and entities, the "Company Personnel") 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 or the Owned Property, as applicable, 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 Sellers to
abandon, terminate or fail to consummate the transactions contemplated under
this Agreement. The Sellers shall (i) immediately notify the Purchaser if any
member of the Company Personnel 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 Sellers
represent that no member of the Company Personnel is party to or bound by any
agreement with respect to an Acquisition Proposal or a Third Party Acquisition
other than under
- 17 -
<PAGE> 24
this Agreement and the members of the Company Personnel have terminated all
discussions with third parties (other than the Purchaser) regarding Acquisition
Proposals or Third Party Acquisitions. The Sellers shall use their best efforts
to cause each member of the Company Personnel to comply with the provisions of
this Section 4J. In the event that any of 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 material breach of this Agreement
by the Purchaser in the absence of any material breach of this Agreement by the
Sellers), 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, the Company shall not 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 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.
4L. Certain Real Property Matters.
(i) Maintenance of Real Property. The Sellers shall maintain the
Real Property, including all of the Improvements, in substantially the same
condition as of the date of this Agreement, ordinary wear and tear excepted, and
shall not demolish or remove any of the existing Improvements, or erect new
improvements on the Real Property or any portion thereof, without the prior
written consent of the Purchaser.
(ii) Leases. The Sellers shall not amend, extend, renew or
terminate any Lease, and shall not enter into any new lease, sublease, license
or other agreement for the use or occupancy of any real property, without the
prior written consent of the Purchaser.
(iii) Title Insurance and Surveys. The Sellers shall use
commercially reasonable best efforts to assist the Purchaser in obtaining the
Title Commitments, Title Policies and Surveys in form and substance as set forth
in Section 2H of this Agreement, within the time periods set forth therein,
including, without limitation, removing from title any liens or encumbrances
which are not Permitted Liens. The Sellers shall provide the Title Company with
any affidavit, indemnity or other assurances requested by the Title Company to
issue the Title Policies.
4M. Change of Name. Simultaneous with the Closing, each of the
Sellers shall amend its articles of incorporation to change its name to a name
which does not contain the words "Adam", "Wuest" or substantially similar words.
Following the Closing, the Sellers agree that they will not, and will cause
their Affiliates to not, use such words in connection with any other Person,
business or activity.
- 18 -
<PAGE> 25
SECTION 5. 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 or as required to be
disclosed in connection with a dispute between the Purchaser, on the one hand,
and the Sellers on the other hand, it shall not, directly or indirectly,
disclose to any unauthorized Person or use for its 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
the Company's acts or omissions to act. The Sellers further agree to use
reasonable 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 Company , Adam Wuest Realty, David W. Deye,
Stephen D. Lund, James P. Fanning and the other Persons listed on the Seller
Signature Page attached hereto (the "Company Representatives") 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 any business (including by himself or in association with any person,
firm, corporate or other business organization or through any other entity) that
engages in (x) the manufacture or wholesale distribution of mattresses, box
springs, bedding products or other products competitive with such products or
(y) any other business which competes with the business of the Company Group as
conducted prior to the Closing, in either case within any geographical area in
which the Company Group has obtained or is in the process of obtaining a Serta
license as of the Closing. Nothing herein shall prohibit a Seller from (a) being
a passive owner of not more than 2% of the outstanding stock of a corporation
which is publicly traded, so long as such Seller has no active participation in
the business of such corporation, or (b) from owning an interest in or being
employed by the Purchaser or any of its Affiliates.
(ii) During the Noncompete Period, none of the Company Group
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)
solicit the employment of or hire any person who was a Key Employee of the
Company Group within the immediately preceding eighteen month period, 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) The Company 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
- 19 -
<PAGE> 26
Purchaser, (c) the Purchaser would not have entered into this Agreement but for
the covenants of the Company 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) The Company 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, the Company agrees that in the event of a breach or a threatened
breach by any Company Representative 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).
5C. 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. The Purchaser agrees to provide the Sellers with reasonable access to
Books and Records in its possession as may be required in connection with any
tax filing, tax audit, accounting audit, response to a Government Entity or
litigation of either of the Sellers.
5D. Accounts Receivable; Mail.
(i) In the event that any payment of the accounts receivable or
other asset included in the Subject Assets is received by any of the Sellers
after the Closing Date, such Seller 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).
(ii) The Sellers authorize and empower the Purchaser from and
after the Closing Date (i) to receive and open mail addressed to such Seller 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. The Purchaser agrees to forward any mail relating solely to the
Excluded Assets or Exchange
- 20 -
<PAGE> 27
Liabilities to the Company or Adam Wuest Realty, as applicable. 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.
5E. Insurance Coverage. If any of the insurance policies cannot
be assigned to the Purchaser on the Closing Date, at the Purchaser's request and
expense, including payment of all premiums, before or after the Closing Date,
each of the Sellers shall use commercially reasonable best 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 any of the Sellers
covering time periods beginning prior to the Closing Date and extending beyond
the Closing Date, until the expiration date of such policy or policies. With
respect to any Liabilities of the Sellers which the Purchaser has agreed to
assume pursuant to this Agreement or to indemnify the Sellers pursuant to
Section 9 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 such Seller or as to which such Seller is an
additional insured, such Seller 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 Closing Date in the event that such Seller recovers insurance proceeds
in respect of any amounts in respect of the Liabilities described in the
preceding sentence, such Seller shall promptly remit such proceeds to the
Purchaser and the Purchaser shall pay such Liabilities with such proceeds.
5F. Employees. Subject to Section 5G hereof and the collective
bargaining agreement, as of the Closing Date, the Purchaser will offer
employment (on terms and conditions not materially worse than those currently in
effect) to all of the employees of the Company who are actively employed by the
Company on the Closing Date. Those employees who accept such offers of
employment as of the Closing Date shall be referred to herein as "Transferred
Employees." Notwithstanding the foregoing, nothing in this Agreement shall limit
the Purchaser's ability to terminate the employment of any Transferred Employee
at any time and for any reason, including without cause.
5G. Union Matters. The Purchaser agrees to offer to employ all
employees of the Sellers in the bargaining unit represented by the United
Steelworkers of America and to assume all of the Sellers' obligations under the
collective bargaining agreement with the United Steelworkers of America
effective from December 20, 1998 to December 20, 2001. The Purchaser further
agrees to credit bargaining unit employees with their seniority accumulated
while in the employment of the Sellers for all purposes under the collective
bargaining agreement. The Purchaser agrees that it is responsible for any
obligations arising under the Worker Adjustment and Retraining Notification Act
solely resulting from its actions on and after the Closing, and that the
Purchaser will indemnify the Sellers with respect to any claims based on such
actions made against the Sellers under this Act.
5H. Multiemployer Plan Withdrawal Liability - ERISA Section 4204.
The Company has an obligation to contribute to the UIU Pension Trust, which is a
"defined benefit plan" (as such term is defined in Section 3(35) of ERISA) and a
"multiemployer plan" (as such term is defined in Section 3(37) of ERISA). The
Purchaser agrees that, from and after the Closing Date, in order to avoid the
- 21 -
<PAGE> 28
assessment of any withdrawal liability under Section 4201 of ERISA, the
Purchaser shall have an obligation to contribute to the UIU Pension Trust for
substantially the same number of contribution base units for which the Company
had an obligation to contribute prior to the Closing Date. The Purchaser may
apply to the PBGC or to the sponsor of the UIU Pension Trust to obtain an
individual exemption or variance from the requirements of subparagraphs (B) and
(C) of Section 4204(a)(1) of ERISA and a waiver of the bond and escrow
requirements of Section 4204(a)(3) of ERISA. The Sellers and the Company shall
cooperate in the prosecution of any such application and implementation of any
such exemption, variance or waiver. To the extent that before the Closing Date
such an exemption, variance or waiver is not granted with respect to the UIU
Pension Trust, then the following provisions shall apply (unless such a variance
or waiver is granted prior to the first day of the first plan year of the UIU
Pension Trust beginning after the Closing Date):
(i) The Purchaser shall provide to the UIU Pension Trust annually
for a period of 5 plan years of the UIU Pension Trust (commencing with the first
plan year of the UIU Pension Trust beginning after the Closing Date) a bond
issued by a corporate surety company that is an acceptable surety for purposes
of Section 412 of ERISA, or an amount held in escrow by a bank or a similar
financial institution satisfactory to the UIU Pension Trust, or such other
equivalent form of security permitted for this purpose in an amount equal to
100% (or 200% in the event that the UIU Pension Trust is in reorganization in
the plan year during which the Closing Date occurs) of the greater of (A) the
average annual contribution required to have been made by the Company with
respect to the operations under the UIU Pension Trust for the 3 plan years of
the UIU Pension Trust preceding the plan year in which the Closing Date occurs,
or (B) the annual contribution that the Company was required to have made with
respect to the operations under the UIU Pension Trust for the last plan year of
the UIU Pension Trust preceding the plan year in which the Closing Date occurs;
which bond, escrow or security shall be paid to the UIU Pension Trust if the
Purchaser withdraws from the UIU Pension Trust in a complete or partial
withdrawal with respect to its operations, or fails to make a contribution to
the UIU Pension Trust when due, at any time during the first 5 plan years of the
UIU Pension Trust beginning after the Closing Date.
(ii) The Sellers and the Purchaser hereby agree that, if the
Purchaser withdraws from the UIU Pension Trust in a complete withdrawal or a
partial withdrawal with respect to operations during the first 5 plan years of
the UIU Pension Trust beginning after the Closing Date, the Purchaser will be
primarily liable and the Sellers will be secondarily liable to the UIU Pension
Trust for any withdrawal liability the Sellers or the Company would have
incurred to the UIU Pension Trust (but for Section 4204 of ERISA) in the event
the liability of the Purchaser with respect to the UIU Pension Trust is not
paid.
(iii) Since the Sellers intend to liquidate the Company before
the end of the 5 plan year period described in subparagraph (i) above, the
Purchaser agrees to provide a bond or an amount in escrow equal to the amount
described in Section 4204(a)(3) of ERISA on behalf of the Sellers, which amount
shall revert to the Purchaser if not paid to the UIU Pension Trust during such 5
plan year period.
5I. Employee Benefit Plans. Effective as of the Closing Date, the
Purchaser shall assume, adopt and become the sponsor of the Employee Benefit
Plans listed on the Assumed Plan
- 22 -
<PAGE> 29
Schedule 5I hereto. The Company hereby agrees to take any and all actions as may
be necessary to transfer such Employee Benefit Plans to the Purchaser.
5J. Sales Taxes. The Sellers shall pay the Sales Taxes identified
on the Sales Tax Schedule 5J within 45 days following the Closing Date and shall
provide the Purchaser with satisfactory evidence of such payment.
SECTION 6. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
As a material inducement to the Purchaser to enter into this Agreement and
purchase the Subject Assets hereunder, the Company hereby represents and
warrants to the Purchaser that the following statements contained in this
Section 6 are correct and complete as of the date of this Agreement except as
set forth in the disclosure schedule delivered by the Company to the Purchaser
on the date hereof. With respect to Sections 6A, 6C, 6D, 6F, 6K, 6L, 6M, 6V, 6X
and 6Y, the Sellers, jointly and severally, hereby represent and warrant to the
Purchaser that the statements contained in such Sections are correct and
complete as of the date of this Agreement, except as set forth in the disclosure
schedule delivered by the Sellers to the Purchaser on the date hereof.
6A. Organization, Corporate Power and Licenses. Each of the
Sellers 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, except
where the failure to so qualify would not have a Material Adverse Effect, which
such jurisdictions are set forth on the Foreign Qualifications Schedule 6A
attached hereto. Each of the Sellers possesses all requisite corporate power and
authority and all licenses, permits, and authorizations necessary to own and
operate their properties, to carry on its business as now conducted and as
conducted on the date of the Reference Balance Sheet and to carry out the
transactions contemplated by this Agreement. The copies of the articles of
incorporation and code of regulations of each of the Sellers 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.
6B. Capital Stock and Related Matters; Subsidiaries.
(i) As of immediately prior to the Closing, the authorized
capital stock of the Company consists of 18,106 shares, of which 13,106 are
voting common stock and 5,000 are non-voting common stock (the "Shares"). The
Shares constitute all of the outstanding capital stock of the Company and are
held beneficially and of record (free and clear of all Liens) as set forth on
the Capitalization Schedule 6B attached hereto. The Capitalization Schedule 6B
attached hereto, sets forth the name of each Person holding any equity
securities of the Company, 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. Except as set forth on the Capitalization Schedule 6B, the Company
has no outstanding (1) 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
- 23 -
<PAGE> 30
or phantom stock or similar plans or rights.
(ii) The Company has no Subsidiaries.
6C. Authorization; No Breach. The Sellers' 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, 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
such person 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 (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 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 Sellers does 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
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
notice or declaration to, the articles of incorporation or code of regulations
of any Seller, or any Law to which any Seller is subject, or any order, judgment
or decree or any material agreement or instrument to which any 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 each Seller has 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.
(i) Attached hereto as the Financial Statements Schedule 6E are
the following financial statements (the "Financial Statements"):
(a) the audited balance sheets of the Company as of December 31,
1996, December 31, 1997 and December 31, 1998, and the related statements of
combined income and cash flows (or the equivalent) for the respective
twelve-month periods then ended; and
- 24 -
<PAGE> 31
(b) the unaudited balance sheets of the Company as of August 31,
1999 (the "Reference Balance Sheet") and September 30, 1999 and the related
statements of income (or the equivalent) for the eight month and nine month
periods then ended.
Except as set forth on the Financial Statements Schedule 6E, each of the
foregoing financial statements (including in all cases the notes thereto, if
any) is correct and complete in material respects and is consistent in all
material respects with the books and records of the Company and fairly presents
the financial condition, operating results and cash flows of the Company and has
been prepared in accordance with GAAP consistently applied throughout such
financial statements and the periods covered thereby, subject in the case of the
unaudited financial statements to the absence of footnote disclosure and year
end adjustments.
(ii) All Real Property Leases, Personal Property Leases, Taxes,
insurance, utility or other similar regular periodic charges with respect to the
Subject Assets are paid by the Company and are reflected on the Company's
historical financial statements.
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, other than: (i) Liabilities set forth on the
Liabilities side of the Reference Balance Sheet (excluding any notes thereto),
(ii) Liabilities and obligations which have arisen after the date of the
Reference Balance Sheet in the ordinary course of business (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
listed on the Disclosed Liabilities Schedule 6F.
6G. Product Warranty. All products manufactured, sold, leased or
delivered by the Company have been manufactured in conformity with all
applicable contractual commitments and all express and implied warranties, and
the Company has no Liability for replacement or repair thereof or other damages
in connection therewith materially 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 6G includes
copies of such standard terms and conditions of sale, lease and service for the
Company(containing applicable guaranty, warranty and indemnity provisions).
6H. Product Liability. The Company has no 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 which would not be covered by insurance if the Purchaser were to
maintain the same level and type of insurance maintained by the Company as of
the date of the Reference Balance Sheet.
6I. No Material Adverse Effect. Since the date of the Reference
Balance Sheet, there has occurred no fact, event or circumstance which has had
or would reasonably be expected
- 25 -
<PAGE> 32
to have a Material Adverse Effect.
6J. Indebtedness. On August 31, 1999, the aggregate Indebtedness
of the Company was $450,000 and is described on the Indebtedness Schedule 6J.
None of such Indebtedness shall exist following the Closing except as indicated
on the Indebtedness Schedule 6J.
6K. Absence of Certain Developments. Except as expressly
contemplated by this Agreement or as set forth on the attached Developments
Schedule 6K, since the date of the Reference Balance Sheet, the Sellers have
conducted the Business only in the ordinary course of business consistent with
past custom and practice, and have not:
(i) issued any notes, bonds or other debt 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) 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;
(v) sold, assigned, transferred, leased, licensed or abandoned
any of its assets, tangible or intangible (including the Intellectual Property
Rights) other than in the ordinary course of business consistent with past
custom and practice for a fair consideration;
(vi) 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 6N or in the ordinary course of business consistent
with past custom and practice), 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;
(vii) entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any such
contracts or agreements;
(viii) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(ix) delayed, postponed or canceled 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;
- 26 -
<PAGE> 33
(x) made any loans or advances to, Guarantees for the benefit of,
or any Investments in, any Persons or formed any Subsidiary;
(xi) suffered any damage, destruction or casualty loss exceeding
in the aggregate $25,000 which is not covered by insurance, or experienced any
material changes in the amount and scope of insurance coverage;
(xii) 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, or made any change in its cash management policies;
(xiii) 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;
(xiv) granted any license or sublicense of any rights under or
with respect to any Intellectual Property Rights;
(xv) canceled, compromised, waived, or released any right or
claim (or series of related rights and claims) involving more than $25,000;
(xvi) entered into any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving more
than $10,000 other than purchase orders and promotional arrangements entered
into in the ordinary course of business;
(xvii) accelerated, terminated, modified, or canceled 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 other than purchase orders entered into in the ordinary course
of business;
(xviii) experienced any other occurrence, event, incident, or
taken any action or omitted to take any action which would have a Material
Adverse Effect; or
(xix) agreed, whether orally or in writing, to do any of the
foregoing.
6L. Assets.
(i) Except as set forth on the Liens Schedule 6L attached hereto
and other than the Owned Real Property which is addressed in Section 6L(iii)
below, the Company has good and valid title to, or a valid leasehold interest
in, the Subject Assets, and the Subject Assets constitute all of the properties
and assets, tangible or intangible, used by it, purported to be owned by it or
shown on the Reference Balance Sheet or acquired thereafter, and are owned by
the Company 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 date of the Reference Balance Sheet, (b)
- 27 -
<PAGE> 34
Permitted Liens and (c) cash and cash equivalents.
(ii) Each of the Sellers 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 conducted as of the date of the Reference Balance Sheet.
(iii) Adam Wuest Realty has good and valid title to the Owned
Real Property free and clear of all Liens (other than Permitted Liens) and
otherwise does not own, have title to or any interest in any of the Subject
Assets.
6M. Tax Matters.
(i) Except as set forth on the attached Taxes Schedule 6M:
(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 in all material respects and have been
prepared with immaterial exceptions 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 they are 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 Tax authority;
(d) the accruals for Taxes on the Reference Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income) is adequate to pay all Tax
liabilities of the Company as of the date thereof and the Company has
not incurred any liability for Taxes since the date of the Reference
Balance Sheet other than Taxes incurred in the ordinary course of
business;
(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 liens for Taxes upon any of the assets of,
or interests in, the Company, other than for liens for Taxes not yet due
and payable;
(g) no claim has been made within the previous five years
in writing by a taxing authority in a jurisdiction where the Company
does not file Tax Returns that such entity is or may be subject to Taxes
assessed by such jurisdiction; and
- 28 -
<PAGE> 35
(h) the Company is not a party to or bound by any Tax
allocation or Tax sharing agreement;
(ii) The Company:
(a) has not 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 not made an election under Section 341(f) of the
Code; and
(c) is not liable for the Taxes of another Person (A)
under Treasury Regulation Section 1.1502-6 (or comparable provisions of
state, local or foreign law), (B) as a transferee or successor, or (C)
by contract or indemnity or otherwise.
6N. Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached Contracts Schedule 6N, 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 for sales of goods or services to
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;
- 29 -
<PAGE> 36
(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 $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;
(h) 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;
(i) agreements relating to the ownership of, investments
in or loans and advances to any Person, including investments in joint
ventures and minority equity investments;
(j) license, royalty, indemnification or other agreement
with respect to any intangible property (including any Intellectual
Property Rights);
(k) broker, agent, sales representative, sales or
distribution agreement;
(l) power of attorney or other similar agreement or grant
of agency;
(m) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world, including
any nondisclosure or confidentiality agreements; or
(n) other agreement which involves a consideration in
excess of $50,000 annually, whether or not in the ordinary course of
business.
(ii) All of the contracts, agreements and instruments set
forth or required to be set forth on the attached Contracts Schedule 6N (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). The
Material Contracts shall be in full force and effect without penalty in
accordance with its terms immediately after consummation of the transactions
contemplated hereby. The Company has performed in all material respects 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 and, to the Knowledge of the Company, 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 material breach or cancellation or
anticipated breach or cancellation by the other parties to any Material Contract
to which they are parties.
- 30 -
<PAGE> 37
(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.
6O. Intellectual Property Rights.
(i) The attached Intellectual Property Schedule 6O 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 6O also contains a complete and accurate list of all licenses
(other than the licenses excluded under clause (c) above) 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 license, all Company
Intellectual Property Rights. The Company Intellectual Property Rights comprise
all of the Intellectual Property Rights necessary for the operation of the
business of the Company as presently conducted and as conducted as of the date
of the Reference Balance Sheet, free and clear of all Liens other than Permitted
Liens. No loss or expiration of any of the Company Intellectual Property Rights
is pending or reasonably foreseeable or, to the Knowledge of the Company,
threatened that could reasonably be expected to have a Material Adverse Effect.
The Company has taken all commercially reasonable actions to maintain and
protect the Company Intellectual Property Rights owned by the Company.
(iii) Except as set forth on the attached Intellectual Property
Schedule 6O, (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 to the Knowledge of the Company there is no basis for any
such claim, (b) (i) the operation of the Business as currently conducted and as
conducted as of the date of the Reference Balance Sheet has not, to the
Knowledge of the Company, infringed, misappropriated or conflicted with and, to
the knowledge of the Company, will not infringe, misappropriate or conflict with
any Intellectual Property Rights of other Persons and (ii) 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) nor is
the Company aware of any facts which indicate a likelihood of any of the
foregoing, (c) to the Knowledge of the Company, no third party has infringed,
misappropriated or otherwise conflicted with any of the Company Intellectual
Property Rights. Subject to receiving the Consents and proper recording of any
Intellectual Property assignments, 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 Purchaser on substantially identical terms and conditions immediately after
the Closing.
- 31 -
<PAGE> 38
(iv) The computer software, computer firmware, computer hardware
(whether general or special purpose) or other similar or related items of
automated, computerized or software systems (collectively, the "Computer
Systems") that are used or relied on by the Company in the conduct of the
Business are Millennium Compliant. "Millennium Compliant" means that none of the
Computer Systems that are used or relied on by the Company 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.
(v) 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
Millennium Compliant.
(vi) 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 Millennium Compliant in any respect that would have a Material
Adverse Effect on the Company.
6P. Litigation, etc. Except as set forth on the attached
Litigation Schedule 6P, 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, to the
Knowledge of the Company, threatened against the Company or pending or, to the
Knowledge of the Company, threatened against any of the officers, directors or
employees of the Company with respect to the Business, 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. The
Company is not subject to any judgment, order or decree of or settlement
enforceable by 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.
6Q. Brokerage. Except as set forth on the Brokerage Schedule 6Q
attached hereto (all items listed on the Brokerage Schedule 6Q 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. The Purchaser shall not have any obligation for any fees or expenses
set forth on the Brokerage Schedule 6Q.
6R. Insurance. The attached Insurance Schedule 6R 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
- 32 -
<PAGE> 39
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 not
been denied insurance coverage since October 31, 1994. Except as set forth on
the attached Insurance Schedule 6R, the Company has no self-insurance or
co-insurance programs, and the reserves set forth on the Reference Balance Sheet
are adequate to cover all anticipated Liabilities with respect to any such
self-insurance or co-insurance programs.
6S. Employees. The Employees Schedule 6S attached hereto contains
a true and complete list as of June 30, 1999 of (i) the current employees of the
Company who had 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 the Company. To the Knowledge of the Company, no executive or
Key Employee of the Company and no group of employees of the Company has any
plans to terminate employment with the Company. The Company has (a) no material
labor relations problems (including any additional union organization
activities, threatened or actual strikes or work stoppages or material
grievances), (b) not engaged in any unfair labor practices, or (c) during the
past five years, not suffered any labor strike, lockout, work stoppage or other
material labor dispute. To the Knowledge of the Company, no union organization
campaign is in progress with respect to any of the employees, and no 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.
6T. ERISA.
(i) The Employee Benefits Schedule 6T sets forth an accurate and
complete list of each Employee Benefit Plan maintained, sponsored, or
contributed to by the Company, or with respect to which the Company has any
Liability or potential Liability.
(ii) Except as set forth on the Employee Benefits Schedule 6T,
the Company does not maintain, contribute to, or have any Liability under (or
with respect to) any "defined benefit plan" (as defined in ERISA Section 3(35)),
or any "multiemployer plan" (as defined in ERISA Section 3(37)). The Company is
not subject to any lien under ERISA or the Code. There has been no application
for or waiver of the minimum funding standards imposed by Code Section 412 with
respect to any Employee Benefit Plan subject thereto, and each such Employee
Benefit Plan is fully funded based on the assumptions used in the most recent
actuarial report for such Employee Benefit Plan and there are no facts or
circumstances that would materially change the funded status of any such
Employee Benefit Plan. The Company has not incurred and does not expect to incur
any Liability under Title IV of ERISA (other than for contributions not yet due)
or to the PBGC (other than for payment of premiums not yet due). There are no
pending or threatened actions, suits, investigations or claims with respect to
any Employee Benefit Plan (other than routine claims for benefits).
(iii) Each Employee Benefit Plan that is intended to be qualified
under Code Section 401(a) has received a determination from the Internal Revenue
Service that such Employee Benefit
- 33 -
<PAGE> 40
Plan is so qualified, and nothing has occurred since the date of such
determination that is reasonably likely to adversely affect the qualified status
of such Employee Benefit Plan.
(iv) Each of the Employee Benefit Plans and all related trusts,
insurance contracts and funds has been maintained, funded and administered in
compliance in all material respects with its terms and the terms of any
applicable collective bargaining agreements, and in compliance with the
applicable provisions of ERISA, the Code, and any other applicable laws. With
respect to each Employee Benefit Plan, all required payments, premiums,
contributions, distributions, or reimbursements for all periods ending prior to
or as of the Closing Date have been made or properly accrued.
(v) None of the Company, or any other "disqualified person"
(within the meaning of Code Section 4975) or any "party in interest" (within the
meaning of ERISA Section 3(14)) has engaged in any "prohibited transaction"
(within the meaning of Code Section 4975 or ERISA Section 406) with respect to
any of the Employee Benefit Plans which is reasonably likely to subject any of
the Employee Benefit Plans, the Company, or any officer, director or employee of
any of the foregoing to a penalty or tax under ERISA Section 502(i) or Code
Section 4975.
(vi) Each Employee Benefit Plan which is subject to the health
care continuation requirements of Part 6 of Subtitle B of Title I of ERISA or
Code Section 4980B ("COBRA") has been administered in compliance in all material
respects with such requirements. Except as set forth on the Employee Benefits
Schedule 6T, no Employee Benefit Plan provides medical or life or other welfare
benefits to any current or future retired or terminated employee (or any
dependent thereof) of the Company other than as required pursuant to COBRA.
Except as set forth on the Employee Benefits Schedule 6T, no employee of the
Company is eligible for short-term or long-term disability benefits as of the
Closing Date.
(vii) Except as set forth on the Employee Benefits Schedule 6T:
(A) no Employee Benefit Plan subject to Title IV of ERISA which is a
Multiemployer Plan has been terminated; (B) no proceeding has been initiated to
terminate any such Multiemployer Plan and there has been no "reportable event"
(within the meaning of ERISA Section 4043(c)) with respect to any such
Multiemployer Plan; (C) no Multiemployer Plan is in reorganization as described
in ERISA Section 4241 and no Multiemployer Plan is insolvent as described in
ERISA Section 4245; (D) the Company has not incurred any Liability on account of
a "partial withdrawal" or a "complete withdrawal" (within the meaning of ERISA
Sections 4205 and 4203, respectively) from any Multiemployer Plan, no such
Liability has been asserted, and there are no events or circumstances which
could result in any such partial or complete withdrawal; and (E) the Company is
not bound by any contract or agreement and does not have any obligation or
Liability described in ERISA Section 4204.
(viii) With respect to each Employee Benefit Plan, the Company
has delivered to the Purchaser true, complete and correct copies of (to the
extent applicable): (A) all documents pursuant to which the Employee Benefit
Plan is maintained, funded and administered (including the plan and trust
documents, any amendments thereto, the summary plan descriptions, and any
insurance contracts or service provider agreements); (B) the three most recent
annual reports (Form 5500 series) filed with the Internal Revenue Service (with
applicable attachments); (C) the most
- 34 -
<PAGE> 41
recent determination letter received from the Internal Revenue Service; and (D)
all actuarial reports or statements of funded status for the three most recent
plan years.
(ix) To the Knowledge of the Company, the Company has no
Liability with respect to any "employee benefit plan" (as defined in ERISA
Section 3(3)) solely by reason of being treated as a single employer under Code
Section 414 with any trade, business or entity other than the Company.
6U. Compliance with Laws; Permits. Except as set forth on the
attached Permits Schedule 6U:
(i) Each of the Sellers has complied in all material respects
with all applicable Laws relating to the operation of its business. No written
notices and, to the Knowledge of the Company, no oral notifications, have been
received by and no claims have been filed against the Company alleging a
violation of any such Laws within the last 18 months.
(ii) Except with respect to permits relating to Environmental and
Safety Regulations which are addressed in Section 6V below, each of the Sellers
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
6U sets forth a list of all material permits, licenses, certificates,
accreditations and other authorizations. No notices have been received by any of
the Sellers alleging the failure to hold any permit, license, certificate,
accreditation or other authorization of any Government Entity. Each of the
Sellers is in compliance in all material respects with all terms and conditions
of all permits, licenses, accreditations and authorizations which it holds.
6V. Environmental and Safety Matters. Except as set forth on the
attached Environmental Schedule 6V:
(i) Each of the Sellers has complied in all material respects
with and is currently in compliance with all Environmental and Safety
Requirements. Within the prior three years, none of the Sellers has 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 any of the Sellers or any of their
current or former properties or facilities. The Sellers are not aware of any
reports, studies or assessments regarding Environmental and Safety Regulations
related to the Business, the Leased Real Property or the Owned Real Property.
(ii) Without limiting the generality of the foregoing, each of
the Sellers 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
6U.
(iii) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on any
of the Sellers for site
- 35 -
<PAGE> 42
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) To the Knowledge of the Company, none of the following
exists at any property or facility owned, occupied or operated by the Sellers:
(1) underground storage tanks;
(2) asbestos-containing materials in any form or
condition;
(3) materials or equipment containing
polychlorinated biphenyls; or
(4) landfills, surface impoundments or other
disposal areas.
(v) None of the Sellers has 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 is reasonably likely to give rise
to any Liabilities (including any Liability for material response costs,
material corrective action costs, personal injury, natural resource damages,
property damage or attorneys fees or any investigative, corrective or remedial
obligations) pursuant to CERCLA or any other Environmental and Safety
Requirements.
(vi) None of the Sellers has, 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.
6W. Affiliate Transactions. Except as set forth on the attached
Affiliate Transactions Schedule 6W, 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.
6X. Real Property.
(i) The Real Property Schedule 6X(i) sets forth the address and
description of each Owned Real Property. With respect to each Owned Real
Property: (A) Adam Wuest Realty has good and marketable indefeasible fee simple
title to such Owned Real Property, free and clear of all liens and encumbrances,
except Permitted Liens, (B) except as set forth or disclosed in the Real
Property Schedule 6X(i), including, without limitation, the Title Commitment,
Adam Wuest Realty has not leased or otherwise granted to any person the right to
use or occupy such Owned Real Property or any portion thereof; (C) other than
the right of Purchaser pursuant to this Agreement,
- 36 -
<PAGE> 43
there are no outstanding options, rights of first offer or rights of first
refusal to purchase such Owned Real Property or any portion thereof or interest
therein, and (D) the Company and Adam Wuest Realty are not a party to any
agreement or option to purchase any real property or interest therein relating
to the business of the Company.
(ii) Leased Real Property. The Real Property Schedule 6X(ii) sets
forth the address of each Leased Real Property, and a true and complete list of
all Leases (including all amendments, extensions, renewals, guaranties and other
agreements with respect thereto) for each such Leased Real Property (including
the date and name of the parties to such Lease document, and the commencement
date, expiration date and fixed annual rent payable under each such Lease). The
Company has delivered to Purchaser a true and complete copy of each such Lease
document, and in the case of any oral Lease, a written summary of the material
terms of such Lease. Except as set forth in the Real Property Schedule 6X(ii),
with respect to each of the Leases: (A) such Lease is legal, valid, binding,
enforceable and in full force and effect; (B) the assignment of the Lease to
Purchaser pursuant to this Agreement does not require the consent of any other
party to such Lease, will not result in a breach of or default under such Lease,
or otherwise cause such Lease to cease to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the Closing; (C) the
Company's possession and quiet enjoyment of the Leased Real Property under such
Lease has not been disturbed; (D) neither the Company nor (to the Company's
Knowledge) any other party to the Lease is in breach or default under such
Lease, and no event has occurred or circumstance exists which, with the delivery
of notice, the passage of time or both, would constitute such a breach or
default, or permit the termination, modification or acceleration of rent under
such Lease; (E) no security deposit or portion thereof deposited with respect
such Lease has been applied in respect of a breach or default under such Lease
which has not been redeposited in full; (F) the Company does not owe any
brokerage commissions or finder's fees with respect to such Lease; (G) the other
party to such Lease is not an affiliate of, or otherwise has any economic
interest in, The Company; (H) the Company has not subleased, licensed or
otherwise granted any person the right to use or occupy such Leased Real
Property or any portion thereof; (I) the Company has not collaterally assigned
or granted any other security interest in such Lease or any interest therein;
and (J) there are no liens or encumbrances on the estate or interest created by
such Lease.
(iii) Leasehold Improvements. Real Property Schedule 6X(iii) sets
forth a description of all material Leasehold Improvements for each Leased Real
Property. The Company has good and marketable title to the Leasehold
Improvements, free and clear of all liens and encumbrances, except Permitted
Liens, and other than the right of Purchaser pursuant to this Agreement, there
are no outstanding options, rights of first offer or rights of first refusal to
purchase any such Leasehold Improvements or any portion thereof or interest
therein.
(iv) Real Property Used in the Business. The Owned Real Property
identified in Real Property Schedule 6X(i), the Leased Real Property identified
in Real Property Schedule 6X(ii) and the Leasehold Improvements (collectively,
the "Real Property") comprise all of the real property used or intended to be
used in, or otherwise related to, the business of the Company.
(v) Improvements. All buildings, structures, improvements,
fixtures, building systems and equipment, and all components thereof, included
in the Real Property (the
- 37 -
<PAGE> 44
"Improvements") are in good condition and repair and sufficient for the
operation of the Company's business. To the Knowledge of each of the Company and
Adam Wuest Realty, there are no structural deficiencies or latent defects
affecting any of the Improvements and, to the Company's and Adam Wuest Realty's
Knowledge, there are no facts or conditions affecting any of the Improvements
which would, individually or in the aggregate, interfere in any material respect
with the use or occupancy of the Improvements or any portion thereof in the
operation of the Business.
(vi) Condemnation and Litigation. There is no condemnation,
expropriation or other proceeding in eminent domain pending or, to the Company's
and Adam Wuest Realty's Knowledge, threatened, affecting any Real Property or
any portion thereof or interest therein. There is no injunction, decree, order,
writ or judgment outstanding, nor any claims, litigation, administrative actions
or similar proceedings pending or, to the Company's and Adam Wuest Realty's
Knowledge, threatened, relating to the ownership, lease, use or occupancy of the
Real Property or any portion thereof, or the operation of the business thereon.
(vii) Compliance with Laws. The Real Property is in material
compliance with all applicable building, zoning, subdivision, health and safety
and other land use laws, including, without limitation, The Americans with
Disabilities Act of 1990, as amended, and all insurance requirements affecting
the Real Property (collectively, the "Real Property Laws"), and the current use
or occupancy of the Real Property or operation of the Business thereon does not
violate in any material respect any Real Property Laws. The Company and Adam
Wuest Realty have not received any notice of violation of any Real Property Law
and, to the Company's and Adam Wuest Realty's Knowledge, there is no basis for
the issuance of any such notice or the taking of any action for such violation.
There is no pending or, to the Company's and Adam Wuest Realty's Knowledge,
anticipated change in any Real Property Law that will have a Material Adverse
Effect.
(viii) Real Property "As Is," Except as Warranted. Except as
expressly warranted in Sections 6V and 6X or any closing documents: (a) the
Owned Real Property is being sold in its "as is" condition with all faults; (b)
the Purchaser is relying solely on the Purchaser's Inspections, if any, and (c)
the Sellers hereby disclaim any and all express or implied warranties of
merchantability or fitness for any particular purpose relative to the Owned Real
Property. Expect as expressly warranted in Sections 6V and 6X or any closing
documents, the Purchaser acknowledges and agrees that no representations or
warranties have been made by the Sellers as to: (1) the presence or absence on
or in the Owned Real Property of any particular materials or substances
(including, without limitation, asbestos, hydrocarbons or hazardous or toxic
substances); (2) the condition or repair of the Owned Real Property or any
portion thereof, (3) the compliance of the Owned Real Property with any legal
requirement of any governmental authority; (4) the value, expense of operation
or income potential of the Owned Real Property, (5) the accuracy or completeness
of any title, survey or other information provided to the Purchaser which was
prepared by any third party on behalf of the Sellers relative to the Owned Real
Property, or (6) any other fact or condition which affects the Owned Real
Property or the condition, repair, value, expense of operation or income
potential thereof.
- 38 -
<PAGE> 45
6Y. Tangible Property. Each of the Sellers 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 and as conducted on the date
of the Reference Balance Sheet (collectively, the "Tangible Property") and
Tangible Property Schedule 6Y sets forth a description of any leases or
subleases of Tangible Property to which any of the Sellers is the lessor,
sublessor, lessee or sublessee and an options to purchase or sell the underlying
property. None of the Sellers has received notice that any of the Tangible
Property is in violation of any existing Law or Order. Except as separately
identified on the Tangible Property Schedule 6Y, no approval or consent of any
person is needed so that the interest of the Sellers in the Tangible Property
shall continue to be enforceable by the Purchaser following the transactions
contemplated by this Agreement.
SECTION 7. INTENTIONALLY OMITTED.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. As a
material inducement to the Sellers to enter into this Agreement and take the
actions set forth in Section 1, the Purchaser hereby represents and warrants to
the Sellers that the following statements contained in this Section 8 are
correct and complete as of the date of this Agreement except as set forth in the
disclosure schedule delivered by the Purchaser to the Company on the date
hereof:
8A. Organization, Power and Authority. The Purchaser is a
corporation duly organized, validly existing and in good standing under the Laws
of its jurisdiction of incorporation. 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.
- 39 -
<PAGE> 46
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. Financing. The Purchaser has delivered to the Company copies
of executed commitment letters for all of the financing described in Section 2J.
The terms and conditions of such commitment letters are satisfactory to the
Purchaser. The Purchaser has no reason to believe that the conditions to the
financing described in such commitment letters will not be satisfied at the
Closing.
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 6M (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);
(ii) the representations and warranties in Section 6C
(Authorization; No Breach), Section 6J (Indebtedness), Section 6L (Assets),
Section 6Q (Brokerage), Section 6W (Affiliate Transactions) and Section 8D
(Brokerage) shall survive and shall not terminate;
(iii) the representations and warranties in Section 6T (ERISA) and
Section 6V (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 18 months
following 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 in reasonable detail 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
- 40 -
<PAGE> 47
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 Purchaser by the
Sellers. Subject to Section 9B(vi), 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 (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 (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 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 Sellers under this
Agreement, or in any of the certificates or other instruments or documents
furnished by the Sellers pursuant to this Agreement; (b) 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 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; (d) any claim by an Person with
respect to or arising out of the Excluded Assets or the Excluded Liabilities; or
(e) any 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. In determining whether there exists a breach
of any representation or breach of warranty made by the Sellers, all materiality
or Material Adverse Effect qualifiers shall be disregarded. If and to the extent
any provision of this Section 9B is unenforceable for any reason, each Seller
hereby agrees, subject to Section 9B(iv), 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 permissible under applicable Laws.
(ii) Indemnification for the Benefit of the Sellers by the
Purchaser. Following the Closing, 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
- 41 -
<PAGE> 48
Agreement, or (c) any Liability arising from the Purchaser's conduct of the
Business after the Closing.
(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) 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 and, in the case of any Loss of the Purchaser,
the cause of which was reflected as a Liability in the calculation of
Closing Net Working Capital, net of the amount so reflected in the
calculation of Closing Net Working Capital.
(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 Company shall issue joint written instructions to the Escrow
Agent to distribute a portion of the Indemnity Escrow Fund equal to such
payment.
(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 Company) 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 in reasonable detail 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:
- 42 -
<PAGE> 49
(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 detrimental to or injure 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; or (5) the
Indemnitor failed or is failing to prosecute or defend vigorously 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 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 described in Sections 9A(iii) and (iv) shall be an
aggregate amount equal to $3,000,000; 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 $400,000 (the "Basket Amount") and then only to
the extent such Losses exceed the Basket Amount plus one-half of the Basket
Amount.
(vii) Other Indemnification Provisions; Certain Waivers; etc. The
foregoing indemnification provisions shall be the exclusive remedy and procedure
for all claims for breach of any representation or warranty, or agreement
contained herein or in any of the Schedules or Exhibits attached hereto;
provided, however, that any (i) claim of fraud or intentional misrepresentation,
(ii) claim of breach of covenant, or (iii) suit for specific performance with
respect to matters addressed in Sections 4J and 5B shall not be subject to the
limitations set forth in Section 9B.
- 43 -
<PAGE> 50
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.
"Action or Proceeding" means any action, suit, proceeding or
arbitration by any Person or any investigation or audit by any Government
Entity.
"Adjustment Escrow Agreement" shall be the Adjustment Escrow
Agreement to be entered into among the Purchaser, the Company and the Escrow
Agent substantially in the form of Exhibit A attached hereto.
"Adjustment Escrow Fund" has the meaning set forth in Section 1E.
"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.
"Agreement" has the meaning set forth in the Preamble.
"Board" means the board of directors of the Company.
"Books and Records" means all books and records used or held for
use in the conduct of the Business or otherwise relating to the Subject Assets
or the Business other than corporate records, minute books, stock records, and
income tax records.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
"Closing" has the meaning set forth in Section 1I.
"Closing Balance Sheet" has the meaning set forth in Section 1F
(ii).
"Closing Date" has the meaning set forth in Section 1I.
"Closing Net Working Capital" has the meaning set forth in
Section 1F(i).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Group" means the Purchaser, 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.
- 44 -
<PAGE> 51
"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 concerning the business or affairs of the Company
(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, (iii) the disclosure of which could reasonably be expected to be
detrimental or adverse to the Company, or (iv) is the property of the Company
and that the continued success of the Company depends in large part on keeping
this information from becoming known to competitors of the Company.
"Confidentiality Agreement" means the letter agreement dated July
22, 1999 by and between Sleepmaster L.L.C. and Adam Wuest, Inc.
"Consents" has the meaning set forth in Section 2D.
"Controlled Group of Corporations" has the meaning set forth in
Code Section 1563.
"Employee Benefit Plan" means any "employee benefit plan" (as
such term is defined in ERISA Section 3(3)) and any other material employee
benefit plan, program or arrangement.
"Employment and Unit Purchase Agreements" means the Employment
and Unit Purchase Agreement by and among the Purchaser, David W. Deye,
Sleepmaster, Sleepmaster Holdings, L.L.C. ("Holdings"), and Sleep Investor
L.L.C. (the "Investor") dated as of the date hereof and the Employment and Unit
Purchase Agreement by and among the Purchaser, Steve Lund, and the Investor
dated as of the date hereof and the Employment Agreement by and among the
Purchaser, Jim Fanning and Sleepmaster 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).
- 45 -
<PAGE> 52
"Environmental Laws" means any and all applicable Laws pertaining
to the protection of land, water, air, health, safety or the environment as
currently in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" has the meaning set forth in Section 1E.
"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 of government,
including any court, in each case having jurisdiction over the Company.
"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.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the regulations promulgated thereunder.
"Hazardous Materials" 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 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 prohibited,
limited or regulated by any Governmental or Regulatory Body under any
Environmental Law.
"Income Tax" means any federal, state, local or foreign income
tax measured by income (regardless of whether deemed an "income tax"), including
any interest, penalty or addition thereto, whether disputed or not.
"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
- 46 -
<PAGE> 53
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,
(viii) any indebtedness secured by a Lien on a Person's assets, and (ix) any
sales tax obligations payable by the Company pursuant to Section 5J, but
excludes (A) any Liabilities included in the calculation of Closing Net Working
Capital and (B) obligations under the IRB (and the capitalized lease of the
Owned Real Property) in an amount not to exceed $2,106,000.
"Indemnity Escrow Agreement" shall be the Indemnity Escrow
Agreement to be entered into among the Purchaser, the Company and the Escrow
Agent substantially in the form of Exhibit B attached hereto.
"Indemnity Escrow Fund" has the meaning set forth in Section 1E.
"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, 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.
"IRB" means $2,980,000 principal amount of Economic Development
Revenue Bonds, Series 1994 (Adam Wuest, Inc. Project): Hamilton County, Ohio.
"Key Employee" means all salaried employees of the Company
receiving greater than $50,000 per year from the Company as compensation.
"Knowledge of the Company" and similar phrases means the actual
knowledge of David W. Deye, Stephen D. Lund, James P. Fanning, Robert L.
McCarter, William R. Hemmer, Paul C. Binder, H. Thomas Acree and Douglas E.
Krinsky.
- 47 -
<PAGE> 54
"Knowledge of Adam Wuest Realty" and similar phrases means the
actual knowledge of Adam Wuest Realty's directors and officers.
"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
6X(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, 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 1F above,
the excess of the current assets (excluding cash and cash equivalents (including
short-term investments)) of the Company as of the close of business on the date
of determination over the current Liabilities of the Company as of the close of
business on the date of determination determined in accordance with GAAP, except
as otherwise specified below. In determining current assets and liabilities
hereunder, (i) all accounting entries shall be taken into account regardless of
their amount and all known errors and omissions shall be corrected (it being
understood that this clause (i) will not alter generally accepted auditing
standards for the purpose of the audit of the Closing Balance Sheet pursuant to
Section 1F(ii)), (iii) all known proper adjustments shall be made, (iv)
appropriate reserves for all known and quantifiable liabilities and obligations
for which reserves are appropriate in accordance with GAAP shall be included,
(v) inventory shall be accounted for on a first-in-first-out basis, (vi) account
no. 0859 entitled "other accrued liabilities" shall be excluded and (vii)
Excluded Assets and Excluded Liabilities shall be excluded.
"Noncompete Period" has the meaning set forth in Section 5B(i).
"Owned Real Property" has the meaning set forth in Section 1A(i).
- 48 -
<PAGE> 55
"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 yet due and payable or (b) being
contested in good faith and by appropriate proceedings, and for which adequate
reserves (as determined in accordance with GAAP, consistently applied) have been
established on the Company's books with respect thereto; (ii) Real estate taxes,
assessments and other governmental levies, fees or charges imposed with respect
to the Real Property which are not due and payable as of the Closing Date; (iii)
mechanics liens and similar liens for labor, materials or supplies provided with
respect to the Real Property incurred in the ordinary course of business for
amounts which are not delinquent and which would not, individually or in the
aggregate, have a Material Adverse Effect; (iv) zoning, building codes and other
land use laws regulating the use or occupancy of the Real Property or the
activities conducted thereon which are imposed by any governmental authority
having jurisdiction over the Real Property which are not violated by the current
use or occupancy of the Real Property or the operation of the business thereon;
(v) liens for any financing secured by the Real Property which is an Assumed
Liability under this Agreement; and (vi) easements, covenants, conditions,
restrictions and other similar matters of record affecting title to the Real
Property which are set forth or referenced in the Title Commitment; provided,
however, that such matters of record do not or would not materially impair the
use or occupancy of the Real Property or have a Material Adverse Effect.
"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.
"Phantom Stock Plan " means the Adam Wuest, Inc. Phantom Stock
Plan adopted in 1995, as amended.
"Purchaser" has the meaning set forth in the Preamble.
"Reference Balance Sheet" has the meaning set forth in Section
6E(i)(B).
"Release" shall have the meaning set forth in CERCLA.
"Sales Tax" means any federal, state, local or foreign income tax
measured by sales income (regardless of whether deemed a "sales tax"), including
any interest, penalty or addition thereto, whether disputed or not.
"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.
- 49 -
<PAGE> 56
"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 limited liability company (with voting securities)
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 (without
voting securities), 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 $2,400,000.
"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 Commitment" has the same meaning set forth in Section 2H.
"Title Company" has the meaning set forth in Section 2H(i).
"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.
"Union" means United Steel Workers of America, AFL-CIO-CLC Local
Union No. 156-U.
- 50 -
<PAGE> 57
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 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 November 10, 1999; provided that the reason for the delay beyond
November 10, 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
- 51 -
<PAGE> 58
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 Adam Wuest Realty. No
course of dealing between or among the Purchaser, the Company, and Adam Wuest
Realty 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. 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.
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
- 52 -
<PAGE> 59
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 intent dated October 7, 1999, by and between
Sleepmaster and the Company.
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 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
- 53 -
<PAGE> 60
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:
Adam Wuest, Inc.
645 Linn Street
Cincinnati, OH 45203
Attention: Mr. David W. Deye
Facsimile: (513) 421-3915
with copies to:
(which shall not constitute notice to the Company)
Taft, Stettinius & Hollister LLP
1800 Firstar Tower
425 Walnut Street
Cincinnati, OH 45202-3957
Attention: Gerald Greenberg, Esq.
Facsimile: (513) 381-0205
The Purchaser or Sleepmaster L.L.C.:
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
12N. Jurisdiction and Venue. 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
- 54 -
<PAGE> 61
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE CITY OF NEW YORK IN THE STATE OF
NEW YORK. 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 NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE COMPANY, THE
PURCHASER AND EACH SELLER HEREBY WAIVES ANY CLAIM THAT SUCH JURISDICTION IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. THE COMPANY, THE
PURCHASER AND EACH SELLER DESIGNATES AND APPOINTS TAFT, STETTINIUS & HOLLISTER
LLP, 1800 FIRSTAR TOWER, 425 WALNUT STREET, CINCINNATI, OH 45202-3957 (AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY SUCH PERSON WITH THE CONSENT OF
THE PURCHASER) TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE
COMPANY, THE PURCHASER AND EACH SELLER TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED
MAIL TO THE COMPANY, THE PURCHASER OR ANY SELLER AT SUCH PERSON'S RESPECTIVE
ADDRESSES PROVIDED HEREIN. TO THE EXTENT PERMITTED BY LAW, IF ANY AGENT
APPOINTED BY THE COMPANY, THE PURCHASER OR ANY SELLER REFUSES TO ACCEPT SERVICE,
SUCH PERSON HEREBY AGREES THAT SERVICE UPON SUCH PERSON BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE.
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. Guarantee. So long as Sleepmaster directly or indirectly
owns a majority equity interest in the Purchaser, the obligations of the
Purchaser set forth in this Agreement are hereby guaranteed by Sleepmaster.
* * * * *
- 55 -
<PAGE> 62
IN WITNESS WHEREOF, the Parties hereto have executed this Asset
Purchase Agreement on the date first written above.
ADAM WUEST, INC.
By:
-------------------------------------
Name:
Title:
ADAM WUEST REALTY, INC.
By:
-------------------------------------
Name:
Title:
AWI CORPORATION
By:
-------------------------------------
Name:
Title:
SLEEPMASTER L.L.C.
By:
-------------------------------------
Name:
Title:
<PAGE> 63
SELLER SIGNATURE PAGE
(solely for the purposes of Section 5B)
- ------------------------------ ------------------------------
Lisa M. Deye David W. Deye
------------------------------
MARY JANE DEYE TRUST Stephen D. Lund
F/B/O LISA M. DEYE
By:
---------------------------- ------------------------------
Trustee James P. Fanning
------------------------------
HERBERT A. WUEST TRUST Marion W. Fanning
By: MARION W. FANNING GRANTOR
---------------------------- TRUST
Trustee
MARY JANE DEYE TRUST By:
F/B/O DEBORAH A. BROUGHAN ---------------------------
Trustee
By: MARY JANE DEYE TRUST
---------------------------- F/B/O AMY M. LUND
Trustee
By:
- ------------------------------ ----------------------------
Amy Lund Trustee
------------------------------
Deborah A. Brougham
MARY JANE DEYE TRUST
F/B/O DAVID W. DEYE
By:
----------------------------
Trustee
<PAGE> 64
EXHIBIT A
Adjustment Escrow Agreement
A - 1
<PAGE> 65
EXHIBIT B
Indemnity Escrow Agreement
B - 1
<PAGE> 66
EXHIBIT C
Opinion of the Company's Counsel
C - 1
<PAGE> 67
EXHIBIT D
Assignment and Assumption Agreement
D - 1
<PAGE> 68
EXHIBIT E
Bill of Sale
E - 1
<PAGE> 69
EXHIBIT F
Opinion of the Purchaser's Counsel
F - 1
<PAGE> 1
Exhibit 10.44
EXECUTION COPY
THIS INSTRUMENT IS SUBJECT TO A SUBORDINATED CREDIT AGREEMENT, DATED
AS OF NOVEMBER 5, 1999, WHICH, AMONG OTHER THINGS, SUBORDINATES THE
MAKER'S OBLIGATIONS TO THE PAYEE TO THE MAKER'S OBLIGATIONS TO THE
HOLDERS OF SENIOR DEBT AS DEFINED IN SAID AGREEMENT.
SUBORDINATED NOTE
$10,000,000.00 New York, New York
November 5, 1999
FOR VALUE RECEIVED, the undersigned, SLEEPMASTER HOLDINGS L.L.C., a New
Jersey limited liability company (the "Maker"), hereby promises to pay to
CITICORP MEZZANINE PARTNERS, L.P. or its registered assigns (the "Payee"), at
399 Park Avenue, 14th Floor, New York, New York 10043, on the Maturity Date (as
defined in the Subordinated Credit Agreement, dated as of November 5, 1999, as
the same may be amended, modified, restated or supplemented from time to time
(the "Credit Agreement")), among the Maker and the Payee, the principal sum of
TEN MILLION DOLLARS ($10,000,000.00) or such lesser principal amount thereof as
may remain outstanding in lawful money of the United States of America in
immediately available funds, and to pay interest from the date hereof on the
principal amount hereof from time to time outstanding, in like funds, at said
office, at a rate or rates per annum and payable on such dates as determined
pursuant to the terms of the Credit Agreement.
The Maker promises to pay interest, on demand, on any overdue principal
and, to the extent permitted by law, overdue interest from their due dates at a
rate or rates determined as set forth in the Credit Agreement.
The Maker hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever, other than as expressly required by the Credit
Agreement. The nonexercise by the holder of any of its rights hereunder in any
particular instance shall not constitute a waiver thereof in that or any
subsequent instance.
The date, amount and interest rate applicable to all borrowings evidenced
by this Note and all payments and prepayments of the principal hereof and
interest hereon shall be noted by the holder hereof on the schedule attached
hereto or any continuation thereof; provided, that the failure of the holder
hereof to make such a notation or any error in such a notation shall not in any
manner affect the obligation of the Maker to make payments of principal and
interest in accordance with the terms of this Note and the Credit Agreement.
This Note is the Note referred to in the Credit Agreement, which, among
other things, contains provisions for the acceleration of the maturity hereof
upon the happening of certain events (subject however to the terms of Article 8
of the Credit Agreement referred to above), for optional and mandatory
prepayment of the principal hereof prior to the maturity hereof and prepayment
premiums thereon and for the amendment or waiver of certain provisions of the
Credit Agreement,
<PAGE> 2
all upon the terms and conditions therein specified. THIS NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
SLEEPMASTER HOLDINGS L.L.C.
By:
-------------------------------
Name:
Title:
Attest:
- ---------------------------------
Name:
-2-
<PAGE> 3
LOANS AND PAYMENTS
<TABLE>
<CAPTION>
PAYMENTS OF
PRINCIPAL AMOUNT PRINCIPAL OR UNPAID PRINCIPAL NAME OF PERSON
DATE OF LOAN INTEREST RATE INTEREST BALANCE ON NOTE MAKING NOTATION
- -------------- ------------------------ --------------------- ------------------- ------------------------ -----------------
<S> <C> <C>
11/05/99 $10,000,000.00 14.00%
</TABLE>
-3-
<PAGE> 1
Exhibit 10.45
EXECUTION COPY
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of November 5, 1999 by and between CITICORP
MEZZANINE PARTNERS, L.P., a Delaware limited partnership (the "Purchaser"), and
SLEEPMASTER HOLDINGS L.L.C., a New Jersey limited liability company (the
"Company"). Capitalized terms used herein shall have the meanings given to such
terms in Section VI(A) hereof.
WHEREAS, pursuant to that certain Subordinated Credit Agreement, dated as
of the date hereof (as amended, restated or modified from time to time, the
"Credit Agreement"), by and among the Purchaser and the Company, the Purchaser
is lending to the Company the aggregate sum of $10,000,000 (the "Loan") in
accordance with the terms of the Credit Agreement;
WHEREAS, the Purchaser is acquiring from the Company a warrant in the
form attached as Exhibit A hereto (the "Warrant"), representing the right to
purchase from the Company 1.298.14 Warrant Interests (as adjusted from time to
time pursuant to the provisions of the Warrant) on the terms and conditions set
forth in the Warrant.
WHEREAS, the Warrant is being issued as an inducement and partial
consideration for the Purchaser to enter into the Credit Agreement and to make
the Loan to the Company, and without such issuance, the Purchaser will not enter
into the Credit Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
I. Purchase Price and Closing.
A. Closing. The closing of the issuance of the Warrant to the
Purchaser (the "Closing") shall take place simultaneously with the closing
pursuant to the Credit Agreement. The date of such Closing is hereinafter
referred to as the "Closing Date."
B. Transactions on Closing Date. At the Closing, the Company shall
deliver to the Purchaser the duly issued Warrant.
II. Representations and Warranties of the Company. The Company represents
and warrants to the Purchaser as follows:
A. Good Standing. The Company is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
New Jersey.
B. Authority Relative to this Agreement. The Company has all
requisite limited liability company power and authority to enter into and
perform its obligations under this Agreement and to issue and deliver the
Warrant to the Purchaser. The execution, delivery, and performance by the
Company of its obligations under this Agreement, including the issuance and
<PAGE> 2
delivery of the Warrant to the Purchaser, have been duly authorized by all
necessary limited liability company action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and (assuming due
execution and delivery by the Purchaser) is a legal, valid, and binding
obligation of the Company and is enforceable against the Company in accordance
with its terms.
C. No Conflict or Violation. The execution and delivery of this
Agreement by the Company, the performance by the Company of its terms and the
issuance and delivery of the Warrant to the Purchaser will not on the Closing
Date conflict with or result in a violation of (i) the Certificate of Formation
or limited liability company operating agreement of the Company as in effect on
the Closing Date, or (ii) any agreement, instrument, law, rule, regulation,
order, writ, judgment, or decree to which the Company is a party or is subject,
except for such conflicts and violations which will not, in the aggregate, have
a material adverse effect on the business, results of operations or financial
condition of the Company and will not deprive the Purchaser of any material
benefit under this Agreement.
D. Validity of Issuance. The Warrant to be issued to the Purchaser
pursuant to this Agreement and the Warrant Interests issued upon exercise of the
Warrant will, when issued, be duly and validly issued, fully paid and
nonassessable (assuming in the case of the Warrant Interests, payment of the
exercise price is made in accordance with the terms of the Warrant).
III. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
A. Investment Intention. The Purchaser is acquiring the Warrant, and
if any portion of the Warrant is exercised, the Warrant Interests, for
investment solely for its own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof. The Purchaser
agrees and acknowledges that it will not, directly or indirectly, offer,
transfer, or sell the Warrant or any Warrant Interests, or solicit any offers to
purchase or acquire the Warrant or any Warrant Interests, unless the transfer or
sale is permitted by the terms of the Warrant and such transfer or sale is (i)
pursuant to an effective registration statement under the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "Securities
Act") and has been registered under any applicable state securities or "blue
sky" laws, or (ii) pursuant to an exemption from registration under the
Securities Act and applicable state securities or "blue sky" laws.
B. Legend. The Purchaser has been advised by the Company that
certificates representing the Warrant will bear any legend required pursuant to
the Securityholders Agreement and will bear the following legend:
THIS WARRANT WAS ORIGINALLY ISSUED ON NOVEMBER 5, 1999 AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS
THEREUNDER OR THE PROVISIONS OF THIS WARRANT. THIS WARRANT IS ALSO
SUBJECT TO (A) A WARRANT AGREEMENT
-2-
<PAGE> 3
DATED AS OF NOVEMBER 5, 1999 BY AND BETWEEN SLEEPMASTER HOLDINGS L.L.C.
(THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF, AND (B) AN AMENDED AND
RESTATED SECURITYHOLDERS AGREEMENT DATED AS OF MARCH 3, 1998 BY AND AMONG
THE COMPANY, CERTAIN OTHER SECURITYHOLDERS OF THE COMPANY AND THE COMPANY
PURSUANT TO A JOINDER DATED AS OF NOVEMBER 5, 1999 (THE "SECURITYHOLDERS
AGREEMENT"), IN EACH CASE AS AMENDED FROM TIME TO TIME. A COPY OF THE
WARRANT AGREEMENT AND THE SECURITYHOLDERS AGREEMENT WILL BE FURNISHED
WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON REQUEST.
Upon reasonable request of the Company in connection with any permitted transfer
of the Warrant or any Warrant Interests (other than a transfer pursuant to a
public offering registered under the Securities Act, pursuant to Rule 144 or
Rule 144A promulgated under the Securities Act (or any similar rules then in
effect), or to an affiliate of the Purchaser), the Purchaser will deliver, if
requested by the Company, an opinion of counsel knowledgeable in securities laws
reasonably satisfactory to the Company to the effect that such transfer may be
effected without registration under the Securities Act. The Company agrees to
issue certificates evidencing the Warrant Interests that do not contain such
legend upon receipt of an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to the Company, to the effect that registration under
the Securities Act is not required because of the availability of an exemption
from such registration.
C. Additional Investment Representations. The Purchaser is an
"accredited investor" as such term is defined in Rule 501 promulgated under the
Securities Act.
IV. Information and Observer Rights. Until the Company is a Public
Company, the Company shall (a) permit one representative of any holder of the
Warrant or the Warrant Interests (as selected by the holders of the majority of
the Warrant Interests) (assuming for purposes of this section that the Warrant
has been fully exercised), upon reasonable notice and 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 advisors,
officers, key employees, and independent accountants of the Company and its
subsidiaries and (b) provide each holder of the Warrant or Warrant Interests the
information set forth in Section 5.1 of the Credit Agreement. Each holder of the
Warrant or the Warrant Interests shall, and shall cause his, her or its
affiliates and representatives to, keep confidential and not disclose to any
other person or entity or use for his, her or its own benefit or the benefit of
any other person or entity any confidential proprietary information, technology,
know-how, trade secrets (including, without limitation, all results of research
and development), product formulas, industrial designs, franchises, inventions
or other industrial and intellectual property regarding the Company, its
subsidiaries or their respective businesses and operations ("Confidential
Information") obtained by such holder or his, her or its affiliates or
representatives pursuant to this Section IV; provided, that obligations
-3-
<PAGE> 4
hereunder shall not apply to Confidential Information that (i) is or becomes
generally available to the public without breach of the commitment provided for
in this Section; or (ii) is required to be disclosed by law, order or regulation
of a court or tribunal or governmental authority; provided, further, that, in
any such case, the applicable holder subject to such requirement shall notify
the Company as early as reasonably practicable prior to disclosure to allow the
Company to take appropriate measures to preserve the confidentiality of such
Confidential Information at the cost of the Company.
V. Attendance at Board Meetings. So long as the Purchaser owns at
least 50% of the Warrant Interests issued on the date hereof (assuming for
purposes of this Article full exercise of the Warrant), the Purchaser shall have
the right to designate one observer (the "Observer") to attend meetings of the
Company's Board of Advisors (and committees thereof). The Observer shall not
have the right to vote on any matter presented to the Board of Advisors or any
committee thereof. The Company shall give the Observer written notice of each
meeting of the Board of Advisors and committees thereof at the same time and in
the same manner as the members of the Board of Advisors or such committee
receive notice of such meetings, and the Company shall permit the Observer to
attend as an observer all meetings of its Board of Advisors and committees
thereof, unless attendance at such meeting, in the Company's reasonable
judgment, would create a conflict of interest for the Purchaser; provided, that
in the case of telephonic meetings, the Observer need receive only actual notice
thereof at the same time and in the same manner as notice is given to the
advisors, and the Observer shall be given the opportunity to listen to such
telephonic meetings, unless such notice or opportunity, in the reasonable
judgment of the Company, would create a conflict of interest for the Purchaser.
The Observer shall be entitled to receive all written materials and other
information given to the advisors in connection with such meetings at the same
time such materials and information are given to the advisors (unless the
receipt thereof, in the reasonable judgment of the Company, would create a
conflict of interest for the Purchaser), and the Observer shall keep such
materials and information confidential. If the Company proposes to take any
action by written consent in lieu of a meeting, the Company shall give written
notice thereof to the Observer prior to the effective date of such consent. The
Company shall provide to the Observer all written materials and other
information given to the advisors in connection with such action by written
consent at the same time such materials and information are given to the
advisors, and the Observer shall keep such materials and information
confidential.
VI. Miscellaneous
A. Definitions. For the purposes of this Agreement, the following
terms shall have the following meanings:
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of New York or is a day on
which banking institutions located in such state are authorized or required by
law or other governmental action to close.
"Class B Units" means the Company's Class B Common Membership
Interests, par value $.01 per unit, and any securities into which such Class B
Units are hereafter converted or exchanged.
-4-
<PAGE> 5
"Public Company" means a company (i) which is subject to the
reporting requirements of Section 15(d) of the Securities Exchange Act of 1934,
as amended from time to time (the "Exchange Act"), or (ii) any of whose equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement, dated as of March 3, 1999, among the Company and
certain other securityholders of the company to which Purchaser has become a
party through a Joinder dated as of the date hereof, as may be amended,
modified, or restated from time to time in accordance with its terms.
"Securityholders Agreement" means the Amended and Restated
Securityholders Agreement, dated as of March 3, 1998, among the Company and
certain other securityholders of the Company to which Purchaser has become a
party through a Joinder dated as of the date hereof as amended, modified, or
restated from time to time in accordance with its terms.
"Warrant Interests" means units of the Class B Units obtained or
obtainable upon exercise of the Warrant; provided, that if there is a change
such that the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Interests" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
B. Other Agreements. The parties hereto acknowledge that upon the
exercise of the Warrant, the Warrant Interests and the holders thereof shall be
subject to the terms and conditions of each of the Securityholders Agreement and
the Registration Rights Agreement.
C. 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 delivered personally, mailed by certified or registered mail, return
receipt requested and postage prepaid, sent via a nationally recognized
overnight courier, or via facsimile. Such notices, demands and other
communications will be sent to the address indicated below:
To the Company:
Sleepmaster Holdings L.L.C.
2001 Lower Road
Linden, NJ 07036-6520
Attention: Mr. Charles Schweitzer
Telecopy No.: (732) 381-3925
-5-
<PAGE> 6
with copies (which shall not
constitute notice to the Company) to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
Attention: Thomas F. McWilliams
Telecopy No: (212) 888-2940
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022-4675
Attention: Kimberly P. Taylor, Esq.
Telecopy No.: (212) 446-4900
To the Purchaser:
c/o Citicorp Capital Investors, Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
Attention: Richard E. Mayberry, Jr.
Telecopy No.: (212) 888-2940
with a copy (which shall not
constitute notice to the Purchaser) to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022-4675
Attention: Eunu Chun, 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;
provided, that the failure to deliver copies of notices as indicated above shall
not affect the validity of any notice. Any such communication shall be deemed to
have been received (i) when delivered, if personally delivered, or sent by
nationally-recognized overnight courier or sent via facsimile or (ii) on the
third Business Day following the date on which the piece of mail containing such
communication is posted if sent by certified or registered mail.
D. Assignment. This Agreement and all the provisions hereof shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and
-6-
<PAGE> 7
permitted assigns, except that neither this Agreement nor any rights or
obligations hereunder shall be assigned by the Company without the prior written
consent of the Purchaser.
E. Amendment. This Agreement may be amended only by a written
instrument signed by the Company and the Purchaser.
F. Waiver. Either party hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, and (c) waive compliance
with any of the agreements or conditions herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid as to such party if
set forth in an instrument in writing signed by such party.
G. Severability. In the event that any one or more of the provisions
hereof, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired, it being intended
that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
H. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS OR CHOICE OF LAWS OF
THE STATE OF DELAWARE OR ANY OTHER JURISDICTION WHICH WOULD RESULT IN THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THOSE OF THE STATE OF
DELAWARE.
I. Expenses. All reasonable fees and expenses incurred by the
Purchaser in connection with the preparation of this Agreement and the
transactions referred to herein, including the reasonable fees of the
Purchaser's counsel, shall be paid by the Company, whether or not the issuance
of the Warrant, the execution and delivery of the Credit Agreement or any other
transaction contemplated hereby is consummated.
J. Counterparts. This Agreement may be executed in two or more
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement.
K. Descriptive Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of the terms contained herein.
* * * * *
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be signed by its duly authorized officers as of the date first
written above.
SLEEPMASTER HOLDINGS L.L.C.
By:
------------------------------
Name:
Title:
CITICORP MEZZANINE PARTNERS, L.P.
By: Citicorp Capital Investors, Ltd.
Its: General Partner
By:
------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.46
EXECUTION COPY
THIS WARRANT WAS ORIGINALLY ISSUED ON NOVEMBER 5, 1999 AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS WARRANT. THIS
WARRANT IS ALSO SUBJECT TO (A) A WARRANT AGREEMENT DATED AS OF
NOVEMBER 5, 1999 BY AND BETWEEN SLEEPMASTER HOLDINGS L.L.C. (THE
"COMPANY") AND THE ORIGINAL HOLDER HEREOF AND (B) AN AMENDED AND
RESTATED SECURITYHOLDERS AGREEMENT DATED AS OF MARCH 3, 1998 BY AND
AMONG THE COMPANY, CERTAIN SECURITYHOLDERS OF THE COMPANY, AND THE
ORIGINAL HOLDER HEREOF PURSUANT TO A JOINDER THERETO DATED AS OF
NOVEMBER 5, 1999 (THE "SECURITYHOLDERS AGREEMENT"), IN EACH CASE AS
AMENDED FROM TIME TO TIME. A COPY OF THE WARRANT AGREEMENT AND THE
SECURITYHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON REQUEST.
UNIT PURCHASE WARRANT
Date of Issuance: November 5, 1999 Certificate No. W-1
For value received, SLEEPMASTER HOLDINGS L.L.C., a New Jersey
limited liability company (the "Company"), hereby grants to CITICORP MEZZANINE
PARTNERS, L.P., a Delaware limited partnership ("CMP"), or its transferees and
assigns, the right to purchase from the Company a total of 1,298.14 Warrant
Interests (as defined herein) at a price per unit of $0.01 (the "Initial
Exercise Price"). This Warrant is one of the warrants (collectively, the
"Warrants") issued pursuant to the terms of the Warrant Agreement dated as of
November 5, 1999 between the Company and CMP, and is initially being issued in
connection with the issuance of a Subordinated Note due 2007 (the "Note") to CMP
by the Company pursuant to the Subordinated Credit Agreement, dated as of
November 5, 1999 by and between CMP and the Company (as amended, restated or
modified from time to time, the "Credit Agreement"). The Initial Exercise Price
and number of Warrant Interests (and the amount and kind of other securities)
for which this Warrant is exercisable shall be subject to adjustment as provided
herein. Certain capitalized terms used herein are defined in Section 4 hereof.
<PAGE> 2
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant
may be exercised, in whole or in part, at any time after June 30, 2007 (the
"Exercisability Date") and before 5:00 p.m., New York time, on June 30, 2009 or,
if such day is not a Business Day, on the next preceding Business Day (the
"Exercise Period"); provided, that the Company has not repaid the Note in full
(including the principal amount thereof plus all accrued and unpaid interest and
premiums thereon) on or prior to the Exercisability Date. In the event the
Company repays the Note in full on or prior to the Exercisability Date, this
Warrant shall not be exercisable and shall expire on the date of such repayment.
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when all
of the following items have been delivered to the Company (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in Section
1C below, executed by the Person exercising all or part of the
purchase rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II attached
hereto evidencing the assignment of this Warrant to the Purchaser; and
(d) either (i) a check or wire transfer payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Interests being purchased upon such exercise (the "Aggregate Exercise
Price"), (ii) the surrender to the Company of securities of the
Company or its subsidiaries having a value equal to the Aggregate
Exercise Price of the Warrant Interests being purchased upon such
exercise (which value in the case of debt securities shall be the
principal amount thereof and in the case of units of Common Membership
Interests shall be the Fair Market Value thereof), or (iii) the
delivery of a notice to the Company that the Purchaser is exercising
the Warrant by authorizing the Company to reduce the number of Warrant
Interests subject to the Warrant by the number of Warrant Interests
having an aggregate Fair Market Value equal to the Aggregate Exercise
Price.
(ii) Certificates for Warrant Interests purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
days after the date of the Exercise Time together with any cash payable in lieu
of a fraction of a unit pursuant to the provisions of Section 13 hereof. Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially identical
hereto,
-2-
<PAGE> 3
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Interests issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time (provided, that the Company has not repaid the Note in full), and the
Purchaser shall be deemed for all purposes to have become the Registered Holder
of such Warrant Interests at the Exercise Time.
(iv) The issuance of certificates for Warrant Interests upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
Warrant Interests; provided, that the Company shall not be required to pay any
taxes in respect of the Warrant or Warrant Interests, with respect to any
transfer of the Warrants, which taxes shall be paid by the transferee prior to
the issuance of such Warrant Interests.
(v) The Company shall not close its books against the transfer
of this Warrant or of any Warrant Interests issued or issuable upon the exercise
of this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per unit of the unissued Warrant
Interests acquirable upon exercise of this Warrant is at all times equal to or
less than the Exercise Price then in effect. In the event that the Company fails
to comply with its obligations set forth in the foregoing sentence, the
Purchaser may (but shall not be obligated to) purchase Warrant Interests
hereunder at par value, and the Company shall be obligated to reimburse the
Purchaser for the aggregate amount of consideration paid in connection with such
exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with the Registered
Holder or any Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant.
(vii) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a public
offering or a sale of the Company (pursuant to a merger, sale of stock, or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued Common Membership Interests solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Interests issuable upon the exercise of this Warrant. All Warrant
Interests which are so issuable shall, when issued and upon the payment of the
applicable Exercise Price, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges except those created by
actions of the holder hereof. The Company shall take all such actions as may be
necessary to ensure that all such Warrant Interests may be so
-3-
<PAGE> 4
issued without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
units of Common Membership Interests or other securities constituting Warrant
Interests may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company will
use its commercially reasonable efforts to cause the Warrant Interests,
immediately upon such exercise, to be listed on any domestic securities
exchange, if any, upon which securities constituting Warrant Interests are
listed at the time of such exercise.
(ix) If the Warrant Interests issuable by reason of exercise of
this Warrant are convertible into or exchangeable for any other stock or
securities of the Company, the Company shall, at the Purchaser's option and upon
surrender of this Warrant by such Purchaser as provided above together with any
notice, statement or payment required to effect such conversion or exchange of
Warrant Interests, deliver to such Purchaser (or as otherwise specified by such
Purchaser) a certificate or certificates representing the stock or securities
into which the Warrant Interests issuable by reason of such conversion are
convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
(x) The Company shall not, and shall not permit its
subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Formation or through any Organic Change (as defined in Section
2D), issuance or sale of securities or any other voluntary action) avoid or seek
to avoid the observance or performance of any of terms of this Warrant or impair
or diminish its value (except for any action which ratably affects all Warrant
Interests and units of Common Membership Interests), but shall at all times in
good faith assist in the carrying out of all such terms of Warrant. Without
limiting the generality of the foregoing, the Company shall (a) use its
reasonable best efforts to obtain all such authorizations, exemptions, or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant,
and (b) not undertake any reverse split, combination, reorganization, or other
reclassification of its membership interests which would have the effect of
making this Warrant exercisable for less than one Common Membership Interest.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth as Exhibit I hereto, except that if the Warrant Interests are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Interests are to be issued, and if the number of Warrant Interests to be issued
does not include all of the Warrant Interests purchasable hereunder, it shall
also state the name of the Person to whom a new Warrant for the unexercised
portion of the rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Warrant Interests.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Interests obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2;
provided, however, that there shall be no adjustment to the Exercise Price or to
the number of Warrant Interests acquirable
-4-
<PAGE> 5
upon exercise of the Warrant, as provided in this Section 2 (an "Adjustment"),
unless and until such Adjustment, together with any previous Adjustments to the
Exercise Price or to the number of Warrant Interests so acquirable which would
otherwise have resulted in an Adjustment were it not for this proviso, would
require an increase or decrease of at least 1% of the total number of Warrant
Interests so acquirable at the time of such Adjustment, in which event such
Adjustment and all such previous Adjustments shall immediately occur.
2A. Adjustment of Exercise Price and Number of Warrant Interests upon
Issuance of Common Membership Interests.
(i) If and when, on or after the date hereof, the Company
issues or sells, or in accordance with Section 2B is deemed to have issued or
sold (other than Purchase Rights (as defined in Section 4) or pursuant to a
Permitted Issuance or as described in Section 2C hereof) any units of Common
Membership Interests for a per unit consideration that is less than the per unit
Fair Market Value of the Common Membership Interests determined as of the date
of such issuance or sale, then immediately upon such issuance or sale, the
Exercise Price shall be reduced to equal the amount determined by multiplying
the Exercise Price in effect immediately prior to such issuance or sale by a
fraction, the numerator of which will be the sum of (x) the number of units of
Common Interests Deemed Outstanding immediately prior to such issuance or sale
multiplied by the Fair Market Value of the Common Membership Interests
determined as of the date of such issuance or sale, and (y) the consideration,
if any, received by the Company upon such issuance or sale, and the denominator
of which will be the product derived by multiplying such Fair Market Value of
the Common Membership Interests by the number of units of Common Interests
Deemed Outstanding immediately after such issuance or sale.
(ii) Upon each such adjustment of the Exercise Price hereunder,
the number of Warrant Interests acquirable upon exercise of this Warrant shall
be adjusted to equal the number of units determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Interests acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment. For the purposes of this Section 2, the calculation of the
number of units of Common Interests Deemed Outstanding shall exclude the Warrant
Interests.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following
provisions shall be applicable:
(i) Issuance of Rights or Options. If the Company grants in any
manner any rights or options (other than Purchase Rights or a Permitted
Issuance) to subscribe for or to purchase Common Membership Interests or any
securities convertible into or exchangeable for Common Membership Interests
(such rights or options being herein called "Options" and such convertible or
exchangeable securities being herein called "Convertible Securities") and the
price per unit for which Common Membership Interests are issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Fair Market Value of the Common Membership Interests
in effect on the date such Options are granted, then the total maximum number of
units of Common Membership Interests issuable upon the exercise of such
-5-
<PAGE> 6
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to be outstanding and to have been issued and sold by the Company for
such price per unit. For purposes of this paragraph, the "price per unit for
which Common Membership Interests are issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities" is determined by
dividing (A) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum number of units
of Common Membership Interests issuable upon exercise of such Options or upon
the conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options. No further adjustment of the Exercise Price shall be
made upon the actual issuance of such Common Membership Interests or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Membership Interests upon conversion or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities (other than Purchase Rights or
a Permitted Issuance) and the price per unit for which Common Membership
Interests are issuable upon the conversion or exchange of such Convertible
Securities is less than the per unit Fair Market Value of the Common Membership
Interests then in effect, then the maximum number of units of Common Membership
Interests issuable upon conversion or exchange of such Convertible Securities
shall be deemed to be outstanding and to have been issued and sold by the
Company for such price per unit. For the purposes of this paragraph, the "price
per unit for which Common Membership Interests are issuable upon such conversion
or exchange" is determined by dividing (A) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (B) the total maximum number of units of Common Membership Interests
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price shall be made upon the actual issue of
such Common Membership Interests upon conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjust ments of the Exercise Price have
been or are to be made pursuant to other provisions of this Section 2B, no
further adjustment of the Exercise Price shall be made by reason of such issue
or sale.
(iii) Change in Option Price or Conversion Rate. If either the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Membership Interests shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant
Interests shall be correspondingly readjusted.
-6-
<PAGE> 7
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Interests acquirable hereunder shall be adjusted to the
Exercise Price and the number of units which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination, never been issued.
(v) Calculation of Consideration Received. If any Common
Membership Interests, Options, or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received therefor
shall be deemed to be the net amount received by the Company therefor. In case
any Common Membership Interests, Options, or Convertible Securities are issued
or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Company shall be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
shall be the market price thereof as of the date of receipt. In case any Common
Membership Interests, Options, or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger or other
business combination in which the Company is the surviving entity, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Membership Interests, Options or Convertible Securities, as the case
may be. The fair value of any consideration other than cash or marketable
securities shall be determined by the Company, unless such consideration is paid
by an Affiliate of the Company, in which case the fair value of such
consideration shall be determined jointly by the Company and the Required
Holders. If such parties are unable to reach agreement within a reasonable
period of time, such fair value shall be determined by an appraiser jointly
selected by the Company and the Required Holders, whose determination shall be
final and binding on the Company and all Registered Holders of Warrants (as
defined in Section 8 below). The fees and expenses of such appraiser shall be
paid by the Company.
(vi) Integrated Transactions. Other than Permitted Issuances, in
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Option shall be deemed to have been issued for no consideration;
provided, that if such other securities are debt securities (such debt
securities so issued are herein referred to as the "Debt") of the Company or any
of its subsidiaries, the Option shall be deemed to have been issued for
consideration equal to the excess, if any, of (a) the aggregate face amount (the
"Estimated Face Amount") of debt securities with terms identical to the terms of
the Debt (other than the increase to face value described in this proviso) which
the Company or such subsidiary would have had to issue had no Options been
issued in connection therewith, given the prevailing market conditions at the
time of the issuance of the Debt, in order to receive the same aggregate net
proceeds as is actually received from the issuance of the Debt, over (b) the
aggregate face amount of the Debt. The Estimated Face Amount shall be as
mutually agreed between the Company and the Registered Holder or, if no such
mutual agreement is reached, as set forth in the written opinion, addressed to
the Registered Holder, of an investment bank of national recognition, retained
by the Company and reasonably acceptable to the Registered Holder; provided,
that if no such mutual agreement is
-7-
<PAGE> 8
reached or written opinion is received, the Estimated Face Amount shall be
deemed to be zero (0); provided, further, that the fees and expenses of such
investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal
amount of 10% subordinated debentures with a 10-year
maturity (and receives aggregate net proceeds of $20
million), and in connection therewith issues warrants,
and in accordance with the provisions of Section 2B(vi),
the Company and the Registered Holder mutually agree or
an investment bank determines that the Estimated Face
Amount of the subordinated debentures (with terms
otherwise identical to the securities issued) would have
been $21 million to the Company), had the warrants not
been issued, then such warrants would be deemed to have
been issued for $1 million.
(vii) Treasury Units. The number of units of Common Membership
Interests outstanding at any given time does not include Interests owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any units so owned or held shall be considered an issue or sale
of Common Membership Interests.
(viii) Record Date. If the Company takes a record of the holders of
Common Membership Interests for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Membership Interests, Options,
or Convertible Securities or (B) to subscribe for or purchase Common Membership
Interests, Options, or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the units of Common Membership
Interests deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
2C. Subdivision or Combination of Common Membership Interests. If the
Company at any time subdivides (by any unit split, unit dividend,
recapitalization, or otherwise) the Common Membership Interests into a greater
number of units or pays a dividend or makes a distribution to holders of the
Common Membership Interests in the form of units of Common Membership Interests,
the Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of Warrant Interests obtainable upon
exercise of this Warrant shall be proportionately increased. Subject to clause
(b) of Section 1B(x), if the Company at any time combines (by reverse unit split
or otherwise) the Common Membership Interests into a smaller number of units,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Interests obtainable upon
exercise of this Warrant shall be proportionately decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Membership Interests are entitled to receive (either directly
or upon subsequent liquidation) stock, securities, or assets with respect to or
in
-8-
<PAGE> 9
exchange for Common Membership Interests is referred to herein as an "Organic
Change". Subject to the provisions of the Securityholders Agreement, prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Interests immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Interests immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the per unit
value for the Common Membership Interests reflected by the terms of such Organic
Change and a corresponding immediate adjustment in the number of Warrant
Interests acquirable and receivable upon exercise of the Warrants, if the per
unit value so reflected is less than the Fair Market Value of the Common
Membership Interests in effect immediately prior to such Organic Change). The
Company shall not effect any such Organic Change unless, prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from such Organic Change (including a purchaser of all or substantially all the
Company's assets) assumes by written instrument the obligation to deliver to
each Registered Holder of Warrants such shares or units of stock, securities or
assets as, in accordance with the foregoing provisions, such Registered Holder
may be entitled to acquire upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Advisors shall make an
appropriate and equitable adjustment in the Exercise Price and the number of
Warrant Interests obtainable upon exercise of this Warrant so as to protect the
rights of the Registered Holder of this Warrant.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least thirty (30) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Membership Interests, (B) with respect to any pro rata
subscription offer to holders of Common Membership Interests, or (C) for
determining rights to vote with respect to any Organic Change, dissolution or
liquidation.
-9-
<PAGE> 10
(iii) The Company shall also give written notice to the
Registered Holder at least thirty (30) days prior to the date on which any
Organic Change, dissolution, or liquidation shall take place.
SECTION 3. Purchase Rights. If at any time the Company grants, issues, or
sells any options, convertible securities, or rights to purchase stock,
warrants, securities, or other such property pro rata to the record holders of
the Common Membership Interests (the "Purchase Rights"), then the Company shall
grant, issue or sell (as the case may be) to the Registered Holder the aggregate
Purchase Rights which such Registered Holder would have acquired if such
Registered Holder had held the maximum number of Warrant Interests acquirable
upon complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of Common
Membership Interests are to be determined for the grant, issue, or sale of such
Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings set forth
below:
"Affiliate", as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly,
indirectly or beneficially, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities or by contract or otherwise.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close.
"Class A Units" means the Company's Class A Common Membership Interests,
$.01 par value per unit, and any securities into which such Class A Common
Membership Interests is hereafter converted or exchanged.
"Class B Units" means the Company's Class B Common Membership Interests,
$.01 par value per unit, and any securities into which such Class B Common
Membership Interests is hereafter converted or exchanged.
"Common Membership Interests" means, collectively, the Class A Units and
the Class B Units, and any securities into which such Class A Units or Class B
Units are hereafter converted or exchanged.
"Common Interests Deemed Outstanding" means, at any given time, the
number of units of Common Membership Interests actually outstanding at such
time, plus the number of units of Common Membership Interests deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
-10-
<PAGE> 11
"Fair Market Value" means the price that would be paid per unit for the
entire common equity interest in the Company in an orderly sale transaction
between a willing buyer and a willing seller, taking into account the
appropriate lack of liquidity of the Company's securities, using valuation
techniques then prevailing in the securities industry and assuming full
disclosure of all relevant information and a reasonable period of time for
effectuating such sale. Fair Market Value shall be determined by the Company's
Board of Advisors in its good faith judgment. A majority of the Required Holders
shall have the right to require that an independent investment banking firm
mutually acceptable to the Company and the Required Holders determine Fair
Market Value, which firm shall submit to the Company and the Warrant holders a
written report setting forth such determination. The expenses of such firm will
be borne by the Company, and the determination of such firm will be final and
binding upon all parties.
"Permitted Issuance" means any issuance by the Company of units of Common
Membership Interests (a) on or prior to the date hereof; (b) upon exercise of
this Warrant; (c) upon the conversion or exchange of any units of any class of
Common Membership Interests into another class of Common Membership Interests;
and (d) issued or issuable to members of management of the Company and its
subsidiaries.
"Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization or government or
department or agency thereof.
"Registered Holder" means the holder of this Warrant as reflected in the
records of the Company maintained pursuant to the provisions of Section 12.
"Required Holders" means the holders of a majority of the purchase rights
represented by this Warrant as originally issued which remain outstanding and
unexercised.
"Securityholders Agreement" means the Amended and Restated
Securityholders Agreement, dated as of March 3, 1998, by and among the Company
and certain other securityholders of the Company to which CMP has become a party
through a Joinder dated as of the date hereof, as may be amended or modified
from time to time in accordance with the terms thereof.
"Warrant Interests" means units of the Company's Class B Units, issuable
upon exercise of the Warrant; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Interests" shall mean Interests of the security issuable upon exercise of the
Warrants if such security is issuable in Interests, or shall mean the equivalent
units in which such security is issuable if such security is not issuable in
Interests.
SECTION 5. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the Registered Holder hereof to any voting rights or other rights as
a securityholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Interests, and
no enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Interests acquirable by exercise hereof or as a securityholder of the
Company.
-11-
<PAGE> 12
SECTION 6. Transferability. Subject to the terms of the Securityholders
Agreement, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder, upon surrender of this Warrant
with a properly executed Assignment (in the form of Exhibit II hereto) at the
principal office of the Company. The Registered Holder agrees that it will not
sell, transfer, or otherwise dispose of any Warrant Interests, in whole or in
part, except in accordance with the terms of the Securityholders Agreement. Each
certificate evidencing the Warrant Interests issued upon such transfer shall
bear the restrictive legends required by the Securityholders Agreement, to the
extent required therein.
SECTION 7. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. At the request of the Registered Holder (pursuant
to a transfer of Warrants or otherwise), this Warrant may be exchanged for one
or more Warrants to purchase Common Membership Interests. The date the Company
initially issues this Warrant shall be deemed to be the date of issuance hereof
regardless of the number of times new certificates representing the unexpired
and unexercised rights formerly represented by this Warrant shall be issued. All
Warrants representing portions of the rights hereunder are referred to herein as
the "Warrants."
SECTION 8. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of units of Common Membership Interests outstanding) in
the capital structure of the Company, to hold any or all of the Warrants or
Warrant Interests, the Registered Holder of this Warrant shall have the right to
require all or part of such Registered Holder's Warrants or Warrant Interests to
be exchanged for nonvoting membership interests or similar interests that convey
equivalent economic benefits to such Warrants or Warrant Interests and include,
in the case of Warrants, equivalent anti-dilution protection. Any such exchange
shall occur as soon as practicable but in any event within sixty (60) days after
written notice by the Registered Holder of this Warrant to the Company (or such
earlier date if required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction, or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft, or
destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided, that if the Registered Holder is a financial institution or other
institutional investor its own Agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed, or mutilated certificate and dated the date of such lost, stolen,
destroyed, or mutilated certificate.
-12-
<PAGE> 13
SECTION 10. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices, and (ii) to a Registered
Holder, at such Registered Holder's address as it appears in the records of the
Company (unless otherwise indicated by any such Registered Holder).
SECTION 11. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and 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 prior written consent of
the Required Holders.
SECTION 12. Warrant Register. The Company shall maintain at its principal
executive offices books for the registration and the registration of transfer of
Warrants. The Company may deem and treat the Registered Holder as the absolute
owner hereof (notwithstanding any notation of ownership or other writing thereon
made by anyone) for all purposes and shall not be affected by any notice to the
contrary.
SECTION 13. Fractions of Units. The Company may, but shall not be
required to, issue a fraction of a Warrant Interest upon the exercise of this
Warrant in whole or in part. As to any fraction of a unit which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Interest on the date of such exercise.
SECTION 14. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CONSTRUCTION,
VALIDITY AND INTERPRETA TION OF THIS WARRANT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
* * * * *
-13-
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
SLEEPMASTER HOLDINGS L.L.C.
By:
-------------------------
Name:
Title:
Attest:
- ----------------------------
Name:
<PAGE> 15
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ Warrant Interests covered by such Warrant and makes payment herewith in
full therefor at the price per unit provided by such Warrant.
Signature
---------------------
Address
----------------------
Exhibit I, Page 1
<PAGE> 16
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-_____) with respect to the number of the Warrant Interests
covered thereby set forth below, unto:
Names of Assignee Address No. of Interests
Dated: Signature
-----------------------
-----------------------
Witness
-----------------------
Exhibit II, Page 1
<PAGE> 1
EXHIBIT 10.47
TRUST INDENTURE
between
COUNTY OF HAMILTON, OHIO
and
THE FIFTH THIRD BANK, as Trustee
SECURING:
$2,980,000
COUNTY OF HAMILTON OHIO
ECONOMIC DEVELOPMENT REVENUE REFUNDING BONDS, SERIES 1994
(ADAM WUEST, INC. PROJECT)
AND ADDITIONAL BONDS (IF ISSUED) ON A
PARITY THEREWITH, AS PROVIDED HEREIN
Dated as of February 1, 1994
THIS INSTRUMENT ALSO CONSTITUTES A SECURITY AGREEMENT
UNDER THE OHIO UNIFORM COMMERCIAL CODE
This instrument prepared by:
Timothy J. Quinn, Esq.
Taft, Stettinius & Hollister
1800 Star Bank Center
Cincinnati, Ohio 45202
(513)381-2828
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Definitions................................................................................... 2
Section 2. Determinations of Legislative Authority...................................................... 12
Section 3. Authorization and Terms of Project Bonds..................................................... 12
Section 4. Terms of all Bonds........................................................................... 14
Section 5. Security Pledged for Bonds................................................................... 15
Section 6. Sale of Project Bonds; Allocation of Purchase Price.......................................... 15
Section 7. Source of Payment - Bond Fund................................................................ 16
Section 8. Additional Bonds............................................................................. 17
Section 9. Covenants of Issuer.......................................................................... 18
Section 10. Investment of Bond Fund and Construction Fund............................................... 19
Section 11. Indenture, Agreement and Bond Purchase Agreement............................................ 20
Section 12. Other Documents............................................................................. 20
Section 13. Compliance with Section 121.22, Ohio Revised Code........................................... 20
Section 14. Temporary Project Bonds..................................................................... 20
Section 15. Effective Date.............................................................................. 21
ARTICLE I
DEFINITIONS...................................................................................... 34
ARTICLE II
FORM, EXECUTION, AUTHENTICATION,
REGISTRATION AND EXCHANGE OF BONDS................................................................. 35
Section 2.01 Form of Bonds and Temporary Bonds................................................. 35
Section 2.02 Terms of Additional Bonds......................................................... 35
Section 2.03 Execution and Authentication of Bonds............................................. 35
Section 2.04 Transfer, Exchange and Registration of Bonds...................................... 35
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 2.05 Mutilated, Lost, Wrongfully Taken or Destroyed Bonds.............................. 37
Section 2.06 Safekeeping and Cancellation of Bonds............................................. 37
Section 2.07 Delivery of the Project Bonds..................................................... 38
Section 2.08 Delivery of Additional Bonds...................................................... 39
Section 2.09 Book Entry-Only System............................................................ 41
ARTICLE III
REDEMPTION OF BONDS............................................................................ 43
Section 3.01 Privilege of Redemption and Redemption Price...................................... 43
Section 3.02 Issuer's Election to Redeem....................................................... 43
Section 3.03 Notice of Redemption.............................................................. 43
Section 3.04 Payment of Redeemed Bonds......................................................... 43
ARTICLE IV
FURTHER PROVISIONS AS TO FUNDS,
PAYMENTS, PROJECT AND AGREEMENT................................................................ 44
Section 4.01 Provisions for Payment............................................................ 44
Section 4.02 Non-presentment of Bonds.......................................................... 44
Section 4.03 Extension of Payment of Bonds..................................................... 44
Section 4.04 Payments to Trustee and Paying Agents............................................. 45
Section 4.05 Moneys to be Held in Trust........................................................ 45
Section 4.06 Insurance and Condemnation Proceeds............................................... 45
Section 4.07 Repayment to the Borrowers or the Letter of Credit Bank from the Bond Fund........ 45
Section 4.08 Records of Construction Fund...................................................... 46
Section 4.09 Completion of the Project......................................................... 46
Section 4.10 Amendments to Agreement and Letter of Credit Not Requiring Consent of
Bondholders....................................................................... 46
Section 4.11 Amendments to Agreement Requiring Consent of Bondholders.......................... 46
Section 4.12 Subordination to Rights of the Borrowers.......................................... 47
Section 4.13 Removal of Portions of Project.................................................... 47
Section 4.14 Amendments to Letter of Credit Requiring Consent of Bondholders................... 47
Section 4.15 Letter of Credit.................................................................. 47
Section 4.16 Extension of Letter of Credit; Alternate Letter of Credit......................... 49
Section 4.17 Release of Documents Upon Termination of Letter of Credit......................... 49
ARTICLE V
THE TRUSTEE AND PAYING AGENTS.................................................................. 51
Section 5.01 Trustee's Acceptance and Responsibilities......................................... 51
Section 5.02 Fees, Charges and Expenses of Trustee and Paying Agents........................... 53
Section 5.03 Notice to Bondholders if Default Occurs........................................... 53
Section 5.04 Intervention by Trustee........................................................... 53
Section 5.05 Successor Trustee................................................................. 54
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 5.06 Resignation by the Trustee........................................................ 54
Section 5.07 Removal of the Trustee............................................................ 54
Section 5.08 Appointment of Successor Trustee.................................................. 54
Section 5.09 Concerning Any Successor Trustee.................................................. 54
Section 5.10 Successor Trustee as Custodian of Funds, Bond Registrar and Paying Agent.......... 55
Section 5.11 Adoption of Authentication........................................................ 55
Section 5.12 Trustee Protected in Relying Upon Instruments..................................... 55
Section 5.13 Designation and Succession of Paying Agents....................................... 55
Section 5.14 Dealing in Bonds.................................................................. 56
Section 5.15 No Transfer of Note or Notes held by the Trustee.................................. 56
Section 5.16 Investment of Construction Fund and Bond Fund..................................... 56
Section 5.17 Allocation of Income from Investments............................................. 57
Section 5.18 Interpleader...................................................................... 57
Section 5.19 Survival of Certain Provisions.................................................... 57
ARTICLE VI
DEFAULT PROVISIONS AND REMEDIES
OF TRUSTEE AND BONDHOLDERS..................................................................... 58
Section 6.01 Defaults; Events of Default....................................................... 58
Section 6.02 Acceleration...................................................................... 59
Section 6.03 Other Remedies; Rights of Bondholders............................................. 60
Section 6.04 Right of Bondholders to Direct Proceedings........................................ 60
Section 6.05 Appointment of Receivers.......................................................... 61
Section 6.06 Allocation of Moneys.............................................................. 61
Section 6.07 Remedies Vested in Trustee........................................................ 62
Section 6.08 Rights and Remedies of Bondholders................................................ 63
Section 6.09 Termination of Proceedings........................................................ 63
Section 6.10 Waivers of Events of Default...................................................... 63
Section 6.11 Expense and Services After an Event of Default.................................... 64
ARTICLE VII
SUPPLEMENTAL INDENTURES........................................................................ 65
Section 7.01 Supplemental Indentures Not Requiring Consent of Bondholders...................... 65
Section 7.02 Supplemental Indentures Requiring Consent of Bondholders.......................... 66
Section 7.03 Consent of the Borrowers.......................................................... 67
Section 7.04 Authorization to Trustee; Effect of Supplement.................................... 67
Section 7.05 Opinion of Counsel................................................................ 68
Section 7.06 Modification by Unanimous Consent................................................. 68
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VIII
DISCHARGE OF LIEN.............................................................................. 69
Section 8.01 Release of Indenture.............................................................. 69
Section 8.02 Payment and Discharge of Bonds.................................................... 69
ARTICLE IX
MISCELLANEOUS.................................................................................. 71
Section 9.01 Instruments of Bondholders........................................................ 71
Section 9.02 Limitation of Rights.............................................................. 71
Section 9.03 Severability...................................................................... 71
Section 9.04 Notices........................................................................... 72
Section 9.05 Payments Due on Saturdays, Sundays and Holidays................................... 72
Section 9.06 Priority Over Other Liens......................................................... 72
Section 9.07 Extent of Covenants; No Personal Liability........................................ 72
Section 9.08 Power to Issue Bonds and Make Pledges............................................. 72
Section 9.09 Binding Effect.................................................................... 73
Section 9.10 Counterparts...................................................................... 73
Section 9.11 Cautions.......................................................................... 73
Section 9.12 Governing Law..................................................................... 73
Section 9.13 Security Agreement................................................................ 73
Section 9.14 Continuing Obligation............................................................. 73
</TABLE>
iv
<PAGE> 6
TRUST INDENTURE
THIS TRUST INDENTURE (hereinafter called the "Indenture") dated as of
the first day of February 1994, by and between the COUNTY OF HAMILTON, OHIO (the
"Issuer"), a county and political subdivision organized and existing under the
laws of the State of Ohio, and THE FIFTH THIRD BANK, CINCINNATI, OHIO, a banking
corporation organized and existing under the laws of the State of Ohio and duly
authorized to exercise corporate trust powers within the State of Ohio, with its
principal place of business located in Cincinnati, Ohio (the "Trustee"), as
Trustee;
W I T N E S S E T H:
WHEREAS, by virtue of the authority of the Constitution and laws of the
State of Ohio, and particularly Article III, Section 13 of the Constitution and
Chapter 165 of the Ohio Revised Code, and pursuant to the Bond Legislation
referred to below, the Issuer is authorized to enter into this Indenture and to
do or cause to be done all the acts and things herein provided or required to be
done, and to issue the Bonds, all as hereinafter defined and provided for; and
WHEREAS, the Issuer has, in order to assist in the financing of the
Project (as hereinafter defined), determined to issue the Project Bonds, as
hereinafter defined, in the principal amount of $2,980,000 to the Original
Purchaser, as hereinafter defined, and the Issuer has determined to enter into
this Indenture to secure the Bonds, as hereinafter defined, issuable hereunder,
by the pledge and assignment of revenues derived by the Issuer from the Project
(as hereinafter defined), together with the right to receive Loan Payments under
the Agreement, including the payments of principal, interest and any premium on
the Note, all as hereinafter defined, all as set forth and declared in the Bond
Legislation incorporated herein;
WHEREAS, the Bonds to be issued hereunder do not constitute a debt, or
a pledge of the faith and credit of the Issuer, the State or any political
subdivision or taxing district thereof, and the holders or owners thereof have
no right to have taxes levied by the General Assembly of the State, or the
taxing authority or any political subdivision of the State, for the payment of
the principal thereof or interest or any premium thereon, but such Bonds are
payable solely from revenues pledged for their payment; and
WHEREAS, said Bond Legislation is incorporated herein, constitutes an
integral part of this Indenture, and provides, in its entirety, as follows:
<PAGE> 7
A RESOLUTION AUTHORIZING THE ISSUANCE OF $2,980,000 ECONOMIC
DEVELOPMENT REVENUE REFUNDING BONDS, SERIES 1994 OF THE COUNTY OF
HAMILTON, OHIO, IN ORDER TO ASSIST ADAM WUEST, INC. AND ADAM WUEST
REALTY, INC. IN THE FINANCING COSTS OF REFUNDING BONDS PREVIOUSLY
ISSUED TO FINANCE THE COSTS CERTAIN MANUFACTURING FACILITIES LOCATED IN
THE COUNTY OF HAMILTON, OHIO; AUTHORIZING THE ISSUANCE OF ADDITIONAL
BONDS; PROVIDING FOR THE PLEDGE OF REVENUES FOR THE PAYMENT OF SAID
BONDS; AUTHORIZING A LOAN AGREEMENT WITH RESPECT TO THE PROCEEDS
DERIVED FROM THE SALE OF SAID BONDS; AUTHORIZING A TRUST INDENTURE
APPROPRIATE FOR THE PROTECTION AND DISPOSITION OF SUCH REVENUES AND
FURTHER TO SECURE THE PAYMENT OF SAID BONDS; AUTHORIZING A BOND
PURCHASE AGREEMENT; AUTHORIZING THE ASSIGNMENT BY THE COUNTY OF
HAMILTON, OHIO, OF A NOTE FROM ADAM WUEST, INC. AND ADAM WUEST REALTY,
INC.
WHEREAS, the County of Hamilton, Ohio is by virtue of the laws of the
State of Ohio, including Section 13 of Article VIII of the Ohio Constitution and
Chapter 165 of the Ohio Revised Code, and other authorities mentioned therein,
authorized and empowered, among other things, (a) to assist in the financing of
costs of refunding bonds previously issued to finance the costs manufacturing
facilities (the "Prior Bonds") located within the boundaries of the Issuer, (b)
to enter into an agreement with the owner of such facilities providing for
revenues, as defined in 165.01(I) of the Ohio Revised Code, sufficient to pay
the principal of and interest and any premium on such revenue bonds, (c) to
secure such revenue bonds by a trust agreement or indenture between the Issuer
and a corporate trustee, and by a pledge and assignment of such revenues, as
provided for herein, and (d) to enact the Bond Legislation and enter into the
Indenture and the Agreement, as hereinafter identified, upon the terms and
conditions provided therein; and
WHEREAS, Adam Wuest Realty, Inc. (the "Realty") is an Ohio corporation
and Adam Wuest, Inc. (the "Company") is an Ohio corporation duly qualified to do
business in the State of Ohio (the Realty and the Company are sometimes herein
collectively referred to as the "Borrowers"); and
WHEREAS, it is hereby determined by this Legislative Authority that the
refunding of the Prior Bonds will require the issuance, sale and delivery of
Project Bonds in the principal amount of $2,980,000 and hereafter may require
the Issuer's issuance, sale and delivery of Additional Bonds on a parity
therewith, all of which Bonds shall be equally and ratably payable and secured
as provided herein and in the Indenture authorized herein:
Section 1. Definitions. In addition to the words and terms elsewhere
defined in this Bond Legislation or in the Agreement, hereinafter identified,
and used herein as defined words and terms, the following words and terms as
used in this Bond Legislation and in the Indenture authorized herein shall have
the following meanings unless the context or use clearly indicates another or
different meaning or intent:
2
<PAGE> 8
"Act" means Chapter 165 of the Ohio Revised Code, enacted and amended
pursuant to Section 13 of Article VIII and other provisions of the Ohio
Constitution.
"Additional Bonds" means Bonds issued pursuant to Section 8 of this
Bond Legislation.
"Additional Payments" means the amounts required to be paid by the
provisions of Section 2.2 of the Agreement.
"Agreement" means the Loan Agreement, provided for in Section 11
hereof, between the Issuer and the Borrowers, dated as of February 1, 1994, as
the same may be duly amended, modified or supplemented in accordance with the
provisions thereof.
"Alternate Letter of Credit" means an irrevocable letter of credit
authorizing drawings thereunder by the Trustee, the terms of which shall be the
same in all material respects (except as to expiration date) as the Letter of
Credit, and issued by a savings and loan association or a national bank or other
commercial bank which satisfies the requirements of Section 4.16 of the
Indenture, or a surety bond, a bond insurance policy or other credit enhancement
instrument, which Alternate Letter of Credit shall, in the opinion of the
Remarketing Agent, provide the Bondholders with comparable or better security
than the Letter of Credit.
"Assignment of Rents and Leases" means the Assignment of Rents and
Leases dated as of February 1, 1994, from the Realty to the Trustee and the
Letter of Credit Bank, as amended or supplemented.
"Authorized Borrowers Representative" means any person reasonably
acceptable to the Letter of Credit Bank from time to time designated to act on
behalf of the Borrowers by written certificate furnished to the Issuer and the
Trustee, containing the specimen signature of such person and signed on behalf
of the Borrowers by the Borrowers. Such certificate may designate an alternate
or alternates who shall have the same authority, duties and powers as such
Authorized Borrowers Representative.
"Authorized Issuer Representative" means the person from time to time
designated to act on behalf of the Issuer by written certificate furnished to
the Borrowers and Trustee, containing the specimen signature of such person and
signed on behalf of the Issuer by a member of its Legislative Authority of the
Issuer or his authorized delegate. Such certificate may designate an alternate
or alternates who shall have the same authority, duties and powers as the
Authorized Issuer Borrowers Representative.
"Bonds" means the Project Bonds and any Additional Bonds issued and to
be issued pursuant to the Indenture.
"Bond Fund" means the Bond Fund created in Section 7 of this Bond
Legislation.
"Bond Fund Payment" means as to the Project Bonds an amount equal to
the interest accrued on the Project Bonds from their date to the date of their
delivery to the Original Purchaser and payment therefor, and as to Additional
Bonds the amount specified in this Bond Legislation
3
<PAGE> 9
authorizing such Additional Bonds, provided that the Bond Fund Payment for any
Additional Bonds shall not be less than an amount equal to the interest accrued
on such Additional Bonds from their date to the date of delivery of such
Additional Bonds to their original purchaser and payment therefor.
"Bond Purchase Agreement" means the Bond Purchase Agreement by and
among the Issuer, the Borrowers, the Letter of Credit Bank and the Original
Purchaser.
"Bondholder" or "Holder" or "holder" or "holder of Bonds" means any
person in whose name a Bond is registered.
"Bond Legislation" means this Resolution adopted by the Legislative
Authority of the Issuer authorizing the Project Bonds, except that when used
with reference to an issue of Additional Bonds it shall mean this Resolution to
the extent applicable and other legislation providing for the issuance of such
Additional Bonds, and except that when used with reference to Bonds when
Additional Bonds are outstanding, it shall mean the Resolution first referred to
above and the Bond Legislation providing for the issuance of Additional Bonds,
all as the same may from time to time be lawfully amended, modified or
supplemented.
"Bond Redemption Date" means any date, other than an Interest Payment
Date, upon which Bonds shall be redeemed pursuant to the Indenture.
"Bond service charges" for any time period or with respect to any date
means the principal, including mandatory sinking fund redemption requirements,
interest, and redemption premium, if any, required to be paid by the Issuer on
the - Bonds for such time period or on such date.
"Borrowers" mean collectively Realty and Company, both as hereinafter
defined.
"Business Day" means any day of the year, other than a Saturday or a
Sunday, on which banks located in the cities in which the principal corporate
trust office of the Trustee and the principal office of the Letter of Credit
Bank are located are not required or authorized by law to remain closed and on
which The New York Stock Exchange is not closed.
"Code" means the Internal Revenue Code of 1986, and with respect to a
specific section thereof such reference shall be deemed to include (i) the
regulations prescribed under such section, (ii) any predecessor or successor
provision of similar import hereafter enacted, (iii) any corresponding provision
of any subsequent or previous Internal Revenue Code, and (iv) the regulations
prescribed under the provisions described in (ii) and (iii).
"Company" means Adam Wuest, Inc., an Ohio corporation, the lessee of
the Project Site.
"Construction Fund" means the Construction Fund created in Section 6 of
this Bond Legislation.
"DTC" means Depository Trust Company, New York, New York, and any
successor corporation.
4
<PAGE> 10
"DTC Participant" means those broker-dealers, banks, and other
financial institutions reflected on the books of DTC.
"Determination of Taxability" means (i) the enactment of legislation or
the adoption of final regulations or a final decision, ruling or technical
advice by any Federal judicial or administrative authority which has the effect
of requiring interest on the Bonds to be included in the gross income of the
holders for Federal income tax purposes (other than a holder who is a
"substantial user" of the Project or a "related person" as those terms are used
in Sections 147(a) and 144(a), respectively of the Code and other than Bonds
held by or pledged to the Letter of Credit Bank); (ii) the delivery to the
Trustee of a written statement signed by the Authorized Borrowers Representative
to the effect that the Borrowers has exceeded or will exceed the maximum amount
of capital expenditures permitted under Section 144 (a) (4) of the Code;
provided that no decision by any court or decision, ruling or technical advice
by any administrative authority shall be considered final (a) unless the holder
involved in the proceeding or action giving rise to such decision, ruling or
technical advice (i) gives the Borrowers and the Trustee prompt notice of the
commencement thereof, and (ii) offers the Borrowers the opportunity to control
the contest thereof, provided the Borrowers shall have agreed to bear all
expenses in connection therewith and to indemnify that holder against all
liabilities in connection therewith, and (b) until the expiration of all periods
for judicial review or appeal.
"Eligible Investments" means:
(i) Obligations of, or guaranteed as to principal and
interest by, the United States or any agency or
instrumentality thereof when such obligations are
backed by the full faith and credit of the United
States;
(ii) Federal Home Loan Mortgage Corporation (FHLMC) and
Farm Credit Banks (Federal Land Banks, Federal
Intermediate Credit Banks and Banks for Cooperatives)
participation certificates and senior debt
obligations;
(iii) Federal National Mortgage Association's (FNMA)
mortgage backed securities and senior debt
obligations;
(iv) Student Loan Marketing Association (Sallie Mae)
letter of credit backed issues and senior debt
obligations;
(v) Federal funds, certificates of deposit, time deposits
and bankers' acceptances (having original maturities
of not more than 365 days) of any bank (including the
Trustee or its affiliates) the debt obligations of
which (or, in the case of the principal bank in a
bank holding company, debt obligations of the bank
holding company) have been rated "A-1+" (or its
equivalent) by one of the Rating Services (including
the Trustee or its affiliates);
(vi) Commercial paper (having original maturities of not
more than 365 days) rated "A-1+" (or its equivalent)
by one of the Rating Services;
5
<PAGE> 11
(vii) Obligations rated "AAA" (or its equivalent) by one of
the Rating Services (or those investments specified
in (ii) above with banks which have debt obligations
rated "AAA");
(viii) Deposits which are fully insured by the Federal
Savings and Insurance Corporation (FDIC);
(ix) Repurchase agreements with any AAA rated institution;
insured by FDIC provided: (1) the collateral which is
the subject of the repurchase agreement is at a level
acceptable to Standard & Poor's Corporation and the
pricing and cure period are also acceptable to
Standard & Poor's Corporation, (2) the Trustee or a
third party acting solely as agent for the Trustee
has possession of the collateral, (3) the Trustee has
a perfected first security interest in the
collateral, (4) the collateral is free and clear of
third party liens, and (5) failure to maintain the
requisite collateral percentage in (1) above will
require the Trustee to liquidate the collateral;
(x) obligations of any state, or political subdivision
thereof, or any municipality, which obligations are
rated in any of the four highest generic long-term
rating categories by the Rating Services; and
(xi) Money market mutual funds, provided that such funds
shall be invested solely in obligations or securities
described in (i) through (x) above.
"Engineer" means an engineer or engineering firm or an architect or
architectural firm qualified to practice the profession of engineering or
architecture under the laws of the State of Ohio, and who or which is acceptable
to the Letter of Credit Bank and is not an officer or full-time employee of the
Issuer or the Borrowers.
"Event of Taxability" means the occurrence of circumstances on the
basis of which a Determination of Taxability shall have been found to have
occurred, or which shall constitute a Determination of Taxability, and which
result in the interest payable on the Bonds becoming includable in the gross
income for Federal income tax purposes of the holders of the Bonds (other than a
holder who is a "substantial user" of the Project or a "related person" as such
are defined or used in Sections 147(a) and 144(a), respectively, of the Code,
and other than a holder of Bonds which are held by or pledged to the Letter of
Credit Bank).
"Indenture" means the Trust Indenture between the Issuer and The Fifth
Third Bank, Cincinnati, Ohio, as Trustee, dated as of February 1, 1994, as the
same may be duly amended, modified or supplemented in accordance with the
provisions thereof.
"Independent Counsel" means any attorney or firm of attorneys
acceptable to the Trustee and to the Issuer and who is not an officer or a
full-time employee of the Issuer or the Borrowers, and in the case of a firm,
none of the attorneys or members of which is an officer, partner or a full-time
employee of the Issuer or the Borrowers.
6
<PAGE> 12
"Interest Payment Date" means the first day of each March and
September, commencing September 1, 1994.
"Interest Rate for Advances" means a rate per annum which is equal to
the sum of the Prime Rate plus two percent (2%).
"Lease" means the Lease Agreement between Realty and the Company
relating to the Project and the Project Site.
"Legislative Authority" means the Board of County Commissioners of the
Issuer.
"Letter of Credit" means (A) the irrevocable letter of credit to be
issued by the Letter of Credit Bank and delivered to the Trustee on the same
date as the delivery of the Bonds to the Original Purchaser thereof and being an
irrevocable obligation to make payment to the Trustee of up to the amounts
therein specified with respect to (a) the principal amount of the Project Bonds
outstanding to enable the Trustee to pay (i) the principal amount of the Project
Bonds when due at maturity or upon redemption or acceleration on the occurrence
of an event of default, (b) the amount of interest due on the Project Bonds but
not to exceed one hundred ninety-five (195) days maximum accrued interest (at
the rate of interest on the Bonds maximum) to enable the Trustee to pay interest
due on the Project Bonds, as the same may be transferred, reissued, extended or
replaced in accordance with the Indenture and the Letter of Credit and (B) upon
the issuance thereof, any Alternate Letter of Credit.
"Letter of Credit Bank" means, as to the Project Bonds, The Fifth Third
Bank, Cincinnati, Ohio and its successors under the Letter of Credit, and the
issuer of any Alternate Letter of Credit.
"Letter of Credit Termination Date" means the expiration date of the
Letter of Credit or any Alternate Letter of Credit, initially September 15,
1995.
"Loan" means the loan by the Issuer to the Borrowers of the proceeds
from the sale of the Project Bonds to the Original Purchaser as the same may
hereafter be increased from the proceeds from the sale of Additional Bonds.
"Loan Payment Date" means each Bond Redemption Date, each Interest
Payment Date, each Principal Payment Date, each Mandatory Redemption Date and
the date upon which any advance payment of principal or interest is required by
the provisions of Section 2.1 of the Agreement; and any date on which any
principal of, premium, if any, or interest on the Bonds shall be due and payable
upon mandatory redemption because of acceleration.
"Loan Payments" means the amounts required to be paid and/or prepaid by
the provisions of Section 2.1 of the Agreement, as the same may hereafter be
amended or supplemented.
"Mandatory Redemption Date" means as to any Additional Bonds, the date
or dates specified in the applicable Bond Legislation on which such Additional
Bonds are to be retired prior to maturity pursuant to Mandatory Sinking Fund
Requirements. As appropriate, a maturity date for any series of Project Bonds
shall also be deemed to be a "Mandatory Redemption Date".
7
<PAGE> 13
"Mandatory Sinking Fund Requirements" means amounts required by this
Bond Legislation to be deposited in the Bond Fund for the purpose of retiring,
on a specified date, principal maturities of Bonds which by their terms are due
and payable, if not called for prior to redemption, at a subsequent date.
"Mortgage" means the Open-End Mortgage and Security Agreement from the
Borrowers to the Trustee and the Letter of Credit Bank with respect to the
Project, dated as of February 1, 1994, as the same may be duly amended, modified
or supplemented in accordance with the provisions thereof.
"Net Proceeds" means, as to any insurance proceeds or any condemnation
award, the amount remaining after deducting therefrom all expenses (including
attorneys' fees and any Extraordinary Expenses, as defined in the Indenture, of
the Trustee) incurred in the collection of such proceeds or award.
"Note" or "Notes" means the promissory note dated as of February 1,
1994, constituting the promise of the Borrowers to repay the Loan to the Issuer,
which Note shall be in substantially the form attached to the Agreement as
Exhibit A, and any additional promissory note or notes executed and delivered
with respect to Additional Bonds.
"Notice Address" means:
(a) As to the Issuer: County of Hamilton, Ohio
Administration Building, Room 603
138 East Court Street
Cincinnati, Ohio 45202
Attention: President, Board of County
Commissioners
(b) As to the Borrowers: Adam Wuest Realty, Inc.
645 Lynn Street
Cincinnati, Ohio 45204
Attention: Chief Financial Officer
and
Adam Wuest, Inc.
645 Lynn Street
Cincinnati, Ohio 45204
Attention: Chief Financial Officer
(c) As to the Trustee: The Fifth Third Bank
Fifth Third Bank Center
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Corporate Trust Department
8
<PAGE> 14
(d) As to the Original Purchaser: Gradison Division of McDonald
& Company Securities, Inc.
580 Walnut Street
Cincinnati, Ohio 45202
Attention: Mr. Daniel R. Blank
Vice President
(e) As to the Letter of Credit Bank: The Fifth Third Bank
Fifth Third Center
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Mr. Thomas Schiller,
Vice President
or such different address notice of which is given under Section 10.3 of the
Agreement, but no such notice shall thereby be required to be sent to more than
two addresses.
"Original Purchaser" means, as to the Project Bonds, Gradison Division
of McDonald & Company Securities, Inc., Cincinnati, Ohio and, as to any
Additional Bonds, the person or persons identified as such in the Bond
Legislation providing for the issuance of such Additional Bonds.
"Outstanding Bonds" or "Bonds outstanding" or "outstanding" as applied
to Bonds, means, as of any date, all Bonds which have been authenticated and
delivered, or are then being delivered, by the Trustee under the Indenture
except:
(a) Bonds surrendered for and replaced upon exchange or
transfer, or cancelled because of payment or
redemption, at or prior to such date;
(b) Bonds which are deemed to have been paid and
discharged pursuant to the provisions of Section 8.02
of the Indenture; provided that if such Bonds are to
be redeemed prior to the maturity thereof, notice of
such redemption shall have been given or arrangements
satisfactory to the Trustee shall have been made
therefor, or waiver of such notice satisfactory in
form to the Trustee shall have been filed with the
Trustee; and
(c) Bonds in lieu of which others have been authenticated
(or payment, when due, of which is made without
replacement) under Section 2.05 of the Indenture;
9
<PAGE> 15
and also except that
(d) For the purpose of determining whether the holders of
the requisite principal amount of Bonds have made or
concurred in any notice, request, demand, direction,
consent, approval, order, waiver, acceptance,
appointment or other instrument or communication
under or pursuant to the Indenture, Bonds owned by or
for the account of the Borrowers or any person owned,
controlled by, under common control with or
controlling the Borrowers, but specifically excluding
Bonds, if any, held or owned by, or pledged to, the
Letter of Credit Bank, shall be disregarded and
deemed to be not outstanding. The term "control"
(including the terms "controlling", "controlled by"
and "under common control with") 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.
Ownership of 5% or more of a class of securities
having general voting power to elect a majority of
the board of directors of a corporation shall be
conclusive evidence of control of such corporation.
"Paying Agents" means any banks or trust companies designated,
initially The Fifth Third Bank, as the paying agencies or places of payment for
Bonds by or pursuant to the applicable Bond Legislation, and their successors
designated pursuant to the Indenture.
"Person" means an individual, a partnership, a corporation, a trust, an
unincorporated organization, a joint stock company, an association and a
government or any department or agency thereof.
"Pledged Receipts" means (a) the Loan Payments, including the payments
of principal of and interest and any premium on the Note, (b) subject to the
provisions of Sections 3.04, 4.02 and 8.02 of the Indenture with respect to the
Trustee holding moneys for the benefit of the holders of particular Bonds, all
other moneys received by the Issuer or the Trustee for the account of the Issuer
including condemnation awards, insurance proceeds, and other payments pursuant
to the Agreement or in respect to the Loan, (c) the proceeds of the Bonds and
any moneys deposited in the Construction Fund and the Bond Fund from whatever
source, including any draws under the Letter of Credit, and (d) the income and
profit from the investment of the Loan Payments and such moneys deposited in the
Construction Fund and the Bond Fund. Moneys in the Excess Investment Earnings
Account shall constitute Pledged Receipts.
"Prime Rate" shall have the meaning assigned to such term in the
Reimbursement Agreement.
"Prior Bonds" means the $3,450,000 Economic Development Revenue Bonds,
Series 1990 (Adam Wuest, Inc. Project), of the Issues.
"Principal Payment Date" means, as to the Project Bonds the first day
of each September in the years in which the Project Bonds mature as provided in
Section 3 of this Bond Legislation, and
10
<PAGE> 16
as to Additional Bonds, the date or dates identified as such in the Bond
Legislation authorizing such Additional Bonds.
"Project" means the real, personal or real and personal property,
including undivided or other interests therein, identified in Exhibit A of the
Mortgage and Exhibits B and C of the Agreement.
"Project Bonds" means the Bonds initially issued by the Issuer pursuant
to the Indenture and designated "Economic Development Revenue Refunding Bonds,
Series 1994 (Adam Wuest, Inc.
Project)".
"Project Equipment" means the personal property described in Exhibit B
of this Agreement. The Project Equipment shall be owned by Adam Wuest, Inc., an
Ohio corporation.
"Project Purposes" means the purposes of a manufacturing facility as
described in the Act.
"Project Site" means the real property described in Exhibit C of this
Agreement. The Project Site, which includes the buildings and fixtures located
thereon, is owned by Adam Wuest Realty, Inc., an Ohio corporation.
"Rating Services" means Standard & Poor' s Corporation or Moody's
Investors Service or their successors and assigns, or if both are dissolved or
no longer assigning credit ratings to long term debt, then such other nationally
recognized service assigning credit ratings to long term debt designated by the
Borrowers and acceptable to the Remarketing Agent and the Letter of Credit Bank.
"Realty" means Adam Wuest Realty, Inc., an Ohio corporation, the owner
of the Project Site, and Realty's assigns including any transferee corporation
or other entity as provided in Section 6.3 of the Agreement.
"Registered Bonds" means Bonds registered in the name of the holder.
"Regular Record Date" means, with respect to any Bond, the 15th day
preceding an Interest Payment Date applicable to that Bond.
"Reimbursement Account" means the Reimbursement Account in the Bond
Fund created pursuant to Section 4.01 of the Indenture.
"Reimbursement Agreement" or "Letter of Credit Agreement" means the
Reimbursement Agreement by and between Realty, the Company and the Letter of
Credit Bank pursuant to which the Letter of Credit is to be issued and pursuant
to which the Realty and Company must jointly and severally reimburse the Letter
of Credit Bank for funds advanced pursuant to the Letter of Credit, as from time
to time replaced, supplemented or amended.
"Termination Date" means September 1, 2010 subject to earlier
termination as provided in the Agreement.
"Trustee" means the bank or trust company at the time serving as
Trustee under the Indenture.
11
<PAGE> 17
Any reference herein to the Issuer, to the Legislative Authority, or to
any officers thereof, shall include any person or entity which succeeds to its
or their duties or responsibilities pursuant to or by operation of law. Any
reference to a section or provision of the Ohio Constitution or the Act or to a
section, provision or chapter of the Ohio Revised Code shall include such
section or provision or chapter as from time to time amended, modified, revised,
supplemented, or superseded; provided, however, that no such change in the
Constitution or laws (a) shall alter the obligation to pay the Bond service
charges in the amounts and manner, at the times, and from the sources provided
in this Bond Legislation and the Indenture, except as otherwise herein permitted
or (b) shall be deemed applicable by reason of this provision if such change
would in any way constitute an impairment of the rights of the Issuer, the
Trustee, the Letter of Credit Bank or the Borrowers under the Agreement or the
Indenture.
Unless the context shall otherwise indicate, words importing the
singular number shall include the plural number, and vice versa, and the terms
"hereof", "hereby", "hereto", "hereunder", and similar terms, mean this Bond
Legislation and the Indenture.
Section 2. Determinations of Legislative Authority. The Legislative
Authority hereby determines that the Project is a "project" as that term is
defined in Section 165.01 of the Ohio Revised Code, is consistent with the
purposes of Section 13 of Article VIII of the Ohio Constitution and the Act and
will benefit the people of the Issuer by creating or preserving jobs and
employment opportunities and promoting the commercial and economic development
of the Issuer and the State.
Section 3. Authorization and Terms of Project Bonds.
(a) Authorization. It is hereby determined to be necessary to, and the
Issuer shall, issue, sell and deliver, as provided and authorized herein and
pursuant to the authority of the Act, $2,980,000 aggregate principal amount of
Project Bonds for the purpose of making a loan to provide funds to assist the
Borrowers in the refunding of the Prior Bonds, including costs incidental
thereto and to the financing thereof. The Project Site will be owned by Realty
and leased to the Company. The Project Equipment is owned by the Company and
placed on the Project Site. Said Project Bonds shall be designated "Economic
Development Revenue Refunding Bonds, Series 1994 (Adam Wuest, Inc. Project)".
The Issuer may also issue, sell and deliver Additional Bonds on a parity with
the Project Bonds for the purposes and in the manner provided in Section 8 of
this Bond Legislation. The proceeds of the Project Bonds shall be applied
exclusively to the costs of the refunding of the Prior Bonds and paying certain
of the costs of issuance of the Project Bonds.
(b) Form, Denominations, Dates and Interest Rates. The Project Bonds
shall be issued in fully registered book-entry form in the manner and on the
terms provided in the Indenture, and shall be numbered from 1 upward. Project
Bonds shall be in the denomination of $5,000 or any integral multiple thereof.
The Project Bonds shall mature on September 1, 1994 through 2010 in the
principal amounts set forth in Exhibit A to the Indenture. Project Bonds shall
initially be dated as of February 1, 1994, and thereafter shall be dated as of
the Interest Payment Date next preceding the date of their authentication,
unless authenticated upon an Interest Payment Date in which case they shall be
dated as of the date of their authentication; provided, however, that if at the
time of authentication of any Bond interest thereon is in default, such Bond
shall be dated as of the date to which interest has been paid. The Project Bonds
shall bear interest at the rates set forth in Exhibit A
12
<PAGE> 18
to the indenture. Interest on the Project Bonds shall be calculated on the basis
of 360-day years consisting of twelve 30-day months.
(c) General Optional Redemption. The Borrowers have an option,
exercisable the dates and at the prices set forth in accordance with Section 2.1
of the Agreement, upon giving notice in accordance with Section 8.4 of the
Agreement, to prepay all or part (in the amount of $5,000 or any integral
multiple thereof) of the Loan Payments.
The exercise of any such prepayment option by the Borrowers shall be
conditioned on the deposit by the Borrowers of sufficient funds with the Letter
of Credit Bank in accordance with Section 2.1 of the Agreement or waiver of such
requirement by the Letter of Credit Bank.
Notice from the Borrowers to the Trustee pursuant to Section 8.4 of the
Agreement that the Borrowers shall exercise its general option to prepay the
Loan pursuant to Section 8.2 of the Agreement, shall constitute the direction
from the Issuer to the Trustee to call all or part of the then outstanding Bonds
for general optional redemption pursuant to this paragraph, and no separate
notice from the Issuer to the Trustee shall be required.
(d) Special Mandatory Redemption Upon Unenforceability or Taxability.
The Project Bonds are also subject to special mandatory redemption by the Issuer
prior to stated maturity at any time in whole if and when (i) the Agreement
shall have become void or unenforceable or impossible of performance in
accordance with the intent and purpose of the parties as expressed in the
Agreement by reason of any changes in the Constitution of the State or the
Constitution of the United States of America or by reason of legislative or
administrative action (whether state or Federal) or any final decree, judgment
or order of any court or administrative body (whether state or Federal) entered
after the contest thereof by the Issuer or the Borrowers in good faith to the
effect that the Note and the obligations evidenced thereby are no longer
enforceable by the holder thereof, or (ii) interest on the Project Bonds shall
have become subject to Federal income tax because of a Determination of
Taxability. The redemption price in any such events shall be 100% of the
principal amount of the Project Bonds outstanding plus accrued interest to the
redemption date. Any such redemption shall be made not more than 120 days
following the effective date of such constitutional amendment, legislation,
administrative action or decree, judgment or order, or following the date of the
Determination of Taxability (excluding any final determination that interest is
subject to Federal income tax with respect to any Project Bond because such
Project Bond is held by a "substantial user" of the Project or by a "related
person", as those terms are used in Section 144 Ca) of the Code or held by or
pledged to the Letter of Credit Bank). Notice from the Borrowers to the Trustee
pursuant to Section 8.4 of the Agreement that the Borrowers shall prepay the
Loan in full as required under Section 8.3 of the Agreement, shall constitute
the direction from the Issuer to the Trustee to call all the then outstanding
Project Bonds for special mandatory redemption pursuant to this paragraph, and
no separate notice from the Issuer to the Trustee shall be required.
(e) Mandatory Sinking Fund Redemption. The Project Bonds are not
subject to mandatory sinking fund redemption prior to maturity.
(f) Special Mandatory Redemption Upon Expiration of Letter of Credit.
The Project Bonds are subject to mandatory redemption in whole on the Letter of
Credit Termination Date or any
13
<PAGE> 19
subsequent date to which the Letter of Credit Termination Date shall have been
extended at a redemption price of 100% of the principal amount thereof plus
accrued interest to the redemption date unless, (a) at least forty-five (45)
days prior to any such Letter of Credit Termination Date, (b) the Letter of
Credit Bank shall have agreed to an extension or further extension of the Letter
of Credit Termination Date to a date not earlier than one (1) year from the
Letter of Credit Termination Date being extended or (c) at least thirty-five
(35) days prior to any such Letter of Credit Termination Date, the Borrowers
shall have obtained approval of an Alternate Letter of Credit with a termination
date not earlier than one (1) year from the Letter of Credit Termination Date
for the Letter of Credit it replaces.
(g) Method of Redemption. Notice of the call for any redemption of
Project Bonds, identifying by designation, letters, numbers, or other
distinguishing marks, the Project Bonds to be redeemed, the redemption price to
be paid, the date fixed for redemption and the place or places where the amounts
due upon such redemption are payable, shall be given by the Trustee on behalf of
the Issuer by mailing a copy of the redemption notice by first class mail at
least thirty days prior to the date fixed for redemption to the registered owner
of each Bond to be redeemed at the address shown on the registration books kept
by the Trustee; provided, however, that failure to give such notice by mailing,
or any defect in such notice, shall not affect the validity of any proceedings
for the redemption of the Project Bonds.
If less than the entire unmatured portion of the Project Bonds be
called for redemption at any time or from time to time, the Project Bonds to be
redeemed shall be selected in the inverse order of their maturities, and within
any maturity the selection of such Project Bonds or portion of fully registered
Project Bonds shall be made by lot in such manner as may be designated by the
Trustee in its sole discretion; provided, however, that if Project Bonds have
been pledged to the Letter of Credit Bank, Project Bonds so held by the Letter
of Credit Bank will be selected for redemption by the Trustee prior to any
selection by lot.
(h) Place of Payment. Bond service charges on Project Bonds shall be
payable, without deduction for services of the Paying Agent, in the manner
provided in the Project Bonds.
(i) Execution. The Project Bonds shall be executed by at least two
members of the Legislative Authority, provided that either or both of such
signatures may be facsimiles.
Section 4. Terms of all Bonds. All Bonds shall bear such designation as
may be necessary to distinguish them from Bonds of any other series. Bond
service charges on all Bonds shall be payable in lawful money of the United
States of America. Bonds shall be issued as fully registered Bonds. All Bonds
shall be negotiable instruments within the meaning of Chapter 165 of the Ohio
Revised Code, subject to applicable provisions for registration, and shall
express on their faces the purpose for which they are issued and such other
statements or legends as may be required by law.
All Bonds shall be executed in the manner provided in the Bond
Legislation authorizing their issuance or in the manner provided by the
applicable law in effect at the time of their issuance. In case any officer
whose signature or a facsimile of whose signature shall appear on any Bonds
shall cease to be such officer before the issuance, authentication or delivery
of such Bonds, such signature
14
<PAGE> 20
or such facsimile shall nevertheless be valid and sufficient for all purposes,
the same as if he or she had remained in office until that time.
Unless otherwise provided in the Bond Legislation authorizing the
issuance of Additional Bonds, notice of call for redemption of all Bonds shall
be given in the manner provided in Section 3 hereof for the notice of call for
redemption of the Project Bonds. If Bonds or portions of fully registered Bonds
are duly called for redemption and if on such redemption date moneys for the
redemption of all the Bonds to be redeemed, together with accrued interest to
the redemption date, shall be held by the Trustee or Paying Agents so as to be
available therefor, then from and after such redemption date such Bonds or
portions of fully registered Bonds shall cease to bear interest.
Section 5. Security Pledged for Bonds. As provided herein, the Project
Bonds shall be equally and ratably payable solely from the Pledged Receipts and
secured by a pledge of and lien on moneys deposited in the Construction Fund and
the Bond Fund, and a pledge and assignment of other moneys constituting Pledged
Receipts, and further secured by the Indenture and by the pledge and assignment
of the Note and by the Mortgage and the Assignment of Leases and Rents, and
anything in this Bond Legislation, the Bonds, the Agreement, the Mortgage or
Indenture to the contrary notwithstanding, neither this Bond Legislation, the
Bonds, the Agreement, Mortgage, nor the Indenture shall constitute a debt or a
pledge of the faith and credit of the Issuer or of the State or any political
subdivision thereof and the holders or owners of the Bonds shall have no right
to have taxes levied by the General Assembly of the State or the taxing
authority of the Issuer or of any other political subdivision of the State for
the payment of the principal of, premium, if any, or interest on the Bonds, but
such Bonds are payable solely from the Pledged Receipts and the Bonds shall
contain on the face thereof a statement to that effect.
Section 6. Sale of Project Bonds; Allocation of Purchase Price. The
Legislative Authority is hereby authorized and directed to offer for sale the
Project Bonds to the Original Purchaser for purchase by the Original Purchaser
at the price set forth in the Bond Purchase Agreement, plus accrued interest, in
accordance with the terms and provisions of this Bond Legislation, and to make
the necessary arrangements on behalf of the Issuer with the Original Purchaser
to establish the date, location, procedure and conditions for the delivery of
the Project Bonds to the original Purchaser. The Legislative Authority further
is hereby authorized and directed to take all steps necessary to effect due
authentication, delivery and security of the Project Bonds under the terms of
this Bond Legislation and the Indenture, and it is hereby determined that the
aforesaid purchase price and the interest rate for the Project Bonds and the
manner of sale, as provided in this Bond Legislation, are in compliance with all
legal requirements. The Legislative Authority shall furnish to the Original
Purchaser a true transcript of proceedings had with reference to the issuance cf
the Project Bonds, certified by the Clerk of the Legislative Authority along
with such information from his or her records as is necessary to determine the
regularity and validity of the issuance of said Bonds.
The Issuer has not confirmed, and assumes no responsibility for the
accuracy, sufficiency or fairness of, any statements in the Preliminary Offering
Circular or the final Offering Circular or any supplements thereto, or in any
reports, financial information, offering or disclosure documents or other
information in any way relating to the Project, the Borrowers, the Letter of
Credit Bank or the Original Purchaser.
15
<PAGE> 21
At the time of issuance, delivery of and payment for the Project Bonds,
the Bond Fund Payment shall be deposited from the purchase price for the Project
Bonds into the Bond Fund.
There is hereby created by the Issuer and ordered maintained as a
separate deposit account (except when invested as hereinafter provided) in the
custody of the Trustee a trust fund to be designated "County of Hamilton,
Ohio--Adam Wuest, Inc. Construction Fund" (herein called the "Construction
Fund"). The Bond proceeds, after payment of bond discounts, shall be used to
fund the Bond Fund with the Bond Fund Payment and the balance to fund the
Construction Fund. Moneys in the Construction Fund shall be disbursed by the
Trustee in accordance with the provisions of the Agreement, and the Trustee is
hereby authorized and directed to issue its check for each disbursement required
by the provisions of the Agreement. The Issuer covenants and agrees promptly to
take whatever action, if any, is necessary in approving and ordering all such
disbursements.
The moneys to the credit of the Construction Fund shall, pending
application thereof as above set forth, be subject to a lien and charge in favor
of the holders of the Project Bonds, but only to the extent of their interest
therein.
Moneys in the Construction Fund from the proceeds of the Project Bonds
shall be disbursed as provided in Section 4.2 of the Agreement.
Moneys in the Construction Fund may be disbursed by the Trustee only in
accordance with the Agreement and the Reimbursement Agreement.
There is hereby also created by the Issuer and ordered maintained as a
separate deposit account in the custody of the Trustee, a trust fund to be
designated "County of Hamilton, Ohio--Adam Wuest Inc. Excess Investment Earnings
Account" (the "Excess Investment Earnings Account") and therein a Principal
Subaccount and an Interest Subaccount as provided in the Indenture.
Section 7. Source of Payment - Bond Fund. As provided in the Agreement,
moneys sufficient in time and amount to pay the Bond service charges as they
come due are to be drawn by the Trustee from the Letter of Credit Bank pursuant
to the Letter of Credit (or paid by the Borrowers directly to the Trustee,
including payments received on the Note) for the account of the Issuer and
deposited in the Bond Fund. Under the provisions of the Agreement, payments with
respect to the Note received by the Trustee shall be deposited into the
Reimbursement Account in the Bond Fund for the account of the Issuer and shall
constitute Loan Payments.
There is hereby created by the Issuer and ordered maintained, as a
separate deposit account (except when invested as hereinafter provided) in the
custody of the Trustee, a trust fund to be designated "County of Hamilton,
Ohio--Adam Wuest, Inc. Revenue Bond Fund" (herein called the "Bond Fund"). The
Bond Fund (and accounts therein provided for in the Indenture or in the
Agreement) and the moneys and investments therein are hereby pledged to and
shall be used for the payment of Bond service charges, all as provided herein
and in the Indenture and the Agreement, provided that no part thereof (except as
may otherwise be provided for herein and in the Indenture or the Agreement)
shall be used to redeem or purchase, prior to maturity, any Bonds.
16
<PAGE> 22
On or before each date when Bond service charges are due and payable,
the Trustee shall transmit from moneys in the Bond Fund applicable thereto to
any other Paying Agents, as appropriate, amounts sufficient to meet payments to
be made by them of Bond service charges then to be due and payable; provided
that to the extent that the amount needed by any other Paying Agent is not
sufficiently predictable, the Trustee may, but shall not be required to, make
such credit arrangements with such Agent as to permit meeting such payments.
There shall be deposited into the Bond Fund (and credited, if required
by the Indenture or the Agreement, to appropriate accounts therein), as and when
received, (a) all Loan Payments, (b) all moneys drawn by the Trustee under the
Letter of Credit for the payment of principal of or interest on the Project
Bonds, and (c) all other Pledged Receipts, except those amounts required by the
Indenture or the Agreement to be deposited in the Construction Fund or any other
separate insurance or condemnation proceeds account.
The Issuer hereby covenants and agrees that so long as any of the Bonds
are outstanding it will deposit or cause to be deposited in the Bond Fund,
Pledged Receipts sufficient in time and amount to pay the Bond service charges
as the same become due and payable, and to this end the Issuer covenants and
agrees that, so long as any Bonds are outstanding, it will diligently and
promptly proceed in good faith and use its best efforts to enforce the
Agreement, and that, should there be an event of default under the Agreement,
the Issuer shall fully cooperate with the Trustee and with the Bondholders to
protect fully the rights and security of the Bondholders hereunder. Nothing
herein shall be construed as requiring the Issuer to use or apply to the payment
of Bond service charges any funds or revenues from any source other than Pledged
Receipts.
The Issuer covenants and agrees, whenever the moneys and investments in
the Bond Fund (or otherwise held by the Trustee for such purpose) are sufficient
in amount to redeem all of the Bonds then outstanding and to pay interest to
accrue thereon to the date or dates of such redemption, to take and cause to be
taken, at the direction of the Borrowers, the necessary steps to redeem all of
said Bonds on the next succeeding redemption date or dates for which the
required notice of call for redemption may be given.
Section 8. Additional Bonds. At the request of the Borrowers with the
prior written consent of the Letter of Credit Bank, which consent may be
withheld in its absolute discretion, if the Borrowers is not then in default
under the Agreement, upon delivery to the Trustee of an irrevocable letter of
credit, substantially in the form of the Letter of Credit, the Issuer, to the
extent permitted by law (including the Act) then in effect and for purposes
consistent with the Act, shall use its best efforts to issue Additional Bonds
from time to time to provide loans to the Borrowers for: (i) completion of the
Project, including additional costs incurred in acquiring, constructing and
equipping the Project, or (ii) restoring or repairing the Project following any
condemnation thereof or damage thereto to the extent the Net Proceeds of any
insurance or condemnation award are insufficient to pay for same, or (iii)
acquiring or constructing improvements to the Project, (iv) refunding the
Project Bonds or any one or more series of Additional Bonds, or (v) any
combination of the foregoing; provided, that the proceeds of any Additional
Bonds shall, except to the extent issued for the purpose described in clause
(iv), be used solely to pay permissible costs under the Act. Such Additional
Bonds shall be on a parity with the Project Bonds and any Additional Bonds
theretofore or thereafter issued, except with respect to any moneys drawn by the
Trustee under
17
<PAGE> 23
the Letter of Credit and deposited in the Bond Fund, which shall be used only
for the payment of principal of and interest on the Project Bonds. Before any
Additional Bonds are authenticated there shall be delivered to the Trustee the
items required by Section 2.08 of the Indenture and (a) any necessary amendment
of the Agreement to provide for increased Loan Payments so that the aggregate of
the Loan Payments thereafter payable under the Agreement shall be sufficient in
an amount to make all required payments into the Bond Fund in order to pay when
due Bond service charges on all Bonds then to be outstanding, and for all
Additional Payments (as defined in the Agreement) by the Borrowers under the
provisions of the Agreement and the Bond Legislation, and (b) either the opinion
of nationally recognized bond counsel or a ruling of the Internal Revenue
Service of the United States Department of Treasury that the issuance of such
series of Additional Bonds will not adversely affect the exemption from Federal
income taxation of the interest paid or payable on any outstanding Bonds.
Section 9. Covenants of Issuer. In addition to other covenants of the
Issuer contained in this Bond Legislation and the Indenture, the Issuer further
covenants and agrees as follows:
(a) Payment of Bond Service Charges. The Issuer will, solely from
Pledged Receipts pay or cause to be paid the Bond service charges on each and
all Bonds on the dates, at the places and in the manner provided herein, in the
applicable Bond Legislation and in the Bonds.
(b) Performance of Covenants, Authority and Actions. The Issuer will at
all times faithfully observe and perform all agreements, covenants,
undertakings, stipulations and provisions contained in the Bond Legislation, the
Agreement, the Indenture and in any and every Bond executed, authenticated and
delivered under the Indenture, and in all proceedings of the Issuer pertaining
to the Bonds, the Indenture or the Agreement. The Issuer warrants and covenants
that it is, and upon delivery of the Project Bonds will be, duly authorized by
the Constitution and laws of the State, including particularly and without
limitation the Act, to issue the Project Bonds and to execute the Indenture, the
Agreement and the Bond Purchase Agreement, to provide the security for payment
of the Bond service charges in the manner and to the extent herein and in the
Indenture set forth; that all actions on its part for the issuance of the
Project Bonds and execution and delivery of the Indenture, the Agreement and the
Bond Purchase Agreement have been or will be duly and effectively taken; and
that the Project Bonds in the hands of the holders thereof will be valid and
enforceable special obligations of the Issuer according to the terms thereof.
Each provision of the Bond Legislation, the Indenture, the Agreement, the Bond
Purchase Agreement and the Bonds is binding upon each such officer of the Issuer
as may from time to time have the authority under law to take such actions as
may be necessary to perform all or any part of the duties required by such
provision; and each duty of the Issuer and of its officers undertaken pursuant
to such proceedings for the issuance of the Bonds is established as a duty of
the Issuer and of each such officer having authority to perform such duty,
specifically enjoined by law and resulting from an office, trust, or station
within the meaning of Section 2731.01 of the Ohio Revised Code, providing for
enforcement by writ of mandamus.
(c) Pledged Receipts. Except as otherwise provided in the Bond
Legislation, the Indenture and the Agreement, the Issuer will not create or
suffer to be created any debt, lien or charge thereon, or make any pledge or
assignment of or create any debt, lien or charge thereon, or make any pledge or
assignment of or create any lien or encumbrance upon the Pledged Receipts,
including the
18
<PAGE> 24
moneys in the Bond Fund and Construction Fund, other than the pledge and
assignment thereof under this Bond Legislation, the Indenture and the Agreement.
(d) Recordings and Filings. The Issuer will, at the expense of the
Borrowers, cause (to the extent required by the laws of the State to perfect
such instruments and/or the lien created thereby) all necessary financing
statements, amendments thereto, continuation statements and instruments of
similar character relating to the pledges and assignments made by it to secure
the Bonds, to be recorded and filed in such manner and in such places and to the
extent required by law in order to fully preserve and protect the security of
the holders of the Bonds and the rights of the Trustee under the Indenture.
(e) Inspection of Project Books. All books and documents in the
Issuer's possession relating to the Project or the Pledged Receipts shall at all
times be open to inspection by such accountants or other agents of the Trustee
or the Letter of Credit Bank as the Trustee or the Letter of Credit Bank may
from time to time designate.
(f) Rights Under Agreement. The Trustee, in its name or in the name of
the Issuer, may, for and on behalf of the Bondholders, enforce all rights of the
Issuer and all obligations of the Borrowers under and pursuant to the Agreement
and Note, whether or not the Issuer is in default of the pursuit or enforcement
of such rights and obligations.
(g) Maintenance of Agreement. The Issuer shall do all things and take
all actions on its part necessary to comply with the obligations, duties and
responsibilities on the part of the Issuer under the Agreement, and will take
all actions within its authority to maintain the Agreement in effect in
accordance with the terms thereof and to enforce and protect the rights of the
Issuer thereunder, including actions at law and in equity, as may be
appropriate.
(h) Arbitrage Provisions. The Issuer will, to the extent that it is in
a position to control or direct such matters, restrict the use of the proceeds
of the Project Bonds in such manner and to such extent, if any, as may be
necessary, after taking into account reasonable expectations at the time the
Project Bonds are delivered to the original Purchaser, so that they will not
constitute "arbitrage bonds" under Section 148(a) of the Internal Revenue Code
of 1986, and the regulations promulgated under that section. A member of the
Legislative Authority or any other officer having responsibility with respect to
the issuance of the Project Bonds, is authorized and directed, alone or in
conjunction with any of the foregoing or with any other officer, employee,
consultant or agent of the Legislative Authority, or any officer of the
Borrowers, and upon receipt of satisfactory indemnities, to give an appropriate
certificate on behalf of the Issuer, for inclusion in the transcript of
proceedings for the Project Bonds, setting forth the facts, estimates and
circumstances and reasonable expectations pertaining to said Section 148(a) and
regulations thereunder. The Issuer also will, to the extent it is in a position
to control or direct such matters, comply with Section 148(a) of the Code.
Section 10. Investment of Bond Fund and Construction Fund. Except as
otherwise provided in the Indenture, moneys in the Bond Fund and the
Construction Fund shall be invested and reinvested by the Trustee in Eligible
Investments, in accordance with and subject to the orders (if verbal, to be
confirmed in writing) of the Authorized Borrowers Representative with respect
thereto, provided that investments of moneys in the Bond Fund shall mature or be
redeemable at the option
19
<PAGE> 25
of the Trustee at the times and in the amounts necessary to provide moneys
hereunder to pay Bond service charges as they fall due at stated maturity or by
redemption or pursuant to any Mandatory Sinking Fund Requirements, and further
provided that moneys in the Reimbursement Account in the Bond Fund shall mature
or be redeemable at the option of the Trustee at the times and in the amounts
necessary to reimburse the Letter of Credit Bank for draws under the Letter of
Credit, and provided that each investment of moneys in the Construction Fund
shall in any event mature or be redeemable at the option of the Trustee at such
time as may be necessary to make timely payments from said Construction Fund.
Any such investments may be purchased from the Trustee or its affiliates. The
Trustee shall sell or redeem investments standing to the credit of the Bond Fund
to produce sufficient moneys hereunder at the times required for the purpose of
paying Bond service charges when due as aforesaid, and shall do so without
necessity for any order on behalf of the Issuer and without restriction by
reason of any such order. For purposes of the Indenture and this Bond
Legislation, such investments shall be valued at face amount or market value,
whichever is less.
Section 11. Indenture, Agreement and Bond Purchase Agreement. In order
better to secure the payment of the Bond service charges as the same shall
become due and payable, at least two members of the Legislative Authority are
hereby authorized and directed, on behalf of the Issuer, to execute and deliver
the Indenture, the Agreement and the Bond Purchase Agreement in substantially
the forms submitted to the Issuer, and to endorse upon the Note the assignment
thereof to the Trustee, which instruments are hereby approved, with such changes
therein not inconsistent with this Bond Legislation and not substantially
adverse to the Issuer as may be permitted by the Act and approved by the
officers executing the same. The approval of such changes by said officers, and
that such are not substantially adverse to the Issuer, shall be conclusively
evidenced by the execution of the Indenture, the Agreement and the Bond Purchase
Agreement respectively, and by endorsement of the Note, by such officers.
This Bond Legislation shall constitute a part of the Indenture as
therein provided and for all purposes of said Indenture, including, without
limitation thereto, application to this Bond Legislation of the provisions in
the Indenture relating to amendment, modification and supplementation, and
provisions for severability.
Section 12. Other Documents. At least two members of the Legislative
Authority are hereby further authorized and directed to execute financing
statements, other assignments and any other instruments as are, in the opinion
of bond counsel to the Issuer, necessary to perfect the pledges set forth in the
Indenture and to consummate the transactions provided for in the Indenture, the
Agreement and the Bond Purchase Agreement.
Section 13. Compliance with Section 121.22, Ohio Revised Code. It is
hereby found and determined that all formal actions of this Legislative
Authority concerning and relating to the passage of this Bond Legislation were
taken in an open meeting of this Legislative Authority, and that all
deliberations of this Legislative Authority and of any of its committees, if
any, that resulted in such formal action, were taken in meetings open to the
public, in full compliance with applicable legal requirements, including Section
121.22 of the Ohio Revised Code.
Section 14. Temporary Project Bonds. Pending the preparation of
definitive Project Bonds, the Issuer may execute and the Trustee shall
authenticate and deliver temporary Project
20
<PAGE> 26
Bonds in printed or typewritten form. Temporary Project Bonds shall be issuable
in fully registered form, of any denomination, and substantially in the form of
the definitive Project Bonds but with such omissions, insertions and variations
as may be appropriate for temporary Project Bonds, all as may be determined by
the Board, their execution of any such temporary Project Bonds to be conclusive
evidence of his determinations as aforesaid. Every temporary Project Bond shall
be executed on behalf of the Issuer, and be authenticated by the Trustee upon
the same conditions and in substantially the same manner, and with like effect,
as the definitive Project Bonds. If one or more temporary Project Bonds are
issued, then without unnecessary delay the Issuer shall execute and furnish
definitive Project Bonds and thereupon temporary Project Bonds may be
surrendered to the Trustee in exchange therefor without charge to the holder
thereof, and the Trustee shall authenticate and deliver in exchange for such
temporary Project Bonds an equal aggregate principal amount of definitive
Project Bonds. Until so exchanged the temporary Project Bonds shall be entitled
to the same benefits under the Indenture as definitive Project Bonds.
Section 15. Effective Date. This resolution shall take effect
immediately upon its passage. Mr. Dowlin moved the passage of the foregoing
resolution, and Mr. Chabot seconded the motion. The vote thereon resulted as
follows:
Mr. Chabot. AYE Mr. Dowlin. AYE Mr. Guckenberger. AYE
Passed: February 16, 1984
21
<PAGE> 27
CERTIFICATE
The undersigned, Clerk of the Board of County Commissioners of the
County of Hamilton, Ohio, hereby certifies that the foregoing is a true and
complete copy of a resolution passed on the 16th day of February, 1994, and has
not been amended or rescinded as of this date.
February 16, 1994 _____________________________________
Clerk, Board of County Commissioners
22
<PAGE> 28
WHEREAS, all acts, conditions and things required to happen, exist, and
be performed precedent to and in the issuance of the Project Bonds and the
execution and delivery of this Indenture have happened, exist and have been
performed in order to make the Project Bonds, when issued, delivered and
authenticated, valid obligations of the Issuer in accordance with the terms
thereof and hereof, and in order to make this Indenture a valid, binding and
legal trust agreement for the security of the Bonds in accordance with its
terms; and
WHEREAS, the Trustee has accepted the trusts created by this Indenture,
and in evidence thereof has joined in the execution hereof; and
WHEREAS, the texts of the Project Bonds, the certificate of
authentication of the Trustee to be endorsed thereon and other provisions to be
included therein are to be substantially in the following forms with appropriate
omissions, insertions and variations as in this Indenture provided or permitted:
23
<PAGE> 29
(BOND FORM)
REGISTERED REGISTERED
NO. $
(FORM OF FACE OF BOND)
United States of America
State of Ohio
County of Hamilton, Ohio
Economic Development
Revenue Refunding Bonds,
Series 1994 (Adam Wuest, Inc. Project)
Maturity Date: Dated as of: CUSIP:
September 1, ___________ __________ __________
The County of Hamilton, Ohio (the "Issuer"), a county and political
subdivision organized and existing under the laws of the State of Ohio, for
value received, promises to pay to ________________________ or registered
assigns, but solely from the sources and in the manner hereinafter referred to
______________ DOLLARS
on the aforesaid Maturity Date, unless this Bond is called for earlier
redemption, and to pay from those sources interest thereon at the Interest Rate
per annum set forth above, payable on the first day of each March and September,
commencing September 1, 1994, or if any such day is not a Business Day, as
hereinafter defined, on the immediately succeeding Business Day (the "Interest
Payment Dates"), until the principal amount is paid or duly provided for.
Interest on the Bonds will accrue from and including the date set forth above to
and including the day preceding the next Interest Payment Date, and thereafter
from and including each Interest Payment Date to and including the date
preceding each succeeding Interest Payment Date (each such period hereinafter
called an "Interest Period"). Interest shall be calculated on the basis of
360-day years and twelve 30-day months. This Bond will bear interest from the
most recent date to which interest has been paid or duly provided for or, if no
interest has been paid or duly provided for, from its date. The term "Business
Day", as used herein, means any day of the year, other than a Saturday or a
Sunday, on which banks located in the cities in which the principal corporate
trust office of the Trustee (hereinafter identified) and the principal office of
the Letter of Credit Bank (hereinafter identified) are located are not required
or authorized by law to remain closed and on which The New York Stock Exchange
is not closed.
The principal of and any premium on this Bond are payable when due upon
presentation and surrender hereof at the principal corporate trust office of the
trustee, presently The Fifth Third Bank, Cincinnati, Ohio (the "Trustee").
Interest is payable on each Interest Payment Date by check or draft mailed to
the person in whose name this Bond is registered (the "Holder") at the close of
business
24
<PAGE> 30
on the 15th day preceding that Interest Payment Date (the "Regular Record Date")
on the registration hooks for this issue maintained by the Trustee, as
Registrar, at the address appearing therein. The principal of and interest and
any premium on this Bond are payable in lawful money of the United States of
America, without deduction for the services of the paying agent.
REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH
ON THE REVERSE SIDE. THOSE PROVISIONS SHALL HAVE THE SAME EFFECT FOR ALL
PURPOSES AS IF SET FORTH HERE.
It is certified and recited that there have been performed and have
happened in regular and due form, as required by law, all acts and conditions
necessary to be done or performed by the Issuer or to have happened (i)
precedent to and in the issuing of the Bonds in order to make them legal, valid
and binding special obligations of the Issuer, and (ii) precedent to and in the
execution and delivery of the Indenture and the Agreement; that payment in full
for the Bonds has been received; and that the Bonds do not exceed or violate any
constitutional or statutory limitation.
[FORM OF CERTIFICATE OF IN WITNESS OF THE ABOVE, THE
AUTHENTICATION] COUNTY OF HAMILTON, OHIO has
This Bond is one of the Bonds caused this Bond to be executed in the
described in the within mentioned name of the Issuer by at least two members
Indenture of its Board of County Commissioners by
their manual or facsimile signatures,
acting in their official capacities, as of
the date shown above.
25
<PAGE> 31
THE FIFTH THIRD BANK COUNTY OF HAMILTON, OHIO
By: ________________________________ By: _____________________________
Authorized Signer County Commissioner
By: _____________________________
County Commissioner
By: _____________________________
County Commissioner
Registerable at: THE FIFTH THIRD
BANK, Cincinnati, Ohio
26
<PAGE> 32
[FORM OF REVERSE OF BOND]
This Bond is one of a duly authorized issue of Economic Development
Revenue Refunding Bonds, Series 1994 (Adam Wuest, Inc. Project) (the "Project
Bonds"), issuable under the Trust Indenture, dated as of February 1, 1994 (the
"Indenture"), between the Issuer and the Trustee, aggregating in principal
amount $2,980,000 and issued for the purpose of making a loan (the "Loan") to
assist Adam Wuest Realty, Inc. ("Realty") and Adam Wuest, Inc. ("Company")
(Realty and Company are sometimes collectively referred to as "Borrowers") in
financing the costs of refunding the bonds of the Issuer (the "Prior Bonds")
which were issued to finance the costs of acquiring, constructing and equipping
a Project (the "Project"). Realty owns the land and building portion of the
Project ("Project Site") and Company owns the equipment portion of the Project
("Project Equipment"). Realty leases the Project Site to Company. The Project
Bonds, together with any Additional Bonds which may be issued on a parity
therewith under the Indenture (collectively, the "Bonds"), are special
obligations of the Issuer, issued or to be issued under and are to be secured
and entitled equally and ratably to the protection given by the Indenture. The
Project Bonds are issued pursuant to Section 13 of Article VIII of the
Constitution of the State of Ohio and to the laws of that State, particularly
Chapter 165, Ohio Revised Code, and to a resolution duly adopted by the Issuer.
Reference is made to the Indenture for a more complete description of
the Project, the provisions, among others, with respect to the nature and extent
of the security for the Bonds, the rights, duties and obligations of the Issuer,
the Trustee and the Holders of the Bonds, and the terms and conditions upon
which the Bonds are issued and secured. Each Holder assents, by its acceptance
hereof, to all of the provisions of the Indenture.
Pursuant to the Agreement, the Borrowers has executed and delivered to
the Issuer, and the Issuer has endorsed to the Trustee, the Borrowers'
promissory note, dated as of February 1, 1994 (the "Note"), in the principal
amount of $2,980,000. The Borrowers are jointly and severally required by the
Agreement and the Note to make payments to the Trustee in the amounts and at the
times necessary to pay the principal of and interest and any premium (the "Bond
service charges") on the Project Bonds. The Borrowers' obligations thereunder
are secured by the Open-End Mortgage and Security Agreement, dated as of
February 1, 1994 (the "Mortgage"), and an Assignment of Leases and Rents, dated
as of February 1, 1994 (the "Assignment"), both from the Borrowers to the
Trustee and The Fifth Third Bank, Cincinnati, Ohio, in its capacity as issuer of
a Letter of Credit (the "Letter of Credit Bank"). Realty's liabilities under the
Note and the other aforementioned documents is limited as provided in Section
2.1 of the Agreement. In the Indenture, the Issuer has assigned to the Trustee,
to provide for the payment of the Bond service charges on the Project Bonds, the
Issuer's right, title and interest in and to the Agreement, except for
Unassigned Issuer's Rights as defined in the Agreement.
Pursuant to the Agreement, the Borrowers have caused to be issued and
delivered to the Trustee by the Letter of Credit Bank an irrevocable letter of
credit (the "Letter of Credit"), pursuant to which the Trustee is entitled to
draw up to (a) the principal amount of the Project Bonds outstanding to enable
the Trustee to pay (i) the principal amount of the Project Bonds when due at
maturity or upon redemption or acceleration, plus (b) the amount of interest due
on the Bonds but not to exceed one hundred ninety-five (195) days maximum
accrued interest (at the maximum rate of interest due on the Project Bonds. To
provide for the issuance of the Letter of Credit, the
27
<PAGE> 33
Borrowers have entered into a Reimbursement Agreement, dated as of February 1,
1994 (the "Reimbursement Agreement"), with the Letter of Credit Bank pursuant to
which the Company and Realty are jointly and severally obligated to reimburse
the Letter of Credit Bank for all drawings made under the Letter of Credit.
However, Realty's obligation is limited to the proceeds realized from the
disposition of the Project Site. The Letter of Credit shall expire on September
15, 1995, unless extended, and may be replaced by an Alternate Letter of Credit
(as defined in the Indenture). The issuer of the Alternate Letter of Credit must
satisfy the requirements of Section 4.16 of the Indenture. As used herein, the
term "Letter of Credit" shall refer to the Letter of Credit and any Alternate
Letter of Credit.
Copies of the Indenture, the Agreement, the Mortgage, the Note, the
Letter of Credit, the Assignment and the Reimbursement Agreement are on file at
the principal corporate trust office of the Trustee.
The Bond service charges on the Project Bonds are payable solely from
the Pledged Receipts, as defined and as provided in the Indenture (being,
primarily, the amounts to be drawn on the Letter of Credit to pay Bond service
charges), and are an obligation of the Issuer only to the extent of such Pledged
Receipts.
THE BONDS ARE NOT SECURED BY AN OBLIGATION OR PLEDGE OF ANY MONEYS
RAISED BY TAXATION AND DO NOT REPRESENT OR CONSTITUTE A DEBT OR PLEDGE OF THE
FAITH AND CREDIT OF THE STATE OF OHIO, THE COUNTY OF HAMILTON, OHIO OR ANY OTHER
POLITICAL SUBDIVISION OR TAXING DISTRICT OF THE STATE OF OHIO.
The Project Bonds are issuable only as fully registered bonds in the
denominations of $5,000 and any integral multiple thereof and are exchangeable
for Bonds of other authorized denominations in equal aggregate principal amounts
at the office of the Registrar specified on the face hereof, but only in the
manner and subject to the limitations provided in the Indenture. This Project
Bond is transferable at the office of the Registrar, by the Holder in person or
by his attorney, duly authorized in writing, upon presentation and surrender
hereof to the Registrar. The Registrar is not required to transfer or exchange
any Bond during a period beginning at the opening of business 15 days before any
Interest Payment Date.
PART VII. GENERAL PROVISIONS.
The Bonds are subject to optional redemption on or after September 1,
2003 in whole at any time or in part on any Interest Payment Date (in integral
multiples of $5,000) by the Issuer, at the Borrowers's option as provided in
Section 2.1 of the Agreement, at the redemption prices (expressed as percentages
of the principal amount of bonds to be redeemed) set forth below, plus accrued
interest to the redemption date:
28
<PAGE> 34
<TABLE>
<CAPTION>
Redemption Date Redemption Price
--------------- ----------------
<S> <C> <C>
September 1, 2002 through August 31, 2003 101%
September 1, 2003 thereafter 100%
</TABLE>
The Bonds are subject to mandatory redemption by the Issuer in whole on
any Interest Payment Date which next precedes a Letter of Credit Termination
Date (as defined in the Indenture) or a subsequent date to which the Letter of
Credit Termination Date shall have been extended (or if the Letter of Credit
Termination Date is on an Interest Payment Date, then such date), at a
redemption price of 100% of the principal amount thereof plus accrued interest
to the redemption date unless, at least forty-five (45) days prior to such
Interest Payment Date (a) the Letter of Credit Bank shall have agreed to an
extension or further extension of the Letter of Credit Termination Date to a
date not earlier than one (1) year from the Letter of Credit Termination Date
being extended or (b) the Borrowers shall have obtained an Alternate Letter of
Credit with a termination date not earlier than one (1) year from the Letter of
Credit Termination Date for the Letter of Credit it replaces.
The Bonds are subject to redemption prior to stated maturity pursuant
to first class mailed notice thereof given at least 30 days prior to the
redemption date, as follows:
The Bonds are subject to mandatory redemption prior to stated maturity
at any time in whole at a redemption price of 100% of the principal amount
thereof plus accrued interest to the redemption date if and when (i) the
Agreement shall have become void or unenforceable or impossible of performance
in accordance with the intent and purpose of the parties as expressed in the
Agreement by reason of any changes in the Constitution of the State or the
Constitution of the United States of America or by reason of legislative or
administrative action (whether state or Federal) or any final decree, judgment
or order of any court or administrative body (whether state or Federal) entered
after the contest thereof by the Issuer or the Borrowers in good faith to the
effect that the Note and the obligations evidenced thereby are no longer
enforceable by the holder thereof, or (ii) interest on the Bonds shall have
become subject to Federal income tax because of a Determination of Taxability
(as defined in the Indenture). Any such redemption shall be made not more than
120 days following the effective date of such constitutional amendment,
legislation, administrative action or decree, judgment or order, or following
the date of the Determination of Taxability (excluding any final determination
that interest is subject to Federal income tax with respect to any Bond because
such Bond is held by a "substantial user" of the Project or by a "related
person", as those terms are used in Section 144 (a) of the Internal Revenue Code
of 1986, as amended.).
If less than all Bonds are to be redeemed at one time, the selection of
Bonds, or portions thereof in amounts of $5,000 or any integral multiple
thereof, to be redeemed shall be selected in the inverse order of their
maturities, and within any maturity the selection of such Bonds or portion of
such fully registered Bonds shall be made by lot by the Trustee, in its sole
discretion. If Bonds or portions thereof are called for redemption and if on the
redemption date moneys for the redemption thereof are held by the Trustee,
thereafter those Bonds or portions thereof to be redeemed shall cease to bear
interest, and shall cease to be secured by, and shall not be deemed to be
outstanding under, the Indenture.
29
<PAGE> 35
In addition to the provision contained in the Indenture authorizing the
Issuer and the Trustee, without the consent of or notice to any of the
Bondholders, to enter into supplemental indentures not inconsistent with the
Indenture and for certain purposes specified therein, the Indenture contains
provisions permitting such parties, with the consent of the Holders of not less
than 66 2/3% in aggregate principal amount of the Bonds at the time outstanding,
to execute supplemental indentures for the purpose of modifying, altering,
amending, adding to or rescinding, in any particular, any of the terms or
provisions of the Indenture or any indenture supplemental thereto; provided,
however, that no such supplemental indenture shall (a) without the consent of
the Holder of each Bond so affected extend the maturity of the principal of or
the interest on any Bond, reduce the principal amount of any Bond or the rate of
interest or redemption premium thereon, or reduce the amount or extend the time
of payment required by any Mandatory Sinking Fund Requirements (as defined in
the Indenture), or (b) without the consent of the Holders of all Bonds then
outstanding permit a privilege or priority of any Bond or Bonds over any other
Bond or Bonds or reduce the aggregate principal amount of the Bonds required for
consent to such supplemental indenture. For purposes of this paragraph consent
of the Holders of not less than 66 2/3% in aggregate principal amount of the
Bonds with respect to supplemental indentures shall have been deemed to have
been obtained if the Trustee does not receive letters of protest or objections
to such supplemental indentures signed by or on behalf of the Holders of 33 1/3%
or more of the aggregate principal amount of the Bonds then outstanding within
60 days from the date the Trustee mails notice of any proposed supplemental
indenture to the Holders of the Bonds as more specifically provided in the
Indenture.
The Holder of each Bond has only those remedies provided in the
Indenture.
The Bonds shall not constitute the personal obligation, either jointly
or severally, of the members of the Legislative Authority of the Issuer or of
any other officer of the Issuer.
This Bond shall not be entitled to any security or benefit under the
Indenture or be valid or become obligatory for any purpose until the certificate
of authentication herein shall have been signed.
30
<PAGE> 36
[FORM OF ASSIGNMENT]
ASSIGNMENT
For value received, the undersigned sells, assigns and transfers unto
____________ the within Bond and irrevocably constitutes and appoints attorney
to transfer that Bond on the books kept for registration thereof, with full
power of substitution in the premises.
Dated: ____________________ ______________________________
Signature Guaranteed:
__________________________
Notice: The assignor's signature to this assignment must correspond with the
name as it appears upon the face of the within Bond in every
particular, without alteration or any change whatever.
31
<PAGE> 37
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the
payment of the Bond service charges on the Bonds according to their true intent
and meaning, and to secure the performance and observance of all the covenants
and conditions therein and herein contained and to declare the terms and
conditions upon and subject to which the Bonds are and are intended to be
issued, held, secured, and enforced, the Issuer, in consideration of the
premises and the acceptance by the Trustee of the trusts hereby created and of
the purchase and acceptance of the Project Bonds by the holders and owners
thereof, and for other good and valuable considerations, the receipt of which is
hereby acknowledged, has executed and delivered this Indenture and does hereby
pledge and assign to The Fifth Third Bank, Cincinnati, Ohio, as Trustee, and to
its successors in trust, and its and their assigns, for the securing of the
performance of the obligations of the Issuer hereinafter set forth, the Issuer's
right, title and interest in Pledged Receipts, including without limitation all
payments and other amounts receivable by or on behalf of the Issuer under the
Agreement (except for Unassigned Issuer's Rights as defined in the Agreement)
and in respect to the Loan, and all moneys and investments in the Construction
Fund and Bond Fund, and in particular the payments to be received under and
pursuant to and subject to the provisions of the Agreement and the Note,
pursuant to the terms of which payments are to be paid directly to the Trustee
at the corporate trust office of the Trustee for the account of the Issuer and
deposited in the Bond Fund, all subject to and in accordance with this
Indenture;
TO HAVE AND TO HOLD to the Trustee and its successors in said trust and
to its and their assigns forever;
BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit,
except as to the Letter of Credit and subject to the terms hereof, security and
protection of all present and future holders and owners of the Bonds issued or
to be issued under and secured by this Indenture, and for the enforcement of the
payment of the Bond service charges on the Bonds, when payable, according to the
true intent and meaning thereof and of this Indenture and to secure the
performance of and compliance with the covenants, terms and conditions of this
Indenture, without preference, priority or distinction, as to lien or otherwise,
of any one Bond over any other by reason of designation, number, date of
authorization, issuance, sale, execution or delivery, date of the Bonds or of
maturity, or otherwise, so that each and all Bonds shall have the same right,
lien and privilege under this Indenture, and shall be equally and ratably
secured hereby, as if all the Bonds had been made, issued and negotiated
simultaneously with the delivery of this Indenture, it being intended that the
lien and security of this Indenture shall take effect from the date hereof,
without regard to the date of actual issue, sale or disposition of the Bonds as
though upon such date all the Bonds were actually issued, sold and delivered to
purchasers for value; provided, however, that if the Issuer, its successors or
assigns, shall well and truly pay, or cause to be paid, the principal of the
Bonds and the interest due or to become due thereon together with any premium
required by redemption of any of the Bonds prior to maturity, at the times and
in the manner mentioned in the Bonds according to the true intent and meaning
thereof, or shall cause the payment to be made into the Bond Fund as required
under Section 7 of the Bond Legislation authorizing the Project Bonds and the
Bond Legislation authorizing any Additional Bonds, or shall have caused the
Bonds to have been paid and discharged in accordance with Sections 8.01 and 8.02
of this Indenture, shall well and truly keep, perform and observe all the
covenants and conditions pursuant to the terms of this Indenture to be kept,
performed and observed by it, and shall pay or cause to be paid to the Trustee
and Paying Agents all sums of money due or to become due to them in accordance
with the terms and provisions hereof, then this
32
<PAGE> 38
Indenture and the rights hereby granted shall cease, determine and be void,
otherwise, this Indenture shall be and remain in full force and effect.
And it is expressly declared that the Bond Legislation set forth above
is part of this Indenture and that all Bonds issued and secured hereunder are to
be issued, authenticated and delivered, and all Pledged Receipts hereby pledged
and the Construction Fund and the Bond Fund are to be dealt with and disposed of
under, upon and subject to the terms, conditions, stipulations, covenants,
agreements, trusts, uses and purposes provided in this Indenture, and the Issuer
has agreed and covenanted, and does hereby further agree and covenant, with the
Trustee and with the respective holders and owners from time to time, of the
Bonds or any part thereof, as follows:
33
<PAGE> 39
ARTICLE I
DEFINITIONS
In addition to the words and terms elsewhere defined, directly or by
reference to the Agreement, in this Indenture, including the Bond Legislation,
the following words and terms as used in this Indenture shall have the following
meanings unless the context or use clearly indicates another or different
meaning or intent:
"Bond Registrar" means the Trustee acting as Bond Registrar with
respect to the Bonds pursuant to the provisions of the Indenture.
"Extraordinary Services" and "Extraordinary Expenses" means all
services rendered and all reasonable expenses properly incurred under this
Indenture other than Ordinary Services and Ordinary Expenses, including but not
limited to services rendered and expenses incurred in the administration of an
Event of Default.
"Ordinary Services" and "Ordinary Expenses" mean those services
normally rendered and those expenses normally incurred by a trustee under
instruments similar to this Indenture.
"Redemption Price" means principal and premium, if any, as set forth in
Section 3 of the Bond Legislation.
34
<PAGE> 40
ARTICLE II
FORM, EXECUTION, AUTHENTICATION,
REGISTRATION AND EXCHANGE OF BONDS
Section 2.01 Form of Bonds and Temporary Bonds. The Bonds and Trustee's
certificate of authentication shall be substantially in the forms set forth in
the preambles to this Indenture with, in the case of Additional Bonds, such
omissions, insertions and variations as may be authorized or permitted by the
Bond Legislation authorizing, or supplemental indenture entered into in
connection with, such Additional Bonds, all consistent with this Indenture.
Bonds of any series may be initially issued in temporary form
exchangeable for definitive Bonds of the same series when ready for delivery.
The temporary Bonds shall be of such denomination or denominations as may be
determined by the Legislative Authority in accordance with the Bond Legislation,
and may contain such reference to any of the provisions of this Indenture as may
be appropriate. Every temporary Bond shall be executed and authenticated upon
the same conditions and in substantially the same manner as the definitive
Bonds. If temporary Bonds are issued, the Issuer will thereafter execute and
furnish definitive Bonds and thereupon the temporary Bonds may be surrendered
for cancellation in exchange therefor at the principal office of the Trustee,
and the Trustee shall authenticate and deliver in exchange for such temporary
Bonds an equal aggregate principal amount of definitive Bonds of the same series
and maturity of authorized denominations. Until so exchanged, the temporary
Bonds shall be entitled to the same benefits under this Indenture as definitive
Bonds authenticated and delivered hereunder.
Section 2.02 Terms of Additional Bonds. Any series of Additional Bonds
shall have maturities, interest rates, interest payment dates, redemption
provisions, denominations, registration provisions and other terms as provided
in the Bond Legislation authorizing the issuance thereof, and the proceeds
thereof shall be held, invested and paid out as therein provided, provided that
such terms and provisions shall not be otherwise inconsistent with this
Indenture.
Section 2.03 Execution and Authentication of Bonds. The Bonds shall be
executed in the manner provided in the Bond Legislation authorizing such Bonds;
provided, however, that such manner of execution shall not be inconsistent with
any requirements of law or of this Indenture.
No Bond shall be valid or become obligatory for any purpose or shall be
entitled to any security or benefit under this Indenture unless and until an
authentication certificate, substantially in the form hereinabove set forth in
connection with the Project Bonds, shall have been duly endorsed upon such Bond.
Such authentication by the Trustee upon any Bond shall be conclusive evidence
that the Bond so authenticated has been duly authenticated and delivered
hereunder and is entitled to the security and benefit of this Indenture. Such
certificate of the Trustee may be executed by any person duly authorized by the
Trustee, but it shall not be necessary that the same person sign the
authentication certificate on all of the Bonds.
Section 2.04 Transfer, Exchange and Registration of Bonds. Each Bond
shall be of a single maturity of the same series; provided, however, that the
Issuer with approval of the Trustee may authorize issuance of one or more Bonds
representing more than one maturity of the same series with
35
<PAGE> 41
appropriate changes in the bond form to cover more than one maturity, such
authorization and approval in each case to be evidenced by the facsimile or
original signature of the appropriate officer of the Issuer and authentication
by the Trustee. Except as otherwise provided in the Bond Legislation, each Bond
shall bear interest from its date and shall be dated as of February 1, 1994 if
authenticated prior to the first Interest Payment Date, and otherwise shall be
dated as of the Interest Payment Date next preceding the date of its
authentication, unless authenticated upon an Interest Payment Date in which case
it shall be dated as of the date of its authentication; provided, however, that
if at the time of authentication of any Bond interest thereon is in default,
such Bond shall be dated as of the date to which interest has been paid.
Unless otherwise provided in the Bond Legislation, the principal of and
any premium on all registered Bonds shall be payable at the corporate trust
office of the Trustee upon presentation and surrender of such registered Bonds,
and payment of the interest on the Bonds shall be made on each Interest Payment
Date to the person in whose name the Bond is registered at the close of business
on the Regular Record Date applicable to each Interest Payment Date on the
registration books hereinafter provided for as the registered holder thereof, by
check or draft mailed or delivered by the Trustee to such registered holder at
his address as it appears on such registration books.
Any Bonds, upon surrender thereof at the corporate trust office of the
Bond Registrar, together with an assignment duly executed by the holder or his
duly authorized attorney in such form as shall be satisfactory to the Bond
Registrar, may, if and to the extent permitted by law, at the option of the
registered holder thereof, be exchanged for Bonds of the same series of any
denomination or denominations authorized by the applicable Bond Legislation in
an aggregate principal amount equal to the unmatured and unredeemed principal
amount of such Bonds, and bearing interest at the same rate and maturing on the
same date or dates.
Any Bond may be transferred upon the books kept for the registration
and transfer of Bonds, only upon surrender thereof at the corporate trust office
of the Bond Registrar together with an assignment duly executed by the
registered holder or his duly authorized attorney in such form as shall be
satisfactory to the Bond Registrar. Upon the transfer of any such Bond and on
request of the Bond Registrar, the Issuer shall execute in the name of the
transferee, and the Trustee shall authenticate and deliver, a new Bond or Bonds
of the same series, of any denomination or denominations permitted by this
Indenture and the applicable Bond Legislation, in an aggregate principal amount
equal to the unmatured and unredeemed principal amount of such fully registered
Bond, and bearing interest at the same rate and maturing on the same date or
dates.
In all cases in which Bonds shall be exchanged or fully registered
Bonds shall be transferred hereunder, the Issuer shall execute and the Trustee
shall authenticate and deliver Bonds in accordance with the provisions of this
Indenture. Except as otherwise provided in the applicable Bond Legislation as to
the series of Bonds authorized by such Bond Legislation, the Issuer and Bond
Registrar may make a charge for every such exchange or transfer of Bonds
sufficient to reimburse them for any tax, fee or other governmental charge
required to be paid with respect to such exchange or to reimburse them for all
other costs and expenses incurred in connection with such exchange or transfer,
and such charge or charges shall be paid before any such new Bond shall be
delivered; provided, however, that if any fully registered Bonds shall have been
initially delivered in temporary form to the Original Purchaser of the same
series of Bonds, there shall be no charge to the Original
36
<PAGE> 42
Purchaser for the exchange of temporary Bonds for definitive Bonds. Neither the
Issuer nor the Bond Registrar shall be required to make any such exchange or
transfer of any Bond during the fifteen days next preceding an Interest Payment
Date on the Bonds of the same series or next preceding any selection of Bonds of
the same series to be redeemed, or after such Bond has been selected for partial
or complete redemption.
In case any Bond is redeemed in part only, the Issuer, on or after the
redemption date and upon surrender of such Bond, shall cause execution of and
the Trustee shall authenticate and deliver a new Bond or Bonds in authorized
denominations and in aggregate principal amount equal to the unredeemed portion
of such Bond.
So long as any of the Bonds remain outstanding, the Issuer will cause
to be maintained and kept, at the corporate trust office of the Trustee as Bond
Registrar, books for the aforesaid registration and transfer of Bonds except
that as to any series of Bonds an additional or different Bond Registrar may be
designated in the applicable Bond Legislation.
Section 2.05 Mutilated, Lost, Wrongfully Taken or Destroyed Bonds. In
the event any temporary or definitive Bond is mutilated, lost, wrongfully taken
or destroyed, the Issuer shall execute and the Trustee shall authenticate a new
Bond of like date, maturity and denomination as that mutilated, lost, wrongfully
taken or destroyed, provided that, in the case of any mutilated Bond such
mutilated Bond shall first be surrendered to the Trustee, and in the case of any
lost, wrongfully taken or destroyed Bond there shall be first furnished to the
Trustee evidence of such loss, wrongful taking or destruction satisfactory to
the Issuer, the Authorized Borrowers Representative, the Letter of Credit Bank
and the Trustee, together with indemnity satisfactory to them. In the event such
lost, wrongfully taken or destroyed Bond shall have matured, instead of issuing
a new Bond the Issuer, by its Chairman, may direct the Trustee to pay the same
without surrender thereof upon the furnishing of the satisfactory evidence and
indemnity as in the case of issuance of a new Bond. The Issuer and the Trustee
may charge the holder of such Bond with their customary fees and reasonable
expenses in connection with their action pursuant to this Section.
Every new Bond issued pursuant to this Section shall, with respect to
such Bond constitute an additional contractual obligation of the Issuer, whether
or not the lost, wrongfully taken or destroyed Bond shall be found at any time,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Bonds duly issued hereunder. All Bonds
shall be held and owned on the express condition that the foregoing provisions
of this Section are exclusive with respect to the replacement or payment of
mutilated, lost, wrongfully taken or destroyed Bonds and shall preclude any and
all rights or remedies, notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
Section 2.06 Safekeeping and Cancellation of Bonds. Any Bond
surrendered for the purpose of payment or retirement, or for exchange, or for
replacement or payment pursuant to Section 2.05, shall be cancelled upon
surrender thereof to the Trustee or Paying Agents. Any such Bonds cancelled by a
Paying Agent other than the Trustee shall promptly be transmitted by such Paying
Agent to the Trustee. Certification of such surrender and Cancellation shall be
made to the Issuer by the Trustee at least once each calendar year. Unless
otherwise directed by the Issuer or
37
<PAGE> 43
other lawful authority, cancelled Bonds shall promptly be destroyed by shredding
or cremation by the Trustee, and certificates of such destruction (describing
the manner thereof) provided by the Trustee to the Borrowers.
Section 2.07 Delivery of the Project Bonds. Upon the execution and
delivery of this Indenture and subject to Section 6 of the Bond Legislation, the
Issuer shall execute and deliver to the Trustee, and the Trustee shall
authenticate, the Project Bonds and deliver them to, or for the account of, the
Original Purchaser thereof as may be directed by the Issuer as hereinafter in
this Section 2.07 provided.
Prior to the delivery by the Trustee of any of the Project Bonds there
shall be filed with the Trustee:
1. A copy, duly certified by the Clerk of the Legislative Authority, of
the Bond Legislation authorizing the execution and delivery of the Indenture,
Agreement, Bond Purchase Agreement, and the issuance and sale of the Project
Bonds.
2. Original executed counterparts of the Indenture, Agreement, and the
Reimbursement Agreement.
3. The original executed Letter of Credit.
4. The original executed Note.
5. A written opinion or opinions of one or more legal counsel
acceptable to the Trustee to the effect that:
(a) The Indenture has been duly authorized, executed and
delivered by the Issuer and constitutes a valid and
legally binding instrument enforceable in accordance
with its terms (except as the same may be subject to
limitations upon the right to obtain judicial orders
requiring specific performance and may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws in effect from time to
time affecting the rights of creditors generally),
and the Project Bonds have been validly authorized
and executed and are (or when authenticated and
delivered will be) valid and legally binding special
obligations of the Issuer in accordance with their
terms (except as aforesaid);
(b) the Agreement and the Bond Purchase Agreement have
been duly authorized, executed and delivered and
constitute valid and legally binding instruments
enforceable in accordance with their terms, except as
the same may be subject to limitations upon the right
to obtain judicial orders requiring specific
performance and may be limited by bankruptcy,
insolvency, reorganization or other laws relating to
or affecting generally the enforcement of creditors'
rights;
38
<PAGE> 44
(c) the Reimbursement Agreement and the Note have been
duly authorized, executed and delivered and are valid
and legally binding obligations of the Borrowers;
(d) all recordings and filings required to be made under
the Bond Legislation authorizing the Project Bonds
have been made; and
(e) all conditions precedent to the delivery of the
Project Bonds and the Note have been fulfilled.
6. A request and authorization to the Trustee on behalf of the Issuer,
signed by a member of the Legislative Authority, to authenticate and deliver the
Project Bonds to, or on the order of, the Original Purchaser upon payment to the
Trustee, but for account of the Issuer, of the sum specified therein plus
accrued interest, which shall be deposited as provided in Section 6 of the Bond
Legislation.
7. An opinion of nationally recognized bond counsel that interest on
the Project Bonds is excludable from gross income of the recipients thereof for
Federal tax purposes.
8. An opinion of counsel with respect to the validity and
enforceability of the Letter of Credit and opining that draws under the Letter
of Credit will not constitute an avoidable preference in the hands of the
Trustee in the event of bankruptcy of the Borrowers.
Section 2.08 Delivery of Additional Bonds. Before any Additional Bonds
authorized by Section 8 of the Bond Legislation authorizing the Project Bonds
shall be authenticated and delivered by the Trustee, there shall be filed with
the Trustee those items required by Section 8 of the Bond Legislation, and:
1. A copy, duly certified by the Clerk of the Legislative Authority, of
the Bond Legislation authorizing the issuance and sale of such Additional Bonds.
2. An original executed counterpart of any amendment or supplement to
the Indenture, Agreement, Assignment and Mortgage.
3. A copy of the written request from the Borrowers to the Issuer for
issuance of the Additional Bonds.
4. An original executed letter of credit as required by Section 8 of
the Bond Legislation.
5. The original executed Note or Notes with such variations in
principal amounts, interest rates, interest payment and maturity dates and
prepayment provisions as may be appropriate to correspond to such provisions of
the Additional Bonds.
39
<PAGE> 45
6. A written opinion or opinions of one or more counsel acceptable to
the Trustee to the effect that:
(a) The indenture supplemental hereto providing for the
issuance of the Additional Bonds has been duly
authorized, executed and delivered by the Issuer and
constitutes a valid and legally binding instrument
enforceable in accordance with its terms (except as
the same may be subject to limitations upon the right
to obtain judicial orders requiring specific
performance and may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium
and similar laws in effect from time to time
affecting the rights of creditors generally), and the
Additional Bonds have been validly authorized and
executed and are (or when authenticated and delivered
pursuant to the request of the Issuer, will be) valid
and legally binding special obligations of the Issuer
in accordance with their terms (except as aforesaid);
(b) the Agreement as amended or supplemented in
connection with the issuance of the Additional Bonds,
has been duly authorized, executed and delivered and
constitutes a valid and legally binding instrument
enforceable in accordance with its terms, except as
the same may be subject to limitations upon the right
to obtain judicial orders requiring specific
performance and may be limited by bankruptcy,
insolvency, reorganization or other laws relating to
or affecting generally the enforcement of creditors'
rights or the enforcement of the security provided by
the Agreement, as amended or supplemented as
aforesaid;
(c) the Note or Notes delivered under paragraph 5 above
have been duly authorized, executed and delivered and
are valid and legally binding obligations of the
Borrowers;
(d) all recordings and filings required to be made under
the Bond Legislation authorizing the Project Bonds
and such Additional Bonds have been made; and
(e) all conditions precedent to the delivery such
Additional Bonds and the Note or Notes delivered
under paragraph 5 above have been fulfilled.
7. A request and authorization to the Trustee on behalf of the Issuer,
signed by a member of the Legislative Authority, to authenticate and deliver
such Additional Bonds to, or on the order of, the Original Purchaser thereof
upon payment to the Trustee, but for the account of the Issuer, of the sum
specified therein plus accrued interest, which shall be deposited as provided in
the Bond Legislation authorizing such Additional Bonds.
8. An opinion of nationally recognized bond counsel or a ruling of the
Internal Revenue Service that the issuance of such Additional Bonds will not
affect the Federal income tax exemption an any outstanding Bonds and that
interest on such Additional Bonds will be exempt from gross income for Federal
Tax purposes.
40
<PAGE> 46
9. Consent of the Letter of Credit Bank to the issuance of Additional
Bonds.
10. An opinion of counsel that draws under the letter of credit issued
with respect to Additional Bonds would not constitute an avoidable preference in
the event of bankruptcy of the Borrowers.
Section 2.09 Book Entry-Only System. The Bonds shall be initially
issued in the form of a separate single fully registered bond. Upon initial
issuance, the initial issuance, the ownership of each such Bond shall be
registered in the Bond Register in the name of Cede & Co., as nominee of DTC,
and except as hereafter provided, all of the outstanding Bond shall be
registered in the Bond Register in the name of Cede & Co., as nominee of DTC.
With respect to Bonds registered in the Bond Register in the name of
Cede & Co., as nominee of DTC, the Issuer, the Trustee, the Remarketing Agent
and the Company shall have no responsibility or obligation to any DTC
Participant or to any person on behalf of whom such a DTC participant holds an
interest in the Bonds. Without limiting the immediately preceding sentence, the
Issuer, the Trustee and the Borrowers shall have no responsibility or obligation
with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC
Participant with respect to any ownership interest in the Bonds, (ii) the
delivery to any OTC Participant or any other Person, other than a Holder, as
shown in the Bond Register, or any notice with respect to the Bonds, including
any notice of redemption, or (iii) the payment to any DTC Participant or any
other Person, other than a Holder, as shown in the Bond Register, of any amount
with respect to principal of, premium, if any, or interest on, the Bonds.
Notwithstanding any other provision of this Bond Indenture to the
contrary, the Issuer, the Trustee and each Paying Agent, if any, shall be
entitled to treat and consider the Person in whose name each Bond is registered
in the Bond Register as the absolute owner of such Bond for the purpose of
payment of principal, premium, if any, and interest with respect to such Bond,
for the purpose of giving notices of redemption and other matters with respect
to such Bond, for the purpose of registering transfers with respect to such
Bond, and for all other purposes whatsoever. The Trustee and each Paying Agent,
if any, shall pay all principal of, premium, if any, and interest on the Bonds
only to or upon the order of the respective Bond owners, as shown in the Bond
Register as provided in this Indenture, or their respective attorneys duly
authorized in writing, and all such payments shall be valid and effective to
fully satisfy and discharge the Issuer's obligations with respect to payment of
principal of, premium, if any, and interest on the Bonds to the extent of the
sum or sums so paid. No Person other than a Holder, as shown in the Bond
Register, shall receive a Bond certificate evidencing the obligation of the
Issuer to make payments of principal, premium, if any, and interest pursuant to
this Indenture.
The Issuer and the Trustee shall execute the Letter of Representations
to DTC in connection with the issuance of the Bonds. Such Representation Letter
is for the purpose of effectuating the Book-Entry-Only System only and shall not
be deemed to amend, supersede or supplement the terms of this Indenture which
are intended to be complete without reference to the Representation Letter. In
the event of any conflict between the terms of the Representation Letter and the
terms of this Indenture, the terms of this Indenture shall control. DTC may
exercise the rights of a Holder hereunder only in accordance with the terms
hereof applicable to the exercise of such rights.
41
<PAGE> 47
Notwithstanding any other provision of this Indenture to the contrary,
so long as any of the Bonds is registered in the name of Cede & Co., as nominee
of DTC, all payments with respect to principal of, premium, if any, and interest
on such Bond and all notices with respect to such Bond shall be made and given,
respectively, in the manner provided in the Representation Letter. The Trustee
shall request in each notice sent to Cede & Co. pursuant to the terms of this
Bond Indenture that Cede & Co. forward or cause to be forwarded such notice to
the DTC Participants.
42
<PAGE> 48
ARTICLE III
REDEMPTION OF BONDS
Section 3.01 Privilege of Redemption and Redemption Price. The Bonds
shall be subject to redemption prior to maturity at such times, to the extent
and in the manner provided in the applicable Bond Legislation, all subject to
this Indenture.
Section 3.02 Issuer's Election to Redeem. The Issuer, except in the
case of redemption pursuant to any mandatory redemption provisions provided in
the Bond Legislation, and except as otherwise provided in the Bond Legislation,
shall give written notice to the Trustee of its election to redeem in the manner
provided in and in accordance with the applicable Bond Legislation, of the
places where the amounts due upon such redemption are payable, and of the
redemption date and of the principal amount of each maturity of each series of
redeemable Bonds to be redeemed, which notice shall be given at least forty five
days prior to the redemption date or such shorter period as shall be acceptable
to the Trustee. In the event notice of redemption shall have been given as
provided in the Bond Legislation or Section 3.03, the Issuer shall, and hereby
covenants that it will on or prior to the redemption date, if sufficient funds
shall have been provided for the purpose by the Borrowers under the Agreement or
the Letter of Credit, pay or cause to be paid to the Trustee an amount in cash
which, in addition to other moneys, if any, available therefor held by the
Trustee, will be sufficient to redeem at the applicable redemption price
thereof, plus interest accrued to the redemption date, all of the redeemable
Bonds which the Issuer has so elected to redeem.
Section 3.03 Notice of Redemption. When the Trustee shall receive
notice from or on behalf of the Issuer of its election to redeem Bonds, or in
order to carry out any mandatory redemption provisions of any Bond Legislation,
the Trustee shall give notice of call for redemption as provided for in the
applicable Bond Legislation.
Section 3.04 Payment of Redeemed Bonds. Notice having been given in the
manner provided in Section 3.03, the Bonds so called for redemption shall become
due and payable on the redemption date at the applicable redemption price, plus
interest accrued to the redemption date, and, upon presentation and surrender
thereof at the place or places specified in such notice, such Bonds shall be
paid at the applicable redemption price plus interest accrued to the redemption
date. If, on the redemption date, moneys for the redemption of all such Bonds to
be redeemed, together with interest to the redemption date, are held by the
Trustee so as to be available therefor on said date and if notice of redemption
shall have been given as aforesaid, then, from and after the redemption date
such Bonds so called for redemption shall cease to bear interest, and said Bonds
shall no longer be considered as outstanding hereunder. If said moneys shall not
be so available on the redemption date, such Bonds shall continue to bear
interest until paid at the same rate as they would have borne had they not been
called for redemption.
All moneys deposited in the Bond Fund and held by the Trustee or Paying
Agents for the redemption of particular Bonds shall be held in trust for the
account of the holders thereof and shall be paid to them respectively upon
presentation and surrender of such Bonds.
43
<PAGE> 49
ARTICLE IV
FURTHER PROVISIONS AS TO FUNDS,
PAYMENTS, PROJECT AND AGREEMENT
Section 4.01 Provisions for Payment. The Issuer hereby authorizes and
directs the Trustee to cause withdrawal of sufficient funds from the Bond Fund
available for such purpose to pay the Bond service charges on the Bonds as the
same become due and payable (whether at stated maturity or by redemption or
pursuant to any Mandatory Sinking Fund Requirements or otherwise), for the
purposes of paying, or transferring necessary funds to Paying Agents to pay,
said Bond service charges, which authorization and direction the Trustee hereby
accepts. The Trustee shall create and maintain a separate Reimbursement Account
("Reimbursement Account") within the Bond Fund which Reimbursement Account shall
be used by the Trustee to reimburse the Letter of Credit Bank, as provided
herein or in the Agreement.
Section 4.02 Non-presentment of Bonds. In the event any Bond shall not
be presented for payment when the principal thereof becomes due, whether at
maturity, at the date fixed for redemption thereof, or otherwise, if funds
sufficient to pay such Bond shall have been made available to the Trustee for
the benefit of the holder or holders thereof, all liability of the Issuer to the
holder thereof for the payment of such Bond shall thereupon cease and be
completely discharged, and it shall be the duty of the Trustee to hold such
funds, without liability for interest thereon, in a separate account in the Bond
Fund for the benefit of the holder of such Bond, who shall thereafter be
restricted exclusively to such funds for any claim of whatever nature on his
part under this Indenture or on, or with respect to, said Bond; provided that
any funds which shall be so held by the Trustee and which remain unclaimed by
the holder of the Bond not presented for payment for a period of three years
after such die date thereof, shall be paid first to the Letter of Credit Bank to
the extent of any amounts due and payable to the Letter of Credit Bank under the
Reimbursement Agreement and then to the Borrowers free of any trust or lien and
thereafter the holder of such Bond shall look only to the Borrowers for payment
and then only to the amounts so received by the Letter of Credit Bank or the
Borrowers without any interest thereon, and the Trustee shall have no further
responsibility with respect to such moneys.
Section 4.03 Extension of Payment of Bonds. The Issuer shall not
directly or indirectly extend or assent to the extension of the maturity of any
of the Bonds or the time of payment of any claims for interest, by the purchase
or funding of such Bonds or claims for interest or by any other arrangement, and
in case the maturity of any of the Bonds or the time for payment of any such
claims for interest shall be extended, such Bonds or claims for interest shall
not be entitled in case of any event of default under this Indenture to the
benefit of the Indenture or to any payment out of the funds (except funds held
for the payment of particular Bonds or claims for interest pursuant to this
Indenture held by the Trustee or any Paying Agent) except subject to the prior
payment of the principal of all Bonds issued and outstanding the maturity of
which has not been extended and of such portion of the accrued interest on the
Bonds as shall not be represented by such extended claims for interest. Nothing
herein shall be deemed to limit the right of the Issuer to issue any duly
authorized refunding Bonds and such issuance shall not be deemed to constitute
an extension of maturity of the Bonds.
44
<PAGE> 50
Section 4.04 Payments to Trustee and Paying Agents. Pursuant to the
provisions of the Agreement, the Borrowers has agreed to pay to the Trustee,
continuing until the outstanding Bonds shall have been fully paid and discharged
in accordance with the provisions of the Indenture, the customary fees,
reasonable charges and expenses of the Trustee, as Trustee (for Ordinary and
Extraordinary Services and Expenses), Bond Registrar and Paying Agent, and of
other Paying Agents, as and when the same become due, provided, that the
Borrowers may, without creating a default thereunder, contest in good faith the
necessity for any such Extraordinary Services and Extraordinary Expenses and the
reasonableness of any such fees, charges or expenses. The initial or acceptance
fees of the Trustee and the fees, charges and expenses of the Trustee or other
Paying Agents referred to in the first sentence of this Section, which may
become due and payable during the Construction Period (as defined in the
Agreement) may be paid by the Trustee from the Construction Fund as and when the
same shall become due and payable as provided in the Agreement.
Section 4.05 Moneys to be Held in Trust. All moneys required or
permitted to be deposited with or paid to the Trustee or any Paying Agent under
any provision of this Indenture, the Letter of Credit or the Agreement, and any
investments thereof, shall be held by the Trustee or such Paying Agent in trust
and, except for moneys deposited with or paid to the Trustee or any Paying Agent
for the redemption of Bonds, notice of the redemption of which has been duly
given, and moneys held by the Trustee pursuant to Section 4.02 hereof, shall,
while held by the Trustee or Paying Agent, be subject to the lien hereof.
Section 4.06 Insurance and Condemnation Proceeds. In the event that Net
Proceeds, or an amount equal to Net Proceeds, of any insurance or condemnation
award shall be paid to the Trustee for the account of the Issuer and deposited
in a special account or in the Reimbursement Account in the Bond Fund, in
accordance with the provisions of Section 5.8 of the Agreement, the Trustee
hereby agrees to accept and disburse such Net Proceeds or amount as directed by
the Issuer with the consent of the Letter of Credit Bank and the Borrowers. Any
such Net Proceeds or amount equal thereto deposited in the Reimbursement Account
in the Bond Fund, in accordance with the provisions of said Section 5.8 shall be
applied in the manner provided in Section 2.9 of the Agreement.
Section 4.07 Repayment to the Borrowers or the Letter of Credit Bank
from the Bond Fund. Except as provided in Section 4.02 of this Indenture, any
amounts remaining in the Bond Fund, after all of the outstanding Bonds shall be
deemed to have been paid and discharged under the provisions of this Indenture,
and the fees, charges and expenses of the Trustee and the Paying Agents and all
other amounts required to be paid under this Indenture and the Agreement shall
have been paid, shall be paid first to the Letter of Credit Bank in satisfaction
of any outstanding obligations of the Borrowers or the Company to the Letter of
Credit Bank under the terms of the Reimbursement Agreement and then to the
Borrowers upon the expiration or sooner termination of the Agreement, provided
that nothing contained herein shall impair any right of the Issuer or the
Trustee under this Agreement, this Indenture or 'Law to recover from such
amounts prior to such payment to the Borrowers any loss, cost or expense
incurred as a result of any default by the Borrowers in any payment of Loan
Payments.
45
<PAGE> 51
Section 4.08 Records of Construction Fund. The Trustee shall cause to
be kept and maintained adequate records pertaining to the Construction Fund and
all disbursements therefrom. After the Project has been completed and a
certificate of payment of all costs is filed as provided in Section 4.09 hereof,
the Trustee shall as soon as practicable, if requested by the Issuer, the Letter
of Credit Bank or the Borrowers, file an accounting thereof with the Issuer, the
Letter, of Credit Bank and with the Borrowers.
Section 4.09 Completion of the Project. In the event the Project is
repaired or reconstructed following damage or destruction, the repair or
reconstruction of the Project and payment of all costs and expenses incident
thereto shall be evidenced by the filing with the Trustee and the Letter of
Credit Bank of (i) the certificate of the Authorized Borrowers Representative
required by Section 3.3 of the Agreement and (ii) a certificate signed by the
Authorized Borrowers Representative, stating that all obligations and costs in
connection with the Project and payable out of the Construction Fund have been
paid and discharged except for amounts retained by the Trustee as provided under
the Agreement for the payment of costs of the Project not then due and payable.
After the Completion Date, any balance remaining in the Construction Fund (other
than the amounts retained by the Trustee referred to in the preceding sentence)
shall be deposited or applied in accordance with Section 4.2 of the Agreement.
Section 4.10 Amendments to Agreement and Letter of Credit Not Requiring
Consent of Bondholders. The Trustee shall, without the consent of or notice to
the Bondholders, but only with the consent of the Letter of Credit Bank, consent
to any amendment, change or modification of the Agreement or the Letter of
Credit as may be required (i) by the provisions of the Agreement, the Letter of
Credit and this Indenture, (ii) in connection with the issuance of Additional
Bonds as specified in Section 2.08 hereof, (iii) for the purpose of curing any
ambiguity, inconsistency or formal defect or omission in the Agreement or the
Letter of Credit, or (iv) in connection with any other change therein which, in
the judgment of the Trustee, is not to the prejudice of the Trustee, the Issuer
or the holders of the Bonds. No duties or responsibilities of the Trustee shall
be amended, changed or modified without the written consent of the Trustee.
Section 4.11 Amendments to Agreement Requiring Consent of Bondholders.
Except for the amendments, changes or modifications as provided in Section 4.10
hereof, neither the Issuer nor the Trustee shall consent to (i) any amendment,
change or modification of the Agreement which would change the Loan Payments
under the Agreement or the Borrowers' covenant not to adversely affect the tax
exempt status of the Bonds without the mailing of notice as provided in this
Section of such proposed amendment, change or modification and the written
approval or consent thereto of the holders of all of the then outstanding Bonds,
or (ii) any other amendment, change or modification of the Agreement without the
mailing of notice as provided in this Section of such proposed amendment, change
or modification and the written approval or consent thereto of the holders of
not less than 662/3% in aggregate principal amount of the Bonds then
outstanding. Such approval or consent of the Bondholders shall be procured as
provided in Section 7.02 hereof with respect to supplemental indentures. If at
any time the Borrowers shall request the consent of the Trustee to any such
proposed amendment, change or modification of the Agreement as provided in
clause (i) or (ii) of the first sentence of this Section, the Trustee shall,
upon being satisfactorily indemnified with respect to expenses, cause notice of
such proposed amendment, change or modification to be mailed in the same manner
as provided by Section 7.02 hereof with respect to
46
<PAGE> 52
notice of supplemental indentures, which notice shall briefly set forth the
nature of such proposed amendment, change or modification and shall state that
copies of the instrument embodying the same are on file at the corporate trust
office of the Trustee for inspection by all Bondholders. Anything herein to the
contrary notwithstanding, no amendment, change or modification to the Agreement
under this Section 4.11 shall be given without the prior written consent of the
Letter of Credit Bank. No duties or responsibilities of the Trustee shall be
amended, changed or modified without the written consent of the Trustee.
Section 4.12 Subordination to Rights of the Borrowers. As provided in
Section 7.2 of the Agreement, this Indenture and the assignments and pledges
hereunder are subject and subordinate to the rights of the Borrowers under the
Agreement so long as no event of default has occurred thereunder.
Section 4.13 Removal of Portions of Project. Reference is made to the
provisions of the Agreement, including without limitation Section 5.2 thereof,
whereby the Borrowers may remove portions of the Project upon compliance with
the terms and conditions of the Agreement. The Trustee shall, at the request of
the Borrowers and upon such provisions of the Agreement being complied with,
certify that any such portions are no longer part of the Project for purposes of
this Indenture.
Section 4.14 Amendments to Letter of Credit Requiring Consent of
Bondholders. Except for the amendments to the Letter of Credit as provided in
Section 4.10 hereof, neither the Issuer nor the Trustee shall consent to any
other amendment to the Letter of Credit without consent of the Letter of Credit
Bank and the holders of not less than 662/3% in aggregate principal amount of
the Bonds then outstanding. If at any time the Issuer and the Borrowers shall
request the consent of the Trustee to any proposed amendment of the Letter of
Credit, the Trustee shall, upon being satisfactorily indemnified with respect to
expenses, cause notice to be given in the same manner as provided in Section
7.02 hereof with respect to supplemental indentures.
Section 4.15 Letter of Credit. Except as otherwise provided in this
Section, the Trustee shall deposit in the Bond Fund upon receipt all Pledged
Receipts, all moneys received upon drawings made under the Letter of Credit, all
amounts representing proceeds from the sale or liquidation of any collateral
pursuant to the Mortgage, and any other amounts which, under the terms of this
Indenture, the Note, the Agreement, the Mortgage, or the Letter of Credit are to
be applied to the payment of Bond service charges. Except as provided in this
Section 4.15 and Sections 4.02 and 4.16 hereof, the Bond Fund (and accounts
therein for which provision is made herein or in the Agreement) and the moneys
and Eligible Investments therein shall be used solely and exclusively for the
payment of Bond service charges as they fall due at stated maturity, or by
redemption or pursuant to any Mandatory Sinking Fund Requirements or upon
acceleration, all as provided herein and in the Agreement.
The Trustee shall establish separate accounts within the Bond Fund to
the extent required so that the Trustee may at all times ascertain the date and
source of deposit of the funds in each account. Moneys in the Bond Fund shall be
used to pay Bond service charges with respect to the Bonds and for the
redemption of Bonds prior to maturity and as otherwise provided in this
Indenture only in the following order:
47
<PAGE> 53
FIRST: Amounts derived from the proceeds of the initial sale and
delivery of the Bonds representing any accrued interest thereon, and
proceeds from the investment thereof;
SECOND: Amounts drawn by the Trustee under the Letter of Credit; and
THIRD: Any other amounts available in the Bond Fund.
The Issuer hereby authorizes and directs the Trustee to draw on the
Letter of Credit pursuant to its terms, in the amounts and at the times
necessary to pay Bond service charges on the Bonds pursuant to this Section
4.15.
The Trustee shall draw upon the Letter of Credit in accordance with the
terms thereof under the following circumstances:
(a) On or before 11:00 A.M., local time, on the fourth
Business Day prior to any Interest Payment Date the Trustee shall
determine the amount necessary to make all required payments of
principal and interest on the Bonds on the next succeeding Interest
Payment Date and shall present a draft to the Letter of Credit Bank
(together with required certificates under the Letter of Credit) in
such amount, so as to permit the timely transfer of funds (which in the
case of any payment of principal or interest on the Bonds, shall
require that such funds be in the Trustee's possession on the Business
Day immediately preceding the date such principal or interest is due on
the Bonds) from the Letter of Credit Bank to the Trustee for payment of
the principal of and interest on the Bonds when due, whether at
maturity or upon prior redemption or acceleration or otherwise.
(b) Upon acceleration of the Bonds upon the occurrence of an
Event of Default under Section 6.01 hereof, the Trustee shall, on or
before the Business Day following the date of declaration of the
acceleration of the Bonds, present a draft to the Letter of Credit Bank
(together with required certificates under the Letter of Credit) for
payment of the entire amount due under Section 6.02 hereof.
(c) If the Letter of Credit Bank has not transferred funds in
accordance with the Letter of Credit upon the presentment of any such
draft, the Trustee shall (i) resubmit such draft properly and take such
other action as may be necessary to cause the Letter of Credit Bank to
honor its obligations under the Letter of Credit and (ii) promptly
notify, by oral or telephonic communication confirmed in writing, the
Borrowers of the failure of the Letter of Credit Bank to transfer
funds.
In calculating the amount to be drawn on the Letter of Credit for the
payment of principal of and interest on the Bonds, whether at maturity or upon
redemption or acceleration, the Trustee shall not take into account the
potential receipt of funds from the Borrowers under the Agreement on or before
the corresponding Interest Payment Date, or the existence of any other moneys in
the Bond Fund (other than accrued interest, if any, received at the time of the
issuance and delivery of the Bonds), but shall draw on the Letter of Credit for
the full amount of principal and interest coming due on the Bonds. Upon receipt
of such moneys from the Letter of Credit Bank, the Trustee shall (i) deposit the
amount representing a drawing on the Letter of Credit for the payment of
principal and
48
<PAGE> 54
interest on the Bonds in the Bond Fund, and apply the same to the payment of
such principal and interest due on the Bonds on the next succeeding Interest
Payment Date, (ii) so long as there does not exist the Event of Default
described in Section 6.01(j) hereof, pay, on behalf of the Borrowers, but only
from and to the extent of Loan Payments and any other amounts then on deposit in
the Reimbursement Account in the Bond Fund and not derived from drawings under
the Letter of Credit, to the Letter of Credit Bank any and all amounts then due
and payable under the Reimbursement Agreement. Any payment made by the Trustee
on behalf of the Borrowers described in clause (iii) of the immediately
preceding sentence shall be made by wire transfer of immediately available funds
to the account of the Letter of Credit Bank on the date the Trustee receives
moneys pursuant to a drawing upon the Letter of Credit.
The Trustee shall transmit to any Paying Agents, as appropriate from
moneys in the Bond Fund applicable thereto, amounts sufficient to make timely
payments of principal of and any premium on the Bonds to be made by those Paying
Agents and then due and payable. To the extent that the amount needed by any
Paying Agent is not sufficiently predictable, the Trustee may, but shall not be
required to, make any credit arrangements with that Paying Agent which will
permit those payments to be made. The Issuer authorizes and directs the Trustee
to cause withdrawal of moneys from the Bond Fund which are available for the
purpose of paying, and are sufficient to pay, the principal of and any premium
on the Bonds as they become due and payable (whether at stated maturity, by
redemption or pursuant to any Mandatory Sinking Fund Requirements), for the
purposes of paying or transferring moneys to the Paying Agents which are
necessary pay such principal and premium.
Section 4.16 Extension of Letter of Credit; Alternate Letter of Credit.
The Letter of Credit expires upon the earliest to occur of (i) the Trustee's
making of the final drawing available to be made thereunder, (ii) receipt by the
Letter of Credit Bank of written notice from the Trustee that the Indenture has
been discharged and all outstanding Bonds have been deemed to be paid in full in
accordance with the Indenture or (iii) subject to the provision for extension,
and for substitution of an Alternate Letter of Credit provided for herein,
September 15, 1995.
The Letter of Credit Bank may, at its election, provide for an
extension of the expiration date of the Letter of Credit to a date not earlier
than one (1) year from the Letter of Credit Termination Date being extended. The
Borrowers may, at its option, provide for the delivery to the Trustee of an
Alternate Letter of Credit, which shall have an expiration date of not earlier
than one (1) year from the Letter of Credit Termination Date for the Letter of
Credit it replaces and shall otherwise comply with the terms of the Alternate
Letter of Credit Agreement. The issuer of the Alternate Letter of Credit must be
organized under Federal or state laws with a net worth at the time of issuance
of the Alternate Letter of Credit of an amount satisfactory to the Remarketing
Agent (or any successor entity thereto under the Letter of Credit) at such time.
If the Letter of Credit is so extended to a date not earlier than one (1) year
from the Letter of Credit Termination Date being extended, or if the Borrowers
so provides such an Alternate Letter of Credit complying with the requirements
of this paragraph, the mandatory redemption pursuant to the terms of this
Indenture shall not occur.
Section 4.17 Release of Documents Upon Termination of Letter of Credit.
Upon the termination of the Letter of Credit, and upon full payment of the
Bonds, the Trustee, upon written
49
<PAGE> 55
direction from the Borrowers, shall unconditionally and timely release and
discharge the lien of the Mortgage and any other documents or instruments given
as security by the Borrowers.
50
<PAGE> 56
ARTICLE V
THE TRUSTEE AND PAYING AGENTS
Section 5.01 Trustee's Acceptance and Responsibilities. The Trustee
hereby accepts the trusts imposed upon it by this Indenture and the Agreement,
and agrees to perform the trusts and its obligations under this Indenture and
the Agreement, but only upon and subject to the following express terms and
conditions:
(a) 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 appointed by the Trustee, in the exercise of
reasonable care, but shall be answerable for the conduct of the same in
accordance with the standard specified above, and shall be entitled to
advice of counsel concerning all matters of trusts hereof and duties
hereunder, and may in all cases pay reasonable compensation to all such
attorneys, agents, receivers and employees as may reasonably be
employed in connection with the trusts hereof. The Trustee may act upon
the opinion or advice of any attorney (who may be the attorney or
attorneys for the Issuer or the Borrowers), approved by the Trustee in
the exercise of reasonable care. The Trustee shall not be responsible
for any loss or damage resulting from any action taken or not taken in
good faith in reliance upon such opinion or advice. The Trustee shall,
however, be responsible for loss or damage resulting from any gross
negligence or willful misconduct on its part.
(b) Except for its certificate of authentication on the Bonds,
the Trustee shall not be responsible for any recital herein or in the
Bonds, or for the validity, priority, recording or rerecording, filing
or refiling of this Indenture or the Agreement or any financing
statements, amendments thereto or continuation statements, or for
insuring the Project or collecting any insurance moneys, or for the
validity of the execution by the Issuer of this Indenture or of any
supplements thereto or instruments of further assurance, or for the
sufficiency of the security hereof. The Trustee shall not be bound to
ascertain or inquire as to the performance or observance of any
covenants, conditions or agreements on the part of the Issuer or on the
part of the Borrowers under the Agreement in connection with the
matters referred to in Section 5.1 of the Agreement, except as
hereinafter set forth; but the Trustee may require of the Issuer or the
Borrowers full information and advice as to the performance of the
covenants, conditions and agreements aforesaid. Except as otherwise
provided in Section 6.03 hereof, the Trustee shall have no obligation
from any of the duties of the Issuer under the Agreement.
(c) The Trustee shall not be accountable for the application
by the Borrowers of the proceeds of any Bonds authenticated or
delivered hereunder.
(d) The Trustee shall be protected in acting upon any notice,
request, consent, certificate, order, affidavit, letter, telegram or
other paper or document believed to be genuine and correct and to have
been signed or sent by the proper person or persons. Any action taken
by the 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
51
<PAGE> 57
holder of any Bonds, shall be conclusive and binding upon all future
holders of the same Bond and of Bonds issued in exchange therefor or in
place thereof.
(e) As to the existence or nonexistence of any fact or as to
the sufficiency or validity of any instrument, paper or proceeding, the
Trustee shall be entitled to rely upon a certificate signed on behalf
of the Issuer by an authorized officer thereof, or by the Borrowers as
sufficient evidence of the facts therein contained, and, prior to the
occurrence of a default of which the Trustee has been notified as
provided in paragraph (g) of this Section, or of which by said
paragraph it is deemed to have notice, shall also be entitled to rely
upon a similar certificate to the effect that any particular dealing,
transaction or action is necessary or expedient, but may at its
discretion obtain such further evidence deemed necessary or advisable,
but shall in no case be bound to secure the same. The Trustee may
accept a certificate of an officer, or an assistant thereto, of the
Issuer having charge of the appropriate records to the effect that
legislation or any resolution in the form therein set forth has been
adopted by the Legislative Authority of the Issuer, as conclusive
evidence that such legislation or resolution has been duly adopted and
is in full force and effect.
(f) The permissive right of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty and the
Trustee shall not be answerable for other than its gross negligence or
willful misconduct.
(g) The Trustee shall not be required to take notice or be
deemed to have notice of any default hereunder, except events of
default described in paragraphs (a), (b), (h), (i) or (j) of Section
6.01 hereof, unless the Trustee shall be specifically notified by
writing delivered to it of such default by the Issuer, the Letter of
Credit Bank or the Borrowers or by the holders of at least twenty-five
percent in aggregate principal amount of Bonds then outstanding, and in
the absence of such notice so delivered the Trustee may conclusively
assume there is no default except as aforesaid.
(h) The Trustee shall not be personally liable for any debts
contracted, or for injury or damage to persons or to personal property,
or for salaries or nonfulfillment of contracts, relating to the
Project.
(i) At any and all reasonable times the Trustee and the Letter
of Credit Bank, and their duly authorized agents, attorneys, experts,
engineer accountants and representatives shall have the rightfully to
inspect the Project and any and all books, papers and records of the
Issuer pertaining to the Project and the Bonds, and to take such
memoranda from and in regard thereto and make copies thereof as may be
desired.
(j) The Trustee shall not be required to give any bond or
surety in respect of the execution of the said trusts and powers or
otherwise in respect of the premises.
(k) Notwithstanding anything elsewhere in this Indenture
contained, the Trustee shall have the right, but shall not be required,
to demand, 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
52
<PAGE> 58
information, or corporate action or evidence thereof, in addition to
that by the terms hereof required as a condition of such action by the
Trustee, deemed desirable for the purpose of establishing the right of
the Issuer to the authentication of any Bonds, the withdrawal of any
cash, the release of any property, or the taking of any other action by
the Trustee.
(l) Before taking action under Article VI or Section 5.04
hereof, the Trustee may require that a satisfactory indemnity bond be
furnished for the reimbursement of all expenses to which it may be put
and to protect it against all liability, except liability which is
adjudicated to have resulted from its negligence or willful misconduct
by reason of any action so taken.
(m) Unless otherwise provided herein, all moneys received by
the Trustee under this Indenture shall, until used or applied or
invested 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 this Indenture or by law. The Trustee
shall not be under liability for interest on any moneys received
hereunder except such as may be agreed upon with the Issuer or the
Borrowers.
Section 5.02 Fees, Charges and Expenses of Trustee and Paying Agents.
Subject to the provisions of Section 4.04 hereof, the Trustee, upon demand,
shall be entitled to timely payment and/or reimbursement for customary fees for
its Ordinary Services rendered hereunder and all advances, counsel fees and
other Ordinary Expenses reasonably and necessarily made or incurred by the
Trustee in connection with such Ordinary Services and, in the event that it
should become necessary that the Trustee perform Extraordinary Services, it
shall be entitled to customary extra compensation therefor, and to reimbursement
for reasonable and necessary Extraordinary Expenses in connection therewith;
provided, that if such Extraordinary Services or Extraordinary Expenses are
occasioned by the neglect or willful misconduct of the Trustee, it shall not he
entitled to compensation or reimbursement therefor. The Trustee and any Paying
Agent shall also be entitled to payment and reimbursement, but only from the
applicable Construction Fund or from the Additional Payments by the Borrowers
pursuant to the Agreement or from Pledged Receipts available therefor, but not
from moneys derived from drawings on the Letter of Credit, for their customary
fees and reasonable charges as Paying Agents.
Section 5.03 Notice to Bondholders if Default Occurs. If a default
occurs of which the Trustee has, pursuant to Section 5.01(g) of this Indenture,
notice, then the Trustee shall give written notice thereof within three Business
Days to the Letter of Credit Bank and to the holders of all Bonds then
outstanding as shown by the registration books maintained pursuant to Section
2.04 hereof.
Section 5.04 Intervention by Trustee. In any judicial proceeding to
which the Issuer, Letter of Credit Bank or the Borrowers is a party and which in
the opinion of the Trustee and its attorney has a substantial bearing on the
interest of holders of the Bonds, the Trustee may intervene on behalf of the
Bondholders and shall do so if requested in writing by the of at least
twenty-five percent in the aggregate principal amount of Bonds then outstanding.
The rights and obligations of the Trustee under this Section are subject to the
approval of such intervention by a court of competent jurisdiction.
53
<PAGE> 59
Section 5.05 Successor Trustee. Any corporation or association into
which the Trustee may be converted or merged, or with which it or any successor
to it may be consolidated, or to which it may sell or transfer its assets and
trust business as a whole or substantially as a whole, or any corporation or
association resulting from any such conversion, sale, merger, consolidation or
transfer to which it is a party, ipso facto, shall be and become successor
Trustee hereunder and vested with all of the title to the trust estate hereunder
and all the trusts, powers, discretions, immunities, privileges and all other
matters as was its predecessor, without the execution or filing of any
instrument or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; provided, however, that any such
successor Trustee shall be trust company, a bank or a banking association
authorized to exercise corporate trust powers within the County of Hamilton,
Ohio, having a reported capital and surplus or undivided profits of not less
than $50,000,000.
Section 5.06 Resignation by the Trustee. The Trustee may at any time
resign from the trusts hereby created by giving at least sixty (60) days'
written notice thereof to the Issuer, the Letter of Credit Bank, the Borrowers
and the Original Purchaser of each series of Bonds then outstanding, and by
giving such notice in the same manner as provided for in the Bond Legislation
for giving notice of call for redemption, not less than forty-five (45) days
before such resignation is to take effect, and such resignation shall take
effect at the appointment of a successor Trustee by the Bondholders or by the
Issuer and acceptance by the successor Trustee of such trusts.
Section 5.07 Removal of the Trustee. The Trustee may be removed at any
time by an instrument or concurrent instruments in writing delivered to the
Trustee, to the Issuer, the Letter of Credit Bank and to the Borrowers and
signed by or on behalf of the holders of a majority in aggregate principal
amount of Bonds then outstanding; provided however, that the removal of the
Trustee shall not be effective until a successor Trustee has been appointed
pursuant to Section 5.08 hereof.
Section 5.08 Appointment of Successor Trustee. In case the Trustee
hereunder shall resign or be removed, or be dissolved, or otherwise become
incapable of acting hereunder, or in case it shall be taken under the control of
any public officer or officers, or of a receiver appointed by a court, a
successor shall be appointed by the Issuer with the written consent of the
Borrowers and the Letter of Credit Bank; provided that if a successor Trustee is
not so appointed within ten days after notice of resignation is mailed or
instrument of removal is delivered as provided in sections 5.06 and 5.07,
respectively, or within ten days after the Trustee is dissolved, taken under
control or otherwise incapable of action as above provided, then the holders of
a majority in aggregate principal amount of Bonds then outstanding, by an
instrument or concurrent instruments in writing signed by or on behalf of such
holders, may designate a successor Trustee. Every such successor Trustee
appointed pursuant to the provisions of this section shall be a trust company, a
bank or a banking association in good standing, duly authorized to exercise
corporate trust powers within the County of Hamilton, Ohio, having a reported
capital and surplus or undivided profits of not less than $50,000,000 and
willing to accept the trusteeship under the terms and conditions of this
Indenture.
Section 5.09 Concerning Any Successor Trustee. Every successor Trustee
appointed hereunder shall execute, acknowledge and deliver to its predecessor
and also to the Issuer, the Letter of Credit Bank and the Borrowers, an
instrument in writing accepting such appointment hereunder,
54
<PAGE> 60
and thereupon such successor without any further act shall become fully vested
with all the rights, powers, trusts, duties and obligations of its predecessor;
but such predecessor shall, nevertheless, on the written request of its
successor or the Issuer, execute and deliver an instrument transferring to such
successor Trustee all the estates, properties, rights, powers and trusts of such
predecessor hereunder, and shall duly assign, transfer and deliver all property,
securities and moneys held by it as Trustee to its successor. Should any
instrument in writing from the Issuer be required by any successor Trustee for
more fully and certainly vesting in such successor the rights, powers and duties
hereby vested or intended to be vested in the predecessor, any and all such
instruments in writing shall, on request, be executed, acknowledged and
delivered by the Issuer.
Section 5.10 Successor Trustee as Custodian of Funds, Bond Registrar
and Paying Agent. In the event of a change in the office of Trustee, the
predecessor Trustee which has resigned or been removed shall cease to be
custodian of any funds it may hold pursuant to the Indenture, and cease to be
Bond Registrar and Paying Agent for any of the Bonds, and the successor Trustee
shall become such custodian, Bond Registrar and Paying Agent.
Section 5.11 Adoption of Authentication. In case any of the Bonds
contemplated to be issued hereunder shall have been authenticated but not
delivered, any successor Trustee may adopt the certificate of authentication of
the original Trustee or of any successor of it as Trustee hereunder and deliver
the said Bonds so authenticated as hereinbefore provided; and in case any of
such Bonds shall not have been authenticated, any successor Trustee may
authenticate such Bonds either in the name of any predecessor or in its own
name. In all such cases such certificate of authentication shall have the same
force and effect as provided in the Bonds or in this Indenture with respect to
the certificate of authentication of the Trustee.
Section 5.12 Trustee Protected in Relying Upon Instruments.
Legislation, resolutions, opinions, certificates and other instruments provided
for in this Indenture may be accepted by the Trustee as conclusive evidence of
the facts and conclusions stated therein and shall be full warrant, protection
and authority to the Trustee for its actions taken hereunder.
Section 5.13 Designation and Succession of Paying Agents. The Trustee
and the other banks or trust companies, if any, designated as Paying Agent or
Paying Agents in the Bond Legislation pertaining to a particular series of Bonds
shall be the Paying Agent or Paying Agents for the applicable series of Bonds,
and in the absence of such designation the Trustee shall be the sole Paying
Agent.
Any bank or trust company with or into which any Paying Agent other
than the Trustee may be merged or consolidated, or to which the assets and
business of such Paying Agent may be sold, shall be deemed the successor of such
Paying Agent for the purposes of this Indenture. If the position of such Paying
Agent shall become vacant for any reason, the Issuer shall, within thirty days
thereafter, appoint a bank or trust company located in the same city as such
Paying Agent to fill such vacancy; provided, however, that if the Issuer shall
fail to appoint such Paying Agent within said period, the Trustee shall make
such appointment.
55
<PAGE> 61
The Paying Agents shall enjoy the same protective provisions in the
performance of their duties hereunder as are specified in Section 5.01 hereof
with respect to the Trustee, insofar as such provisions may be applicable.
Section 5.14 Dealing in Bonds. The Trustee, the Letter of Credit Bank,
the Remarketing Agent and Paying Agents and any of their directors, officers,
employees or agents, may in good faith become the owners of Bonds secured hereby
with the same rights which it or they would have hereunder if not the Trustee,
the Letter of Credit Bank, the Remarketing Agent or Paying Agent.
Section 5.15 No Transfer of Note or Notes held by the Trustee. Except
as required to effect an assignment to a successor trustee or the Letter of
Credit Bank, or in the event of default under the Agreement, the Reimbursement
Agreement or this Indenture the Trustee shall not sell, assign, pledge or
transfer the Note or Notes held by it, and the Trustee is authorized to. enter
into an agreement with the Borrowers to such effect.
Section 5.16 Investment of Construction Fund and Bond Fund. Subject to
Article VI hereof, any moneys (except moneys in the Bond Fund derived from
drawings under the Letter of Credit) held as part of the Construction Fund, Bond
Fund or any special trust fund created pursuant to Article IV of the Agreement
shall, to the extent permitted by law, at the written or verbal (if verbal, to
be confirmed in writing) request of and as specified by the Authorized Borrowers
Representative be invested and reinvested by the Trustee in accordance with the
provisions of Section 4.5 of the Agreement and Section 10 of the Bond
Legislation. Any such investments shall be held by or under the control of the
Trustee and shall be deemed at all times a part of the Construction Fund, Bond
Fund or any such special trust fund, as the case may be, and the interest
accruing thereon and any profit realized from such investments shall be credited
as set forth in Section 5.17 of this Indenture and any loss resulting from such
investments shall be charged to such fund. The Trustee is directed to sell and
reduce to cash funds a sufficient amount of such investments whenever the cash
balance in the Construction Fund is insufficient to pay a requisition when
presented or whenever the cash balance in the Bond Fund or special trust fund is
insufficient for the uses prescribed for moneys held in the Bond Fund or special
trust fund, respectively.
The Borrowers has covenanted and agreed that it will (a) prepare and
file with the Trustee and the Issuer a report setting forth the "Rebate Amount"
determined in accordance with this Agreement, and (b) deposit or cause to be
deposited in the Excess Investment Earnings Account (as defined in the
Agreement) any and all Rebate Amounts promptly following a determination of any
such Rebate Amount.
The Trustee, as Construction Fund and Bond Fund custodian, covenants
and agrees that it will, on or before each anniversary of the date of issuance
of the Bonds, prepare and file with the Issuer and the Borrowers a report with
respect to the Construction Fund and the Bond Fund setting forth the total
amounts invested during the preceding bond year, the investments made with the
moneys in the Construction Fund and the Bond Fund and the investment earnings
(and losses) resulting from the investments in each such Fund, respectively,
together with such additional information concerning such Funds and the
investments therein, respectively, as the Issuer or the Borrowers shall
reasonably request.
56
<PAGE> 62
The Trustee agrees that it will, to the extent practicable, keep all
moneys in the Excess Investment Earnings Account fully invested in Eligible
Investments and it will disburse all moneys in the Excess Investment Earnings
Account to the United States at the times and in the manner set forth in Section
6.2 of the Agreement.
Moneys in the Excess Investment Earnings Account, including investment
earnings thereon, if any, shall be subject to the pledge of this Indenture and
shall not constitute moneys held for the benefit of the Holders of the Bonds.
Section 5.17 Allocation of Income from Investments. All interest
accruing therefrom and any profit realized from investments of moneys in the
Construction Fund and Bond Fund shall, subject to the requirements of Section
6.2 of the Agreement, be allocated as follows:
(a) Interest and profits from investment of Construction Fund
moneys shall be retained in the Construction Fund until the
redemption of the Prior Bonds, then transferred to the Bond
Fund;
(b) interest and profits from investment of Bond Fund moneys shall
be retained in the Bond Fund and shall be used for the
purposes for which the Bond Fund is created;
(c) interest and profits from investment of moneys in the Excess
Investment Earnings Account shall be applied as required in
Section 6.2 of the Agreement; and
(d) interest and profits from investment of other funds or
accounts, if any, shall be paid into the Reimbursement Account
in the Bond Fund; provided that such payment shall not, in the
opinion of nationally recognized bond counsel, impair the
tax-exempt status of interest on the Bonds.
Section 5.18 Interpleader. In the event of a dispute between any of the
parties hereto with respect to the disposition of any funds held by the Trustee
hereunder, or the Trustee receives conflicting demands made upon the Trustee
with respect to the Trustee's duties hereunder or any other document related to
the Bonds, the Trustee shall be entitled to file a suit In Interpleader In a
court of competent Jurisdiction seeking to require the parties to Interplead and
Litigate In such court their several claims and rights among themselves. Upon
the filing of such a suit and the deposit of the applicable funds to such court,
the Trustee will ipso facto be fully released and discharged from all
obligations to further perform any and all duties imposed hereunder or any other
document related to the Bonds regarding such matter and/or such funds that are
the subject of such Interpleader suit. In the event that the Trustee remains as
Trustee under this Indenture and receives a court order directive or other
request regarding the Interpleader suit, the Trustee shall be entitled to rely
upon such instruction without incurring any obligation or liability and the
parties hereto release, hold harmless and indemnify the Trustee for any
obligation or liability for so relying on such court Instruction.
Section 5.19 Survival of Certain Provisions. The provisions of Article
V of this Indenture shall survive the release, discharge and satisfaction of
this Indenture.
57
<PAGE> 63
ARTICLE VI
DEFAULT PROVISIONS AND REMEDIES
OF TRUSTEE AND BONDHOLDERS
Section 6.01 Defaults; Events of Default. If any of the following
events occur, subject to the provisions of Section 6.10 hereof, it is hereby
defined as and declared to be and to constitute an "event of default" hereunder:
(a) Failure to pay any interest on any Bond when and as the same
shall have become due and payable;
(b) failure to pay the principal of or any premium on any Bond
when and as the same shall become due and payable, whether at
stated maturity or by acceleration or by mandatory or optional
redemption;
(c) failure by the Issuer to perform or observe any other
covenant, agreement or condition on the part of the Issuer
contained in this Indenture or in the Bonds, which failure
shall have continued for a period of thirty days after written
notice, by registered or certified mail, to the Issuer and to
the Borrowers specifying the failure and requiring the same to
be remedied, which notice may be given by the Trustee in its
discretion and which notice shall be given by the Trustee at
the written request of the holders of not less than
twenty-five percent in aggregate principal amount of Bonds
then outstanding;
(d) the occurrence of an event of default by the Borrowers as
defined in the Mortgage;
(e) the occurrence of an event of default by the Borrowers under
the Note;
(f) the occurrence of an event of default by the Borrowers under
the Agreement;
(g) receipt by the Borrowers, the Issuer and the Trustee of a
notice from the Letter of Credit Bank that an event of default
exists and is subsisting under the Reimbursement Agreement;
(h) the Letter of Credit Bank shall: (i) commence a proceeding
under any Federal or state insolvency, liquidation, custodial,
reorganization or similar law, or proceeding commenced against
it and either have an order of insolvency or reorganization
entered against it or have the proceeding remain undismissed
and unstayed for ninety (90) days, or (ii) have a receiver,
liquidator, custodian or trustee appointed for it or for the
whole or any substantial part of its property; provided,
however, that the Borrowers have not obtained an Alternate
Letter of Credit within forty-five (45) days following such
event;
(i) subsequent to any drawing by the Trustee under the Letter of
Credit (referred to hereinafter as a "Drawing"), if the
Trustee shall receive notice from the Letter of
58
<PAGE> 64
Credit Bank that the amount available to be drawn by the
Trustee under the letter of credit has not been reinstated
within ten (10 days to an amount not less than the principal
of, and one hundred ninety-five (195) days accrued interest on
the outstanding Project Bonds; provided, however, that the
Borrowers have not obtained an Alternate Letter of Credit
within twenty-five (25) days following such event; or
(j) failure of the Letter of Credit Bank to honor any proper
drawing (including Principal or Interest Drawings) in timely
fashion so that the funds necessary to pay such principal and
interest are in the possession of the Trustee on the Interest
Payment Date on which such principal and interest is due to
the holders of the Project Bonds; provided, however, that the
Borrowers has not obtained an Alternate Letter of Credit
within twenty-five (25) days following such event.
Upon the occurrence of any event of default, the Trustee shall within
five days after notice of such event of default as provided in Section 5.01(g)
hereof, give written notice of the event of default, by registered or certified
mail, to the Issuer, the Borrowers, the Letter of Credit Bank and the Original
Purchaser.
Section 6.02 Acceleration. Upon the occurrence of an Event of Default,
as defined in Section 6.01 hereof, as specified in Subsections (a), (b), (i) or
(j), of Section 6.01 hereof, the Trustee shall declare, by a notice in writing
delivered to the Borrowers, the principal of all Bonds then outstanding (if not
then due and payable), together with interest accrued thereon, to be due and
payable immediately. Upon the occurrence of any other Event of Default, other
than an Event of Default under Subsection (h), the Trustee shall, upon the
written direction of the Letter of Credit Bank, declare, by a notice in writing
delivered to the Borrowers, the principal of all Bonds then outstanding (if not
then due and payable), together with interest accrued thereon, to be due and
payable immediately. Upon the occurrence of an Event of Default described in
Subsection (h) of Section 6.01 hereof, if there is not then an existing Event of
Default described in Subsections (a), (b), (i), or (j) of Section 6.01 hereof,
then the Trustee, without the written request of the Letter of Credit Bank may,
and upon the written request of the holders of not less than 25 percent in
aggregate principal amount of Bonds then outstanding shall, declare the
principal of all Bonds then outstanding, together with interest accrued thereon,
to be due and payable immediately. Upon any such declaration, principal and
interest shall become and be due and payable immediately. Interest on the Bonds
shall accrue to the date determined by the Trustee for the tender of payment to
the holders pursuant to that declaration which date must be within the period
for which principal of and interest on the Bonds is covered by the amount
available under the Letter of Credit; provided, that interest on any unpaid
principal of Bonds outstanding shall continue to accrue from the date determined
by the Trustee for the tender of payment to the holders of those Bonds.
Any such declaration shall be by notice in writing to the Issuer, the
Letter of Credit Bank and the Borrowers, and, upon said declaration, principal
and interest on all Bonds shall become and be immediately due and payable. The
Trustee immediately upon such declaration shall give notice thereof in the same
manner and within the same time period as provided in Section 3.03 hereof with
respect to redemption of the Bonds. Such notice shall specify the date on which
payment of principal and interest shall be tendered to the holders of the Bonds.
Upon any declaration of acceleration hereunder, the Trustee shall (i)
immediately exercise such rights as it may have under the Agreement
59
<PAGE> 65
and the Notes to declare all payments thereunder to be immediately due and
payable and (ii) immediately draw upon the Letter of Credit to the full extent
permitted by the terms thereof.
Anything herein to the contrary notwithstanding, if the Borrowers fail
to provide the Trustee with a written statement to the effect that a
Determination of Taxability has occurred as a result of a violation of the
capital expenditure limit under section 144(a) of the Code, the Trustee may, at
the expense of the Borrowers, request an opinion of nationally-recognized bond
counsel acceptable to the Borrowers with regard to the tax-exempt status of the
Bonds, and if in the opinion of such bond counsel the Bonds are taxable, the
Trustee shall declare, by a notice in writing delivered to the Borrowers, the
principal of all Bonds then outstanding (if not then due and payable), together
with interest accrued thereon, to be due and payable immediately.
Section 6.03 Other Remedies; Rights of Bondholders. Upon the happening
and continuance of an event of default the Trustee may, with or without taking
action under section 6.02 hereof, pursue any available remedy, including without
limitation actions at law or in equity, to enforce the payment of Bond service
charges or to remedy any event of default.
Upon the happening and continuance of an event of default, and if
requested so to do by the holders of at least twenty-five percent in aggregate
principal amount of Bonds then outstanding and indemnified at its option, as
provided in Section 5.01 hereof, the Trustee shall exercise such of the rights
and powers conferred by this Section and by Section 6.02 as the Trustee being
advised by counsel, shall deem most effective to enforce and protect the
interests of the Bondholders.
No remedy conferred upon or reserved to the Trustee (or to the
Bondholders) hereby is intended to be exclusive of any other remedy, but each
and every such remedy shall be cumulative and shall be in addition to any other
remedy given to the Trustee or to the Bondholders hereunder or now or hereafter
existing.
No delay or omission to exercise any right or power accruing upon any
default or event of default shall impair any such right or power or shall be
construed to be a waiver of any such default or event of default or acquiescence
therein; and every such right and power may be exercised from time to time and
as often as may be deemed expedient.
No waiver of any default or event of default hereunder, whether by the
Trustee or by the Bondholders, shall extend to or shall affect any subsequent
default or event of default or shall impair any rights or remedies consequent
thereon.
The Trustee, as the assignee of all right, title and interest of the
Issuer in and to the Agreement (except Unassigned Issuer Rights) and the Note,
shall enforce each and every right granted to the Issuer under the Agreement and
the Note. In exercising such rights and the rights given the Trustee under this
Article VI, the Trustee shall take such action as, in the judgment of the
Trustee, applying the standards described in Section 5.01 hereof, would best
serve the interests of the Bondholders.
Section 6.04 Right of Bondholders to Direct Proceedings. Anything in
this Indenture to the contrary notwithstanding, the holders of more than fifty
percent (50%) in aggregate principal
60
<PAGE> 66
amount of Bonds then outstanding shall have the right at any time, by an
instrument or instruments in writing executed and delivered to the Trustee, to
direct the method and place of conducting all proceedings to be taken in
connection with the enforcement of the terms and conditions of this indenture or
for the appointment of a receiver or any other proceedings hereunder; provided,
that such direction shall not be otherwise than in accordance with the
provisions of law and of this Indenture, and provided that the Trustee shall be
indemnified to its satisfaction.
Section 6.05 Appointment of Receivers. 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 Trustee and of the Bondholders under
this Indenture, the Agreement, and the Note, the Trustee shall be entitled, as a
matter of right, to the appointment of a receiver or receivers of the Pledged
Receipts, pending such proceedings, with such power as the court making such
appointment shall confer.
Upon the occurrence of an event of default, to the extent such rights
may then lawfully be waived, neither the issuer, nor the Borrowers, nor anyone
claiming through or under either of them, shall set up, claim, or seek to take
advantage of any stay, extension, moratorium or redemption laws now or hereafter
in force, in order to prevent or hinder the enforcement of this Indenture, but
the Issuer, for itself and all who may claim through or under it, hereby waives,
to the extent it may lawfully do so, the benefit of all such laws and all right
of redemption to which it may be entitled.
Section 6.06 Allocation of Moneys. All moneys received by the Trustee
or a receiver pursuant to any right given or action taken under the provisions
of this Article shall, after payment of the Trustee's fees and expenses, subject
to any provision made pursuant to Sections 3.04 or 4.02 hereof, be deposited in
the Bond Fund and all moneys in the Bond Fund shall be applied as follows:
(a) Unless the principal of all the Bonds shall have become or
have been declared due and payable, all such moneys shall be
applied:
First--To the payment to the persons entitled thereto of all
installments of interest then due on the Bonds, in the order of
maturity of the installments of such interest beginning with the
earliest such maturity and, if the amount available shall not be
sufficient to pay in full any particular installment, then to the
payment thereof ratably, according to the amounts due on such
installment, to the persons entitled thereto, without any
discrimination or privilege except as to any difference in the
respective rates of interest specified in the Bonds; and
Second--To the payment to the persons entitled thereto of the unpaid
principal of any of the Bonds which shall have become due (other than
Bonds previously called for redemption for the payment of which moneys
are held pursuant to the provisions of this Indenture) whether at
maturity or by call for redemption, in the order of their due dates and
beginning with the earliest such due date, with interest on such Bonds
from the respective dates upon which they became due and if the amount
available shall not be sufficient to pay in full all Bonds due on any
particular date, together with such interest, then to the payment
thereof ratably, according to the amount of principal due on such date,
to the persons entitled thereto without any discrimination or
privilege.
61
<PAGE> 67
(b) If the principal of all the Bonds shall have become due or
shall have been declared due and payable pursuant to this
Article, all such moneys shall be applied to the payment of
the principal and interest then due and unpaid upon the Bonds,
without preference or priority of principal over interest or
of interest over principal, or of any installment of interest
over any other installment of interest, or of any Bond over
any other Bond, ratably, according to the amounts due
respectively for principal and interest, to the persons
entitled thereto without any discrimination or privilege
except as to any difference in the respective rates of
interest specified in the Bonds.
(c) If the principal of all the Bonds shall have been declared due
and payable pursuant to this Article, and if such declaration
shall thereafter have been rescinded and annulled under the
provisions of Section 6.10 hereof, then, subject to the
provisions of paragraph (b) of this Section in the event that
the principal of all the Bonds shall later become due or be
declared due and payable, the moneys shall be applied in
accordance with the provisions of paragraph (a) of this
Section;
provided, however, that prior to any application of moneys as set forth above,
the Trustee shall be entitled to its customary fees and reasonable expenses
incurred in the enforcement of any remedies under this Indenture.
The Letter of Credit is issued by the Letter of Credit Bank only with
respect to the payment of principal and interest on the Project Bonds for the
benefit of the Trustee on behalf of the holders of such Project Bonds. Proceeds
of draws on the Letter of Credit shall not be used for any other purpose.
Whenever moneys are to be applied pursuant to the provisions of this
Section, such moneys shall be applied at such times, and from time to time, as
the Trustee shall determine, having due regard to the amount of such moneys
available for application and the likelihood of additional moneys becoming
available for such application in the future. Whenever the Trustee shall apply
such funds, it shall fix the date (which shall be an Interest Payment Date
unless it shall deem another date more suitable) upon which such application is
to be made and upon such date interest on the amounts of principal to be paid on
such dates, and for which moneys are available, shall cease to accrue. The
Trustee shall give notice as it may deem appropriate of the deposit with it of
any moneys and of the fixing of any such date, and shall not be required to make
payment to the holder of any unpaid Bond until such Bond shall be presented to
the Trustee for cancellation if fully paid.
The provisions of this section are in all respects subject to the
provisions of Section 4.03 hereof.
Whenever all Bonds and interest thereon have been paid under the
provisions of this Section and all fees, expenses and charges of the Trustee and
Paying Agents and all other expenses payable under this Indenture have been
paid, any balance remaining in the Bond Fund shall be paid as provided in
Section 4.07 hereof.
Section 6.07 Remedies Vested in Trustee. All rights of action
(including the right to file proof of claims) under this Indenture or under any
of the Bonds may be enforced by the Trustee
62
<PAGE> 68
without the possession of any of the Bonds or the production thereof in any
trial or other proceeding relating thereto and any such suit or proceeding
instituted by the Trustee shall be brought in its name as Trustee without the
necessity of joining as plaintiffs or defendants any holders of the Bonds, and
any recovery of judgment shall be for the benefit of the holders of the
outstanding Bonds, subject, however, to the provisions of this Indenture.
Section 6.08 Rights and Remedies of Bondholders. No holder of any Bond
shall have any right to institute any suit, action or proceeding for the
enforcement of this Indenture or for the execution of any power or trust thereof
or for the appointment of a receiver or any other remedy hereunder, unless an
event of default hereunder has occurred and is continuing, of which the Trustee
has been notified as provided in section 5.01(g), or of which by said paragraph
it is deemed to have notice, and the holders of at least twenty-five percent in
aggregate principal amount of Bonds then outstanding shall have made written
request to the Trustee and shall have afforded the Trustee reasonable
opportunity to proceed to exercise the powers or trusts hereinbefore granted or
to institute such action, suit or proceeding in its own name; and have offered
to the Trustee indemnity as provided in Section 5.01, and the Trustee shall
thereafter fail or refuse to exercise the powers or trusts hereinbefore granted
or to institute such action, suit or proceeding in its own name; and such
notification, request and offer of indemnity are hereby declared in every case
at the option of the Trustee to be conditions precedent to the execution of the
powers and trusts of this Indenture, and to any action or cause of action for
the enforcement of this Indenture, or for the appointment of a receiver or for
any other remedy hereunder; it being understood and intended that no one or more
holders of the Bond shall have any right in any manner whatsoever to affect,
disturb or prejudice the lien of this Indenture by its, his, or her action or to
enforce any right hereunder except in the manner herein provided and that
proceedings shall be instituted, had and maintained in the manner herein
provided and for the benefit of the holders and owners of all Bonds then
outstanding. Subject to the foregoing, each Bondholder shall have a right of
action to enforce the payment of the principal of and interest on any Bond held
or owned by him at and after the maturity thereof at the place, from the sources
and in the manner in said Bond expressed.
Section 6.09 Termination of Proceedings. In case the Trustee shall have
proceeded to enforce any right under this Indenture by the appointment of a
receiver or otherwise, and such proceeding shall have been discontinued or
abandoned for any reason, or shall have been determined adversely, then and in
every such case the Issuer, the Trustee and the Bondholders shall be restored to
their former positions and rights hereunder, respectively, and all rights,
remedies and powers of the Trustee shall continue unimpaired as before.
Section 6.10 Waivers of Events of Default. The Trustee with the consent
of the Letter of Credit Bank, other than in the case of an event of default
described in Section 6.01(a), (b), (h), (i) or (j) hereof, may in its discretion
waive any event of default under this Indenture and its consequences and rescind
any declaration of maturity of principal, and shall do so at the written request
of (1) the Letter of Credit Bank and (2) the holders of at least 25% in
aggregate principal amount of all Project Bonds and Additional Bonds then
outstanding; provided, however, that there shall not be waived any event of
default described in paragraphs (a) or (b) of Section 6.01 hereof or any such
declaration in connection therewith rescinded. In case of any such waiver or
rescission, or in case any proceeding taken by the Trustee on account of any
such event of default shall have been discontinued or abandoned or determined
adversely, then and in every such case the Issuer, the
63
<PAGE> 69
Trustee, the Letter of Credit Bank and the Bondholders shall be restored to
their former positions and rights hereunder respectively, but no such waiver or
rescission shall extend to any subsequent or other event of default, or impair
any right consequent thereon.
Section 6.11 Expense and Services After an Event of Default. When the
Trustee incurs expenses or renders services after the occurrence of an Event of
Default described in this Article VI, the expenses and compensation for services
are intended to constitute expenses of administration under any bankruptcy law.
64
<PAGE> 70
ARTICLE VII
SUPPLEMENTAL INDENTURES
Section 7.01 Supplemental Indentures Not Requiring Consent of
Bondholders. The Issuer and the Trustee may without the consent of, or notice
to, any of the Bondholders, but only with the consent of the Letter of Credit
Bank, enter into indentures supplemental to this Indenture and financing
statements or other instruments evidencing the existence of a lien and/or
security interests and amendments to the Letter of Credit as shall not, in the
opinion of the Issuer and the Trustee, be inconsistent with the terms and
provisions hereof for any one or more of the following purposes:
(a) To cure any ambiguity, inconsistency or formal defect or
omission in this Indenture or the Letter of Credit;
(b) To grant to or confer upon the Trustee for the benefit of the
Bondholders any additional rights, remedies, powers, or
authority that may lawfully be granted to or conferred upon
the Bondholders or the Trustee;
(c) To subject additional revenues, additional notes or interests
in real estate to the liens and pledge of the Indenture;
(d) To add to the covenants and agreements of the Issuer contained
in the Indenture other covenants and agreements thereafter to
be observed for the protection of the Bondholders, or to
surrender or limit any right, power or authority reserved to
or conferred upon the Issuer in the Indenture, including the
limitation of rights of redemption so that in certain
instances Bonds of different series will be redeemed in some
prescribed relationship to one another;
(e) To evidence any succession to the Issuer and the assumption by
such successor of the covenants and agreements of the Issuer
contained in the Indenture, the Agreement and the Bonds or of
the Letter of Credit Bank contained in the Letter of Credit;
(f) To modify, amend or supplement the Indenture in such manner as
to permit the qualification thereof under the Trust Indenture
Act of 1939, as amended, or to comply with any similar
requirements of any other law;
(g) In connection with the issuance of Additional Bonds in
accordance with Section 2.08 hereof and Section 8 of the Bond
Legislation for the Project Bonds; and
(h) Any other change not to the detriment of the holders of the
Bonds.
The Trustee may also accept, without the consent of or notice to any of the
Bondholders, an Alternate Letter of Credit or any amendments to the Letter of
Credit necessary to continue the effectiveness of the letter of Credit as
originally intended or which in the judgment of the Trustee are not to the
prejudice of the Bondholders.
65
<PAGE> 71
Section 7.02 Supplemental Indentures Requiring Consent of Bondholders.
Exclusive of supplemental indentures referred to in. Section 7.01 hereof and
subject to the terms and provisions and limitations contained in this section,
and not otherwise, the holders of not less than 662/3% in aggregate principal
amount of the Bonds then outstanding shall have the right, from time to time,
anything contained in any other Section or provision of this Indenture to the
contrary notwithstanding, with the consent of the Letter of Credit Bank, to
consent to and approve the execution by the Issuer and the Trustee of such other
indenture or indentures supplemental to this Indenture as shall be deemed
necessary and desirable by the Issuer and the Trustee for the purpose of
modifying, altering, amending, adding to or rescinding, in any particular, any
of the terms or provisions contained in this Indenture; provided, however, that
nothing in this Section or elsewhere shall permit, or be construed as
permitting, a supplemental indenture providing for (a) an extension of the
maturity of the principal or of the interest on any Bond, or a reduction in the
principal amount of any Bond or the rate of interest or redemption premium
thereon, or a reduction in the amount or extension of the time of any payment
required by any Mandatory Sinking Fund Requirements provided for in the Bond
Legislation, without the consent of the holder of each Bond so affected, or (b)
a privilege or priority of any Bond or Bonds over any other Bond or Bonds, a
reduction in the aggregate principal amount of the Bonds required for consent to
such supplemental indenture, or (c) an extension of the time for or reduction in
the amount of any payment under the Letter of Credit without the consent of the
Letter of Credit Bank and the holders of all of the then outstanding Bonds.
If at any time the Issuer shall request the Trustee to enter into any
such supplemental indenture for any of the purposes of this Section, the Trustee
shall, if any Bonds are at the time outstanding, upon being satisfactorily
indemnified with respect to expenses, cause notice of the proposed execution of
such supplemental indenture to be mailed by first-class mail, postage prepaid,
to the Original Purchaser of each series of Bonds and to all registered holders
of Bonds then outstanding at their addresses as they appear on the registration
books herein provided for. The Trustee shall not, however, be subject to any
liability to any Bondholder by reason of its failure to mail, or the failure of
such Bondholder to receive, the notice required by this section, and any such
failure shall not affect the validity of such supplemental indenture when
consented to and approved as provided in this Section. Such notice shall briefly
set forth the nature of the proposed supplemental indenture and shall state that
copies thereof are on file at the office of the Trustee for inspection by all
Bondholders. Such notice or notices may be waived by an instrument or concurrent
instruments executed by the holders or owners of all Bonds at, the time
outstanding.
If, within 60 days or such longer period as shall be prescribed by the
Trustee following the mailing of such notice the holders of not less than 662/3%
of the aggregate principal amount of the Bonds then outstanding shall have
consented to the adoption thereof, such supplemental indenture may be executed
and this Indenture shall be deemed to be modified and amended in accordance
therewith. The holders of not less than 662/3% of the aggregate principal amount
of the Bonds then outstanding shall be deemed to have consented to and approved
the adoption of such supplemental indenture if the Trustee does not receive
letters of protest or objections thereto signed by or on behalf of the holders
of 331/3% or more of the aggregate principal amount of the Bonds then
outstanding on or before 3:30 P.M. local time at the principal corporate trust
office of the Trustee on the 60th day after mailing of the aforesaid notice.
66
<PAGE> 72
Any such consent shall be binding upon the holder of the Bond giving
such consent and, anything in Section 9.01 hereof to the contrary
notwithstanding, upon any subsequent holder of such Bond and of any Bond issued
in exchange therefor (whether or not such subsequent holder has notice thereof),
unless such consent is revoked by the holder of such Bond giving such consent or
by a subsequent holder thereof by filing with the Trustee, prior to the
execution by the Trustee of such supplemental indenture, such revocation and, if
such Bond or Bonds are transferable by delivery, proof that such Bonds are held
by the signer of such revocation in the manner permitted by Section 9.01. At any
time after the holders of the required percentage of Bonds shall have consented
to the supplemental indenture, the Trustee shall make and file with the Issuer a
written statement that the holders of such required percentage of Bonds have so
consented. Such written statement shall be conclusive that such consents have
been so filed.
If the holders of the required percentage in aggregate principal amount
of the Bonds outstanding shall have consented to and approved the execution
thereof as herein provided, no holder of any Bond shall have any right to object
to the execution of such supplemental indenture, or to object to any of the
terms and provisions contained therein or the operation thereof, or in any
manner to question the propriety of the execution thereof, or to enjoin or
restrain the Trustee or the Issuer from executing the same or from taking any
act ion pursuant to the provisions thereof. Notwithstanding any provision to the
contrary contained in this section, no supplemental indenture shall amend,
change or modify any duty or duties of the Trustee without the written consent
of the Trustee.
Section 7.03 Consent of the Borrowers. Anything herein to the contrary
notwithstanding, a supplemental indenture under this Article VII which affects
any rights or obligations of the Borrowers shall not become effective unless and
until the Borrowers shall have consented in writing to the execution and
delivery of such supplemental indenture. In this regard, the Trustee shall cause
notice of the proposed execution and delivery of any supplemental indenture
together with a copy of the proposed supplemental indenture to be mailed as
provided in Section 9.04 hereof to the Borrowers at least ten days before the
date of its proposed execution and delivery in the case of a supplemental
indenture referred to in Section 7.01 hereof, and not later than five days after
such mailing of the notice of the proposed execution and delivery in the case of
a supplemental indenture provided for in Section 7.02 hereof.
Section 7.04 Authorization to Trustee; Effect of Supplement. The
Trustee is authorized to join with the Issuer in the execution of any
supplemental indenture provided for in this Article and to make the further
agreements and stipulations which may be contained therein. Any supplemental
indenture executed in accordance with the provisions of this Article shall
thereafter form a part of this Indenture; all the terms and conditions contained
in any such supplemental indenture as to any provision authorized to be
contained therein shall be deemed to be part of the terms and conditions of this
Indenture for any and all purposes; this Indenture shall be and be deemed to be
modified and amended in accordance therewith; and the respective rights, duties
and obligations under this Indenture of the Issuer, the Borrowers, the Trustee,
the Letter of Credit Bank, the Remarketing Agent, the Indexing Agent, the Paying
Agents and all holders of Bonds then outstanding shall thereafter be determined,
exercised and enforced thereunder, subject in all respects to such modifications
and amendments. Express reference to such executed supplemental indenture may be
made in the text of any Bonds issued thereafter, if deemed necessary or
desirable by the Trustee or
67
<PAGE> 73
the Issuer. A copy of any supplemental indenture provided for in this Article,
except such as may be entered into pursuant to clause (g) of Section 7.01
hereof, shall be mailed by the Trustee to the Original Purchaser of each and
every series of Bonds affected thereby.
Section 7.05 Opinion of Counsel. The Trustee shall be entitled to
receive, and shall be fully protected in relying upon, the opinion of any
counsel approved by it, who may be counsel for the Issuer, as conclusive
evidence that any such proposed supplemental indenture complies with the
provisions of this Indenture, and that it is proper for the Trustee, under the
provisions of this Article, to join in the execution of such supplemental
indenture.
Section 7.06 Modification by Unanimous Consent. Notwithstanding
anything contained elsewhere in this Indenture, the rights and obligations of
the Issuer and of the holders of the Bonds, and the terms and provisions of the
Bonds and this Indenture or any supplemental indenture, may be modified or
altered in any respect with the consent of the Issuer, the consent of the
Trustee, the consent of the Letter of Credit Bank and the consent of the holders
of all of the Bonds then outstanding and, if required by Section 7.03 hereof,
the consent of the Borrowers.
68
<PAGE> 74
ARTICLE VIII
DISCHARGE OF LIEN
Section 8.01 Release of Indenture. If the Issuer shall pay or cause to
be paid and discharged all the outstanding Bonds or there shall otherwise be
paid to the holders of the outstanding Bonds all Bond service charges due or to
become due thereon, and provision shall also be made for paying all other sums
payable hereunder by the Issuer or by the Borrowers, including the fees or
expenses of the Trustee, then and in that event this Indenture (except for
Sections 4.01, 4.02, 4.07 and 8.02 hereof) shall cease, determine and become
null and void, and the covenants, agreements and other obligations of the Issuer
hereunder shall be discharged and satisfied, and thereupon the Trustee shall
release this Indenture, including the cancellation and discharge of the lien
hereof, and execute and deliver to the Issuer such instruments in writing as
shall be requisite to satisfy the lien hereof and to enter on the records such
satisfaction and discharge and such other instruments to evidence such release
and discharge as may be reasonably required by the Issuer; and the Trustee and
Paying Agents shall assign and deliver to the Issuer any property, other than
the Note or Notes, at the time subject to the lien of this Indenture which may
then be in their possession, except amounts in the Bond Fund required to be paid
to the Borrowers or the Letter of Credit Bank under Section 4.07 hereof, or to
be held by the Trustee and Paying Agents under Section 4.02 hereof or otherwise
for the payment of Bond service charges.
Section 8.02 Payment and Discharge of Bonds. All the outstanding Bonds
of one or more series or of one or more maturities within any series shall be
deemed to have been paid and discharged within the meaning of this Indenture,
including, without limitation, Section 8.01 hereof, if:
(a) The Trustee and the Paying Agents shall hold in the Bond Fund
in trust for and irrevocably committed thereto, sufficient
moneys drawn under the Letter of Credit plus any premium
deposited by the Borrowers with the Trustee for at least 91
days, or
(b) the Trustee shall hold in the Bond Fund in trust for and
irrevocably committed thereto, direct obligations of, or
obligations guaranteed by, the United States (or securities or
receipts evidencing ownership interests in such obligations)
which have been purchased from moneys drawn under the Letter
of Credit plus any premium deposited by the Borrowers with the
Trustee for at least 91 days certified by an independent
accounting firm of national reputation to be of such
maturities and interest payment dates and to bear such
interest as will, without further investment or reinvestment
of either the principal amount thereof or the interest
earnings therefrom (likewise to be held in trust and
committed, except as hereinafter provided), be sufficient
together with moneys (if any) referred to in (a) above, for
the payment, at their maturities or redemption dates, of all
Bond service charges thereon to the date of maturity or
redemption, as the case may be, or if default in such payment
shall have occurred on such date then to the date of the
tender of such payment; provided, that if any of such Bonds
are to be redeemed prior to the maturity thereof, notice of
such redemption shall have been duly given or irrevocable
69
<PAGE> 75
provision satisfactory to the Trustee shall have been duly
made for the giving of such notice. Any moneys held by the
Trustee in accordance with the provisions of this section may
be invested by the Trustee, but only in direct obligations of,
or obligations guaranteed by, the United states the maturities
or redemption dates of which, at the option of the holder,
shall coincide as nearly as practicable with, but not later
than, the time or times at which said moneys will be required
for the aforesaid purposes. Any income or interest earned by,
or increment to, the investments held under this Section
shall, to the extent determined from time to time by the
Trustee to be in excess of the amount required to be held by
it for the purposes of this Section, be transferred at the
time of such determination as provided in Section 4.07 hereof
for transfers of remaining amounts in the Bond Fund. In the
event of non-presentment as referred to in Section 4.02
hereof, the moneys held pursuant to this Section to which
Section 4.02 would apply but for the release of this Indenture
shall be held and paid as provided for in said Section 4.02.
Bonds so paid and discharged shall thereafter be secured
solely by the moneys and investments so deposited and held for
their payment, and shall no longer be secured by the Pledged
Receipts or a lien upon the Note or Notes, provided that if
payment or provision therefor has been made in accordance with
this section 8.02 with respect to all the Bonds of any series
of Bonds or of one or more maturities within any series, the
Trustee shall surrender the Note or Notes relating to such
Bonds to the Borrowers.
In the event that this Indenture is satisfied and discharged in
accordance with the first paragraph of this Section and Section 8.01 hereof, the
holders of any Bonds then outstanding, the maturity or redemption dates thereof
having not then arrived, shall have the right (to the extent that such will not
result in insufficient moneys to pay Bond service charges on other Bonds at
maturity or redemption) as of and on any Interest Payment Date to surrender said
Bonds to a Paying Agent designated in such Bonds, and, upon such surrender, to
be paid the principal amount of any Bond surrendered, plus the redemption
premium, if any, held in accordance with this section on account of the
surrendered Bond, plus interest accrued on any such Bond so surrendered computed
to such Interest Payment Date; provided that such right may be exercised only
after the holders of any such Bonds to be surrendered have given written notice
to the Trustee, at least sixty days before the Interest Payment Date on which
they request such payment, of their intent to so surrender the Bonds for such
payment and setting forth in such notice the Bonds to be surrendered. If any
Bond as to which such notice of intent has been given is not surrendered on or
before such Interest Payment Date, surrender thereof for payment need not be
accepted for a period of one year from said date. The Trustee shall give notice
within thirty days after such discharge and satisfaction of this Indenture in
the same manner as provided in Section 3 of the Bond Legislation for the Project
Bonds for notice of call for redemption, to the holders of such Bonds provided
for in this paragraph of their rights under this paragraph; provided that
failure so to mail any such notice shall not impose any liability on the Trustee
nor affect the satisfaction and discharge of this Indenture.
70
<PAGE> 76
ARTICLE IX
MISCELLANEOUS
Section 9.01 Instruments of Bondholders. Any consent, request,
direction, approval, objection or other instrument required by the Indenture to
be signed and executed by the Bondholders may be in any number of concurrent
writings of similar tenor and may be signed or executed by such Bondholders in
person or by agent appointed in writing. Proof of the execution of any such
consent, request, direction, approval, objection or other instrument or of the
writing appointing any such agent and of the ownership of Bonds, if made in the
following manner shall be sufficient for any of the purposes of this Indenture,
and shall be conclusive in favor of the Trustee with regard to any action taken
under such request or other instrument, namely:
(a) The fact and date of the execution by any person of any such
writing may be proved by the certificate of any officer in any
jurisdiction, who by law has power to take acknowledgments
within such jurisdiction, that the person signing such writing
acknowledged before him the execution thereof, or by affidavit
of any witness to such execution.
(b) The fact of ownership of fully registered Bonds shall be
proved by the registration books maintained by the Bond
Registrar.
Nothing contained herein shall be construed as limiting the Trustee to
such proof, it being intended that the Trustee may accept any other evidence of
the matter herein stated which it deems to be sufficient. Any request or consent
of the holder of any Bond shall bind every future holder of the same Bond in
respect to anything done or suffered to be done by the Issuer, the Trustee or
any Paying Agent in pursuance of such request or consent.
Section 9.02 Limitation of Rights. With the exception of rights herein
expressly conferred, nothing expressed or mentioned in or to be implied from the
Indenture or the Bonds is intended or shall be construed to give to any person
other than the parties hereto, the Borrowers, the Letter of Credit Bank and the
holders of the Bonds, any legal or equitable right, remedy or claim under or in
respect to this Indenture or any covenants, conditions and provisions herein
contained; this Indenture and all of the covenants, conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of the
parties hereto, the Borrowers, the Letter of Credit Bank and the holders of the
Bonds as herein provided.
Section 9.03 Severability. In case any clause, provision or section of
this Indenture, or in case any covenant, stipulation, obligation, agreement,
act, or action, or part thereof, made, assumed, entered into, or taken under
this Indenture, or any application thereof, is for any reason held to be
illegal, invalid or inoperable, such illegality or invalidity or inoperability
shall not affect the remainder thereof or any other clause, provision or section
of this Indenture or any other covenant, stipulation, obligation, agreement,
act, or action, or part thereof, made, assumed, entered into, or taken under
this Indenture, which shall at the time be construed and enforced as if such
illegal or invalid or inoperable portion were not contained herein, nor shall
such illegality or invalidity or inoperability or any application thereof affect
any legal and valid and operable application from time
71
<PAGE> 77
to time, and each such section, provision, covenant, stipulation, obligation,
agreement, act, or action, or part thereof, shall be deemed to be effective,
operative, made, entered into or taken in the manner and to the full extent from
time to time permitted by law.
Section 9.04 Notices. Except as provided in Section 6.01 hereof, it
shall be sufficient service or giving of any notice, request, complaint, demand
or other paper if the same shall be duly mailed by first class mail addressed to
the Notice Addresses. Duplicate copies of each notice, certificate or other
communication given hereunder by the Issuer, Trustee, Remarketing Agent, Letter
of Credit Bank or the Borrowers to one or more of the others shall also be given
to the others. The Issuer, the Borrowers, the Letter of Credit Bank, the
Remarketing Agent and the Trustee may, by notice given hereunder, designate any
further or different addresses to which subsequent notices, certificates or
other communications shall be sent, but no such notice shall thereby be required
to be sent to more than two addresses.
Section 9.05 Payments Due on Saturdays, Sundays and Holidays. In any
case where the date of maturity of interest on or principal of the Bonds or the
date fixed for redemption of any Bonds shall be a Saturday or Sunday or a day on
which the Trustee or any Paying Agent is required, or authorized or not
prohibited, by law (including executive orders) to close and is closed, then
payment of such interest or principal and any redemption premium need not be
made by such Paying Agent 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, and no interest shall accrue for the period
after such date.
Section 9.06 Priority Over Other Liens. This Indenture is given in
order to secure funds to pay for new acquisition, construction or equipping and
by reason thereof it is intended that this Indenture shall be superior to any
liens which may be placed upon the Bond Fund or Construction Fund.
Section 9.07 Extent of Covenants; No Personal Liability. All covenants,
stipulations, obligations and agreements of the Issuer contained in the
Indenture shall be effective to the extent authorized and permitted by
applicable law. No such covenant, stipulation, obligation or agreement shall be
deemed to be a covenant, stipulation, obligation or agreement of any present or
future member, officer, agent or employee of the Issuer or its Legislative
Authority in his individual capacity, and neither the members of the Legislative
Authority nor any official 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.
Section 9.08 Power to Issue Bonds and Make Pledges. The Issuer is duly
authorized pursuant to law to create and issue the Bonds and enter into this
Indenture and to pledge the Pledged Receipts, the Bond Fund and all its right,
title and interest in and under the Agreement and the Note in the manner and to
the extent provided in this Indenture. The Bonds are and will be the valid and
legally enforceable special obligations of the Issuer and the provisions of this
Indenture are and will be the valid and legally enforceable obligations of the
Issuer, all in accordance with their terms and the terms of this Indenture. The
issuer shall at all times, to the extent permitted by law, defend, preserve and
protect the pledge of the Pledged Receipts, the Bond Fund and all its right,
title and
72
<PAGE> 78
interest in and under the Agreement and the Note and all the rights of the
Bondholders under this Indenture against all claims and demands of all persons
whomsoever.
Section 9.09 Binding Effect. This instrument shall inure to the benefit
of and shall be binding upon the Issuer and the Trustee and their respective
successors and assigns, subject, however, to the limitations contained in this
Indenture.
Section 9.10 Counterparts. This Indenture may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, and all of which
when taken together and bearing the signatures of each of the parties hereto
shall constitute but one and the same instrument.
Section 9.11 Cautions. The captions or headings in this Indenture are
for convenience only and in no way define, limit or describe the scope or intent
of any provisions or sections of this Indenture.
Section 9.12 Governing Law. This Indenture and the Bonds shall be
deemed to be contracts made under the laws of the state and for all purposes
shall be governed by and construed in accordance with the laws of the State.
Section 9.13 Security Agreement. This Indenture constitutes a security
agreement and the Trustee as secured party shall have all the remedies available
to a secured party under the Ohio Uniform Commercial Code.
Section 9.14 Continuing Obligation. The parties hereto acknowledge and
agree that the Loan Agreement, the Reimbursement Agreement, the Note and the
Mortgage are continuing obligations and will (i) be binding upon the Borrowers,
its successors and assigns, and (ii) inure to the benefit of and be enforceable
by the Trustee and the Letter of Credit Bank and their respective successors,
transferees and assigns; provided that the Borrowers may not assign all or any
part of the foregoing instruments without the prior written consent of the
Letter of Credit Bank. Except as set forth in the preceding sentence and except
with respect to the holder(s) of any participation made by the Letter of Credit
Bank of the Reimbursement Agreement and the Letter of Credit, no Person not a
party to this Agreement will be entitled to the benefit of this Agreement.
73
<PAGE> 79
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Trust
Indenture to be executed in their respective names by their duly authorized
officers, all as of the day and year first above written.
COUNTY OF HAMILTON, OHIO
By: _______________________________
County Commissioner
By: _______________________________
County Commissioner
By: _______________________________
County Commissioner
THE FIFTH THIRD BANK,
as Trustee
By: _______________________________
Title: _______________________________
74
<PAGE> 1
EXHIBIT 10.48
LOAN AGREEMENT
Between
COUNTY OF HAMILTON, OHIO
and
ADAM WUEST REALTY, INC.
AND
ADAM WUEST, INC.
$2,980,000
ECONOMIC DEVELOPMENT
REVENUE REFUNDING BONDS, SERIES 1994
(ADAM WUEST, INC. PROJECT)
Dated as of February 1, 1994
Certain of the interests of the County of Hamilton, Ohio in this Loan Agreement
have been assigned to The Fifth Third Bank, Cincinnati, Ohio, as Trustee under
the Trust Indenture dated as of February 1, 1994, from the County of Hamilton,
Ohio.
This instrument prepared by:
Timothy J. Quinn, Esq.
Taft, Stettinius & Hollister
1800 Star Bank Center
Cincinnati, Ohio 45202
<PAGE> 2
TABLE OF CONTENTS
(The Table of Contents is not a part of the Agreement but for convenience of
reference only.)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PREAMBLES ............................................................................................. 1
ARTICLE I
DEFINITIONS.................................................................................. 2
Section 1.1. General....................................................................... 2
Section 1.2. Definitions................................................................... 2
ARTICLE II
THE LOAN; LOAN PAYMENTS, LETTER OF CREDIT AND ADDITIONAL PAYMENTS; BORROWERS TO EXECUTE
AND DELIVER NOTE............................................................................ 10
Section 2.1. Amount and Terms of the Loan; the Note....................................... 10
Section 2.2. Additional Payments.......................................................... 12
Section 2.3. Notes........................................................................ 13
Section 2.4. Assignment of Payments and Note.............................................. 14
Section 2.5. Obligations Unconditional.................................................... 14
Section 2.6. Prepayment of Loan and Additional Payments:
Moneys for Purchase or Optional Redemption................................ 15
Section 2.7. Past Due Loan Payments and Additional Payments............................... 15
Section 2.8. Redemption of Bonds.......................................................... 15
Section 2.9. Application of Certain Proceeds.............................................. 16
Section 2.10. Adjustment of Loan Payments in the Event of Redemption or
Cancellation of Project Bonds............................................... 16
Section 2.11. Assignment of Agreement and Pledged Receipts................................. 16
Section 2.12. [Reserved]................................................................... 16
Section 2.13. Letter of Credit............................................................. 16
ARTICLE III
ACQUISITION, CONSTRUCTION, EQUIPPING AND OWNERSHIP OF THE PROJECT........................... 17
Section 3.1. Acquisition, Construction and Equipping of the Project........................ 17
Section 3.2. Plans and Specifications...................................................... 17
Section 3.3. Completion Date............................................................... 17
Section 3.4. Agreement as to Ownership of Project.......................................... 17
Section 3.5. Use of Project................................................................ 17
Section 3.6. Additional Bonds.............................................................. 17
Section 3.7. Opinion to be Provided........................................................ 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IV
ISSUANCE OF BONDS; APPLICATION OF PROCEEDS................................................... 18
Section 4.1. Issuance of Bonds; Deposit of Bond Proceeds................................... 18
Section 4.2. Disbursements from the Construction Fund...................................... 18
Section 4.3. Obligation of the Parties to Cooperate in Furnishing Documents................ 18
Section 4.4. Borrowers Required to Pay Costs in Event Construction Fund Insufficient....... 18
Section 4.5. Investment of Fund Moneys..................................................... 19
ARTICLE V
MAINTENANCE; INSURANCE; DAMAGE; DESTRUCTION AND EMINENT DOMAIN............................... 19
Section 5.1 Maintenance................................................................... 19
Section 5.2. Removal of Portions of the Project............................................ 19
Section 5.3. Option to Release Portion of Project.......................................... 19
Section 5.4. Insurance Required............................................................ 19
Section 5.5. Title Insurance............................................................... 20
Section 5.6. Worker's Compensation Coverage................................................ 20
Section 5.7. [Reserved].................................................................... 20
Section 5.8. Damage, Destruction and Eminent Domain........................................ 20
ARTICLE VI
WARRANTIES, REPRESENTATIONS AND SPECIAL COVENANTS............................................ 20
Section 6.1. Warranty of Issuer............................................................ 20
Section 6.2. Representations and Warranties of the Borrowers............................... 21
Section 6.3. Covenants Regarding Maintenance of Company's
and Realty's Existence as Corporations..................................... 28
Section 6.4. Financial Statements.......................................................... 29
Section 6.5. Borrowers' Approval of Indenture.............................................. 29
Section 6.6. Right of Access............................................................... 29
Section 6.7. Indemnification............................................................... 29
Section 6.8. Borrowers Not to Adversely Affect Tax Exempt
Status of Interest on Project Bonds........................................ 29
ARTICLE VII
ASSIGNMENT................................................................................... 30
Section 7.1. Assignment by Borrowers....................................................... 30
Section 7.2. Assignment by Issuer.......................................................... 31
ARTICLE VIII
TERMINATION AND PREPAYMENT................................................................... 31
Section 8.1. Option to Terminate........................................................... 31
Section 8.2. Option to Prepay Loan......................................................... 31
Section 8.3. Obligation to Prepay Loan..................................................... 32
Section 8.4. Notice of Prepayment.......................................................... 32
Section 8.5. Prepayment Price.............................................................. 32
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 8.6. Relative Position of this Article and Indenture............................... 33
Section 8.7. Concurrent Discharge of Note.................................................. 33
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES............................................................... 33
Section 9.1. Events of Default............................................................. 33
Section 9.2. Remedies on Default........................................................... 34
Section 9.3. No Remedy Exclusive........................................................... 35
Section 9.4. Agreement to Pay Attorneys' Fees and Expenses................................. 35
Section 9.5. No Additional Waiver Implied by One Waiver.................................... 36
ARTICLE X
MISCELLANEOUS................................................................................ 36
Section 10.1. Term of Agreement............................................................. 36
Section 10.2. Amounts Remaining in Bond Fund................................................ 36
Section 10.3. Notices....................................................................... 36
Section 10.4. Binding Effect................................................................ 36
Section 10.5. Amendments, Changes and Modifications......................................... 37
Section 10.6. Counterparts.................................................................. 37
Section 10.7. Severability.................................................................. 37
Section 10.8. Cautions...................................................................... 37
Section 10.9. Governing Law................................................................. 37
Section 10.10. Selection of Alternate Letter of Credit....................................... 37
Section 10.11. Continuing Obligation......................................................... 37
Section 10.12. Assumption of Obligations of Realty........................................... 38
SIGNATURES ............................................................................................. 38
CERTIFICATE ............................................................................................. 39
EXHIBIT A
FORM OF PROMISSORY NOTE...................................................................... 40
EXHIBIT B
PROJECT ..................................................................................... 44
EXHIBIT C
PROJECT SITE ................................................................................ 45
EXHIBIT
DISBURSEMENT REQUEST FORM.................................................................... 46
</TABLE>
-iii-
<PAGE> 5
LOAN AGREEMENT
Among
COUNTY OF HAMILTON, OHIO
And
ADAM WUEST REALTY, INC.
And
ADAM WUEST, INC.
THIS LOAN AGREEMENT made and entered into as of the first day of
February, 1994, among the COUNTY OF HAMILTON, OHIO (hereinafter called the
"Issuer"), a county and political subdivision organized and existing under the
laws of the State of Ohio, ADAM WUEST REALTY, INC., an Ohio corporation
(hereinafter called "Realty"), and ADAM WUEST, INC., an Ohio corporation
(hereinafter called the "Company") (the Company and Realty are sometimes
hereinafter referred to as the "Borrowers").
W I T N E S S E T H
WHEREAS, Section 13 of Article VIII of the Ohio Constitution provides,
among other things, for the passage of laws authorizing the State, its political
subdivisions and their agencies or instrumentalities, to make loans to others,
to acquire, construct, enlarge, improve and equip, and lease and sell property,
structures, equipment and facilities for industry, commerce, distribution and
research and to make loans and to issue bonds to provide funds by loans for such
purposes, in order to create or preserve jobs and employment opportunities and
improve the economic welfare of the people of the State; and
WHEREAS, pursuant thereto, Ohio Revised Code Chapter 165 provides,
among other things, for the issuance of revenue bonds of the Issuer to provide
funds to make loans to others to purchase, construct, reconstruct, enlarge,
improve, furnish and equip real or personal property or both, or interests
therein, and to refund prior industrial development bond issues, to create or
preserve employment opportunities and to improve the economic welfare of the
Issuer, for the use of such property for industry, commerce, distribution or
research; and
WHEREAS, the Legislative Authority has found and determined, and hereby
finds and determines, that the industrial, commercial and economic welfare of
the Issuer will be benefitted by the Project, and negotiations have been carried
on between the Issuer and the Borrower with respect to the issuance by the
Issuer of its economic development revenue refunding bonds (hereinafter called
the "Project Bonds") and the loan of the proceeds derived from the sale of the
Project Bonds in order to assist in the refunding of the bonds (the "Prior
Bonds") of the Issuer which were issued for the financing of the acquisition,
construction and equipment of manufacturing facilities comprising the Project
(hereinafter defined), which facilities are owned by the Borrowers; and the
Issuer, through its Legislative Authority, has found and determined, and hereby
finds and determines, that the refunding of the Prior Bonds as hereinabove
described will promote the welfare of the people of the Issuer, stabilize the
economy, provide employment, and assist in the development of commercial
activities to the benefit of the people of the Issuer and will provide
additional opportunities for their gainful employment or preservation of their
employment, and that such refunding is authorized by, and
<PAGE> 6
will be consistent with and in of, the provisions of Article VIII, Section 13 of
the Ohio Constitution and of the laws of the State of Ohio, particularly Chapter
165 of the Ohio Revised Code, and the Plan aforesaid; and
WHEREAS, the Borrowers and the Issuer each have full right and lawful
authority to enter into this Loan Agreement (hereinafter called the "Agreement",
and, when the context permits, references herein to the Agreement shall be
deemed to include amendments hereto) and to perform and observe the provisions
hereof on their respective parts to be performed and observed;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto covenant, agree and bind
themselves as follows, provided, that any obligation of the Issuer created by or
arising out of this Agreement, shall never constitute a debt or a pledge of the
faith and credit or the taxing power of the Issuer, the State of Ohio or any
political subdivision or taxing district thereof but shall be payable solely out
of Pledged Receipts as herein defined, anything herein contained to the contrary
by implication or otherwise notwithstanding:
ARTICLE I
DEFINITIONS
Section 1.1. General. In addition to the words and terms elsewhere
defined in this Agreement, certain words and terms as used in this Agreement
shall have the meanings given to them by the definitions and descriptions in
this Article I unless the context or use indicates another or different meaning
or intent, and such definitions shall be equally applicable to both the singular
and plural forms of any of the words and terms herein defined. Those words and
terms not specifically defined herein and used in this Agreement and Article I
as defined words or terms shall have the meanings set forth in the Indenture, as
defined herein.
Section 1.2. Definitions. The following words and terms are defined
terms under this Agreement:
"Act" means Chapter 165 of the Ohio Revised Code, enacted and amended
pursuant to Section 13 of Article VIII and other provisions of the Ohio
Constitution.
"Additional Bonds" means Bonds issued pursuant to Section 8 of the Bond
Legislation.
"Additional Payments" means the amounts required to be paid by the
provisions of Section 2.2 of this Agreement.
"Agreement" means this Loan Agreement between the Issuer and the
Borrowers, dated as of February 1, 1994, as the same may be duly amended,
modified or supplemented in accordance with the provisions hereof.
-2-
<PAGE> 7
"Alternate Letter of Credit" means an Alternate Letter of Credit as
defined in the Indenture.
"Assignment of Rents and Leases" means the Assignment of Rents and
Leases dated as of February 1, 1994, from the Borrowers to the Trustee and the
Letter of Credit Bank, as amended or supplemented.
"Authorized Borrowers Representative" means any person reasonably
acceptable to the Trustee and the Letter of Credit Bank and from time to time
designated to act on behalf of both the Borrowers by written certificate
furnished to the Issuer, the Letter of Credit Bank and the Trustee, containing
the specimen signature of such person and signed on behalf of the Borrowers by
officers of both Borrowers. Such certificate may designate an alternate or
alternates who shall have the same authority duties and powers as such
Authorized Representative.
"Authorized Issuer Representative" means the person from time to time
designated to act on behalf of the Issuer by written certificate furnished to
the Borrowers and Trustee, containing the specimen signature of such person and
signed on behalf of the Issuer. Such certificate may designate an alternate or
alternates who shall have the same authority, duties arid powers as the
Authorized Issuer Representative.
"Bonds" means the Project Bond or Project Bonds and any Additional
Bonds issued and to be issued pursuant to the Indenture.
"Bond Fund" means the Bond Fund created in Section 7 of the Bond
Legislation and Indenture.
"Bond Fund Payment" means as to the Project Bonds an amount equal to
the interest accrued on the Project Bonds from their date to the date of their
delivery to the Original Purchaser and payment therefor, and as to Additional
Bonds the amount specified in the Bond Legislation authorizing such Additional
Bonds, provided that the Bond Fund Payment for any Additional Bonds shall not be
less than an amount equal to the interest accrued on such Additional Bonds from
their date to the date of delivery of such Additional Bonds to their original
purchaser and payment therefor.
"Bond Purchase Agreement" means the Bond Purchase Agreement, by and
among the Issuer, the Borrowers, the Letter of Credit Bank and the Original
Purchaser.
"Bondholder" or "Holder" or "holder" or "holder of Bonds" means any
person in whose name a Bond is registered.
"Bond Legislation" means the resolution adopted by the Legislative
Authority of the Issuer authorizing the Project Bonds, except that when used
with reference to an issue of Additional Bonds it shall mean the aforesaid order
and resolution to the extent applicable and other legislation providing for the
issuance of such Additional Bonds, and except that when used with reference to
Bonds when Additional Bonds are outstanding, it shall mean the order and
-3-
<PAGE> 8
resolution first referred to above and the Bond Legislation providing for the
issuance of Additional Bonds, all as the same may from time to time be lawfully
amended, modified or supplemented.
"Bond Redemption Date" means any date, other than an Interest Payment
Date, upon which Bonds shall be redeemed pursuant to the Indenture.
"Bond service charges" for any time period or with respect to any date
means the principal, including mandatory sinking fund redemption requirements,
interest, and redemption premium, if any, required to be paid by the Issuer on
the Bonds for such time period or on such date.
"Code" means the Internal Revenue Code of 1986, and with respect to a
specific section thereof such reference shall be deemed to include (i) the
regulations prescribed under such section, (ii) any successor provision of
similar import hereafter enacted, (iii) any corresponding provision of any
subsequent Internal Revenue Code, and (iv) the regulations prescribed under the
provisions described in (ii) and (iii).
"Company" means Adam Wuest, Inc., an Ohio corporation and its
successors and assigns.
"Construction Fund" means the Construction Fund created Section 6 of
the Bond Legislation.
"Determination of Taxability" means (i) the enactment of legislation or
the adoption of final regulations or a final decision, ruling or technical
advice by any Federal judicial or administrative authority which has the effect
of requiring interest on the Bonds to be included in the gross income of the
holders for Federal income tax purposes (other than a holder who is a
"substantial user" of the Project or a "related person" as those terms are used
in Section 147(a) and 144(a) of the Code and other than Bonds held by or pledged
to the Letter of Credit Bank); or (ii) the delivery to the Trustee of a written
statement signed by the Authorized Borrower Representative to the effect that
the Borrowers have exceeded or will exceed the maximum amount of capital
expenditures permitted under Section 144(a)(4) of the Code; provided that no
decision by any court or decision, ruling or technical advice by any
administrative authority shall be considered final (a) unless the holder
involved in the proceeding or action giving rise to such decision, ruling or
technical advice (i) gives the Borrowers and the Trustee prompt notice of the
commencement thereof, and (ii) offers the Borrowers the opportunity to control
the contest thereof, provided the Borrowers shall have agreed to bear all
expenses in connection therewith and to indemnify that holder against all
liabilities in connection therewith, and (b) until the expiration of all periods
for judicial review or appeal.
"Eligible Investments" means Eligible Investments as defined in the
indenture.
"Engineer" means an engineer or engineering firm or an architect or
architectural firm qualified to practice the profession of engineering or
architecture under the laws of the State,
-4-
<PAGE> 9
and who or which is acceptable to the Borrowers, the Trustee and the Letter of
Credit Bank and is not an officer or full-time employee of the Issuer or the
Borrowers.
"Event of Taxability" means the occurrence of circumstances on the
basis of which a Determination of Taxability shall have been found to have
occurred, or which shall constitute a Determination of Taxability, and which
result in the interest payable on the Bonds becoming includable in the gross
income for Federal income tax purposes of the holders of the Bonds (other than a
holder who is a "substantial user" of the Project or a "related person" as such
are defined or used in Section 147(a) and 144(a) of the Code).
"Indenture" means the Trust Indenture between the Issuer and The Fifth
Third Bank, as Trustee, of even date herewith, as the same may be duly amended,
modified or supplemented in accordance with the provisions thereof.
"Independent Counsel" means any attorney or firm of attorneys
acceptable to the Trustee and to the Issuer and who is not an officer, partner
or a full-time employee of the Issuer or the Borrowers, and in the case of a
firm, none of the attorneys or members of which is an officer, partner or a
full-time employee of the Issuer or the Borrowers.
"Interest Payment Date" means the first day of each March and
September, commencing September 1, 1994.
"Interest Rate for Advances" means a rate per annum which is equal to
the sum of the Prime Rate, plus two percent (2.00%).
"Lease" means the Lease Agreement between Realty and the Company
relating to the Project Site.
"Legislative Authority" means the Board of County Commissioners of the
Issuer.
"Letter of Credit" means the Letter of Credit as defined in the
Indenture.
"Letter of Credit Bank" means, as to the Project Bonds, The Fifth Third
Bank, Cincinnati, Ohio, and its successors under the Letter of Credit and the
issuer of any Alternate Letter of Credit.
"Loan" means the loan by the Issuer to the Borrowers of the proceeds
from the sale of the Project Bonds to the Original Purchaser as the same may
hereafter be increased from the proceeds from the sale of Additional Bonds.
"Loan Payment Date" means each Bond Redemption Date, each Interest
Payment Date, each Principal Payment Date, each Mandatory Redemption Date, the
date upon which any advance payment of principal or interest is required by the
provisions of Section 2.1 of this Agreement, and any date on which any principal
of, premium, if any, or interest on the Bonds shall be due and payable upon
mandatory redemption because of acceleration.
-5-
<PAGE> 10
"Loan Payments" means the amounts required to be paid and/or prepaid by
the provisions of Section 2.1 of this Agreement, as the same may hereafter be
amended or supplemented.
"Mandatory Redemption Date" means as to any Additional Bonds, the date
or dates specified in the applicable Bond Legislation on which such Additional
Bonds are to be retired prior to maturity pursuant to Mandatory Sinking Fund
Requirements. As appropriate, the maturity date for any series of Project Bonds
shall also be deemed to be a "Mandatory Redemption Date." There are no Mandatory
Redemption Dates for the Projected Bonds.
"Mandatory Sinking Fund Requirements" means amounts required by the
Bond Legislation to be deposited in the Bond Fund for the purpose of retiring,
on a specified date, principal maturities of Bonds which by their terms are due
and payable, if not called for prior redemption, at a subsequent date.
"Mortgage" means the Open-End Mortgage and Security Agreement from the
Borrowers to the Trustee and the Letter of Credit Bank with respect to the
Project and other property as described therein, dated as of February 1, 1994,
as the same may be duly amended, modified or supplemented in accordance with the
provisions thereof.
"Net Proceeds" means, as to any insurance proceeds or any condemnation
award, the amount remaining after deducting therefrom all expenses (including
attorneys' fees and any Extraordinary Expenses, as defined in the Indenture, of
the Trustee) incurred in the collection of such proceeds or award.
"Note" or "Notes" means the promissory note dated as of February 1,
1994, constituting the joint and several promise of the Borrowers to repay the
Loan to the Issuer, which Note shall be in substantially the form attached to
this Agreement as Exhibit A. and any additional promissory note or notes
executed and delivered with respect to Additional Bonds.
"Notice Address" means:
(a) As to the Issuer:
County of Hamilton, Ohio
Administration Building, Room 603
138 East Court Street
Cincinnati, Ohio 45202
Attention: President, Board of
County Commissioners
(b) As to the Borrowers:
Adam Wuest Realty, Inc.
645 Lynn Street
Cincinnati, Ohio 45203
Attention: Vice President, Finance
-6-
<PAGE> 11
and
Adam Wuest, Inc.
645 Lynn Street
Cincinnati, Ohio 45203
Attention: Vice President, Finance
(c) As to the Trustee:
The Fifth Third Bank
Fifth Third Bank Center
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Corporate Trust Department
(d) As to the Original Purchaser:
Gradison Division of McDonald &
Company Securities, Inc.
580 Walnut Street
Cincinnati, Ohio 45202
Attention: Mr. Daniel R. Blank
Vice President
(e) As to the Letter of Credit Bank:
The Fifth Third Bank
Fifth Third Center
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Mr. Thomas Schiller
Vice President
or such different address, notice of which is given under Section 10.3 of this
Agreement, but no such notice shall thereby be required to be sent to more than
two addresses.
"Original Purchaser" means, as to the Project Bonds, Gradison Division
of McDonald & Company Securities, Inc., Cincinnati, Ohio, and, as to any
Additional Bonds, the person or persons identified as such in the Bond
Legislation providing for the issuance of such Additional Bonds.
"Outstanding Bonds" or "Bonds outstanding" or "outstanding" as applied
to Bonds, means, as of any date, all Bonds which have been authenticated and
delivered, or are then being delivered, by the Trustee under the Indenture
except:
(a) Bonds surrendered for and replaced upon exchange or transfer,
or cancelled because of payment or redemption, at or prior to
such date;
-7-
<PAGE> 12
(b) Bonds which are deemed to have been paid and discharged
pursuant to the provisions of Section 8.02 of the Indenture;
provided that if such Bonds are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been
given or arrangements satisfactory to the Trustee shall have
been made therefor, or waiver of such notice satisfactory in
form to the Trustee shall have been filed with the Trustee;
and
(c) Bonds in lieu of which others have been authenticated (or
payment, when due, of which is made without replacement) under
Section 2.05 of the Indenture;
and also except that
(d) For the purpose of determining whether the holders of the
requisite principal amount of Bonds have made or concurred in
any notice, request, demand, direction, consent, approval,
order, waiver, acceptance, appointment or other instrument or
communication under or pursuant to the Indenture, Bonds owned
by or for the account of either of the Borrowers or any person
owned, controlled by, under common control with or controlling
either of the Borrowers, but specifically excluding Bonds, if
any, held or owned by, or pledged to, the Letter of Credit
Bank, shall be disregarded and deemed to be not outstanding.
The term "control" (including the terms "controlling",
"controlled by" and "under common control with") 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. Borrowership of 5% or more of a class
of securities having general voting power to elect a majority
of the board of directors of a corporation shall be conclusive
evidence of control of such corporation.
"Paying Agents" means any banks or trust companies designated as the
paying agencies or places of payment for Bonds by or pursuant to the applicable
Bond Legislation, and their successors designated pursuant to the Indenture.
"Person" means an individual, a partnership, a corporation, a trust, an
unincorporated organization, a joint-stock venture, an association and a
government or any department or agency thereof.
"Pledged Receipts" means (a) the Loan Payments, including the payments
of principal of and interest and any premium on the Note, (b) subject to the
provisions of Sections 3.04, 4.02 and 8.02 of the Indenture with respect to the
Trustee holding moneys for the benefit of the holders of particular Bonds, all
other moneys received by the Issuer or the Trustee for the account of the
Issuer, including condemnation awards, insurance proceeds, and other payments
pursuant to this Agreement or in respect to the Loan, (c) the proceeds of the
Bonds and any moneys deposited in the Construction Fund and the Bond Fund from
whatever source including any draws under the Letter of Credit, and (d) the
income and profit from the investment of the
-8-
<PAGE> 13
Loan Payments and such moneys deposited in the Construction Fund and the Bond
Fund. Moneys in the Excess Investment Earnings Account shall constitute Pledged
Receipts.
"Prime Rate" shall have the meaning a signed to such term in the
Reimbursement Agreement.
"Principal Payment Date" means, as to the Project Bonds, the first day
of each September in the years in which the Project Bonds mature (or are subject
to redemption pursuant to Mandatory Sinking Fund Requirements) as provided in
Section 3 of the Bond Legislation, and as to Additional Bonds, the date or dates
identified as such in the Bond Legislation authorizing such Additional Bonds.
"Prior Bonds" means the $3,450,000 Economic Development Revenue Bonds,
Series 1990 (Adam Wuest, Inc. Project), of the Issuer, dated September 1, 1990.
"Project" means the real, personal or real and personal property,
including undivided or other interests therein, identified in Exhibits B and C
of this Agreement, or in or pursuant to any amendments thereto or hereto or in
the certificate of the Authorized Borrowers Representative given pursuant to
Section 3.3 of this Agreement, or acquired, constructed or installed as a
replacement or substitution therefor or an addition thereto. The Project is
comprised of the Project Site and the Project Equipment.
"Project Bonds" means the Bond or Bonds initially issued by the Issuer
pursuant to the Indenture and designated "Economic Development Revenue Refunding
Bonds, Series 1994 (Adam Wuest, Inc. Project)".
"Project Equipment" means the personal property described in Exhibit B
of this Agreement. The Project Equipment shall be owned by Adam Wuest, Inc., an
Ohio corporation.
"Project Purposes" means the purposes of a manufacturing facility as
described in the Act.
"Project Site" means the real property described in Exhibit C of this
Agreement. The Project Site, which includes the buildings and fixtures located
thereon, shall be owned by Adam Wuest Realty, Inc., an Ohio corporation, and
leased to the Company.
"Rating Services" means Standard & Poor's Corporation or Moody's
Investor Service, or their successors and assigns, or if both are dissolved or
no longer assigning credit ratings to long term debt, then such other nationally
recognized service assigning credit ratings to long term debt designated by the
Borrowers and acceptable to the Remarketing Agent and the Letter of Credit Bank.
"Realty" means Adam Wuest Realty, Inc., an Ohio Corporation, and
Realty's assigns, including any transferee corporation or other entity as
provided in Section 6.3 of this Agreement.
-9-
<PAGE> 14
"Registered Bonds" means Bonds registered in the name of the holder.
"Reimbursement Agreement" means the Reimbursement Agreement by and
among the Borrowers and the Letter of Credit Bank pursuant to which the Letter
of Credit is to be issued, as from time to time replaced, supplemented or
amended.
"State" means the State of Ohio.
"Termination Date" means September 1, 2010, subject to earlier
termination as provided in this Agreement.
"Trustee" means the bank or trust company at the time serving as
Trustee under the Indenture.
"Unassigned Issuer's Rights" means all of the rights of the Issuer to
receive Additional Payments under Section 2.2 hereof, and to be held harmless
and indemnified and to be reimbursed for attorney's fees and expenses under
Section 6.7 hereof.
Any reference herein to the Issuer, to the Legislative Authority, or to
any officers thereof, shall include any person or entity which succeeds to its
or their duties or responsibilities pursuant to or by operation of law. Any
reference to a section or provision of the Ohio Constitution or the Act or to a
section, provision or chapter of the Ohio Revised Code shall include such
section or provision or chapter as from time to time amended, modified, revised,
supplemented, or superseded; provided, however, that no such change in the
Constitution or laws (a) shall alter the obligation to pay the Bond service
charges in the amounts and manner, at the times, and from the sources provided
in the Bond Legislation and the Indenture, except as otherwise herein permitted
or (b) shall be deemed applicable by reason of this provision if such change
would in any way constitute an impairment of the rights of the Issuer, the
Letter of Credit Bank or the Borrowers under the Agreement or the Indenture.
The terms "hereof", "hereby", "hereto", "hereunder", and similar terms,
refer to this Loan Agreement.
ARTICLE II
THE LOAN; LOAN PAYMENTS, LETTER OF CREDIT AND ADDITIONAL PAYMENTS;
BORROWERS TO EXECUTE AND DELIVER NOTE
Section 2.1. Amount and Terms of the Loan; the Note. The Issuer agrees,
subject to the terms and conditions in this Agreement, to lend to the Borrowers
the proceeds from the sale of the Project Bonds. Such proceeds (after deducting
the original Purchaser's bond discount, if any) shall be deposited with the
Trustee and disbursed, after deducting the Bond Fund Payment as provided in the
Indenture, in accordance with the provisions of Section 4.2 hereof in payment of
costs of refunding the Prior Bonds. Concurrently with the issuance of the
Project Bonds, the Borrowers agree to and shall execute and deliver a Note in
substantially the
-10-
<PAGE> 15
form attached hereto as Exhibit A, evidencing the obligation of the Borrowers,
jointly and severally, to repay the Loan made by the Issuer. Such Note shall be
dated as of February 1, 1994, shall be payable to the order of the Issuer for
the principal amount of the Loan, and shall be payable in the amounts and at the
rates set forth in such Note. Such amounts of principal, interest and premium,
if any, shall together constitute the Loan Payments. Realty's obligation under
the Note shall be limited as provided in the Note.
The Borrowers shall, concurrently with the delivery of the Project
Bonds and the Note, deliver or cause to be delivered the Letter of Credit to the
Trustee. The Borrowers agree that they will not, either by their action or
inaction, in any way adversely affect the continuation or effectiveness of the
Letter of Credit.
All Loan Payments made hereunder on account of principal of and
interest and any premium on the Note shall be made directly to the Trustee at
its corporate trust office for the account of the Issuer for deposit in the
Reimbursement Account in the Bond Fund.
The Borrowers shall have the option to prepay all or part (in the
amount of $5,000 or any integral multiple thereof) of the Loan and the Bonds,
with accrued interest to the date of such prepayment, at the time and in the
amounts equal to the times and amounts at or in which the Project Bonds may be
redeemed pursuant to the Indenture, provided, however, that before the Borrowers
give the notice in accordance with Section 8.4 of this Agreement of intention to
exercise the option to prepay the Loan in whole or in part, the Borrowers shall
deposit with the Letter of Credit Bank the full amount of the prepayment price,
including accrued interest to the date of prepayment specified in the aforesaid
notice and premium, if any, set forth in the Bond Form in the Indenture, or
alternatively, shall obtain a written waiver of such deposit requirement from
the Letter of Credit Bank. The Borrowers shall be required to prepay the Loan in
full with accrued interest to the date of such prepayment on the amount prepaid,
upon the happening of an event described in Section 8.3 of this Agreement. Any
such prepayment pursuant to said Section 8.3 shall be without premium or
penalty. Any such optional or mandatory prepayment shall be made pursuant to the
notice provisions described in Section 8.4 of this Agreement.
In any event, the sum of the Loan Payments payable under this Section
shall be sufficient to pay the total amount due with respect to the principal
of, premium (if any) and interest on the Bonds as and when due, and if at any
time when said payments are due the balance in the Bond Fund is insufficient to
make such payments, the Borrowers will forthwith pay to the Trustee, for the
account of the Issuer for deposit into the Bond Fund, any such deficiency;
provided, that any amount at any time held by the Trustee in the Bond Fund as
the Bond Fund Payment, as interest earned on moneys held by the Trustee and
deposited in the Reimbursement Account in the Bond Fund, as the proceeds of
business interruption insurance, or as a result of the payment of any penalties
or liquidated damages received or withheld under construction contracts and
deposited in the Reimbursement Account in the Bond Fund shall be transferred by
the Trustee to the Letter of Credit Bank pursuant to Section 4.15 of the
Indenture, and provided further, that if at any time all the outstanding Bonds
are paid and discharged within the meaning of the Indenture and the Letter of
Credit Bank has been fully reimbursed under the Reimbursement Agreement, the
Borrowers shall not be obligated to make any further Loan Payments under this
Section. All payments made pursuant to this Section shall be made in such
-11-
<PAGE> 16
manner and at such times as shall be necessary to assure that the Trustee shall
receive such payments in sufficient time to permit payment of the amounts of the
principal of, and interest and any premium on the Bonds when the same shall
respectively become due and payable.
The Issuer and the Borrowers have provided for the payment of the
principal of the Project Bonds, upon maturity, redemption or acceleration, and
up to 195 days' interest on the Project Bonds from payments to be made by the
Letter of Credit Bank to the Trustee pursuant to the Letter of Credit. Pursuant
thereto, the Borrowers hereby authorize the Trustee to draw under the Letter of
Credit the moneys necessary to pay the principal of and interest on the Project
Bonds as they become due, including amounts due as a result of a Determination
of Taxability. The Issuer and the Borrowers authorize the Trustee to draw
moneys, in which moneys the Borrowers have no interest, under the Letter of
Credit in an amount sufficient to pay the principal of and interest on the
Project Bonds at least two (2) days prior to the date such principal or interest
becomes due. The amount of such drawings shall be credited against the
Borrowers's obligations to make Loan Payments hereunder and under the Note.
Section 2.2. Additional Payments. The Borrowers agree to make
Additional Payments as follows:
(a) To the Issuer, as reimbursement for any and all costs, expenses and
liabilities paid by the Issuer in satisfaction of any obligations of the
Borrowers hereunder not performed in accordance with the terms hereof by the
Borrowers.
(b) To the Issuer, as reimbursement for or prepayment of expenses paid
or to be paid by the Issuer and requested by the Borrowers, or required by this
Agreement, or the Indenture or incurred in enforcing the provisions of this
Agreement or the Indenture, or incurred in defending any action or proceedings
with respect to the Project, this Agreement, or the Indenture, or arising out of
or based upon any other document related to the issuance of the Bonds which are
not otherwise required to be paid by the Borrowers under this Agreement.
(c) To the Trustee, the customary fees, charges and expenses of the
Trustee as trustee, bond registrar and paying agent, and of any other paying
agent on the Bonds under the Indenture, all as provided in the Indenture, as and
when the same become due; provided that the Borrowers may, without creating a
default hereunder, contest in good faith the necessity for any Extraordinary
Services and Extraordinary Expenses, as such terms are defined in the Indenture,
and the amount of any such fees, charges or expenses.
(d) To the Letter of Credit Bank, the fees and expenses as required by
the Reimbursement Agreement.
(e) The Borrowers will pay, as the same become due: (i) all taxes and
governmental charges of any kind whatsoever that may at any time be lawfully
assessed or levied against or with respect to the Project or any machinery,
equipment, furnishings or other property installed by the Borrowers thereon
including, without limiting the generality of the foregoing, ad valorem taxes or
payments in lieu of such taxes lawfully assessed against the Project; (ii) all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep of
-12-
<PAGE> 17
the Project; and (iii) all assessments and charges lawfully made by any
governmental body for public improvements that may be secured by a lien on the
Project; provided, that with respect to special assessments or other
governmental charges that may lawfully be paid in installments over a period of
years, the Borrowers shall be obligated to pay only such installments as are
required to be paid while payments of principal or interest are outstanding with
respect to the Note.
If the Borrowers shall first notify the Trustee and the Letter of
Credit Bank of its intention to do so, the Borrowers may, at their expense and
in their own name and behalf or in the name and behalf of the Issuer, in good
faith contest any such taxes, assessments and other charges and, in the event of
any such contest, may permit the taxes, assessments or other charges so
contested to remain unpaid (except where tender of all or a portion of the
taxes, assessments or other charges may be made without prejudice to the
Borrowers' contest regarding same, in which case such tender shall be made to
avoid the imposition of any penalty) during the period of such contest and any
appeal therefrom unless the Trustee or the Letter of Credit Bank shall notify
the Borrowers that, in the opinion of Independent Counsel, by nonpayment of any
such items the lien of the Indenture or the Mortgage or the Security Agreement
will be materially endangered or the Project or any material part thereof will
be subject to imminent loss or forfeiture, in which event such taxes,
assessments or charges shall be promptly satisfied and discharged by payment
thereof, by furnishing a bond satisfactory to the Trustee and the Letter of
Credit Bank, or by payment to a reserve held by the Trustee. Notwithstanding the
provisions herein, the Issuer shall not pay any cost, expense or liability of
the Borrowers under this Agreement or the Indenture unless it shall have first
afforded the Borrowers an opportunity to make any such payment; provided that
the Borrowers may, without creating a default hereunder, contest in good faith
the necessity or the reasonableness of any such cost, expense or liability
(other than any amount which represents principal of or interest or any premium
on any Bonds).
Section 2.3. Notes. In addition to the Note described in Section 2.1
hereof, a Note or Notes in an aggregate principal amount equal to the principal
amount of any Additional Bonds will be executed and delivered by the Borrowers
in a form substantially similar to the form of the Note attached hereto as
Exhibit A, with the necessary and appropriate variations, omissions and
insertions as permitted and required by this Agreement as amended and
supplemented. All Notes shall:
(a) Provide for payments of interest equal to the payments of interest
on the corresponding Bonds;
(b) require payments and/or prepayments of principal and any premium
equal to the payments of principal and/or sinking fund payments and any premium
on the corresponding Bonds;
(c) require all payments on such Notes to be made on or prior to the
due dates for the corresponding payments to be made on the corresponding Bonds;
(d) contain conversion options, optional and mandatory prepayment
provisions and provisions in respect of the conversion options, optional and
mandatory
-13-
<PAGE> 18
acceleration or prepayment of principal and any premium corresponding with the
redemption provisions of the corresponding Bonds; and
(e) be on a parity with all other Notes theretofore or thereafter
executed and delivered by the Borrowers pursuant to this Agreement as the same
may be amended or supplemented in connection with issuance of any Bonds.
Upon payment in full of the principal of and interest and any premium
on any or all Bonds, whether at maturity or by redemption or otherwise, and the
surrender thereof to, and cancellation thereof by, the Trustee, or upon
provision for the payment thereof having been made in accordance with the
provisions of the Indenture, the Notes, issued concurrently with such Bonds, of
the same maturity, bearing the same interest rate and in an amount equal to the
aggregate principal amount of such Bonds so surrendered and cancelled or for the
payment of which provision has been made, shall be deemed fully paid and the
obligations of the Borrowers thereunder terminated and such Notes shall be
cancelled and surrendered by the Issuer or the Trustee to the Borrowers.
Notwithstanding the previous sentence, in the event that moneys sufficient for
such payment have been paid to the Trustee by the Letter of Credit Bank, the
Trustee shall upon written instructions of the Letter of Credit Bank assign all
of its right, title and interest in and to the Notes, together with the
Mortgage, to the Letter of Credit Bank. The Borrowers hereby agree and consent
to such an assignment without defense or set-off by reason of any dispute
between the Borrowers and the Trustee. Unless the Borrowers are entitled to a
credit under express terms of this Agreement or the Indenture, all payments on
each Note shall be in the full amount required thereunder. Each Note shall be
payable to the Issuer and shall not be negotiated by the Issuer, except to
effect assignment thereof to the Trustee and to any successor trustee under the
Indenture.
Section 2.4. Assignment of Payments and Note. The Issuer, as security
for payment of the Bonds, concurrently with the issuance of the Bonds, hereby
pledges and assigns to the Trustee all right, title and interest of the Issuer
in and to the corresponding Note and the Issuer's rights under this Agreement to
receive the Loan Payments, including the right to receive payments under such
Note (but specifically excluding Unassigned Issuer's Rights), and hereby
covenants and agrees with the Borrowers to pledge, assign and deliver the Note
issued pursuant to Section 2.1 hereof to the Trustee. The Issuer hereby
authorizes and directs the Borrowers, and the Borrowers hereby agree, to pay all
Loan Payments directly to the Trustee at its corporate trust office for the
account of the Issuer and for deposit in the Bond Fund. Additional Payments
shall be paid directly to the person or entity to whom or to which they are due.
The Borrowers will, as additional security for payment of the Bonds,
concurrently with the issuance of the Bonds and the Issuer's assignment of the
Note, mortgage the Project and assign rents and leases relating to the Project
to the Trustee and the Letter of Credit Bank pursuant to the Mortgage and the
Assignment.
Section 2.5. Obligations Unconditional. The Obligations of the
Borrowers to make payments pursuant to this Agreement and to perform and observe
the other agreements on the Borrowers's part contained herein shall be joint and
several, absolute and unconditional, except as to the limitation on Realty's
obligations as set forth in the Note. Until such time as all conditions provided
in the Indenture for release are met, the Borrowers (i) will not suspend or
-14-
<PAGE> 19
discontinue any payments pursuant to the Note or Notes or this Agreement, (ii)
will perform and observe all of the Borrowers' other agreements contained in
this Agreement, and (iii) except as provided in Article VIII hereof, will not
terminate this Agreement for any cause including, without limiting the
generality of the foregoing, failure of title to the Project or Project Site or
any portion thereof, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Project, or any portion thereof,
commercial frustration of purpose, any change in the tax or other laws or
administrative rulings of or administrative actions by or under authority of the
United States of America or of the State or any failure of the Issuer or the
Letter of Credit Bank to perform and observe any agreement, whether expressed or
implied, or any duty, liability or obligation arising out of or connected with
this Agreement or the Reimbursement Agreement or the Indenture. Nothing
contained in this Section shall be construed to release the Issuer from the
performance of any of the agreements on its part contained in this Agreement,
and in the event the Issuer should fail to perform any such agreement on its
part, the Borrowers may institute such action against the Issuer as the
Borrowers may deem necessary to compel performance or recover damages for
nonperformance so long as such action shall not do violence to the agreements on
the part of the Borrowers contained in the next preceding sentence. The
Borrowers may, however, at the Borrowers' own cost and expense and in the
Borrowers' own name or, to the extent lawful, in the name of the Issuer,
prosecute or defend any action or proceeding or take any other action involving
third persons which the Borrowers deem reasonably necessary in order to secure
or protect the Borrowers' rights hereunder, and in such event the Issuer hereby
agrees to cooperate fully with the Borrowers so far as lawful, but at the
Borrowers' expense, and to take all action necessary to effect the substitution
of the Borrowers for the Issuer in any such action or proceeding if the
Borrowers shall so request, or if the Issuer shall determine such action to be
in its interest. This provision shall not be construed to require cooperation by
the Issuer with the Borrowers in any labor dispute.
Section 2.6. Prepayment of Loan and Additional Payments: Moneys for
Purchase or Optional Redemption. On the dates and at the prices set forth in
Section 2.1 hereof, the Borrowers shall have the option to prepay all or part
(in the amount of $5,000 or any integral multiple thereof) of the Loan upon
depositing sufficient moneys with the Letter of Credit Bank as set forth in said
Section 2.1, and upon giving notice in accordance with Section 8.4 hereof.
Section 2.7. Past Due Loan Payments and Additional Payments. In the
event that the Borrowers should fail to pay any Loan Payments or Additional
Payments, the payment in default shall continue as an obligation of the
Borrowers with interest payable at the Default Rate until the amount in default
shall have been fully paid; provided, however, that anything herein to the
contrary notwithstanding the rate of interest on any Loan Payment in default
shall not be less than the rate of interest on the Bonds to which such Loan
Payment relates.
Section 2.8. Redemption of Bonds. The Issuer, at the written request at
any time of the Borrowers, and upon provision first made for the Issuer's
expenses, if any, shall forthwith take all steps that may be necessary under the
applicable redemption provisions of the Indenture to effect the redemption of
all or part of the then outstanding Bonds, as may be specified by the Borrowers,
on the earliest redemption date on which such redemption may be made under such
applicable provisions.
-15-
<PAGE> 20
Section 2.9. Application of Certain Proceeds. So long as the Borrowers
are not in default hereunder or under the Note, the Trustee shall, with respect
to amounts deposited in the Reimbursement Account in the Bond Fund pursuant to
Sections 5.2, 5.3, 5.4 or 5.8 hereof, reimburse the Letter of Credit Bank for
corresponding draws under the Letter of Credit used to redeem Project Bonds (if
such Bonds are subject to redemption under applicable provisions hereof or of
the Indenture). In lieu of such redemption (if such Bonds are not subject to
redemption under applicable provisions hereof or of the Indenture), at the
Borrowers's option, with the concurrence of the Letter of Credit Bank, such
amounts may (i) be retained in the Reimbursement Account in the Bond Fund and
used for the purposes for which said Account is created if the Trustee and the
Letter of Credit Bank receive an opinion from a firm of nationally recognized
bond counsel that such retention will not cause the Bonds to become taxable, or
(ii) be used to purchase Bonds on the open market at prices not exceeding par
plus accrued interest to the date of payment therefor and surrender Bonds so
purchased to the Trustee for cancellation.
Section 2.10. Adjustment of Loan Payments in the Event of Redemption or
Cancellation of Project Bonds. In the event the Issuer redeems any Project Bonds
or in the event the Borrowers deliver to the Trustee any Project Bonds with
instructions to cancel said Bonds, then in that event the principal amount of
such Bonds shall be allowed as a credit against principal payable under the Note
in the inverse order of principal payments due under the Note.
Section 2.11. Assignment of Agreement and Pledged Receipts. To secure
the payment of Bond service charges, the Issuer shall assign, by the Indenture,
its rights under and interest in this Agreement (except for the Unassigned
Issuer's Rights) and the Pledged Receipts to the Trustee. The Borrowers hereby
agree and consent to those assignments.
Section 2.12. [Reserved].
Section 2.13. Letter of Credit. Prior to the initial delivery of the
Project Bonds to the Original Purchaser pursuant to the Indenture, the Borrowers
shall obtain and deliver the Letter of Credit to the Trustee. The initial Letter
of Credit shall be issued by the Letter of Credit Bank pursuant to the
Reimbursement Agreement; shall be dated so as to be effective upon delivery of
the Project Bonds; shall expire on September 15, 1995, subject to extension in
accordance with the terms thereof and of the Reimbursement Agreement; may be
replaced by an Alternate Letter of Credit complying with the provisions of
Section 4.16 of the Indenture; shall obligate the Letter of Credit Bank to pay
to the Trustee up to (i) the aggregate principal amount of the Project Bonds to
enable the Trustee to pay the principal of the Project Bonds at maturity, upon
redemption or acceleration, to accrue on the Project Bonds for one hundred
ninety-five (195) days to enable the Trustee to pay interest on the Project
Bonds; and shall be in substantially the same form as attached to the
Reimbursement Agreement and made a part thereof.
The Borrowers shall take whatever action may be necessary to maintain
the Letter of Credit or an Alternate Letter of Credit in full force and effect
during the period required by the Indenture, including the payment to the Letter
of Credit Bank of all amounts payable under the Reimbursement Agreement at the
times and in the amounts described therein and the payment of
-16-
<PAGE> 21
any transfer fees required by the Letter of Credit Bank upon any transfer of the
Letter of Credit or an Alternate Letter of Credit any successor Trustee pursuant
to the Indenture.
ARTICLE III
ACQUISITION, CONSTRUCTION, EQUIPPING AND
OWNERSHIP OF THE PROJECT
Section 3.1. Acquisition, Construction and Equipping of the Project.
The Borrowers represents that the acquisition, construction and equipping of the
Project is complete and was undertaken in compliance with Article III of the
Loan Agreement entered into in connection with the Prior Bonds.
Section 3.2. Plans and Specifications. The Borrowers represent that the
acquisition, construction, and installation of the Project was completed in
accordance with the Plans and Specifications in connection with the Prior Bonds
filed with the Letter of Credit Bank in connection with the Prior Bonds.
Section 3.3. Completion Date. The Borrowers represent that the
acquisition, construction and equipping of the Project was completed prior to
September 1, 1993.
Section 3.4. Agreement as to Ownership of Project. The Issuer and
Realty agree that title to and the ownership of the Project Site shall vest in
and remain in and be the sole property of Realty, subject to the Mortgage, and
the Issuer and Company agree that title to and the ownership of the Project
Equipment shall vest in and remain in and be the sole property of Company,
subject to the security interest granted in the Mortgage.
Section 3.5. Use of Project. The Issuer does hereby covenant and agree
that it will not take any action, or cause any action to be taken, during the
term of this Agreement, other than pursuant to Article IX of this Agreement or
Article VI of the Indenture, to interfere with the Borrowers' ownership of the
Project or to prevent the Borrowers from having possession, custody, use and
enjoyment of the Project, except such action as may be required of or permitted
to the Issuer in its governmental capacities.
Section 3.6. Additional Bonds. Subject to the provisions of Section 8
of the Bond Legislation for the Project Bonds, the Borrowers and the Issuer
agree that one or more series of Additional Bonds may be issued pursuant to the
Indenture.
Section 3.7. Opinion to be Provided. Prior to February 1, 1999, and
prior to February 1 of each fifth year thereafter, the Borrowers shall on behalf
of the Issuer cause to be delivered to the Trustee and the Letter of Credit Bank
an opinion of counsel, who may be counsel for the Borrowers, addressed to the
Trustee and the Letter of Credit Bank and stating that based upon the law in
effect on the date of such opinion no filing, registration or recording and no
refiling, reregistration or rerecording of any financing statement, amendments
thereto, continuation statements or instruments of a similar character relating
to the pledges and assignments made by the Issuer to secure the Bonds is
required by law in order to fully preserve
-17-
<PAGE> 22
and protect the security of the holders of the Bonds and the rights of the
Trustee and the Letter of Credit Bank under the Indenture, the Mortgage and this
Agreement, or if such filing, registration, recording, refiling, reregistration
or rerecording is necessary, setting forth the requirements in respect thereto.
Promptly after any filing, recording, refiling or rerecording of any such
financing statement or amendment hereto or continuation statement or instrument,
the Borrowers on behalf of the Issuer will deliver to the Trustee and the Letter
of Credit Bank an opinion of counsel, who may be counsel for the Borrowers, to
the effect that such filing, registration, recording, refiling, reregistration
or rerecording has been duly accomplished and setting forth the particulars
thereof.
ARTICLE IV
ISSUANCE OF BONDS; APPLICATION OF PROCEEDS
Section 4.1. Issuance of Bonds; Deposit of Bond Proceeds. In order to
provide funds to make the Loan and thereby pay for the costs described in
Section 4.2 hereof and incurred under or in connection with this Agreement,
concurrently with the delivery to the Trustee of the Note as provided in Section
2.1 hereof, the Issuer will issue, sell and deliver the Project Bonds to the
Original Purchaser and will deposit the proceeds of said Project Bonds, after
deducting the Bond Fund Payment as provided in the Indenture, into the
Construction Fund as the Loan to the Borrowers. The moneys derived from the
proceeds of the Project Bonds deposited in the Construction Fund, pending
application as provided in Section 4.2 hereof, are subject to a lien in favor of
the holders of the Project Bonds as provided in the Indenture.
Section 4.2. Disbursements from the Construction Fund. The Issuer has,
in the Indenture, authorized and directed the Trustee to use the moneys in the
Construction Fund for the disbursements required by the provisions of this
Agreement. Such disbursements shall be made to pay or, to the extent the
Borrowers shall have paid, to reimburse the Borrowers for the payment of the
outstanding principal balance of the Prior Bonds on March 1, 1994.
All moneys in the Construction Fund (including moneys earned thereon by
investment thereof) remaining after the redemption of the Prior Bonds shall be
used to pay, or to reimburse the Borrowers for costs incurred in connection with
the issuance of the Project Bonds (up to $59,600), and then paid to the
Borrower.
Section 4.3. Obligation of the Parties to Cooperate in Furnishing
Documents. The Issuer and the Borrowers agree to cooperate in furnishing the
documents referred to in Section 4.2 hereof that are required to effect payments
out of the Construction Fund, and to cause such approvals and orders to be
directed by the Authorized Borrower Representative to the Trustee as may be
necessary to effect payments out of the Construction Fund in accordance with
Section 4.2 hereof. The Issuer's obligation is subject to any provisions of this
Agreement or the indenture requiring additional documentation with respect to
payments and shall not extend beyond the moneys in the Construction Fund
available for payment under the terms of the Indenture.
Section 4.4. Borrowers Required to Pay Costs in Event Construction Fund
Insufficient. In the event the moneys in the Construction Fund should not be
sufficient to pay all
-18-
<PAGE> 23
costs payable therefrom, the Borrowers agree to deposit, at the Letter of Credit
Bank's direction, a sum of money equal to the insufficiency with the Trustee;
provided, however, that nothing contained herein shall impair the Borrowers'
rights under Article VIII hereof.
Section 4.5. Investment of Fund Moneys. Except as otherwise provided in
the Indenture, any moneys held as part of the Bond Fund or Construction Fund
shall at the oral (and if oral, to be confirmed in writing) or written request
of the Authorized Borrowers Representative be invested or reinvested by the
Trustee as specified in the Indenture. The Issuer and the Borrowers jointly and
severally covenant that the use of the proceeds of the Bonds will be restricted
in such manner and to such extent, if any, as may be necessary, after taking
into account reasonable expectations at the time of issuance of the Bonds, so
that they will not constitute "arbitrage bonds" within the meaning of Section
148 of the Internal Revenue Code and the regulations prescribed under that
Section. The Borrowers and the Issuer hereby agree that the gross proceeds of
the Project Bonds will be restricted, invested and rebated as provided in
Section 6.2(u) hereof. Any officer of the Issuer having responsibility with
respect to the issuance of the Bonds is authorized and directed, alone or in
conjunction with any other officer, partner, employee or consultant of the
Issuer or the Borrowers, and upon receipt of satisfactory indemnities from the
Borrowers, to give an appropriate certificate on behalf of the Issuer, for
inclusion in the transcript of proceedings for the Bonds, setting forth the
facts, estimates and circumstances and reasonable expectations pertaining to
said Section 148 and regulations thereunder. The Issuer shall cause to be
furnished as provided in the Indenture a true transcript of certified
proceedings including all proceedings had with reference to the issuance of the
Bonds along with such other information as is necessary or proper with respect
to the Bonds.
ARTICLE V
MAINTENANCE; INSURANCE; DAMAGE; DESTRUCTION
AND EMINENT DOMAIN
Section 5.1. Maintenance. So long as any of the Bonds are outstanding
within the meaning of the Indenture, the Borrowers shall keep and maintain the
Project, including all appurtenances thereto and any personal property therein
or thereon, in good repair and good operating condition.
Section 5.2. Removal of Portions of the Project. The Borrowers may
remove items of furnishings or equipment constituting part of the Project only
in accordance with the provisions of the Reimbursement Agreement and the
Mortgage.
Section 5.3. Option to Release Portion of Project. The Borrowers have
the option, with the prior written consent of the Letter of Credit Bank, which
consent may be withheld in the discretion of the Letter of Credit Bank, to
release from the lien of the Mortgage any portion of the Project in accordance
with the provisions of the Reimbursement Agreement and the Mortgage.
Section 5.4. Insurance Required. The Borrowers shall keep the Project,
or cause the same to be kept, continuously insured against such risks as are
customarily insured
-19-
<PAGE> 24
against with respect to facilities of like size and type, paying as the same
become due all premiums in respect thereto, in accordance with the provisions of
the Reimbursement Agreement and the Mortgage.
Section 5.5. Title Insurance. The Borrowers will prior to, or
simultaneously with, the issuance of the Bonds, obtain and furnish title
insurance in the form of an ALTA mortgagee's title binder as required by the
Reimbursement Agreement and the Mortgage.
Section 5.6. Worker's Compensation Coverage. While the Note and any
obligation under the Reimbursement Agreement remains unpaid, including the
Construction Period, the Company shall maintain or cause to be maintained, in
connection with the Project, the Worker's Compensation coverage required by the
laws of the State.
Section 5.7. [Reserved].
Section 5.8. Damage, Destruction and Eminent Domain. If, prior to full
payment of all Bonds outstanding (or provision for payment thereof having been
made in accordance with the provisions of the Indenture), the Project or any
portion thereof is destroyed or damaged in whole or in part by fire or other
casualty, or title to, or the temporary use of, the Project or any portion
thereof shall have been taken by the exercise of the power of eminent domain,
and the Issuer, the Borrowers or Trustee receives Net Proceeds from insurance or
any exercise of the power of eminent domain, all Net Proceeds from any insurance
policy or any kind of condemnation awards in connection therewith shall, at the
direction of the Borrowers be paid to the Trustee which shall deposit same (a)
in a special trust fund to be applied and disbursed in accordance with the terms
and provisions of Section 4.2 of this Agreement, to be used by the Borrowers,
with the consent of the Letter of Credit Bank, to repair, reconstruct, restore,
replace or improve the Project or such portion thereof, and the Borrowers shall
use their best efforts to use such proceeds in such a way as to restore the
earning power of the Project and as will not impair the character or
significance of the Project as furthering the Project Purposes, and upon
completion of such repair, reconstruction, restoration, replacement or
improvement of the Project or such portion thereof to the satisfaction of the
Letter of Credit Bank, any balance remaining in such special trust fund shall be
transferred to the Reimbursement Account in the Bond Fund, or (b) if the
Borrowers have exercised their option to prepay the Loan pursuant to the
provisions of Section 8.2(a) or Section 8.2(b) hereof, into the Reimbursement
Account in the Bond Fund. The Letter of Credit Bank may impose such reasonable
conditions as it deems appropriate to ensure proper application of moneys
pursuant to (a) above. In the event any section or clause of the Mortgage shall
conflict with this Section, the clause or section of the Mortgage shall prevail.
ARTICLE VI
WARRANTIES, REPRESENTATIONS AND SPECIAL
COVENANTS
Section 6.1. Warranty of Issuer. The Issuer warrants and represents
that it is a county and political subdivision of the State. The Issuer agrees
that it will do or cause to be done all things necessary, so far as lawful, to
preserve and keep in full force and effect its existence.
-20-
<PAGE> 25
The Issuer has determined that the Project constitutes a "project" within the
meaning of that term as defined in Section 165.01 of the Ohio Revised Code. The
Issuer has duly accomplished all conditions necessary to be accomplished by it
prior to issuance and delivery of the Project Bonds and execution and delivery
of this Agreement and is not in default under any of the provisions contained in
the laws of the State in any manner which would impair its ability to carry out
its obligations hereunder. The Issuer further warrants and represents that under
the Act it has power to enter into the transactions contemplated by this
Agreement, and it has been duly authorized to execute and deliver this
Agreement.
Section 6.2. Representations and Warranties of the Borrowers. The
Borrowers make the following representations and warranties to induce the Issuer
to enter into this Agreement:
(a) Realty and Company are both corporations duly organized and
existing under the laws of the State and are duly qualified to do business in
the State, and are not in violation of any provision of their articles of
incorporation or code of regulations or any laws of the State relevant to the
transactions contemplated by this Agreement, the Lease, the Mortgage, the
Assignment of Leases and Rents or the Reimbursement Agreement.
(b) The Borrowers have full power and capacity to execute and deliver
this Agreement, the Bond Purchase Agreement, the Mortgage, the Assignment of
Leases and Rents, the Note and the Reimbursement Agreement and to carry out the
transactions provided for therein. This Agreement, the Bond Purchase Agreement,
the Mortgage, the Assignment of Leases and Rents, the Note and the Reimbursement
Agreement have been (or in the case of the Mortgage and Assignment of Rents and
Leases, will be) duly executed and delivered by the Borrowers and all steps
necessary have been taken to constitute this Agreement, the Bond Purchase
Agreement, the Mortgage, the Assignment of Leases and Rents, the Note and the
Reimbursement Agreement when executed and delivered by the respective parties
hereto, valid and binding obligations of the Borrowers.
(c) The execution, delivery and performance by the Borrowers of this
Agreement, the Bond Purchase Agreement, the Mortgage, the Assignment of Leases
and Rents, the Note and the Reimbursement Agreement and the consummation of the
transactions contemplated hereby and thereby will not violate any provision of
law or regulation applicable to either of the Borrowers, or of any writ or
decree of any court or governmental instrumentality, or of any mortgage,
indenture, contract, agreement or other undertaking to which either of the
Borrowers is a party or which is known to the Borrowers to purport to be binding
upon either of the Borrowers or upon any of the Borrowers' assets.
(d) The financing, acquisition, construction and equipping provided by
the Prior Bonds and the refunding of the Prior Bonds provided for under this
Agreement, and commitments therefor made by the Issuer, induced the Borrowers to
acquire and construct within the boundaries of the Issuer the manufacturing
facilities constituting the Project which is used in the business of the
Borrowers for lease to the Company.
-21-
<PAGE> 26
(e) The Project has and will be used and maintained in such manner as
to conform in all material respects with all applicable zoning, planning, fire,
building, environmental and other regulations, which are material to the
operation of the Project, of all governmental authorities having jurisdiction.
All necessary permits, licenses, consents and permissions necessary for the
construction and operation of the Project currently obtainable have been
obtained (and all others will be applied for or obtained as they become
obtainable).
(f) The Project is of the type authorized and permitted by the Act.
(g) The Project is located entirely within the boundaries of the City
of Cincinnati, Ohio;
(h) The acquisition, construction and installation of the Project
commenced after February 12, 1990, and no obligation relating to the
acquisition, construction or installation of the Project was paid or incurred
prior to such date.
(i) Except for the Project Bonds, no bonds, notes or other obligations
of any state, territory or possession or any political subdivision of the United
States of America or any political subdivision of any of the foregoing, or of
the District of Columbia in principal amount in excess of $10,000,000, have been
issued and are now outstanding, the proceeds of which have been or are to be
used primarily with respect to facilities of which the Borrowers or any related
person thereto is or will be a principal user and which are located within the
boundaries of the City of Cincinnati, Ohio.
(j) There are no other obligations heretofore issued or to be issued by
or on behalf of any state, territory or possession of the United States, or
political subdivision of any of the foregoing, or of the District of Columbia,
for the benefit of the Borrowers or any person related to the Borrowers, which
constitute "industrial development bonds" within the meaning of Sections
141(a)(1) and 141(b) of the Code and which (i) were or are to be sold within 30
days of the date of sale of the Project Bonds, (ii) were or are to be sold at
substantially the same interest rate as the interest rate on the Project Bonds,
(iii) were or are to be sold pursuant to a plan of marketing that is in common
with the marketing plan for the Project Bonds, and (iv) are payable directly or
indirectly by the Borrowers or from any source from which the Project Bonds are
payable.
(k) The information furnished by the Borrowers to the Issuer with
respect to "capital expenditures" within the meaning of the Code is true and
complete.
(l) The information furnished by the Borrowers and used by the Issuer
in preparing the Form 8038, Information Return for Private Activity Bond Issues,
which has been filed by or on behalf of the Issuer, with the Internal Revenue
Service Center in Philadelphia, Pennsylvania pursuant to Section 149(e) of the
Code, was true and complete as of the date of filing of said Form 8038.
-22-
<PAGE> 27
(m) The weighted average maturity of the Project Bonds does not exceed
the weighted average estimated economic life of the components comprising the
Project by more than 20%, determined pursuant to Section 147(a) of the Code.
(n) The aggregate authorized face amount of the Project Bonds allocated
to any person (or any person related thereto within the meaning of Section
144(a) of the Code) who was, is, or will be an owner or principal user of the
Project at any time during the three-year period beginning on the later of (i)
the date such facilities were placed in service or (ii) the date of issuance of
the Project Bonds, when increased by the aggregate face amount of all industrial
development bonds the interest on which is exempt from tax of the Code which are
allocated to such person (pursuant to Section 144(a)(10) of the Code) and which
are outstanding at the time of issuance of the Project Bonds, will not exceed
$40,000,000.
(o) (aa) The Borrowers hereby covenant and agree with the Issuer and
the Trustee for the benefit of the Holders of any of the Bonds, present and
future, that the Borrowers will proceed with due diligence to spend the "gross
proceeds" (hereinafter defined) of the Bonds in connection with the acquisition,
construction, installation and equipping of the Project and that the Borrowers
will not make, or permit, any use of the proceeds of the Bonds which will cause
the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code
and any Income Tax Regulations promulgated thereunder as such regulations may
apply to obligations issued as of the date of the Bonds. The Borrowers shall
deliver to the Issuer its certificate, evidencing the reasonable expectations of
the Borrowers, in such reasonable form as the Issuer shall specify and upon
which the Issuer may rely.
(bb) The Borrowers hereby further covenant and agree with the
Issuer and the Trustee, and with the Holders of any of the Bonds, present and
future, as follows:
(1) All of the gross proceeds of the Bonds, other
than gross proceeds held in a "bona fide debt service fund"
(hereinafter defined) will be expended within ninety (90) days
of the date of issuance and delivery of the Bonds.
(A) Except during any "temporary period"
(hereinafter defined), the aggregate amount of gross
proceeds of the Bonds which are invested in
"nonpurpose obligations" (hereinafter defined) having
a "yield" (hereinafter defined) higher than the yield
on the Bonds shall at no time during any "bond year"
(hereinafter defined) exceed one hundred fifty per
centum (150%) of the "debt service" (hereinafter
defined) on the Bonds for such bond year. In
addition, the aggregate amount of gross proceeds of
the Bonds invested hereunder in nonpurpose
obligations having a yield higher than the yield on
the Bonds shall be reduced within 30 days of any
redemption of Bonds (whether by payment at maturity,
mandatory sinking fund redemption, redemption prior
to maturity, or otherwise) which results in a
decrease in annual debt service on the Bonds, so that
after such reduction the Borrowers' investment of
gross proceeds of the Bonds complies with the
limitation set forth in this subparagraph (A), based
upon such decreased annual debt service. The
Borrowers shall not be required to sell or dispose of
nonpurpose obligations if such sale or disposition
would result in the
-23-
<PAGE> 28
realization of a loss, for Federal income tax
purposes, that exceeds the amount that would be
rebated to the United States pursuant to the
provisions of subparagraph (b) (2) (B) below (but for
such sale or disposition), at the time of such sale
or disposition if a rebate were due at such time. The
provisions of the foregoing sentence shall not apply
to the extent that other nonpurpose obligations
acquired with the gross proceeds of the Bonds may be
sold or disposed of without incurring the loss
described above, and in any event the provisions of
the foregoing sentence shall cease to apply thirty
(30) days after the last day of the first
"computation period" (defined in subparagraph
(b)(2)(B)) ending thereafter on which such nonpurpose
obligations can be sold or disposed of without
incurring the loss described hereinabove. The
provisions of this subparagraph (A) shall apply to
gross proceeds of the Bonds which are:
(i) invested for the initial
temporary period provided in Section
1.103-14(b)(1) of the Income Tax
Regulations;
(ii) held in a bona fide debt
service fund for the Bonds and invested for
the 13-month temporary period provided in
Section 1.103-14(b)(10) of the Income Tax
Regulations;
(iii) invested for either of the
temporary periods provided for a sinking
fund for the Bonds in Sections
1.103-14(b)(8) and 1.103-14 (b)(12) of the
Income Tax Regulations;
(iv) invested during the one-year
temporary period provided for investment
earnings derived from invested proceeds of
the Bonds and from the investment of amounts
held in a sinking fund for the Bonds under
Sections 1.103-14 (b)(6) and 1.103-14(b)(9)
of the Income Tax Regulations;
(v) invested for the temporary
period provided for proceeds of a refunding
issue in Section 1.103-14(e)(3) of the
Income Tax Regulations; or
(vi) held in a "revolving fund"
(within the meaning of Section
1.103-14(b)(11) of the Income Tax
Regulations) and invested during the
three-year temporary period set forth
therein.
For purposes of the limitations described in this subparagraph (A), in
determining the aggregate amount of gross proceeds of the Bonds invested in
nonpurpose obligations that bear a yield in excess of the yield of the Bonds,
each such obligation shall be valued at its fair market value on the date such
obligation is acquired by the Trustee at the direction of the Borrowers. In
addition, the yield of obligations acquired with gross proceeds of the Bonds
shall be determined based on such fair market value. For purposes of this
subparagraph (A), an obligation acquired with gross proceeds of the Bonds need
not be revalued after the date on which the obligation is acquired.
-24-
<PAGE> 29
(B) At the time or times hereinafter set
forth, the Borrowers shall pay or shall cause the
Trustee to pay to the United States an amount,
hereinafter referred to as the "Rebate Amount", which
is equal to the sum of:
(i) the excess of--
(a) the aggregate amounts
earned from the date of issuance and
delivery of the Bonds on all nonpurpose
obligations in which gross proceeds of the
Bonds have been invested (other than
nonpurpose obligations attributable to an
excess described herein) over
(b) the aggregate amounts
which would have been earned if the yield
on such nonpurpose obligations (other than
nonpurpose obligations attributable to an
excess described herein) had been equal to
the yield on the Bonds,
(ii) any income attributable to the
excess described in the clause (i) above.
The Rebate Amount payable to the United States shall
be determined at least annually, on each and every
anniversary date of the issuance and delivery of the
Bonds, by the Borrowers for each bond year during
which Bonds remain outstanding and upon retirement of
the last of the Bonds (each such period is
hereinafter referred to as a "computation period").
Upon such determination, to the extent that the
portion of the Rebate Amount determined to be due and
payable to the United States under (B)(i) above as of
the close of such computation period exceeds the sum
of (a) the then-current balance of the Principal
Subaccount of the Excess Investment Earnings Account
created pursuant to the provisions of Section 6 of
the Bond Legislation and (b) amounts previously
rebated to the United States from the Principal
Subaccount of the Excess Investment Earnings Account,
such amount, if any, shall be deposited in the
Principal Subaccount of the Excess Investment
Earnings Account created pursuant to the provisions
of the Indenture. That portion of the Rebate Amount
described in (B)(ii) above shall be deposited, as it
is earned, in the Income Subaccount of the Excess
Investment Earnings Account created pursuant to the
provisions of the Indenture. The Rebate Amount shall
be paid to the United States in installments, as
follows:
(I) subject to clause (III) below, the first
such installment shall be paid no later than thirty
(30) days after the end of the fifth (5th) bond year
of the Bonds;
(II) subject to clause (III) below, an
additional installment shall be paid on or prior to
the last day of each additional installment payment
-25-
<PAGE> 30
period during which any of the Bonds remain
outstanding. For purposes of this clause (II), an
installment payment period shall commence on the last
day on which a preceding installment of the Rebate
Amount was required to be paid, and shall end on the
day preceding the fifth (5th) anniversary of such
payment date;
(III) anything herein to the contrary
notwithstanding, the last installment shall be paid
no later than thirty (30) days after the last of the
Bonds has been retired; and
(IV) each installment shall be in an amount
which, when aggregated with the amount of any prior
installments paid to the United States hereunder,
will equal at least ninety per centum (90%) of the
total Rebate Amount payable to the United States
hereunder as of the date such installment is paid;
provided, however, that the last installment shall be
in an amount equal to the entire remaining balance of
the Rebate Amount payable to the United States
hereunder.
The Borrowers shall maintain or cause to be maintained records
of such determinations for each computation period until six
years after payment in full of the Bonds and shall make such
records available to the Issuer, the Trustee, the Letter of
Credit Bank, and their representatives upon reasonable request
therefor. The Issuer and the Trustee hereby agree to cooperate
with the Borrowers in making the determinations for each
computation period required pursuant to this subparagraph (b).
To that end the Trustee, as Construction Fund and Bond Fund
custodian, has covenanted and agreed in Section 5.16 of the
Indenture that it will, on or before each anniversary of the
date of issuance of the Bonds, prepare and file with the
Issuer and the Borrowers a report with respect to the
Construction Fund and the Bond Fund setting forth the total
amounts invested during the preceding bond year, the
investments made with the moneys in the Construction Fund and
the Bond Fund and the investment earnings (and losses)
resulting from the investments in each such Fund,
respectively, together with such additional information
concerning such Funds and the investments therein,
respectively, as the Issuer or the Borrowers shall reasonably
request.
(3) For purposes of clause (a) of
subparagraph (2)(B)(i) of this subparagraph (b), the Borrowers, in
determining the aggregate amounts earned on all nonpurpose obligations
acquired with gross proceeds of the Bonds--
(A) will take into account any gain
or loss incurred on the disposition of any such
nonpurpose obligation, and
(B) unless the Issuer otherwise
elects, will not take into account any amounts earned
on nonpurpose obligations held in a bona fide debt
-26-
<PAGE> 31
service fund for the Bonds during any bond year in
which the gross earnings on such fund do not exceed
One Hundred Thousand Dollars ($100,000).
(4) Except as provided in Section
1.103-15AT(d)(6) of the Temporary Income Tax Regulations with respect
to the purchase of obligations of the United States Treasury directly
from the United States Treasury, at no time shall any of the gross
proceeds of the Bonds be invested in (A) nonpurpose obligations having
a purchase price which is not equal to the fair market value of
comparable obligations or producing a yield which is not equal to the
fair market yield of comparable obligations, or (B) in any other manner
resulting in a "prohibited payment" (within the meaning of Section
1.103-15AT(d)(6) of the Temporary Income Tax Regulations) of any
portion of the Rebate Amount, directly or indirectly, to a party other
than the United States.
(5) Notwithstanding the provisions of
subparagraph (b)(1), if gross proceeds of the Bonds subsequently arise
following the end of the six-month period commencing on the date of
issuance and delivery of the Bonds (whether due to sale of the Project,
condemnation of the Project, damage or destruction to the Project, or
otherwise) the provisions of subparagraph (b)(1) shall cease to apply
and the Borrowers shall be obligated to (i) make the payments to the
United States set forth in subparagraph (b)(2)(B) with respect to the
gross proceeds of the Bonds which arise following the end of such
six-month period (but not with respect to gross proceeds of the Bonds
expended during such six-month period) and perform the other duties set
forth in subparagraph (b)(2)(B), and (ii) limit the amount of gross
proceeds of the issue and perform the other duties set forth in
subparagraph (b)(2)(A) above.
(aa) For purposes of construing this Section and Section 5.16
of the Indenture, the following definitions shall apply:
(1) "bona fide debt service fund" shall have the
meaning set forth in Income Tax Regulation Section 1.103-13(b) (12);
(2) "bond year" shall mean the one-year period
commencing on the date of issuance and delivery of the Bonds and ending
one year later, and each one-year period thereafter until payment in
full of the Bonds;
(3) "debt service" shall have the meaning set forth
in Code Section 148 and Temporary Income Tax Regulation Section
1.103-15AT(b) (5) and Temporary Income Tax Regulation Section
1.103-15AT(c) (4);
(4) "gross proceeds" shall have the meaning set forth
in Temporary Income Tax Regulation Section 1.103-15AT(b) (6) and shall
include:
(i) original proceeds of the Bonds;
(ii) investment proceeds of the Bonds;
-27-
<PAGE> 32
(iii) transferred proceeds of the Bonds;
(iv) amounts held in a sinking fund for the Bonds;
(v) amounts held in a reasonably required reserve or
replacement fund for the Bonds;
(vi) securities or obligations pledged as security
for the payment of debt service on the Bonds;
(vii) amounts received with respect to acquired
purpose obligations acquired with the proceeds of the Bonds;
(viii) any other amount to be used to pay debt
service on the Bonds; and
(ix) any amounts received as a result of investing
any amounts described in (i) through (viii) above;
(5) "nonpurpose obligations" shall have the meaning set forth
in Code Section 148 and Temporary Income Tax Regulation Section
1.103-15AT(b)(2);
(6) "temporary period" shall mean the temporary periods set
forth in Temporary Income Tax Regulation Section 1.103-15 AT(c)(2) and
described in clauses (i)-(vi) of subparagraph (b)(2)(A) above; and
(7) "yield" shall have the meaning set forth in Code Section
148 and Temporary Income Tax Regulation Section 1.103-15AT(b)(3) and
Temporary Income Tax Regulation Section 1.103-15AT(c)(40).
(d) The covenants and agreements contained in subparagraph (b) above
are intended to assure compliance with Section 148 of the Code and with
Temporary Income Tax Regulation Section 1.103-15AT. In the event such Temporary
Income Tax Regulations are hereafter modified, or Final Income Tax Regulations
modify or delete any element of the covenants contained in subparagraph (b)
above, the Borrowers shall be relieved of their obligation to comply with such
covenants to the extent of such modification or deletion. In the event such
modifications or Final Income Tax Regulations impose additional requirements
which are applicable to the Bonds, the Borrowers hereby covenant and agree to
comply with the provisions of the Temporary Income Tax Regulations, as modified,
or with such Final Income Tax Regulations.
Section 6.3. Covenants Regarding Maintenance of Company's and Realty's
Existence as Corporations. The Borrowers covenant that so long as the Note is
outstanding each will cause the Company and Realty to maintain their existence
to the extent permitted by law and not to liquidate or otherwise dispose of all
or substantially all of their assets. The Company and Realty may, with the prior
written consent of the Letter of Credit Bank, sell or otherwise transfer
-28-
<PAGE> 33
to another entity all or substantially all of their assets as an entirety and
thereafter dissolve, provided the surviving, resulting or transferee entity, as
the case may be, (i) is authorized to do business in the State, and (ii) assumes
in writing all of the obligations of the Company or Realty, as applicable, under
the Lease.
Section 6.4. Financial Statements. While any indebtedness of the Bonds
is outstanding, the Borrowers shall provide the Trustee and the Letter of Credit
Bank annually the financial reports and certifications required by the
Reimbursement Agreement.
Section 6.5. Borrowers' Approval of Indenture. The Indenture has been
submitted to the Borrowers for examination, and the Borrowers acknowledge, by
execution of this Agreement, that the Borrowers have approved the Indenture and
agree to be bound by its terms.
Section 6.6. Right of Access. The Borrowers agree that, subject to
reasonable security and safety regulations, to reasonable requirements as to
notice and the rights of tenants, the issuer, the Trustee and the Letter of
Credit Bank and they or any of their respective duly authorized agents shall
have the right at all reasonable times to enter upon and to examine and inspect
the Project. The Borrowers further agree that the Trustee and the Letter of
Credit Bank and their duly authorized agents shall have such rights of access to
the Project as may be reasonably necessary for the proper maintenance of the
Project in the event of failure by the Borrowers to perform their obligations
hereunder.
Section 6.7. Indemnification. The Borrowers release the issuer, the
Trustee and the Letter of Credit Bank from, agree that the Issuer, the Letter of
Credit Bank, and the Trustee shall not be liable for, and agree to hold the
Issuer, the Trustee and the Letter of Credit Bank harmless against, 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 and arising out of the Project
or the use thereof while the Borrowers are in possession thereof. The Borrowers
further agree to indemnify and save harmless the Issuer, the Trustee, the Letter
of Credit Bank and the Original Purchaser against and from any and all cost,
liability, expenses and claims arising from any breach or default on the part of
the Borrowers in the performance of any covenant or agreement on the part of the
Borrowers to be performed pursuant to the terms of this Agreement, or arising
from any act or failure to act by the Borrowers or any of their agents,
contractors, servants, employees, or licensees, or arising from any accident,
injury or damage whatsoever caused to any person, firm or corporation occurring
during the term of this Agreement, on about the Project Site, and from and
against all cost, liability and expenses incurred in or in connection with any
such claim or action or proceeding brought thereon; and in case any action or
proceeding be brought against the Issuer, the Trustee, the Letter of Credit Bank
or the Original Purchaser by reason of any such claim, the Borrowers upon notice
from the Issuer, the Trustee, the Letter of Credit Bank or the Original
Purchaser covenant to resist or defend such action or proceedings at the
Borrowers' expense.
Section 6.8. Borrowers Not to Adversely Affect Tax Exempt Status of
Interest on Project Bonds. The Borrowers, for the benefit of the Issuer, the
Trustee, the Letter of Credit Bank and the holders from time to time of the
Project Bonds, hereby represent that the Borrowers
-29-
<PAGE> 34
have not taken, or permitted to be taken on the Borrowers' behalf, and agree
that the Borrowers will not take, or permit to be taken on the Borrowers'
behalf, any action which would adversely affect the exemption from Federal
income taxation of the interest paid on the Project Bonds, and that the
Borrowers will take, or require to be taken, such acts as may from time to time
be required under applicable law or regulation in effect on the date of the
original delivery of the Project Bonds to the Original Purchaser to maintain the
exemption from Federal income taxation of the interest on the Project Bonds. In
particular, without limiting the generality of the foregoing, the Borrowers
agree that, within the meaning of Section 144(a) of the Code, substantially all
of the proceeds of the Project Bonds will be used to acquire, construct,
reconstruct or improve land or property of a character subject to the allowance
for depreciation.
The Borrowers further covenant with the Issuer, the Letter of Credit
Bank, and the Trustee and with each of the future holders of any Bonds that the
Borrowers have not permitted and will not permit the sum of the Bond issuance
plus capital expenditures by Borrowers (other than out of the proceeds of the
Bonds) with respect to any "facility" as defined in Section 144(a) of the Code,
within the boundaries of the City of Cincinnati, Ohio to exceed $10,000,000
during the applicable six (6) year period set forth in said section, or such
other limitation as may from time to time be imposed under said section.
The Borrowers agree that the Borrowers will timely prepare and file, or
cause to be prepared and filed, with copies delivered to the Trustee and the
Original Purchaser, any statements or documents required to be filed by the
Borrowers or any other "principal user" of the Project in order to maintain the
tax exempt status of the interest on the Bonds.
Notwithstanding anything in this Agreement or the Indenture to the
contrary, the Borrowers shall in no way be obligated to pay to the holders of
the Bonds (or any prior holder) any amounts for unpaid taxes, penalties,
interest or other assessments which any of them may incur as a result of a
Determination of Taxability unless such Determination of Taxability results from
the failure of the Borrowers to perform the Borrowers' obligations hereunder.
ARTICLE VII
ASSIGNMENT
Section 7.1. Assignment by Borrowers. This Agreement may be assigned in
whole or in part by the Borrowers, with the consent of the Letter of Credit
Bank, which may be withheld in its discretion, but without the necessity of
obtaining the consent of either the Issuer or the Trustee, provided, however,
that no such assignment shall be made otherwise than in accordance with the Act
as from time to time amended, and subject, however, to each of the following
conditions:
(a) No assignment (other than pursuant to Section 6.3 hereof or with
the express written consent of the Letter of Credit Bank) shall relieve the
Borrowers from primary liability for any of the Borrowers' obligations
hereunder, and in the event of any such assignment the Borrowers shall continue
to remain primarily liable for the payment of the Loan Payments
-30-
<PAGE> 35
and Additional Payments and for performance and observance of the agreements on
the Borrowers' part herein provided to be performed and observed by the
Borrowers.
(b) Any assignment from the Borrowers must retain for the Borrowers
such rights and interests as will permit the Borrowers to perform the
Borrowers's obligations under this Agreement and any assignee from the Borrowers
shall assume in writing the obligations of the Borrowers hereunder to the extent
of the interest assigned.
(c) The Borrowers shall, within thirty (30) days after execution
thereof, furnish or cause to be furnished to the Issuer and the Trustee a true
and complete copy of each such assignment together with any instrument of
assumption.
(d) Any assignment from the Borrowers shall not materially impair
fulfillment of the Project Purposes to be accomplished by operation of the
Project.
Section 7.2. Assignment by Issuer. The Issuer hereby assigns its rights
under and interest in, and pledges the Pledged Receipts including, among other
things, Loan Payments received under or pursuant to, this Agreement, along with
all of its right, title and interest in, to and under the Note, to the Trustee
pursuant to the Indenture and the Note, respectively, as security for payment of
the principal of and interest and any premium on the Bonds, and shall not make
any further such assignment or pledge except as may be necessary or required to
enforce or secure payment of principal of and interest and any premium on the
Bonds. Each such assignment or pledge shall be subordinate and subject to the
rights of the Borrowers under this Agreement, so long as the Borrowers is not in
default under this Agreement, the Note, or the Mortgage.
ARTICLE VIII
TERMINATION AND PREPAYMENT
Section 8.1. Option to Terminate. The Borrowers shall have the option
to terminate this Agreement at any time when (i) the Indenture shall have been
satisfied pursuant to its provisions and (ii) sufficient moneys are on deposit
with the Trustee, the Letter of Credit Bank or the Issuer, as appropriate, to
meet all Additional Payments due or to become due through the date on which the
last of the Bonds are then scheduled to be retired or redeemed, or, with respect
to Additional Payments to become due, provisions satisfactory to the Trustee,
the Letter of Credit Bank and the Issuer are made for paying such amounts as
they come due. Such option shall be exercised by the Borrowers giving the
Issuer, the Letter of Credit Bank and the Trustee notice of such termination and
such termination shall thereupon become effective.
Section 8.2. Option to Prepay Loan. The Borrowers shall have, and are
hereby granted, an option, to prepay all or part (in the amount of $5,000 or any
integral multiple thereof) of the Loan Payments due or to become due, subject to
such terms, with such deposit requirements and on the dates and at the
prepayment prices as are set forth in Sections 2.1 and 2.6 hereof upon giving
notice in accordance with Section 8.4 hereof.
-31-
<PAGE> 36
Section 8.3. Obligation to Prepay Loan. The Borrowers shall be
obligated to prepay the entire Loan prior to the expiration of this Agreement
and prior to the full payment of the Bonds (or prior to making provision for
payment thereof in accordance with the Indenture) and to cancel or terminate
this Agreement if and when (i) this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the intent and
purpose of the parties as expressed in this Agreement by reason of any changes
in the Constitution of the State or the Constitution of the United States of
America or by reason of legislative or administrative action (whether state or
Federal) or any final decree, judgment or order of any court or administrative
body (whether state or Federal) entered after the contest thereof by the Issuer
or the Borrowers in good faith to the effect that the Note and the obligations
evidenced thereby are no longer enforceable by the holder thereof, or (ii) a
Determination of Taxability shall have occurred, or (iii) the Borrowers fail to
obtain an extension of the Letter of Credit or to obtain an Alternate Letter of
Credit on the terms provided in the Indenture.
Any such prepayment shall be made in the manner provided in section 2.1
hereof on the Loan Payment Date corresponding to the Bond Redemption Date fixed
in accordance with the provisions of the Indenture in an amount sufficient to
pay the principal of and interest and any premium on the Bonds to such Bond
Redemption Date.
Section 8.4. Notice of Prepayment. In order to exercise an option
granted in, or to consummate a prepayment required by, this Agreement, the
Borrowers shall, (i) within 60 days following the event authorizing the exercise
of such option or requiring such prepayment, or (ii) at least 60 days prior to
the date of the Borrowers' exercise of the option granted in section 8.2 hereof,
give notice to the Issuer, the Trustee and the otter of Credit Bank, and shall
specify therein the date on which such prepayment is to be made, which date
shall be not less than 15 days nor more than 60 days from the date such notice
is mailed, and in case of a redemption of the Bonds in accordance with the
provisions of the Indenture the Borrowers shall make arrangements satisfactory
to the Trustee for the giving of the required notice of redemption, in which
arrangements the Issuer shall cooperate.
Section 8.5. Prepayment Price. In the case of prepayment of the entire
ban pursuant to any provision of this Article, the prepayment price shall be the
sum of the following:
(a) To the Trustee, an amount of money equal to the amount of all
principal, interest and any premium required to be paid in connection with the
corresponding redemption of Bonds under the Indenture (plus any premium payable
with respect to Bonds theretofore redeemed), plus
(b) to the Trustee or to the persons to whom Additional Payments are or
will be due, an amount of money equal to the Additional Payments accrued and
which will accrue until final maturity of the Bonds or until the appropriate
redemption date if the Bonds are to be redeemed; provided that this portion of
such prepayment price will be deemed paid if provisions acceptable to the
Trustee, the Letter of Credit Bank, the Remarketing Agent and the Issuer are
made for paying such Additional Payments as they become due.
-32-
<PAGE> 37
Section 8.6. Relative Position of this Article and Indenture. The
rights and options granted to the Borrowers in this Article shall be and remain
prior and superior to the Indenture and may be exercised whether or not the
Borrowers are in default hereunder; provided that such default will not result
in nonfulfillment of any condition to the exercise of any such right or option.
Section 8.7. Concurrent Discharge of Note. In the event any of the
Bonds shall be paid and discharged pursuant to any provisions of this Agreement
or the Indenture, so that such Bonds are not thereafter outstanding within the
meaning of the Indenture, an equivalent principal amount of the corresponding
Note or Notes shall be deemed fully paid for purposes of this Agreement and to
such extent the obligations of the Borrowers thereunder terminated. In such
event, the Issuer or any assignee of the Note or Notes shall take whatever steps
are required to cause such Note or Notes, or the pertinent installments of the
principal sum thereof, to be cancelled and deemed fully paid.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default. The following shall be "events of
default" under this Agreement and the terms "event of default" or "default"
shall mean, whenever they are used in this Agreement, any one or more of the
following events:
(a) The occurrence of an event of default as defined in Section
6.01(a), (b), or (g) of the Indenture.
(b) Failure by the Borrowers to observe and perform any covenant,
condition or agreement on their part to be observed or performed hereunder, or
in the Mortgage, or other than as referred to in paragraph (a) of this Section,
for a period of thirty (30) days after notice of such failure requesting such
failure to be remedied, given to the Borrowers by the Issuer or the Trustee,
unless the Issuer and the Trustee shall agree in writing to an extension of such
time prior to its expiration; provided, however, that, if such default is
curable, and if and so long as the Borrowers are proceeding with due diligence
to cure the default such period shall be extended to whatever reasonable period
is required to permit the Borrowers to cure such default.
(c) The dissolution and liquidation of the Borrowers, except as
provided in Section 6.3 of this Agreement, or failure by the Borrowers or the
Company promptly to satisfy or cause to be set aside any execution, garnishment
or attachment of such consequence as will impair the Borrowers' ability to carry
out their obligations under this Agreement, or the filing by the Borrowers or
the Company of a petition for the appointment of a receiver in liquidation or a
trustee with respect to itself or any of its property, or if it makes a
voluntary assignment for the benefit of creditors or files a petition in
bankruptcy or insolvency or for reorganization, compromise, adjustment or other
relief under the laws of the United States or of any state relating to the
relief of debtors; or if any party other than the Borrowers or the Company shall
file a petition for the appointment of a receiver in liquidation or a trustee
with respect to the Borrowers or the Company, or shall file a petition against
the Borrowers or Company in bankruptcy,
-33-
<PAGE> 38
insolvency, or for reorganization, compromise, adjustment or other relief under
the laws of the United States or any state relating to the relief of debtors and
such petition shall not be vacated or set aside or stayed within thirty (30)
days from the Realty's or the Company's receiving notice thereof.
(d) Any foreclosure of, or ousting of the Realty or the Company from
possession of, the Project or any material portion thereof under any indenture
of mortgage and deed of trust or any other security interest given by the Realty
or the Company, or for any other reason.
The provisions of paragraph (b) of this Section are subject to the following
limitations: If by reason of acts of God; winds; fires; epidemics; landslides;
floods; droughts; famines; strikes; lockouts or other industrial disturbances;
acts of public enemies, acts or orders of any kind of any governmental
authority; insurrection; military action; war, whether or not declared;
sabotage; riots; civil disturbances; explosions; breakage or accident to
machinery, transmission pipes or canals; partial or entire failure of utilities;
or any cause or event not reasonably within the control of the Borrowers, the
Borrowers are liable in whole or in part to carry out their agreements on their
part herein contained, other than the obligations on the part of the Borrowers
to pay Loan Payments, Additional Payments and to carry insurance and to permit
inspection of the Project, Borrowers records and collateral under the Security
Agreement; the Borrowers shall not be deemed in default for a period of thirty
(30) days from the inception of such inability; provided, however, that, if such
default is curable, and if and so long as the Borrowers are proceeding with due
diligence to cure the default such period shall be extended to whatever
reasonable period is required to permit the Borrowers to cure such default. The
Borrowers shall, however, use their best efforts to remedy with all reasonable
dispatch the cause or causes preventing the Borrowers from carrying out their
agreements; provided, that the Borrowers shall in no event be required to settle
strikes, lockouts or other industrial disturbances by acceding to the demands of
the opposing party or parties when such course is, in the judgment of the
Borrowers, not in the interest of the Borrowers.
Section 9.2. Remedies on Default. Whenever any event of default under
Section 9.1 of this Agreement shall have happened and be subsisting, any one or
more of the following remedial steps may be taken; provided that in no event
shall the Issuer be obligated to take any step which in its opinion will or
might cause it to expend time or money or otherwise incur liability unless and
until satisfactory indemnity has been furnished to it:
(a) The Issuer shall, at the written request of the Trustee if
acceleration is declared pursuant to Section 6.02 of the Indenture, declare all
Loan Payments and Additional Payments payable hereunder for the remainder of the
term of this Agreement to be immediately due and payable, whereupon the same
shall become immediately due and payable.
(b) In the event any of the Bonds shall at the time be outstanding and
not paid and discharged in accordance with the provisions of the Indenture, the
Issuer or the Trustee may have access to and inspect, examine and make copies of
the books and records and any and all accounts, data and income tax and other
tax returns of the Borrowers, only, however, insofar as
-34-
<PAGE> 39
they pertain to the Project or Project Site or any portion thereof, or to the
Borrowers' operations of the Project or at the Project Site.
(c) The Issuer may without being required to give any notice (other
than to the Trustee), except as provided in this Agreement or as may be required
by mandatory provisions of law, pursue all remedies of a creditor or secured
party under the Ohio Revised Code, or any other applicable laws.
(d) The Issuer or the Trustee may take whatever action at law or in
equity may appear necessary or desirable to collect the Loan Payments and
Additional Payments then due and thereafter to become due, or to enforce
performance and observance of any obligation, agreement or covenant of the
Borrowers under this Agreement.
(e) The Trustee may exercise all remedies available under the Mortgage,
the Indenture, the Assignment of Rents and Leases, and the Security Agreement,
Any amounts collected as Loan Payments or applicable to Loan Payments and any
other amounts which would be applicable to payment of principal of and interest
and any premium on the Bonds collected pursuant to action taken under this
Section shall be paid into the Bond Fund and applied in accordance with the
provisions of the Indenture or, if the outstanding Bonds have been paid and
discharged in accordance with the provisions of the Indenture, shall be paid as
provided in Section 4.07 of the Indenture for transfers of remaining amounts in
the Bond Fund.
The provisions of this Section are subject to the further limitation
that the rescission or annulment of a declaration that all the Bonds outstanding
under the Indenture are immediately due and payable shall also constitute
rescission or annulment of any corresponding declaration made pursuant to
paragraph (a) of this Section and a waiver and rescission of the consequences of
such declaration and of the event of default with respect to which such
declaration had been made, provided that no such waiver or rescission shall
extend to or affect any subsequent or other default or impair any right
consequent thereon.
Section 9.3. No Remedy Exclusive. No remedy conferred upon or reserved
to the Issuer or the Trustee by this Agreement 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
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 any 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. In order to entitle the Issuer or the Trustee to exercise
any remedy reserved to it in this Article, it shall not be necessary to give any
notice, other than such notice as may be expressly required herein.
Section 9.4. Agreement to Pay Attorneys' Fees and Expenses. In the
event the Borrowers should default under any of the provisions of this Agreement
and the Issuer or the Trustee should employ attorneys or incur other expenses
for the collection of Loan Payments or the enforcement of performance or
observance of any obligation or agreement on the part of the
-35-
<PAGE> 40
Borrowers contained in this Agreement or in or represented by the Note, the
Borrowers shall on demand therefor reimburse the reasonable fee of such
attorneys and such other expenses so incurred. Any attorneys' fees required to
be paid by the Borrowers under this Agreement shall include attorneys' fees
through all proceedings, including, but not limited to, negotiations,
administrative hearings, trials and appeals.
Section 9.5. No Additional Waiver Implied by One Waiver. In the event
any agreement contained in this 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.
ARTICLE X
MISCELLANEOUS
Section 10.1. Term of Agreement. This Agreement shall remain in full
force and effect from the date hereof to and including the Termination Date, or
until such time as all of the Bonds shall have been fully paid (or provision
made for such payment pursuant to the Indenture), whichever shall be earlier,
provided, however, that this Agreement may be cancelled and terminated prior to
said date if the Borrowers shall prepay all of the Loan pursuant to Article VIII
hereof.
Section 10.2. Amounts Remaining in Bond Fund. Any amounts in the Bond
Fund remaining unclaimed by the holders of Bonds for three years after the due
date (whether at maturity or by redemption or pursuant to any Mandatory Sinking
Fund Requirements or otherwise) thereof, shall be paid first to the Letter of
Credit Bank in satisfaction of any outstanding obligations of the Borrowers to
the Letter of Credit Bank under the Reimbursement Agreement and any amount
remaining thereafter shall be paid to the Borrowers by the Trustee. With respect
to the principal of and interest and any premium on the Bonds to be paid from
moneys paid to the Borrowers or the Letter of Credit Bank pursuant to this
Section the holders of the Bonds entitled to such moneys shall look solely to
the Borrowers for the payment of such moneys.
Section 10.3. Notices. All notices, certificates, requests or other
communications hereunder shall be sufficiently given and shall be deemed given
when mailed by registered or certified mail, postage prepaid, addressed to the
appropriate Notice Address. A duplicate copy of each notice, certificate,
request or other communication given hereunder to the Issuer, the Borrowers, the
Original Purchaser, the Letter of Credit Bank, or the Trustee shall also be
given to the others. The Borrowers, the Issuer, the Original Purchaser, the
Letter of Credit Bank and the Trustee may, by notice given hereunder, designate
a different Notice Address for it other than the one specified in Section 1.2
hereof.
Section 10.4. Binding Effect. This Agreement shall inure to the benefit
of and shall be binding upon the Issuer, the Borrowers and their respective
successors and assigns, subject, however, to the specific provisions hereof, and
subject to the further limitation that any obligation of the Issuer created by
or arising out of this Agreement shall not be a general debt of
-36-
<PAGE> 41
the Issuer or the State or any political subdivision or taxing district thereof,
but shall be payable solely out of the Pledged Receipts.
Section 10.5. Amendments, Changes and Modifications. Except as
otherwise provided in this Agreement or in the Indenture, subsequent to the
issuance of the Project Bonds and prior to all conditions provided for in the
Indenture for release of the Indenture having been met, this Agreement may not
be effectively amended, changed, modified, altered or terminated without the
prior written consent of the Trustee and the Letter of Credit Bank.
Section 10.6. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall he deemed to be an original, and all of
which when taken together and bearing the signatures of each of the parties
hereto shall constitute but one and the same instrument.
Section 10.7. Severability. In case any clause, provision or section of
this Agreement, or any covenant, stipulation, obligation, agreement, act, or
action, or part thereof, made, assumed, entered into, or taken under this
Agreement, or any application thereof, is for any reason held to be illegal,
invalid or inoperable, such illegality, invalidity, or inoperability shall not
affect the remainder thereof or any other clause, pro-vision or section or any
other covenant, stipulation, obligation, agreement, act or action or part
thereof, made, assumed, entered into, or taken thereunder, which shall at the
time be construed and enforced as if such illegal or invalid or inoperable
portion were not contained therein, nor shall such illegality or invalidity or
inoperability of any application thereof affect any legal and valid and operable
application thereof, from time to time, and each such clause, provision or
section, covenant, stipulation, obligation, agreement, act, or action, or part
thereof shall be deemed to be effective, operative, made, entered into or taken
in the manner and to the full extent from time to time permitted by law.
Section 10.8. Cautions. The captions or headings in this Agreement are
for convenience only and in no way define, limit or describe the scope or intent
of any provisions or sections of this Agreement.
Section 10.9. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State and for all purposes shall be governed
by and construed in accordance with the laws of the State.
Section 10.10. Selection of Alternate Letter of Credit. Notwithstanding
anything to the contrary contained here in or in the Indenture, the Borrowers
shall have the right to secure an Alternate Letter of Credit at any time prior
to the issuance of a notice of redemption of the Bonds due to a termination of
the Letter of Credit.
Section 10.11. Continuing Obligation. This Agreement is a continuing
obligation and will (i) be binding upon the Borrowers and the Borrowers' legal
representatives, heirs, devisees, legatees and assigns, and (ii) inure to the
benefit of and be enforceable by the Issuer and its successors, transferees and
assigns; provided, that the Borrowers may not assign all or any part of this
Agreement without the prior written consent of the Letter of Credit Bank. Except
as
-37-
<PAGE> 42
set forth in the preceding sentence and except with respect to the holder(s) of
any participation made by the Letter of Credit Bank of this Agreement and the
Letter of Credit, no Person not a party to this Agreement will be entitled to
the benefit of this Agreement.
Section 10.12. Assumption of Obligations of Realty. Notwithstanding
anything in this Agreement to the contrary, Realty may transfer its entire
interest in the Project to the Company provided the Company assumes all of
Realty's obligations hereunder, under the other letter of Credit Documents and
under the Bond Documents. After such transfer and assumption and with the
written consent of the Letter of Credit Bank (which consent shall not be
unreasonably withheld or delayed), Realty shall no longer be bound hereunder and
all references to Realty contained herein shall be of no further force and
effect.
IN WITNESS WHEREOF, the Issuer and the Borrowers have executed this
Agreement all as of the day and year first above written.
COUNTY OF HAMILTON, OHIO
By:
---------------------------------------
County Commissioner
By:
---------------------------------------
County Commissioner
By:
---------------------------------------
County Commissioner
BORROWERS
ADAM WUEST, INC.
By:
---------------------------------------
Title:
---------------------------------------
ADAM REALTY, INC.
By:
---------------------------------------
Title:
---------------------------------------
-38-
<PAGE> 43
CERTIFICATE
The undersigned, Fiscal Officer of the County of Hamilton, Ohio, hereby
certifies that the moneys required to meet the obligations of the Issuer during
the year 1994 under the aforesaid Agreement, all of which are payable from the
Loan Payments of the Borrower have been lawfully appropriated by the Board of
County Commissioners of the County of Hamilton, Ohio for such purposes and are
in the treasury of the Issuer or in the process of collection to the credit of
an appropriate fund, free from any previous encumbrances. No funds need be
appropriated by The County by virtue of the Loan Payments made by the Borrower
hereunder. This Certificate is given in compliance with Sections 5705.41 and
5705.44, Ohio Revised Code.
Dated: February __, 1994
------------------------------------
County Auditor
County of Hamilton, Ohio
-39-
<PAGE> 44
EXHIBIT A
PROMISSORY NOTE
$2,980,000 February 1, 1994
Cincinnati, Ohio
FOR VALUE RECEIVED, the undersigned ADAM WUEST, INC., an Ohio
corporation, and ADAM WUEST REALTY, INC. (collectively the "Makers"), jointly
and severally, promise to pay, as set forth below, to the order of the County of
Hamilton, Ohio (the "Holder"), the principal sum of TWO MILLION NINE HUNDRED
EIGHTY THOUSAND DOLLARS ($2,980,000) and to pay interest on the unpaid balance
of such principal sum, as hereinafter provided, until the payment of such
principal sum has been made or provided for.
The Note has been executed and delivered by the Makers to the
Holder and assigned to The Fifth Third Bank, Cincinnati, Ohio, as Trustee (the
"Trustee") pursuant to the Loan Agreement (the "Agreement"), dated as of
February 1, 1994, among the Holder and the Makers. Under the Agreement, the
Holder has loaned the Makers the proceeds received from the sale of the Holder's
$2,980,000 Economic Development Revenue Refunding Bonds, Series 1994 (Adam
Wuest, Inc. Project) initially dated as of February 1, 1994 (the "Bonds") to
assist the Makers in the refunding of the Prior Bonds (as that term is defined
in the Agreement). The Makers have agreed to repay the loan of the proceeds of
the Bonds by making payments (the "Loan Payments") at the times and in the
amounts set forth in this Note. The Bonds have been issued, concurrently with
the execution and delivery of this Note, pursuant to, and are secured by, the
Trust Indenture (the "Indenture"), dated as of February 1, 1994, between the
Holder and the Trustee. The Bonds and this Note bear interest at the fixed rate
set forth on Exhibit A to the Indenture. Interest on the Bonds is payable each
Interest Payment Date (as defined in the Loan Agreement), commencing September
1, 1994.
Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Agreement and the Indenture.
To provide funds to pay the principal of the Bonds as and when
due as above-specified, the Makers hereby agree to and shall make Loan Payments
in such manner as to provide immediately available funds on the first day of
March, June, September and December, commencing June 1, 1994, in an amount equal
to one-fourth of the amount payable on each next succeeding September 1
(provided, however, that any payment otherwise due on February 1, shall be
payable four Business Days prior to such February 1). To provide funds to pay
the interest on the Bonds as and when due as above-specified, the Makers hereby
agree to and shall make Loan Payments on the first day of March, June, September
and December commencing on June 1, 1994, in an amount equal to one-half of the
amount payable as interest on each next succeeding Interest Payment Date, as
applicable (provided, however, that any payment otherwise due on an Interest
Payment Date shall be payable four Business Days prior to such Interest Payment
Date); provided, however, that with respect to the interest payment due June 1,
1994, the Makers shall receive a credit against such interest payment equal to
the amount of money in the Bond Fund (as defined in the Indenture) representing
the Bond Fund Payment (as defined in the Indenture).
-40-
<PAGE> 45
The provisions of the Project Bonds and the Indenture with
respect to the time and amount of payments of principal and Interest on the
Project Bonds, and correspondingly payments of principal and interest on this
Date, are hereby incorporated by reference in this Note.
If payment or provision for payment in accordance with the
Indenture is made in respect of the principal of and redemption premium, if any,
and interest on the Bonds, and if amounts due the Letter of Credit Bank pursuant
to the Reimbursement Agreement (as such terms are defined in the Indenture) have
been paid or provision therefor has been made, this Note shall be deemed paid to
the extent of such payment or provision for payment of Bonds and amounts due
under the Reimbursement Agreement has been made.
All Loan Payments shall be payable in lawful money of the
United States of America and shall be made to the Trustee at its principal
corporate trust office for the account of the Issuer and deposited in the Bond
Fund created by the Indenture. Except as otherwise provided in the Indenture,
the Loan Payments shall be used by the Trustee to pay the principal of and
redemption premium, if any, and interest on the Bonds as and when due or to
reimburse the Letter of Credit Bank for draws under the Letter of Credit.
The obligation of the Makers to make the payments required
hereunder shall be absolute and unconditional, joint and several, except as
provided herein, and the Makers shall regardless of any cause or circumstances
whatsoever including, without limitation, any defense, set-off, recoupment or
counterclaim which the Makers may have or assert against the Holder, the
Trustee, the Letter of Credit Bank, or the Remarketing Agent (each as defined in
the Agreement) or any other person.
This Note is subject to optional, extraordinary optional and
mandatory prepayment upon the same terms and conditions, on the same date or
dates and at the same prepayment prices, as the Bonds are subject to, conversion
option, optional, extraordinary optional and mandatory redemption, and the
Makers hereby agree that they will make Loan Payments hereunder in an amount
equal to the principal of and premium, if any, and interest on the Bonds due and
payable on any such redemption date. All optional prepayments of amounts due
under this Note are subject to the requirement that the Makers deposit
sufficient moneys with the Letter of Credit Bank in accordance with 2.1 of the
Agreement prior to the Makers giving notice of their intention to so prepay
pursuant to Section 8.4 of the Agreement. Any such redemption prior to stated
maturity is subject to the obligation of the Makers to give the Holder and the
Trustee sufficient notice of such redemption as shall enable the Issuer and the
Trustee to take all action necessary under the Indenture to redeem on the date
specified for prepayment a like principal amount of Bonds at the same redemption
price.
Whenever an event of default under Section 6.01 of the
Indenture shall have occurred and, as a result thereof, the principal of the
Bonds then outstanding, and interest accrued thereon, shall have been declared
to be immediately due and payable pursuant to Section 6.02 of the Indenture, the
unpaid principal amount of and accrued interest on this Note shall also be due
and payable on the date on which the principal of and interest on the Bonds
shall have been declared due and payable; provided, that the annulment of a
declaration of acceleration with
-41-
<PAGE> 46
respect to the Bonds shall also constitute an annulment of any corresponding
declaration with respect to this Note.
This Note and the Makers, obligations under the Agreement are
secured by an Open-End Mortgage and Security Agreement and an Assignment of
Rents and Leases each dated as of February 1, 1994, from the Makers to the
Trustee and the Letter of Credit Bank.
Adam Wuest, Inc. and Adam Wuest Realty, Inc. are jointly and
severally liable for all of the obligations, liabilities, costs and expenses
arising under this Note or any of the other documents evidencing or securing the
repayment of any indebtedness or the enforcement of any obligations hereunder,
provided, however, that Adam Wuest Realty, Inc. shall not become liable for the
payment of any amounts due under this Note or any of the other documents
evidencing or securing the repayment of any indebtedness or the enforcement of
any obligations hereunder, in excess of, and Holder agrees that in no event
shall any monetary deficiency judgment for any such amounts be sought or secured
against Adam Wuest Realty, Inc. other than in an amount equal to, the fair
market value of the Project Site, it being the intention of the parties that the
only recourse of Holder for the satisfaction of such amounts against Adam Wuest
Realty, Inc. shall be against (a) the Project Site, (b) Adam Wuest, Inc. and (c)
any other collateral held by Holder or Trustee as collateral security for the
indebtedness evidenced by this Note or secured by the Mortgage. Notwithstanding
the foregoing, Adam Wuest Realty, Inc. shall be fully liable to Holder for (i)
all damages suffered by Holder on account of fraud or material misrepresentation
by Adam Wuest Realty, Inc. or Adam Wuest, Inc., (ii) the retention of any rental
income or other income arising with respect to the Project Site collected by
Adam Wuest Realty, Inc. after Adam Wuest Realty, Inc. is in default under this
Note to the full extent of the rental income or other income retained and
collected by Adam Wuest Realty, Inc. thereafter and not applied to operating
expenses, capital improvements or debt service, (iii) the replacement cost of
any personal property or fixtures which are encumbered by the Mortgage which are
removed or disposed of by Adam Wuest Realty, Inc. and not replaced as required
by the Mortgage, (iv) the misapplication of any proceeds to the full extent of
such misapplied proceeds under any insurance policies or awards resulting from
condemnation of the exercise of the power of eminent domain by reason of damage
or destruction to any portion of the Project Site or any building or buildings
located thereon, and (iv) valorem and personal property taxes, assessments and
all other liens and charges on the Project Site which have become due and
payable and are not paid by Adam Wuest Realty, Inc. (and thus delinquent).
-42-
<PAGE> 47
IN WITNESS WHEREOF, the Makers have executed this Note as of
the date first written above.
ADAM WUEST, INC.
By: ____________________________________
Title: _________________________________
ADAM REALTY, INC.
By: ____________________________________
Title: _________________________________
The above Promissory Note is hereby pledged and assigned to
the Trustee without recourse, as Trustee pursuant to the within described
Indenture this ___day of February, 1994.
COUNTY OF HAMILTON, OHIO
By: ____________________________________
County Commissioner
By: ____________________________________
County Commissioner
By: ____________________________________
County Commissioner
BORROWERS
ADAM WUEST, INC.
By: ____________________________________
Title: _________________________________
ADAM REALTY, INC.
By: ____________________________________
Title: _________________________________
-43-
<PAGE> 48
EXHIBIT B
PROJECT EQUIPMENT
Factory
2 Gribetz Computerized Quilting Machines
1 Mattress Innerspring Unit Expediter
1 Electric Forklift
5 Box Spring Upholstery Presses and I-Beams
14 Mattress Pre-Build Tables
1 Tape Edge Machine and Table
150 Ft Mattress Production Conveyor
1 Air Compressor and After Cooler
260 Ft. Stand-Up Powered Conveyor
60 Ft. Staging Flat Conveyor
1 Slitter For Cutting Cloth Rolls
1 Argon Welder
Electric Wiring for Above Equipment
Office
1 McDonnell Douglas Computer System
1 Telephone System (including voice mail)
Miscellaneous Office Furniture and Fixtures
-44-
<PAGE> 49
EXHIBIT C
The Property
Situated in the City of Cincinnati, Hamilton County, Ohio and more particularly
described as follows:
Beginning at a point in the north line of proposed Kenyon Street which is South
82 degrees 48' 50" East a distance of 255.76 feet, as measured along the north
line of existing Kenyon Avenue and south 7(0) 35' 50" West, a distance of 34.56
feet from the intersection of the north line of existing Kenyon Avenue with the
east line of existing Freeman Avenue, thence along the north line of Proposed
Kenyon Street, South 78 degrees 34' 03" East a distance of 427.86 feet; thence
on a curved line, tangent to the last described course, and deflecting to the
left with a radius of 35 feet a distance of 56.06 feet (chord of said curve
bears North 55 degrees 32' 36" East a distance of 50.26 feet) to a point in the
west line of Linn Street; thence along the west line of Linn Street, North 9
degrees 39' 15" East a distance of 203.46 feet and on a curved line, tangent to
the last described course, and deflecting to the right with a radius of 1067
feet a distance of 133.61 feet (chord of said curve bears North 13 degrees 14'
26" East a distance of 133.46 feet); thence North 7 degrees 12' 15" East a
distance of 109.00 feet; thence North 82 degrees 47' 45" West a distance of
225.33 feet; thence South 7 degrees 35' 50" West a distance of 446.87 feet to
the place of beginning.
INCLUDED in the above described property is a parcel shown on Certificate of
Title No. 127439 of the Hamilton County, Ohio Registered Land Records and being
described as follows:
Situate in the City of Cincinnati, Hamilton County, Ohio and beginning at a
point in the north line of Kenyon Avenue which is North 85 degrees 30' West
(North 82 degrees 48' 50" West -- Queensgate) a distance of 242.53 feet from the
intersection of the north line of Kenyon Avenue with the west line of Baymiller
Street; thence, along the north line of Kenyon Avenue, North 85 degrees 30' West
(North 82 degrees 48' 50" West -- Queensgate) a distance of 16.61 feet; thence
North 40 30' East (North 7 degrees 11' 10" East -- Queensgate) a distance of
16.59 feet; thence south 4 degrees 29' West (south 7 degrees 10' 10" West --
Queensgate) a distance of 85.08 feet to the place of beginning.
-45-
<PAGE> 50
EXHIBIT D
STATEMENT REQUESTING DISBURSEMENT OF FUNDS
FROM CONSTRUCTION FUND PURSUANT TO SECTION 4.2
OF LOAN AGREEMENT DATED AS OF February 1, 1994
Pursuant to Section 4.2 of the Loan Agreement among the County
of Hamilton, Ohio ("Issuer"), and Adam Wuest, Inc. and Adam Wuest Realty, Inc.
(the "Borrowers") dated as of February 1, 1994, the undersigned Authorized
Borrowers Representative hereby authorizes The Fifth Third Bank, as Trustee of
the County of Hamilton - Adam Wuest, Inc. Construction Fund ("Construction
Fund") to pay to the Borrowers or to the person(s) listed on Exhibit "A" hereto
out of the moneys deposited in the Construction Fund the aggregate sum of $_____
to pay said person(s) or to reimburse the Borrowers in full, as indicated on
Exhibit "A", for the advances, payments and expenditures made by them in
connection with the items listed in Exhibit "A", which is incorporated herein by
reference.
This _____ day of _________ 1994.
___________________________________
Authorized Borrowers Representative
Approved:
The Fifth Third Bank, as Letter
of Credit Bank
By ____________________________
Date: ___________, 1994
-46-
<PAGE> 51
EXHIBIT A
(Adam Wuest, Inc. Project)
Payee Amount
----- ------
-47-
<PAGE> 1
EXHIBIT 10.49
LETTER OF CREDIT
Irrevocable Letter of
Credit No. SM410694C
Dated as of November 5, 1999
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Commercial Loan Department
Ladies and Gentlemen:
FIRST UNION NATIONAL BANK (sometimes hereinafter referred to as the
"Bank") hereby establishes in your favor for the account of ADAM WUEST
CORPORATION, a Delaware corporation (the "Company") (as successor in interest to
Adam Wuest, Inc. and Adam Wuest Realty, Inc., both being Ohio corporations) its
Irrevocable Letter of Credit No. SM410694C (the "Letter of Credit") in a maximum
amount of up to Two Million Two Hundred Eighty-Four Thousand Four Hundred
Twenty-Five Dollars ($2,284,425) (as more fully described below) effective
immediately and expiring at 5:00 p.m., Cincinnati, Ohio time, on September 30,
2001 (the "Expiration Date") or if the Expiration Date is not a business day (as
hereinafter defined) on the next succeeding business day, unless terminated
earlier in accordance with the provisions hereof.
This Letter of Credit is being issued in connection with Fifth Third
Bank Letter of Credit No. 8383 (the "Bond L/C") issued by you to Fifth Third
Bank, as trustee (the "Trustee") in connection with the Trust Indenture (the
"Indenture") between the County of Hamilton, Ohio (the "Issuer") and the Trustee
whereby the Issuer authorized, issued and sold certain County of Hamilton, Ohio
Economic Development Revenue Refunding Bonds, Series 1994 (Adam Wuest, Inc.
Project) (the "Bonds") in the aggregate principal amount of $2,980,000 (of which
$2,145,000 is currently outstanding), the payment of which is secured by, among
other things, the Bond L/C. All capitalized terms used but not defined herein
shall have the meanings ascribed thereto in the Indenture or, with respect to
Principal Drawings or Interest Drawings, in the Bond L/C.
As used in this Letter of Credit, the term "business day" shall mean
any day of the year, other than a Saturday or a Sunday, on which banks located
in the cities in which the principal corporate trust office of the Trustee
pursuant to the Indenture and the principal office of the Bank are located are
not required or authorized by law to remain closed and on which The New York
Stock Exchange is not closed.
You are hereby irrevocably authorized to draw on us, for the account of
the Company, in accordance with the terms and conditions hereof and subject to
increases and reductions in amounts
<PAGE> 2
as hereinafter set forth, an aggregate amount not exceeding Two Million Two
Hundred Eighty-Four Thousand Four Hundred Twenty-Five Dollars ($2,284,425) (the
"Stated Amount"), of which (A) an aggregate amount not exceeding Two Million One
Hundred Forty-Five Thousand Dollars ($2,145,000) may be drawn upon for payment
of the unpaid Principal Drawings under the Bond L/C, plus (B) an aggregate
amount not exceeding One Hundred Thirty-Nine Thousand Four Hundred Twenty-Five
Dollars ($139,425) may be drawn upon for payment of Interest Drawings under the
Bond L/C.
Funds under this Letter of Credit are only available to you against
your sight draft(s) drawn on us, substantially in the form of Exhibit 1 hereto,
stating on their face: "Drawn under First Union National Bank Letter of Credit
No. SM410694C" and upon your presenting to us one or more of the following
written certificates:
(A) If the drawing is being made for payment of a Principal
Drawing, a written certificate signed by you in the form of Exhibit 2 attached
hereto appropriately completed (a "Principal Drawing"); and
(B) If the drawing is being made for a payment of an Interest
Drawing, a written certificate signed by you in the form of Exhibit 3 attached
hereto appropriately completed (an "Interest Drawing").
Presentation of such draft(s) and certificate(s) shall be made on a
business day at our office located at 8739 Research Drive - URP4, Charlotte, NC
28262 (Attention: Standby Letter of Credit Department) or any other place which
may be designated by us by written notice delivered to you. If we receive any of
your drafts drawn hereunder at such office, all in strict conformity with the
terms and conditions of this Letter of Credit, on or prior to the termination
hereof, we will honor the same and make payment hereunder. If a draft and
certificate are presented to us as aforesaid by 11:00 a.m., Cincinnati, Ohio
time, payment will be made, in immediately available funds by 4:00 p.m., on the
next business day following presentment, otherwise, payment will be made, in
immediately available funds, by 4:00 p.m. on the second business day following
presentment. If requested by you, payment may be made by deposit of such funds
into a designated bank account that you maintain.
Upon receipt from you of a written certificate signed by you in the
form of Exhibit 4 attached hereto appropriately completed, stating that a
payment of principal on the Bonds has been made from funds other than amounts
drawn under the Bond L/C, the Stated Amount of this Letter of Credit shall be
reduced by the amount of the reduction set forth in such certificate. Upon
payment of a drawing hereunder, the Stated Amount of this Letter of Credit shall
be reduced by the amount of such payment except that in connection with any
Interest Drawing, if you have not received from us within ten (10) business days
from the date of your drawing a notice from us in the form of the certificate
attached hereto as Exhibit 5 appropriately completed, indicating we have not
reinstated the Letter of Credit for all amounts drawn under such Interest
Drawing, your right to draw on us by an Interest Drawing shall be automatically
reinstated in such amount and this automatic
2
<PAGE> 3
reinstatement of your right to make an Interest Drawing shall be applicable to
successive Interest Drawings so long as this Letter of Credit shall have not
terminated as set forth below.
Only you or your transferee pursuant to the terms of this Letter of
Credit, may make a drawing under this Letter of Credit. Upon the payment to you
of the amount specified in a draft drawn hereunder, we will be fully discharged
of our obligation under this Letter of Credit with respect to such draft and
shall not thereafter be obligated to make any further payments under this Letter
of Credit in respect of such draft to you or any other person who may have made
to you or makes to you a demand for payment of principal of or interest on any
Bond. By paying to you an amount demanded in such draft we make no
representation as to the correctness of the amount demanded in such draft.
This Letter of Credit shall automatically terminate without any action
or notice and shall be delivered to us for cancellation upon the earliest of:
(i) the honoring by us of the final drawing available to be made hereunder; (ii)
our receipt of a written certificate signed by your officer in the form of
Exhibit 6 hereto appropriately completed, stating that: (a) no Bonds are
Outstanding within the meaning of the Indenture; and (b) such officer is duly
authorized to sign such certificate on behalf of you; (iii) our receipt of a
written certificate signed by your officer in the form of Exhibit 7 hereto
appropriately completed, stating that: (a) an Alternate Letter of Credit (as
defined in the Indenture) has been accepted by the Trustee, and (b) such officer
is duly authorized to sign such certificate on behalf of you; or, (iv) the
occurrence of the Expiration Date.
This Letter of Credit is subject to the "Uniform Customs and Practice
for Documentary Credits, International Chamber of Commerce" (the "Uniform
Customs") in effect on the date of issuance or as may be revised from time to
time thereafter. This Letter of Credit shall be deemed to be made under the laws
of the State of North Carolina, and shall, as to matters not governed by the
Uniform Customs, be governed by and construed in accordance with the laws of the
State of North Carolina.
Communications with respect to this Letter of Credit shall be in
writing and shall be addressed to us at 8739 Research Drive - URP4, Charlotte,
NC 28262 (Attention: Standby Letter of Credit Department), specifically
referring to the number of this Letter of Credit.
Notwithstanding anything in the Uniform Customs to the contrary, this
Letter of Credit is transferable in its entirety to any transferee who has
succeeded you. Each letter of credit issued upon any such transfer may be
successively transferred. Transfer of the available balance 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 substantially in the form of
Exhibit 8 attached hereto. Following such presentation, and as soon as this
original Letter of Credit is returned to us and we have been paid our customary
transfer fee, we shall forthwith transfer the same to your transferee or, if so
requested by your transferee, issue an irrevocable letter of credit to your
transferee with provisions therein consistent with those of this Letter of
Credit.
3
<PAGE> 4
This Letter of Credit sets forth in full our undertaking and 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 and the Indenture), except only the certificate(s) and the
draft(s) referred to herein; and any such reference shall not be deemed to
incorporate herein by reference any document, instrument or agreement except for
such certificate(s) and such draft(s).
Very truly yours,
FIRST UNION NATIONAL BANK
By:_____________________________
Its:____________________________
4
<PAGE> 5
EXHIBIT 1
SIGHT DRAFT
________,
FOR VALUE RECEIVED
Pay on Demand to: ______________________________________________ U.S.
___________________________________________ Dollars (U.S. $__________)
Charge to account of Adam Wuest Corporation
Drawn under First Union National Bank Letter of Credit No. ____.
TO: First Union National Bank
Attn: Standby Letter of Credit Department
8739 Research Drive - URP4
Charlotte, NC 28262
Phone: (704) 593-7892
Fax: (704) 593-7937
The sum drawn does not exceed the difference between (I) the maximum
aggregate amount to be drawn under the Letter of Credit less (II) the aggregate
amount of all previous drawings made under the Letter of Credit for which First
Union National Bank has not reinstated, as certified to us in any Certificate of
Reinstatement or Nonreinstatement heretofore delivered by you.
FIFTH THIRD BANK
By: _______________________
Its: ______________________
5
<PAGE> 6
EXHIBIT 2
CERTIFICATE FOR "PRINCIPAL DRAWING"
The undersigned, a duly authorized officer of Fifth Third Bank (the
"Beneficiary"), hereby certifies to First Union National Bank (the "Bank") with
reference to the Bank's Irrevocable Letter of Credit No. _____ (the "Letter of
Credit", the capitalized terms defined therein and not defined herein being used
as therein defined) issued by the Bank in favor of the Beneficiary that:
(1) A Principal Drawing of $___________ has either been paid
or is due and payable on _____________ under the Bond L/C.
(2) This is a (partial) (final) drawing.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered
this certificate as of this ____ day of _________, ____.
FIFTH THIRD BANK
By: _______________________
Its:_______________________
6
<PAGE> 7
EXHIBIT 3
CERTIFICATE FOR "INTEREST DRAWING"
The undersigned, a duly authorized officer of Fifth Third Bank
(the "Beneficiary"), hereby certifies to First Union National Bank (the "Bank")
with reference to the Bank's Irrevocable Letter of Credit No. ____ (the "Letter
of Credit," the capitalized terms defined therein and not defined herein being
used as therein defined) issued by the Bank in favor of the Beneficiary as
follows:
An Interest Drawing in the amount of $__________ has been paid
or is due and payable on ____________ under the Bond L/C.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered
this certificate as of the ______ day of _________, ____.
FIFTH THIRD BANK
By:________________________
Its:_______________________
7
<PAGE> 8
EXHIBIT 4
CERTIFICATE OF REDUCTION IN STATED AMOUNT
First Union National Bank
Attn: Standby Letter of Credit Department
8739 Research Drive - URP4
Charlotte, NC 28262
Re: Irrevocable Letter of Credit No. ____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of Fifth Third Bank (the
"Beneficiary"), hereby certifies to First Union National Bank (the "Bank") with
reference to Irrevocable Letter of Credit No. ____ (the "Letter of Credit," the
capitalized terms defined therein and not defined herein being used as therein
defined) issued by the Bank in favor of the Beneficiary that:
(1) On the date hereof, a payment or a credit towards payment of
principal on the Bonds in the amount of $_____________ has been made from funds
other than amounts drawn under the Bond L/C.
(2) In accordance with the Letter of Credit, upon your receipt of this
certificate, the Stated Amount of the Letter of Credit is reduced by
$____________, which amount equals the sum of: (i) the amount of principal so
paid, plus (ii) 195 days' interest on such amount of principal at the rate of
12% per annum. You may adjust your records accordingly.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
certificate as of the _____ day of ___________,____.
FIFTH THIRD BANK
By:________________________
Its:_______________________
8
<PAGE> 9
EXHIBIT 5
CERTIFICATE OF NONREINSTATEMENT
OF AMOUNTS AVAILABLE UNDER IRREVOCABLE
LETTER OF CREDIT NO. ____
The undersigned, a duly authorized officer of First Union National Bank
("Bank"), hereby certifies to the Trustee under the Trust Indenture dated as of
February 1, 1994 between the County of Hamilton, Ohio (the "Issuer") and the
Trustee with reference to Irrevocable Letter of Credit No. ____ (the "Letter of
Credit") issued by the Bank in favor of Fifth Third Bank that the amount drawn
by Fifth Third Bank pursuant to its ___________ Drawing dated as of ____________
has not been reinstated because the Bank has not been reimbursed for such
Drawing.
Except as herein expressly set forth, all other terms and conditions of
the Letter of Credit remain unchanged.
IN WITNESS WHEREOF, the Bank has executed and delivered this
certificate this ____ day of ___________, _____.
FIRST UNION NATIONAL BANK
By: _______________________
Its:_______________________
9
<PAGE> 10
EXHIBIT 6
CERTIFICATE THAT NO BONDS ARE OUTSTANDING
First Union National Bank
Attn: Standby Letter of Credit Department
8739 Research Drive - URP4
Charlotte, NC 28262
Re: Irrevocable Letter of Credit No. ____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of Fifth Third Bank (the
"Beneficiary") hereby certifies to First Union National Bank (the "Bank") with
reference to the Bank's Irrevocable Letter of Credit No. ____ (the "Letter of
Credit," the capitalized terms defined therein and not defined herein being used
as therein defined) issued by the Bank in favor of the Beneficiary that:
(1) No Bonds are outstanding within the meaning of the Indenture.
(2) The undersigned officer is duly authorized to sign this certificate
on behalf of the Beneficiary.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
certificate as of the _____ day of _________, ____.
FIFTH THIRD BANK
By:________________________
Its:_______________________
10
<PAGE> 11
EXHIBIT 7
CERTIFICATE OF ACCEPTANCE OF ALTERNATE LETTER OF CREDIT
First Union National Bank
Attn: Standby Letter of Credit Department
8739 Research Drive - URP4
Charlotte, NC 28262
Re: Irrevocable Letter of Credit No. ____
Ladies and Gentlemen:
The undersigned, a duly authorized officer of Fifth Third Bank
(the "Beneficiary"), hereby certifies to First Union National Bank (the "Bank")
with reference to the Bank's Irrevocable Letter of Credit No. ____ (the "Letter
of Credit," the capitalized terms defined therein and not defined herein being
used as therein defined) issued by the Bank in favor of the Beneficiary that:
(1) An Alternate Letter of Credit (as defined in the
Indenture) has been accepted by the Trustee.
(2) The undersigned officer is duly authorized to sign this
certificate on behalf of the Beneficiary.
(3) In accordance with the Letter of Credit, upon your receipt
of this Certificate, the Letter of Credit is hereby terminated.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered
this certificate as of the _____ day of _________, ____.
FIFTH THIRD BANK
By:______________________________
Its:______________________________
11
<PAGE> 12
EXHIBIT 8
First Union National Bank
Attn: Standby Letter of Credit Department
8739 Research Drive - URP4
Charlotte, NC 28262
Re: Irrevocable Letter of Credit No. ____
Ladies and Gentlemen:
For value received, the undersigned beneficiary hereby
irrevocably transfers to:
(Name of Transferee)
(Address)
all rights of the undersigned beneficiary to draw under the above Letter of
Credit in its entirety.
By this transfer, all rights of the undersigned beneficiary in
and to such Letter of Credit are transferred to the transferee who shall have
sole rights as beneficiary thereof, including sole rights relating to any
amendments, whether in creases or extensions or other amendments and whether now
existing or hereafter made. All amendments are to be advised directly to the
transferee without necessity of any consent of or notice to the undersigned
beneficiary.
If advise of such Letter of Credit is returned herewith, along
with your customary transfer fee, and we ask you to endorse the transfer on the
reverse thereof and forward it directly to the transferee with your customary
notice of transfer.
Very truly yours,
---------------------------------
Signature of Beneficiary
SIGNATURE AUTHENTICATED
- -----------------------------
(Bank)
- ------------------------------
(Authorized Signature)
12
<PAGE> 1
EXHIBIT 10.50
Prepared By and Return To:
Jeffrey W. Glenney, Esq.
Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
MORTGAGE AND SECURITY AGREEMENT
COLLATERAL IS OR INCLUDES FIXTURES
NOTICE TO RECORDER: This Mortgage encumbers collateral (real and personal
property) that is located in Florida that serves as security for the Credit
Party Obligations in the principal amount of $25,000,000.00 executed and
delivered by Grantor outside of Florida, which indebtedness is also secured by
other collateral located outside of Florida. The value of the collateral located
in the State of Florida is $24,500,000.00, and the value of all of the
collateral securing the Credit Party Obligations is $51,647,000.00. The ratio of
$24,500,000.00/$51,647,000.00, or 47.44% has been applied to the indebtedness to
yield a taxable basis of $11,860,000.00; however, since the Agent has agreed to
limit is recovery against the collateral encumbered by this Mortgage to
$8,000,000.00, this limited amount is the sum on which Florida documentary stamp
taxes on this Mortgage are payable as provided in Rule 12B-4.053(32), Florida
Administrative Code. The indebtedness secured by this Mortgage is a revolving
loan under which the borrower may borrow, repay and reborrow funds and the
principal balance thereunder may vary from time to time. Solely for purposes of
the Florida intangible personal property tax and without affecting the Agent's
security or remedies hereunder, this Mortgage shall be deemed to secure the
first funds advanced and the last funds repaid under the line of credit, and no
such reborrowings shall be subject to the Florida intangible tax unless and to
the extent that the principal amount outstanding under the line of credit at the
time of the reborrowing is an amount less than the $8,000,000.00 maximum
recovery under this Mortgage. The value of the Florida real property encumbered
by this Mortgage is $8,000,000.00.
THIS MORTGAGE AND SECURITY AGREEMENT (the "Mortgage") is made and
entered into as of the 18th day of May, 1999, by PALM BEACH BEDDING COMPANY, a
Florida corporation, with an address of 2001 Lower Road, Linden, New Jersey
07036-6520 (the "Grantor") and FIRST UNION NATIONAL BANK, a national banking
association, in its capacity as administrative agent, with an address of 301
South College Street, One First Union Center, DC-5, Charlotte, North Carolina
28288-0737 (in such capacity, the "Agent") for the
<PAGE> 2
lenders from time to time party to the Credit Agreement described herein
(collectively, the "Lenders").
RECITALS:
WHEREAS, the Borrower (as hereinafter defined) and the Guarantors (as
hereinafter defined) have requested that the Lenders provide a credit facility
to the Borrower in an amount up to $25 million (collectively, the "Credit
Facilities");
WHEREAS, the Grantor is the owner of the fee simple interest in the
real property described on Exhibit A attached hereto and incorporated herein by
reference; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Grantor provided that, among other things, the Grantor executes
and delivers this Mortgage.
W I T N E S S E T H:
In order to secure the repayment of the Credit Facilities described
herein together with any renewals or extensions or modifications thereof upon
the same or different terms or at the same or different rate of interest and
also to secure: (i) all future advances and readvances that may subsequently be
made to the Grantor by the Lenders evidenced by any promissory notes given in
connection with the aforesaid Credit Facilities, and all renewals and extensions
thereof; and (ii) all other indebtedness of the Grantor to the Lenders pursuant
to the Credit Facilities, now or hereafter existing, whether direct or indirect,
the maximum amount of all indebtedness outstanding at any one time secured
hereby not to exceed $25,000,000.00, plus interest thereon, all charges and
expenses of collection incurred by Agent including court costs and reasonable
attorney's fees;
The Grantor, in consideration of the indebtedness herein recited and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, has irrevocably granted, released, sold, remised,
bargained, assigned, pledged, warranted, mortgaged, transferred and conveyed,
and does hereby grant, release, sell, remise, bargain, assign, pledge, warrant,
mortgage, transfer and convey unto the Agent and the Agent's successors and
assigns for the benefit of the Lenders with power of sale, forever, a continuing
security interest in and to, all of Grantor's right, title and interest in and
to the following described land, real property interests, buildings,
improvements and fixtures:
(a) All that tract or parcel of land and other real property
interests in Palm Beach County, Florida more particularly described in
Exhibit A attached hereto and made a part hereof (the "Land");
(b) All buildings and improvements of every kind and
description now or hereafter erected or placed on the aforesaid land
(the "Improvements") and all materials intended for construction,
reconstruction, alteration and repair of such Improvements
2
<PAGE> 3
now or hereafter erected thereon, all of which materials shall be
deemed to be included within the premises hereby conveyed immediately
upon the delivery thereof to the aforesaid Land, and all fixtures now
or hereafter owned by the Grantor and attached to or contained in and
used in connection with the aforesaid Land and Improvements and all
renewals or replacements thereof or articles in substitution thereof,
whether or not the same are or shall be attached to the Land and
Improvements in any manner (the "Tangible Personalty") and all proceeds
of the Tangible Personalty (hereinafter, the Land, the Improvements and
Tangible Personalty may be collectively referred to as the "Premises");
and
(c) All appurtenances to the Premises together with all
proceeds thereof, including casualty and condemnation proceeds;
TO HAVE AND HOLD the same, together with all privileges, hereditaments,
easements and appurtenances thereunto belonging, subject to the Permitted Liens
(as defined in the hereinafter described Credit Agreement) and Permitted
Encumbrances (hereinafter defined) to the Agent and the Agent's successors and
assigns, to secure the indebtedness and other obligations herein recited;
provided that, should the indebtedness secured hereby be paid according to the
tenor and effect thereof when the same shall be due and payable and should the
Grantor timely and fully discharge its obligations secured hereby and satisfy
the obligations in full, then the Premises shall be reconveyed to the Grantor or
the title thereto shall be revested according to the provisions of law.
And, as additional security for said indebtedness, the Grantor hereby
conditionally assigns to the Agent all the security deposits, rents, issues,
profits and revenues of the Premises from time to time accruing (the "Rents and
Profits"), reserving only the right to the Grantor to collect and apply the same
as Grantor chooses as long as there shall exist no Event of Default (as defined
in Article III).
As additional collateral and further security for the indebtedness, the
Grantor does hereby assign to the Agent and grants to the Agent a security
interest in all of the right, title and the interest of the Grantor in and to
any and all insurance policies and proceeds thereof and any and all leases
(including equipment leases), rental agreements, management contracts, franchise
agreements, construction contracts, architects' contracts, technical services
agreements, or other contracts, licenses and permits to the extent now or
hereafter relating the Premises (the "Intangible Personalty") or any part
thereof, and the Grantor agrees to execute and deliver to the Agent such
additional instruments, in form and substance satisfactory to the Agent, as may
hereafter be requested by the Agent to evidence and confirm said assignment;
provided, however, that acceptance of any such assignment shall not be construed
as a consent by the Agent to any lease, rental agreement, management contract,
franchise agreement, construction contract, technical services agreement or
other contract, license or permit, or to impose upon the Agent any obligation
with respect thereto. Notwithstanding the foregoing provisions, such assignment
and grant of security interest contained herein shall not extend to, and the
Intangible Personalty shall not include, any personalty which is now or
hereafter held by the Grantor as licensee, lessee or otherwise, to the extent
that (a) such personalty is not assignable or capable of
3
<PAGE> 4
being encumbered as a matter of law or under the terms of the license, lease or
other agreement applicable thereto (but solely to the extent that any such
restriction shall be enforceable under applicable law), without the consent of
the licensor or lessor thereof or other applicable party thereto and (b) such
consent has not been obtained; provided, however, that the foregoing assignment
and grant of security interest shall extend to, and the Intangible Personalty
shall include, any and all proceeds of such personalty to the extent that the
assignment or encumbering of such proceeds is not so restricted under the terms
of the license, lease or other agreement applicable thereto.
All the Tangible Personalty which comprise a part of the Premises
shall, as far as permitted by law, be deemed to be affixed to the aforesaid Land
and conveyed therewith. As to the balance of the Tangible Personalty and the
Intangible Personalty, this Mortgage shall be considered to be a security
agreement which creates a security interest in such items for the benefit of the
Agent. In that regard, the Grantor grants to the Agent all of the rights and
remedies of a secured party under the laws of the state in which the Premises
are located.
The Grantor and the Agent covenant, represent and agree as follows:
ARTICLE I
Indebtedness Secured
1.1 Indebtedness. (a) The Agent and the Lenders have agreed to
establish a $25,000,000 senior secured credit facility (hereinafter the loans
and extensions of credit thereunder may be called the "Obligations") in favor of
the Sleepmaster L.L.C., a New Jersey limited liability company (the "Borrower")
pursuant to the terms of that certain Credit Agreement dated as of the date
hereof among the Borrower, Sleepmaster Holdings, L.L.C., as the Parent, the
domestic subsidiaries of the Borrower (including the Grantor) (individually a
"Guarantor" and collectively with the Grantor, the "Guarantors"), the Agent and
the Lenders (as amended, modified, extended, renewed or replaced from time to
time, the "Credit Agreement") and as evidenced by (i) those revolving credit
promissory notes of the Borrower, under which sums may be advanced, paid back or
readvanced (as referenced and defined in the Credit Agreement, as amended,
modified, supplemented, extended, renewed or replaced from time to time, the
"Revolving Notes") and (ii) those letters of credit for the account of the
Borrower or any other Credit Party (as referenced in the Credit Agreement, the
"Letters of Credit"). The Revolving Notes shall hereinafter collectively be
called the "Notes." Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Credit Agreement. This
Mortgage is given to secure the payment of the Borrower and the Grantor under
any Hedging Agreements (as defined in the Credit Agreement) and all indebtedness
and other obligations now or hereafter owing under the Notes, the Letters of
Credit, the Credit Agreement, this Mortgage and the other Credit Documents
(collectively, the "Indebtedness").
(b) This Mortgage is given in substitution and replacement for that
certain Mortgage and Security Agreement executed as of the 1st day of April,
1996, by and between Grantor and First
4
<PAGE> 5
Union National Bank of Florida, as Mortgagee and recorded in Book 9193, Page 137
of the real property records of Palm Beach County, Florida, as Document Number
96-109138 (the "L/C Mortgage"). The obligations of the Grantor under the Letter
of Credit Agreement (as defined in the L/C Mortgage) have been amended and, as
of the date hereof, are included as a part of the Obligations and constitute a
portion of the Indebtedness secured by this Mortgage.
1.2 Future Advances. This Mortgage is given to secure not only the
Obligations, but also such future advances made pursuant to this Mortgage, which
advances are to be made at the option of the Agent within twenty (20) years from
the date hereof, to the same extent as if such future advances were made on the
date of the execution of this Mortgage. The total amount of indebtedness that
may be so secured may decrease or increase from time to time, but the total
unpaid balance so secured at one time shall not exceed $50,000,000, and any
disbursements made for the payment of taxes, levies or insurance on the
Premises.
ARTICLE II
Grantor's Covenants, Representations and Agreements
2.1 Title to Property. The Grantor represents and warrants to the Agent
(i) that it is seized of the Land, the Improvements (and any fixtures) and the
Tangible Personalty in fee to the extent such Tangible Personalty does not
constitute fixtures and has the right to encumber and convey the same, (ii) as
of the date hereof, that title to the Tangible Personalty is free and clear of
all liens and encumbrances except for the Permitted Liens and title to all such
other property is free and clear of all encumbrances except for the matters
shown on the title policy accepted by the Agent in connection with this Mortgage
(the "Permitted Encumbrances"), and (iii) that it will warrant and defend the
title to such property except for the Permitted Encumbrances and Permitted Liens
against the claims of all Persons. As to the balance of the Premises, the Rents
and Profits and the Intangible Personalty, the Grantor represents and warrants
that it has title to such property, that it has the right to encumber and convey
such property and that it will warrant and defend such property against the
claims of all Persons subject to the Permitted Encumbrances and the Permitted
Liens.
2.2 Taxes and Fees. The Grantor will pay prior to delinquency all
taxes, general and special assessments, insurance premiums, permit fees,
inspection fees, user fees, license fees, water and sewer charges, franchise
fees and equipment rents against it or the Premises as required by the terms and
conditions of Section 5.3 of the Credit Agreement (and the Grantor, upon request
of the Agent, will submit to the Agent receipts evidencing said payments). The
Grantor or the Borrower will also pay, as and when due, all mortgage taxes and
intangible tax due or payable in connection with the execution and delivery of
this Mortgage, including sums due in connection with any future advances made
pursuant to the Credit Agreement.
2.3 Reimbursement. The Grantor agrees that if it shall fail to pay on
or before the date that the same become delinquent any tax, assessment or charge
levied or assessed against the Premises or any utility charge, whether public or
private, or any insurance premium, or if it shall fail to procure the insurance
coverage and the delivery of the insurance certificates required
5
<PAGE> 6
hereunder, or if it shall fail to pay any other charge or fee described in
Section 2.3 hereof, then (unless such obligations are being contested in the
manner set forth in Section 5.3 of the Credit Agreement), the Agent, at its
option, may pay or procure the same and will give the Grantor prompt notice of
any such expenditures. The Grantor will reimburse the Agent upon demand for any
sums of money paid by the Agent pursuant to this Section, together with interest
on each such payment at the default rate of interest provided in Section 2.7 of
the Credit Agreement for Loans, and all such sums and interest thereon shall be
secured hereby.
2.4 Additional Documents. The Grantor agrees to execute and deliver to
the Agent, concurrently with the execution of this Mortgage and upon the request
of the Agent from time to time hereafter, all financing statements and other
documents reasonably required to perfect and maintain the security interest
created hereby. The Grantor hereby irrevocably (as long as the Loans remain
unpaid) makes, constitutes and appoints the Agent as the true and lawful
attorney of the Grantor (such appointment being coupled with an interest) to
sign the name of the Grantor (after the Grantor has failed or refused to timely
execute such documents upon request of the Agent) on any financing statement,
continuation of financing statement or similar document required to perfect or
continue such security interests but only in the event the Grantor refuses to do
so after receipt of written notice.
2.5 Sale or Encumbrance. Except as otherwise permitted in the Credit
Agreement, the Grantor will not sell, encumber or otherwise dispose of any of
the Tangible Personalty except to incorporate such into the Improvements or
replace such with goods of quality and value at least equal to that replaced.
Provided, however, in the event the Grantor sells or otherwise disposes of any
of the Tangible Personalty, except to the extent permitted by the Credit
Agreement, the Agent's security interest in the proceeds of the Tangible
Personalty shall continue pursuant to this Mortgage.
2.6 Fees and Expenses. The Grantor will promptly pay upon demand any
and all reasonable costs and expenses of the Agent, (a) as required under
Section 9.5 of the Credit Agreement and (b) as necessary to protect the
Premises, the Rents and Profits or the Intangible Personalty or incurred in
connection with the exercise of any rights or remedies under this Mortgage or
with respect to the Premises, Rents and Profits or the Intangible Personalty.
All of the foregoing costs and expenses shall be secured hereby.
2.7 Leases and Other Agreements. Without first obtaining on each
occasion the written approval of the Agent, the Grantor shall not, except as
permitted by the Credit Agreement, enter into, cancel, surrender or materially
modify or permit the cancellation of any material lease (including any equipment
lease), rental agreement, management contract, franchise agreement, construction
contract, technical services agreement or other material contract, license or
permit now or hereafter affecting the Premises, or materially modify any of said
instruments, or accept or permit to be made, any prepayment (more than one
month) of any installment of rent or fees thereunder. Certified copies of each
such approved material lease or other material agreement not previously
delivered to the Agent shall be submitted to the Agent as soon as possible. The
Grantor shall faithfully keep and perform, or cause to be kept and performed, in
all material respects, all of the covenants, conditions, and agreements
contained in
6
<PAGE> 7
each of said agreements, now or hereafter existing, on the part of the Grantor
to be kept and performed (including performance of all covenants to be performed
under any and all leases of the Premises or any part thereof) and shall at all
times use commercially reasonable efforts to enforce, with respect to each other
party to said agreements, all obligations, covenants and agreements by such
other party to be performed thereunder.
2.8 Maintenance of Premises. The Grantor will abstain from and will not
permit the commission of waste in or about the Premises and will maintain, or
cause to be maintained, the Premises in reasonable condition and repair,
ordinary wear and tear and obsolescence excepted.
2.9 Insurance.
(a) Types Required. The Grantor shall maintain insurance for
the Premises as set forth in Section 5.5 of the Credit Agreement. In
addition to the requirements set forth in Section 5.5 of the Credit
Agreement, if any part of the Improvements is located in an area having
"special flood hazards" as defined in the Federal Flood Disaster
Protection Act of 1973, a flood insurance policy as may be required by
law naming the Agent as mortgagee must be submitted to the Agent. The
policy must be in such amount, covering such risks and liabilities and
with such deductibles or self-insurance retentions as are in accordance
with normal industry practice.
(b) Use of Proceeds. All insurance proceeds received by the
Grantor shall be applied as set forth in the Credit Agreement with
respect to a "Recovery Event."
2.10 Eminent Domain. Subject to the provisions of the Credit Agreement,
the Grantor assigns to the Agent any proceeds or awards which may become due by
reason of any condemnation or other taking for public use of the whole or any
part of the Premises or any rights appurtenant thereto to which the Grantor is
entitled, and such proceeds or awards shall be applied in the same manner the
insurance proceeds are applied as set forth in the Credit Agreement with respect
to a "Recovery Event." The Grantor agrees to execute such further assignments
and agreements as may be reasonably required by the Agent to assure the
effectiveness of this Section. In the event any Governmental Authority shall
require or commence any proceedings for the demolition of any buildings or
structures comprising a part of the Premises, or shall commence any proceedings
to condemn or otherwise take pursuant to the power of eminent domain a material
portion of the Premises, the Grantor shall promptly notify the Agent of such
requirements or commencement of proceeding (for demolition, condemnation of
other taking).
2.11 Releases and Waivers. The Grantor agrees that no release by the
Agent of any portion of the Premises, the Rents and Profits or the Intangible
Personalty, no subordination of lien, no forbearance on the part of the Agent to
collect on the Loans, or any part thereof, no waiver of any right granted or
remedy available to the Agent and no action taken or not taken by the Agent
shall, except to the extent expressly released, in any way have the effect of
releasing the Grantor from full responsibility to the Agent for the complete
discharge of each and every of the Grantor's obligations hereunder.
7
<PAGE> 8
2.12 Transfer of Premises. Except as otherwise permitted in the Credit
Agreement, the Grantor covenants and agrees with the Agent that the Grantor
shall not sell, transfer, convey, mortgage, encumber or otherwise dispose of the
Premises, the Rents and Profits or the Intangible Personalty or any part thereof
or any interest therein or engage in subordinate financing with respect thereto
during the term of this Mortgage without the prior written consent of the Agent.
2.13 Compliance with Law. Except as otherwise permitted in the Credit
Agreement, the Grantor will comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental
authorities in respect of the ownership of the Premises (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls).
2.14 Inspection. Except as otherwise permitted in the Credit Agreement,
the Grantor will permit the Agent, or its Agents, at all reasonable times during
regular business hours (per Section 5.6 of Credit Agreement) and with advance
prior notice to enter and pass through or over the Premises for the purpose of
inspecting same; provided, however, prior to an Event of Default inspections
shall be at reasonable times during the Grantor's normal business hours.
2.15 Security Agreement.
(a) Insofar as the fixtures and articles of personal property either
referred to or described in this Mortgage are in any way connected with the use
and enjoyment of the Premises, this Mortgage is hereby made and declared to be a
security agreement, encumbering each and every item of personal property
included herein, in compliance with the provisions of the Uniform Commercial
Code as enacted in the state where the Premises are located. A financing
statement or statements reciting this Mortgage to be a security agreement,
affecting all of said personal property aforementioned, shall be executed by the
Grantor and the Agent and appropriately filed. The remedies for any violation of
the covenants, terms and condition of the security agreement herein contained
shall be (i) as prescribed herein or (ii) as prescribed by general law or (iii)
as prescribed by the specific statutory consequences now or hereafter enacted
and specified in said Uniform Commercial Code, all at Agent's sole election. The
Grantor and the Agent agree that the filing of such financing statement(s) in
the records normally having to do with personal property shall never be
construed as in anywise derogating from or impairing this declaration and hereby
stated intention of the Grantor and the Agent that everything used in connection
with the production of income from the Premises or adapted for use therein or
which is described or reflected in this Mortgage, is, and at all times and for
all purposes and in all proceedings both legal or equitable shall be, regarded
as part of the real estate irrespective of whether (a) any such item is
physically attached to the improvements, (b) serial numbers are used for the
better identification of certain items capable of being thus identified in a
recital contained herein, or (c) any such item is referred to or reflected in
any such financing statement(s) so filed at any time. Similarly, the mention in
any such financing statement(s) of the rights in and to (aa) the proceeds of any
fire or hazard insurance policy of (bb) any award in eminent domain proceedings
for a taking or for loss of value or (cc) the Grantor's interest as lessor in
any present or future lease or rights to income growing out of the use or
occupancy of
8
<PAGE> 9
the Premises, whether pursuant to lease or otherwise, shall never be construed
as in anywise altering any of the rights of the Grantor or the Agent as
determined by this instrument or impugning the priority of the Agent's lien
granted hereby or by any other recorded document, but such mention in such
financing statement(s) is declared to be for the protection of the Agent in the
event any court shall at any time hold with respect to the foregoing (aa) or
(bb) or (cc), that notice of the Agent's priority of interest to be effective
against a particular class of persons, must be filed in the Uniform Commercial
Code records.
(b) The Grantor warrants that the names of the "Debtor" and the
"Secured Party" (which are the Grantor and the Agent, respectively), the address
of the "Secured Party" from which information concerning the security interest
may be obtained, and the address of "Debtor", are as set forth in Section 6.2,
hereof; and a statement indicating the types, or describing the items, of
collateral is set forth hereinabove. The location of the collateral which is
Tangible Personalty is upon the Land. The Grantor agrees to furnish the Agent
with notice of any change in the name, identity, corporate structure, residence,
principal place of business or mailing address of the Grantor within ten (10)
days of the effective date of any such change and the Grantor will promptly
execute any financing statements or other instruments deemed necessary by the
Agent to prevent any filed financing statement from becoming misleading or
losing its perfected status.
ARTICLE III
Events of Default
An Event of Default shall exist under the terms of this Mortgage upon
the existence of an Event of Default under the terms of the Credit Agreement.
ARTICLE IV
Foreclosure
4.1 Acceleration of Secured Indebtedness; Foreclosure. Upon the
occurrence and during the continuance of an Event of Default, the entire balance
of the Obligations and any other obligations due under the Credit Documents,
including all accrued interest, shall, at the option of the Agent, become
immediately due and payable. Upon failure to pay the Obligations or reimburse
any other amounts due under the Credit Documents in full at any stated or
accelerated maturity and in addition to all other remedies available to the
Agent at law or in equity, the Agent may foreclose the lien of this Mortgage
pursuant to the power of sale hereby granted or by judicial proceeding. The
Grantor hereby waives any statutory right of redemption in connection with such
foreclosure proceeding.
4.2 Proceeds of Sale. Following a foreclosure sale, the proceeds of
such sale shall, subject to applicable law, be applied in accordance with
Section 10 of the Security Agreement.
9
<PAGE> 10
ARTICLE V
Additional Rights and Remedies of the Agent
5.1 Rights Upon an Event of Default. Upon the occurrence and during the
continuance of an Event of Default, but only after the Agent has exercised its
right to declare the entire balance of the Obligations due and payable, the
Agent, immediately and without additional notice and without liability therefor
to the Grantor, except for gross negligence, willful misconduct or unlawful
conduct, may do or cause to be done any or all of the following to the extent
permitted by applicable law: (a) take physical possession of the Premises; (b)
exercise its right to collect the Rents and Profits; (c) enter into contracts
for the completion, repair and maintenance of the Improvements thereon; (d)
expend Loan funds and any rents, income and profits derived from the Premises
for the payment of any taxes, insurance premiums, assessments and charges for
completion, repair and maintenance of the Improvements, preservation of the lien
of this Mortgage and satisfaction and fulfillment of any liabilities or
obligations of the Grantor arising out of or in any way connected with the
Premises whether or not such liabilities and obligations in any way affect, or
may affect, the lien of this Mortgage; (e) enter into leases demising the
Premises or any part thereof; (f) take such steps to protect and enforce the
specific performance of any covenant, condition or agreement in the Notes, this
Mortgage, the Credit Agreement or the other Credit Documents, or to aid the
execution of any power herein granted; and (g) generally, supervise, manage, and
contract with reference to the Premises as if the Agent were equitable owner of
the Premises. Notwithstanding the occurrence of an Event of Default or
acceleration of the Loans, the Agent shall continue to have the right to pay
money, whether or not Loan funds, for the purposes described in Sections 2.2,
2.6 and 2.8 hereof, and all such sums and interest thereon shall be secured
hereby. The Grantor also agrees that any of the foregoing rights and remedies of
the Agent may be exercised at any time independently of the exercise of any
other such rights and remedies, and the Agent may continue to exercise any or
all such rights and remedies until the Event(s) of Default are cured with the
consent of the Agent or until foreclosure and the conveyance of the Premises to
the high bidder or until the Credit Agreement is no longer in effect or the
Obligations are otherwise satisfied or paid in full.
5.2 Appointment of Receiver. Upon the occurrence of an Event of
Default, the Agent shall be entitled, without additional notice and without
regard to the adequacy of any security for the indebtedness secured hereby
whether the same shall then be occupied as a homestead or not or the solvency of
any party bound for its payment, to make application for the appointment of a
receiver to take possession of and to operate the Premises, and to collect the
rents, issues, profits, and income thereof, all expenses of which shall be added
to the Obligations and secured hereby. The receiver shall have all the rights
and powers provided for under the laws of the state in which the Premises are
located, including without limitation, the power to execute leases, and the
power to collect the rents, sales proceeds, issues, profits and proceeds of the
Premises during the pendency of such foreclosure suit, as well as during any
further times when the Grantor, its successors or assigns, except for the
intervention of such receiver, would be entitled to collect such rents, sales
proceeds, issues, proceeds and profits, and all other powers which may be
10
<PAGE> 11
necessary or are usual in such cases for the protection, possession, control,
management and operation of the Premises during the whole of said period. All
costs and expenses (including receiver's fees, attorney's fees and costs
incurred in connection with the appointment of a receiver) shall be secured by
this Mortgage. Notwithstanding the appointment of any receiver, trustee or other
custodian, the Agent shall be entitled, to retain possession and control of any
cash or other instruments, at the time held by or payable or deliverable under
the terms of the Mortgage to the Agent to the fullest extent permitted by law.
5.3 Waivers. No waiver of any Event of Default shall at any time
thereafter be held to be a waiver of any rights of the Agent stated anywhere in
the Notes, this Mortgage, the Credit Agreement or any of the other Credit
Documents, nor shall any waiver of a prior Event of Default operate to waive any
subsequent Event(s) of Default. All remedies provided in this Mortgage, the
Notes, the Credit Agreement or any of the other Credit Documents are cumulative
and may, at the election of the Agent, be exercised alternatively, successively,
or in any manner and are in addition to any other rights provided by law.
5.4 Delivery of Possession After Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale, the Grantor or the
Grantor's heirs, devises, representatives, successors or assigns are occupying
or using the Premises, or any part thereof, each and all immediately shall
become the tenant of the purchaser at such sale, which tenancy shall be a
tenancy from day to day, terminable at the will of either landlord or tenant, at
a reasonable rental per day based upon the value of the property occupied, such
rental to be due daily to the purchaser; and to the extent permitted by
applicable law, the purchaser at such sale, notwithstanding any language herein
apparently to the contrary, shall have the sole option to demand possession
immediately following the sale or to permit the occupants to remain as tenants
at will. In the event the tenant fails to surrender possession of said property
upon demand, the purchaser shall be entitled to institute and maintain a summary
action for possession of the property (such as an action for forcible detainer)
in any court having jurisdiction.
5.5 Marshalling. The Grantor hereby waives, in the event of foreclosure
of this Mortgage or the enforcement by the Agent of any other rights and
remedies hereunder, any right otherwise available in respect to marshalling of
assets which secure the Loans and Letters of Credit and any other indebtedness
secured hereby or to require the Agent to pursue its remedies against any other
such assets.
ARTICLE VI
General Conditions
6.1 Terms. The singular used herein shall be deemed to include the
plural; the masculine deemed to include the feminine and neuter; and the named
parties deemed to include their heirs, successors and assigns. The term "Agent"
shall include any payee of the indebtedness hereby secured or any transferee
thereof whether by operation of law or otherwise.
11
<PAGE> 12
6.2 Notices. All notices and other communications required to be given
hereunder shall be in writing (including by telecopy) and shall have been duly
given and shall be effective (i) when delivered by hand, (ii) when transmitted
via telecopy (or other facsimile device) to the number set out below, (iii) the
Business Day following the day on which the same has been delivered prepaid to a
reputable national overnight air courier service, or (iv) the third Business Day
following the day on which the same is sent by certified or registered mail,
postage prepaid, in each case to the respective parties at the address or
telecopy numbers set forth below, or at such other address as such party may
specify by written notice to the other parties hereto or to such other address
as may hereafter be given by notice in accordance with this paragraph.
to the Grantor:
Palm Beach Bedding Company
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036-6520
Telephone: 732-453-5019
Facsimile: 732-381-3925
with a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 1002-4675
Attn: Kimberly Taylor
Telephone: 212-446-4915
Facsimile: 212-446-4900
to the Agent:
First Union National Bank
One First Union Center, TW10
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telecopier: (704) 383-0288
Telephone: (704) 374-2698
6.3 Severability. If any provision of this Mortgage is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
12
<PAGE> 13
6.4 Headings. The captions and headings herein are inserted only as a
matter of convenience and for reference and in no way define, limit, or describe
the scope of this Mortgage nor the intent of any provision hereof.
6.5 Conflicting Terms. In the event the terms and conditions of this
Mortgage conflict with the terms and conditions of the Credit Agreement, the
terms and conditions of the Credit Agreement shall control and supersede the
provisions of this Mortgage with respect to such conflicts.
6.6 Governing Law. This Mortgage shall be governed by and construed in
accordance with the internal law of the State of North Carolina as provided in
Section 9.13 of the Credit Agreement; provided, however, that the provisions of
this Mortgage relating to the creation, perfection and enforcement of the lien
and security interest created by this Mortgage in respect of the Premises and
the exercise of each remedy provided hereby, including the power of foreclosure
or power of sale procedures set forth in this Mortgage, shall be governed by and
construed in accordance with the internal law of the state where the Premises is
located. In the event of a conflict between the laws of the State of North
Carolina and the internal law with respect to creation, perfection and
enforcement of the lien and security interest created by this Mortgage, the laws
of the state in which the Premises is located shall govern.
6.7 Application of the Foreclosure Law. If any provision in this
Mortgage shall be inconsistent with any provision of the foreclosure laws of the
state where the Premises are located, the provisions of such laws shall take
precedence over the provisions of this Mortgage, but shall not invalidate or
render unenforceable any other provision of this Mortgage that can be construed
in a manner consistent with such laws.
6.8 WRITTEN AGREEMENT.
(a) THE RIGHTS AND OBLIGATIONS OF THE GRANTOR AND THE AGENT SHALL BE
DETERMINED SOLELY FROM THIS WRITTEN MORTGAGE AND THE OTHER LOAN DOCUMENTS, AND
ANY PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN THE AGENT AND THE GRANTOR
CONCERNING THE SUBJECT MATTER HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE
SUPERSEDED BY AND MERGED INTO THIS MORTGAGE AND THE OTHER LOAN DOCUMENTS.
(b) THIS MORTGAGE AND THE OTHER LOAN DOCUMENTS MAY NOT BE VARIED BY ANY
ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE, CONTEMPORANEOUSLY WITH, OR
SUBSEQUENT TO THE EXECUTION OF THIS MORTGAGE OR THE OTHER LOAN DOCUMENTS.
(c) THIS WRITTEN MORTGAGE AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
13
<PAGE> 14
6.9 WAIVER OF JURY TRIAL. THE AGENT AND THE GRANTOR HEREBY WAIVE, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS
MORTGAGE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE
AGENT AND THE GRANTOR, AND THE AGENT AND THE GRANTOR ACKNOWLEDGE THAT NO PERSON
ACTING ON BEHALF OF ANOTHER PARTY TO THIS AGREEMENT HAS MADE ANY REPRESENTATIONS
OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR
NULLIFY ITS EFFECT. THE AGENT AND THE GRANTOR FURTHER ACKNOWLEDGE THAT THEY HAVE
BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING
OF THIS MORTGAGE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL.
6.10 Request for Notice. The Grantor requests a copy of any statutory
notice of default and a copy of any statutory notice of sale hereunder be mailed
to the Grantor at the address specified in Section 6.2 of this Mortgage.
6.11 Indemnification. The Grantor hereby indemnifies and holds harmless
the law firm of Moore & Van Allen, PLLC and all of their attorneys, from any and
all loss, cost, expense, damage or claim, whether or not valid, including
without limitation, attorneys' fees and disbursements, arising under or in any
way connected with Section 697.10 of the Florida Statutes or any similar law.
The Grantor hereby verifies and confirms to the best of its knowledge all
factual information in this Mortgage, including the accuracy and correctness of
the legal description set forth herein. In the event any factual errors are
found in this Mortgage or in the legal description, the Grantor and Agent shall,
at the Grantor's sole cost and expense, promptly correct or cause to be
corrected subsequent to the date hereof any and all such errors. Grantor shall
promptly pay or cause to be paid all damages, claims, or any other costs
whatsoever arising under or in any way connected with any claim, whether or not
valid, arising under or in any way connected with Section 697.10 of the Florida
Statutes or any similar law due to or caused by any inaccuracy or incorrectness
of factual information or inaccuracy or incorrectness of the legal description
set forth herein. Notwithstanding the foregoing, all rights of the Agent are
preserved against Agent's title insurers, the surveyor, the engineer, if any,
and the appraiser, if any.
PROVIDED ALWAYS, and it is the true intent and meaning of the Grantor
and the Agent, that if the Grantor, its successors and assigns, shall pay or
cause to be paid and discharged unto the Agent, its successors and assigns, the
obligations secured hereby according to the terms of this Mortgage and the
Credit Documents, then this Mortgage shall cease, determine and be void,
otherwise it shall remain in full force and virtue. And it is agreed, by and
between the Grantor and the Agent, that the Grantor is to hold and enjoy the
said premises until an Event of Default be made in the terms of this Mortgage.
14
<PAGE> 15
6.12 Florida Mortgage Tax. This Mortgage encumbers collateral that is
located in Florida and other states that serves as security for the Credit Party
Obligations in the principal amount of $25,000,000.00 executed and delivered by
Grantor outside of Florida, which indebtedness is also secured by other
collateral located outside of Florida. The Agent has agreed to limit its
recovery against the collateral encumbered by this Mortgage to $8,000,000.00,
and this limited amount is the sum on which Florida documentary stamp taxes on
this Mortgage are payable as provided in Rule 12B-4.053(32) of the Florida
Administrative Code, and is also the amount on which nonrecurring Florida
intangible tax is paid.
IN WITNESS WHEREOF, the parties hereto have executed this Mortgage
under seal as of the above written date.
WITNESS: PALM BEACH BEDDING COMPANY, a Florida
corporation
By:_______________________________
By_______________________________ Name (Printed):___________________
Name (Printed):__________________ Title:____________________________
By_______________________________
Name (Printed):__________________
STATE OF________________________
COUNTY OF_______________________
The foregoing instrument was acknowledged before me this______day of
____________, 1999 by___________ as_________ of Palm Beach Bedding Company, a
Florida corporation, behalf of the corporation. He/she personally appeared
before me and is/are personally known to me or produced_________________ as
identification.
Notary:________________________
[NOTARIAL SEAL] Printed Name:__________________
Notary Public, State of________
15
<PAGE> 16
FIRST UNION NATIONAL BANK, a national
banking association
WITNESS:
By:___________________________________
By:________________________________ Name (Printed):_______________________
Name (Printed)_____________________ Title:________________________________
By:________________________________
Name (Printed)_____________________
STATE OF______________
COUNTY OF_____________
The foregoing instrument was acknowledged before me this_________day
of_______________, 1999 by_____________ as_______________ of FIRST UNION
NATIONAL BANK, a national banking association, on behalf of the banking
association. He/she personally appeared before me and is/are personally known to
me or produced_____________________ as identification.
Notary:_____________________________
[BANK SEAL] Printed Name:_______________________
Notary Public, State of_____________
16
<PAGE> 17
EXHIBIT A
[Legal Description]
<PAGE> 1
EXHIBIT 10.51
PREPARED BY AND RETURN TO:
MOORE & VAN ALLEN, PLLC (JWG)
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET, 47TH FLOOR
CHARLOTTE, NORTH CAROLINA 28202-4003
FIRST AMENDMENT TO MORTGAGE AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO MORTGAGE AND SECURITY AGREEMENT (the "First
Amendment") dated as of November 5, 1999, is by and between
PALM BEACH BEDDING COMPANY, a Florida corporation, having an address of
2001 Lower Road, Linden, New Jersey 07036-6520 (the "Grantor"); and
FIRST UNION NATIONAL BANK, a national banking association headquartered
in Charlotte, North Carolina, in its capacity as Administrative Agent (in such
capacity, the "Agent") for the lenders from time to time party to the Restated
Credit Agreement described herein, having an address of 301 South College
Street, One First Union Center, DC-5, Charlotte, North Carolina 28288-0737, (the
"Lenders").
W I T N E S S E T H:
WHEREAS, the Grantor, a wholly owned subsidiary of the Borrower
(hereinafter defined), has previously executed a Mortgage and Security Agreement
dated as of the 18th day of May, 1999 in favor of the Agent, as Mortgagee,
recorded in the public records of Palm Beach County, Florida in Official Record
Book 11129, Page 688 on May 24, 1999 (the "Mortgage"), in connection with loans
and extensions of credit to Sleepmaster, L.L.C., a New Jersey limited liability
company (the "Borrower") pursuant to the terms of the Credit Agreement, as
referenced and defined in the Mortgage;
NOTICE TO RECORDER: PURSUANT TO SECTION 201.08, FLORIDA STATUTES (1999), THIS
INSTRUMENT DOES NOT INCREASE THE $8,000,000 LIMITATION ON THE MORTGAGEE'S
RECOVERY CONTAINED IN THE MORTGAGE BETWEEN THE PARTIES HERETO RECORDED IN BOOK
11129, PAGE 688 ON MAY 24, 1999 AND NO DOCUMENTARY STAMP TAX OR INTANGIBLE TAX
IS DUE ON THIS INSTRUMENT.
<PAGE> 2
WHEREAS, the Mortgage encumbered the land described on Exhibit A
attached hereto and made a part hereof;
WHEREAS, the parties to the Credit Agreement have agreed to enter into
that certain Amended and Restated Credit Agreement of even date herewith (the
"Restated Credit Agreement") pursuant to which the credit facilities extended to
the Borrower will be increased to an amount up to $70,000,000.00 (collectively,
the "Credit Facilities").
WHEREAS, the Grantor and the Agent have agreed to amend the Mortgage as
set forth herein and all defined terms used herein but not defined herein shall
have the meaning given to them in the Mortgage.
AGREEMENT:
NOW, THEREFORE IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Limitation on Recovery. The limitation on recovery of
$8,000,000 set forth in the Mortgage is hereby incorporated by reference and
shall apply to the Mortgage as amended hereby.
SECTION 2. Indebtedness. (a) The reference in the first recital of the
Mortgage to $25,000,000 shall hereinafter be a reference to $70,000,000.
Similarly, the reference in Section 6.12 of the Mortgage to $25,000,000 shall
hereinafter be a reference to $70,000,000.
(b) Subparagraph (a) of Section 1.1 of the Mortgage is hereby amended
and restated in its entirety as follows:
"(a) The Agent and the Lenders have agreed to establish a $70,000,000
senior secured credit facility (hereinafter the loans and extensions of
credit thereunder may be called the "Obligations") in favor of the
Sleepmaster L.L.C., a New Jersey limited liability company (the
"Borrower") pursuant to the terms of that certain Amended and Restated
Credit Agreement dated as of the date hereof among the Borrower,
Sleepmaster Holdings, L.L.C., as the Parent, the domestic subsidiaries
of the Borrower (including the Grantor) (individually a "Guarantor" and
collectively with the Grantor, the "Guarantors"), the Agent and the
Lenders (as amended, modified, extended, renewed or replaced from time
to time, the "Restated Credit Agreement") and as evidenced by (i) those
revolving credit promissory notes of the Borrower, under which sums may
be advanced, paid back or readvanced (as referenced and defined in the
Restated Credit Agreement, as amended, modified, supplemented,
extended, renewed or replaced from time to time, the "Revolving
Notes"), (ii) those term promissory notes of the Borrower (as
referenced and defined in the Restated Credit Agreement, as amended,
modified,
2
<PAGE> 3
supplemented, extended, renewed or replaced from time to time, the
"Term Notes") and (iii) those letters of credit for the account of the
Borrower or any other Credit Party (as referenced in the Restated
Credit Agreement, the "Letters of Credit"). The Revolving Notes and the
Term Notes shall hereinafter collectively be called the "Notes."
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Restated Credit Agreement. This
Mortgage is given to secure the payment of the Borrower and the Grantor
under any Hedging Agreements (as defined in the Restated Credit
Agreement) and all indebtedness and other obligations now or hereafter
owing under the Notes, the Letters of Credit, the Restated Credit
Agreement, this Mortgage and the other Credit Documents (collectively,
the "Indebtedness")."
SECTION 3. Ratification. Except as hereby modified, the terms and
conditions of the Mortgage (and Exhibits) remain in full force and effect. The
parties, by their execution hereof, hereby ratify, affirm and approve the
Mortgage (and Exhibits) as modified by this First Amendment.
SECTION 4. Governing Law. This First Amendment shall be governed by and
construed in accordance with, the laws of the State of Florida.
[Remainder of Page Intentionally Left Blank]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment under seal as of the above written date.
WITNESSES: PALM BEACH BEDDING COMPANY, a Florida
corporation
By:
--------------------------------
By Name (Printed):
------------------------------ -------------------
Name (Printed): Title:
----------------- -----------------------------
By
------------------------------
Name (Printed):
-----------------
STATE OF
------------------------
COUNTY OF
------------------------
The foregoing instrument was acknowledged before me this ____ day of
__________ , 1999 by ____________________ as ____ of Palm Beach Bedding Company,
a Florida corporation, behalf of the corporation. He/she personally appeared
before me and is/are personally known to me or produced ___________________ as
identification.
Notary:
--------------------------
[NOTARIAL SEAL] Printed Name:
--------------------
Notary Public, State of
----------
4
<PAGE> 5
FIRST UNION NATIONAL BANK, a national
banking association
WITNESSES:
By:
--------------------------------
By Name (Printed):
------------------------------ -------------------
Name (Printed): Title:
----------------- -----------------------------
By
------------------------------
Name (Printed):
-----------------
STATE OF
------------------------
COUNTY OF
------------------------
The foregoing instrument was acknowledged before me this____ day
of_________________ , 1999 by_______________________ as_______________ of FIRST
UNION NATIONAL BANK, a national banking association, on behalf of the banking
association. He/she personally appeared before me and is/are personally known to
me or produced ________________________________________ identification.
Notary:
--------------------------
[NOTARIAL SEAL] Printed Name:
--------------------
Notary Public, State of
----------
5
<PAGE> 6
Exhibit A
(Legal Description)
<PAGE> 1
EXHIBIT 10.52
Drawn By and Return To:
Moore & Van Allen, PLLC (JWG)
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
COMMONWEALTH OF PENNSYLVANIA THIS IS AN OPEN-END
MORTGAGE
SECURING FUTURE ADVANCES UP TO
COUNTY OF LANCASTER A MAXIMUM PRINCIPAL AMOUNT OF
$25,000,000 MILLION PLUS ACCRUED
INTEREST AND OTHER
INDEBTEDNESS AS DESCRIBED
IN 42 PA C.S.A. SECTION 8143
OPEN-ENDED MORTGAGE AND
SECURITY AGREEMENT
COLLATERAL IS OR INCLUDES FIXTURES
THIS OPEN-END MORTGAGE AND SECURITY AGREEMENT (the "Mortgage") is made
and entered into as of the 18th day of May, 1999, by HERR MANUFACTURING COMPANY,
a Pennsylvania corporation (the "Grantor") and FIRST UNION NATIONAL BANK, a
national banking association, for itself and in its capacity as administrative
agent (in such capacity, the "Agent") the lenders from time to time party to the
Credit Agreement described herein (collectively, the "Lenders").
RECITALS:
WHEREAS, the Borrower (as hereinafter defined) and the Guarantors (as
hereinafter defined) have requested that the Lenders provide a credit facility
to the Borrower in an amount up to $25 million (collectively, the "Credit
Facilities");
WHEREAS, the Grantor is the owner of the fee simple interest in the
real property described on Exhibit A attached hereto and incorporated herein by
reference; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Grantor provided that, among other things, the Grantor executes
and delivers this Mortgage.
W I T N E S S E T H:
The Grantor, in consideration of the indebtedness herein recited and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, has irrevocably granted, released, sold, remised,
bargained, assigned, pledged, warranted,
<PAGE> 2
mortgaged, transferred and conveyed, and does hereby grant, release, sell,
remise, bargain, assign, pledge, warrant, mortgage, transfer and convey unto the
Agent and the Agent's successors and assigns for the benefit of the Lenders with
power of sale, forever, a continuing security interest in and to, all of
Grantor's right, title and interest in and to the following described land, real
property interests, buildings, improvements and fixtures:
(a) All that tract or parcel of land and other real property
interests in Lancaster County, Pennsylvania more particularly described
in Exhibit A attached hereto and made a part hereof (the "Land");
(b) All buildings and improvements of every kind and
description now or hereafter erected or placed on the aforesaid land
(the "Improvements") and all materials intended for construction,
reconstruction, alteration and repair of such Improvements now or
hereafter erected thereon, all of which materials shall be deemed to be
included within the premises hereby conveyed immediately upon the
delivery thereof to the aforesaid Land, and all fixtures now or
hereafter owned by the Grantor and attached to or contained in and used
in connection with the aforesaid Land and Improvements and all renewals
or replacements thereof or articles in substitution thereof, whether or
not the same are or shall be attached to the Land and Improvements in
any manner (the "Tangible Personalty") and all proceeds of the Tangible
Personalty (hereinafter, the Land, the Improvements and Tangible
Personalty may be collectively referred to as the "Premises"); and
(c) All appurtenances to the Premises together with all
proceeds thereof, including casualty and condemnation proceeds.
TO HAVE AND HOLD the same, together with all privileges, hereditaments,
easements and appurtenances thereunto belonging, subject to the Permitted Liens
(as defined in the hereinafter described Credit Agreement) and Permitted
Encumbrances (hereinafter defined) to the Agent and the Agent's successors and
assigns, to secure the indebtedness and other obligations herein recited;
provided that, should the indebtedness secured hereby be paid according to the
tenor and effect thereof when the same shall be due and payable and should the
Grantor timely and fully discharge its obligations secured hereby and satisfy
the obligations in full, then the Premises shall be reconveyed to the Grantor or
the title thereto shall be revested according to the provisions of law.
And, as additional security for said indebtedness, the Grantor hereby
conditionally assigns to the Agent all the security deposits, rents, issues,
profits and revenues of the Premises from time to time accruing (the "Rents and
Profits"), reserving only the right to the Grantor to collect and apply the same
as Grantor chooses as long as there shall exist no Event of Default (as defined
in Article III).
As additional collateral and further security for the indebtedness, the
Grantor does hereby assign to the Agent and grants to the Agent a security
interest in all of the right, title and the interest of the Grantor in and to
any and all insurance policies and proceeds thereof and any and all leases
(including equipment leases), rental agreements, management contracts, franchise
agreements, construction contracts, architects' contracts, technical services
agreements, or other
2
<PAGE> 3
contracts, licenses and permits to the extent now or hereafter relating the
Premises (the "Intangible Personalty") or any part thereof, and the Grantor
agrees to execute and deliver to the Agent such additional instruments, in form
and substance satisfactory to the Agent, as may hereafter be requested by the
Agent to evidence and confirm said assignment; provided, however, that
acceptance of any such assignment shall not be construed as a consent by the
Agent to any lease, rental agreement, management contract, franchise agreement,
construction contract, technical services agreement or other contract, license
or permit, or to impose upon the Agent any obligation with respect thereto.
Notwithstanding the foregoing provisions, such assignment and grant of security
interest contained herein shall not extend to, and the Intangible Personalty
shall not include, any personalty which is now or hereafter held by the Grantor
as licensee, lessee or otherwise, to the extent that (a) such personalty is not
assignable or capable of being encumbered as a matter of law or under the terms
of the license, lease or other agreement applicable thereto (but solely to the
extent that any such restriction shall be enforceable under applicable law),
without the consent of the licensor or lessor thereof or other applicable party
thereto and (b) such consent has not been obtained; provided, however, that the
foregoing assignment and grant of security interest shall extend to, and the
Intangible Personalty shall include, any and all proceeds of such personalty to
the extent that the assignment or encumbering of such proceeds is not so
restricted under the terms of the license, lease or other agreement applicable
thereto.
All the Tangible Personalty which comprise a part of the Premises
shall, as far as permitted by law, be deemed to be affixed to the aforesaid Land
and conveyed therewith. As to the balance of the Tangible Personalty and the
Intangible Personalty, this Mortgage shall be considered to be a security
agreement which creates a security interest in such items for the benefit of the
Agent. In that regard, the Grantor grants to the Agent all of the rights and
remedies of a secured party under the laws of the state in which the Premises
are located.
The Grantor and the Agent covenant, represent and agree as follows:
ARTICLE I
Indebtedness Secured
1.1 Indebtedness. The Agent and the Lenders have agreed to establish a
$25,000,000 senior secured credit facility (hereinafter the loans and extensions
of credit thereunder may be called the "Obligations") in favor of the
Sleepmaster L.L.C., a New Jersey limited liability company (the "Borrower")
pursuant to the terms of that certain Credit Agreement dated as of the date
hereof among the Borrower, Sleepmaster Holdings, L.L.C., as the Parent, the
domestic subsidiaries of the Borrower (including the Grantor) (individually a
"Guarantor" and collectively with the Grantor, the "Guarantors"), the Agent and
the Lenders (as amended, modified, extended, renewed or replaced from time to
time, the "Credit Agreement") and as evidenced by (i) those revolving credit
promissory notes of the Borrower, under which sums may be advanced, paid back or
readvanced (as referenced and defined in the Credit Agreement, as amended,
modified, supplemented, extended, renewed or replaced from time to time, the
"Revolving Notes") and (ii) those letters of credit for the account of the
Borrower or any other Credit Party
3
<PAGE> 4
(as referenced in the Credit Agreement, the "Letters of Credit"). The Revolving
Notes shall hereinafter collectively be called the "Notes." Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Credit Agreement. This Mortgage is given to secure the payment of
the Borrower and the Grantor under any Hedging Agreements (as defined in the
Credit Agreement) and all indebtedness and other obligations now or hereafter
owing under the Notes, the Letters of Credit, the Credit Agreement, this
Mortgage and the other Credit Documents (collectively, the "Indebtedness").
1.2 Open-End Mortgage. This Mortgage secures all existing and future
advances and readvances under the Loan Documents all of which shall be entitled
to the lien priority and benefits of an Open-End Mortgage under 42 Pa. C.S.A.
Section 8143 (the "Open-End Mortgage Statute"). Without limiting anything
contained in any provision of this Mortgage, this Mortgage secures the Grantor's
obligation to repay all advances and readvances of principal under the
Obligations made at closing or thereafter and all interest, late charges, fees,
and other amounts due under the Obligations or this Mortgage, and in addition
thereto: (i) all advances by the Lenders to the Grantor or any other person to
pay costs of erection, construction, alteration, repair, restoration, and
completion of any part of any improvements situated on the Premises; (ii) any
and all advances made or costs incurred by the Lenders for the payment of taxes,
assessments, maintenance charges, insurance premiums, and similar charges with
respect to the Premises; (iii) any and all costs incurred for the protection of
all or any part of the Premises or the lien of this Mortgage; and (iv) any and
all legal fees, costs, and other expenses incurred by the Lenders by reason of
any default or otherwise in connection with the Obligations.
1.3 Confession of Judgment for Possession. FOR THE PURPOSE OF OBTAINING
POSSESSION OF THE PREMISES UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT, GRANTOR
HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OR RECORD, IN THE
COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE, AS ATTORNEY FOR GRANTOR, AS WELL AS
FOR THE PERSONS CLAIMING UNDER, BY, OR THROUGH GRANTOR, TO APPEAR FOR AND
CONFESS JUDGMENT AGAINST GRANTOR AND ALL PERSONS CLAIMING UNDER, BY, OR THROUGH
GRANTOR, IN FAVOR OF THE LENDERS FOR THE RECOVERY BY THE LENDERS OF POSSESSION
OF THE PREMISES, FOR WHICH THIS MORTGAGE (OR A COPY THEREOF VERIFIED BY
AFFIDAVIT) SHALL BE A SUFFICIENT WARRANT; WHEREUPON A WRIT OF POSSESSION OF THE
PREMISES MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING
WHATSOEVER AND WITHOUT STAY OF EXECUTION, GRANTOR HEREBY RELEASING AND AGREEING
TO RELEASE THE LENDERS AND ANY SUCH ATTORNEY FROM ALL PROCEDURAL ERRORS AND
DEFECTS WHATSOEVER IN ENTERING SUCH ACTION OR JUDGMENT OR IN CAUSING SUCH WRIT
OR PROCESS TO BE ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE SAME,
PROVIDED THAT THE LENDERS SHALL HAVE FILED IN SUCH ACTION AN AFFIDAVIT MADE ON
THE LENDER'S BEHALF SETTING FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF
SUCH JUDGMENT ACCORDING TO THE TERMS OF THIS INSTRUMENT, OF WHICH FACTS SUCH
AFFIDAVIT SHALL BE PRIMA FACIE EVIDENCE. IT IS HEREBY EXPRESSLY AGREED THAT IF
FOR ANY REASON AFTER ANY SUCH ACTION HAS BEEN COMMENCED, THE SAME SHALL BE
DISCONTINUED, MARKED SATISFIED OF
4
<PAGE> 5
RECORD, OR BE TERMINATED, OR POSSESSION OF THE PREMISES REMAIN IN OR BE RESTORED
TO GRANTOR OR ANYONE CLAIMING UNDER, BY, OR THROUGH GRANTOR, THE LENDERS MAY,
WHENEVER AND AS OFTEN AS THE LENDERS SHALL HAVE THE RIGHT TO TAKE POSSESSION
AGAIN OF THE PREMISES, BRING ONE OR MORE FURTHER ACTIONS IN THE MANNER
HEREINBEFORE SET FORTH TO RECOVER POSSESSION OF THE PREMISES AND TO CONFESS
JUDGMENT THEREIN AS HEREINABOVE PROVIDED, AND THE AUTHORITY AND POWER ABOVE
GIVEN TO ANY SUCH ATTORNEY SHALL EXTEND TO ALL SUCH FURTHER ACTIONS IN EJECTMENT
AND CONFESSION OF JUDGMENT THEREIN AS HEREINABOVE PROVIDED WHETHER BEFORE OR
AFTER AN ACTION OF MORTGAGE FORECLOSURE IS BROUGHT OR OTHER PROCEEDINGS IN
EXECUTION ARE INSTITUTED UPON THIS MORTGAGE OR ANY INSTRUMENT THEN EVIDENCING
ANY OF THE LIABILITIES, AND AFTER JUDGMENT THEREON OR THEREIN AND AFTER A
JUDICIAL SALE OF THE MORTGAGED PROPERTY.
ARTICLE II
Grantor's Covenants, Representations and Agreements
2.1 Title to Property. The Grantor represents and warrants to the Agent
(i) that it is seized of the Land, the Improvements (and any fixtures) and the
Tangible Personalty in fee to the extent such Tangible Personalty does not
constitute fixtures and has the right to encumber and convey the same, (ii) as
of the date hereof, that title to the Tangible Personalty is free and clear of
all liens and encumbrances except for the Permitted Liens and title to all such
other property is free and clear of all encumbrances except for the matters
shown on the title policy accepted by the Agent in connection with this Mortgage
(the "Permitted Encumbrances"), and (iii) that it will warrant and defend the
title to such property except for the Permitted Encumbrances and Permitted Liens
against the claims of all Persons. As to the balance of the Premises, the Rents
and Profits and the Intangible Personalty, the Grantor represents and warrants
that it has title to such property, that it has the right to encumber and convey
such property and that it will warrant and defend such property against the
claims of all Persons subject to the Permitted Encumbrances and the Permitted
Liens.
2.2 Taxes and Fees. The Grantor will pay prior to delinquency all
taxes, general and special assessments, insurance premiums, permit fees,
inspection fees, user fees, license fees, water and sewer charges, franchise
fees and equipment rents against it or the Premises as required by the terms and
conditions of Section 5.3 of the Credit Agreement (and the Grantor, upon request
of the Agent, will submit to the Agent receipts evidencing said payments).
2.3 Reimbursement. The Grantor agrees that if it shall fail to pay on
or before the date that the same become delinquent any tax, assessment or charge
levied or assessed against the Premises or any utility charge, whether public or
private, or any insurance premium, or if it shall fail to procure the insurance
coverage and the delivery of the insurance certificates required hereunder, or
if it shall fail to pay any other charge or fee described in Section 2.3 hereof,
then (unless such obligations are being contested in the manner set forth in
Section 5.3 of the Credit
5
<PAGE> 6
Agreement) the Agent, at its option, may pay or procure the same and will give
the Grantor prompt notice of any such expenditures. The Grantor will reimburse
the Agent upon demand for any sums of money paid by the Agent pursuant to this
Section, together with interest on each such payment at the default rate of
interest provided in Section 2.7 of the Credit Agreement for Loans, and all such
sums and interest thereon shall be secured hereby.
2.4 Additional Documents. The Grantor agrees to execute and deliver to
the Agent, concurrently with the execution of this Mortgage and upon the request
of the Agent from time to time hereafter, all financing statements and other
documents reasonably required to perfect and maintain the security interest
created hereby. The Grantor hereby irrevocably (as long as the Loans remain
unpaid) makes, constitutes and appoints the Agent as the true and lawful
attorney of the Grantor (such appointment being coupled with an interest) to
sign the name of the Grantor (after the Grantor has failed or refused to timely
execute such documents upon request of the Agent) on any financing statement,
continuation of financing statement or similar document required to perfect or
continue such security interests but only in the event the Grantor refuses to do
so after receipt of written notice.
2.5 Sale or Encumbrance. Except as otherwise permitted in the Credit
Agreement, the Grantor will not sell, encumber or otherwise dispose of any of
the Tangible Personalty except to incorporate such into the Improvements or
replace such with goods of quality and value at least equal to that replaced.
Provided, however, in the event the Grantor sells or otherwise disposes of any
of the Tangible Personalty except to the extent permitted by the Credit
Agreement, the Agent's security interest in the proceeds of the Tangible
Personalty shall continue pursuant to this Mortgage.
2.6 Fees and Expenses. The Grantor will promptly pay upon demand any
and all reasonable costs and expenses of the Agent, (a) as required under
Section 9.5 of the Credit Agreement and (b) as necessary to protect the
Premises, the Rents and Profits or the Intangible Personalty, or incurred in
connection with the exercise of any rights or remedies under this Mortgage or
with respect to the Premises, Rents and Profits or the Intangible Personalty.
All of the foregoing costs and expenses shall be secured hereby.
2.7 Leases and Other Agreements. Without first obtaining on each
occasion the written approval of the Agent, the Grantor shall not, except as
permitted by the Credit Agreement, enter into, cancel, surrender or materially
modify or permit the cancellation of any material lease (including any equipment
lease), rental agreement, management contract, franchise agreement, construction
contract, technical services agreement or other material contract, license or
permit now or hereafter affecting the Premises, or materially modify any of said
instruments, or accept or permit to be made, any prepayment (more than one
month) of any installment of rent or fees thereunder. Certified copies of each
such approved material lease or other material agreement not previously
delivered to the Agent shall be submitted to the Agent as soon as possible. The
Grantor shall faithfully keep and perform, or cause to be kept and performed, in
all material respects, all of the covenants, conditions, and agreements
contained in each of said agreements, now or hereafter existing, on the part of
the Grantor to be kept and performed (including performance of all covenants to
be performed under any and all leases of the Premises or any part thereof) and
shall at all times use commercially reasonable efforts to
6
<PAGE> 7
enforce, with respect to each other party to said agreements, all obligations,
covenants and agreements by such other party to be performed thereunder.
2.8 Maintenance of Premises. The Grantor will abstain from and will not
permit the commission of waste in or about the Premises and will maintain, or
cause to be maintained, the Premises in reasonable condition and repair,
ordinary wear and tear and obsolescence excepted.
2.9 Insurance.
(a) Types Required. The Grantor shall maintain insurance for
the Premises as set forth in Section 5.5 of the Credit Agreement. In
addition to the requirements set forth in Section 5.5 of the Credit
Agreement, if any part of the Improvements is located in an area having
"special flood hazards" as defined in the Federal Flood Disaster
Protection Act of 1973, a flood insurance policy as may be required by
law naming the Agent as mortgagee must be submitted to the Agent. The
policy must be in such amount, covering such risks and liabilities and
with such deductibles or self-insurance retentions as are in accordance
with normal industry practice.
(b) Use of Proceeds. All insurance proceeds received by the
Grantor shall be applied as set forth in the Credit Agreement with
respect to a "Recovery Event."
2.10 Eminent Domain. Subject to the provisions of the Credit Agreement,
the Grantor assigns to the Agent any proceeds or awards which may become due by
reason of any condemnation or other taking for public use of the whole or any
part of the Premises or any rights appurtenant thereto to which the Grantor is
entitled, and such proceeds or awards shall be applied in the same manner the
insurance proceeds are applied as set forth in the Credit Agreement with respect
to a "Recovery Event." The Grantor agrees to execute such further assignments
and agreements as may be reasonably required by the Agent to assure the
effectiveness of this Section. In the event any Governmental Authority shall
require or commence any proceedings for the demolition of any buildings or
structures comprising a part of the Premises, or shall commence any proceedings
to condemn or otherwise take pursuant to the power of eminent domain a material
portion of the Premises, the Grantor shall promptly notify the Agent of such
requirements or commencement of proceeding (for demolition, condemnation of
other taking).
2.11 Releases and Waivers. The Grantor agrees that no release by the
Agent of any portion of the Premises, the Rents and Profits or the Intangible
Personalty, no subordination of lien, no forbearance on the part of the Agent to
collect on the Loans, or any part thereof, no waiver of any right granted or
remedy available to the Agent and no action taken or not taken by the Agent
shall, except to the extent expressly released, in any way have the effect of
releasing the Grantor from full responsibility to the Agent for the complete
discharge of each and every of the Grantor's obligations hereunder.
2.12 Transfer of Premises. Except as otherwise permitted in the Credit
Agreement, the Grantor covenants and agrees with the Agent that the Grantor
shall not sell, transfer, convey, mortgage, encumber or otherwise dispose of the
Premises, the Rents and Profits or the Intangible
7
<PAGE> 8
Personalty or any part thereof or any interest therein or engage in subordinate
financing with respect thereto during the term of this Mortgage without the
prior written consent of the Agent.
2.13 Compliance with Law. Except as otherwise permitted in the Credit
Agreement, the Grantor will comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental
authorities in respect of the ownership of the Premises (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls).
2.14 Inspection. Except as otherwise permitted in the Credit Agreement,
the Grantor will permit the Agent, or its Agents, at all reasonable times during
regular business hours (per Section 5.6 of Credit Agreement) and with advance
prior notice to enter and pass through or over the Premises for the purpose of
inspecting same; provided, however, prior to an Event of Default inspections
shall be at reasonable times during the Grantor's normal business hours.
2.15 Security Agreement.
(a) Insofar as the fixtures and articles of personal property either
referred to or described in this Mortgage are in any way connected with the use
and enjoyment of the Premises, this Mortgage is hereby made and declared to be a
security agreement, encumbering each and every item of personal property
included herein, in compliance with the provisions of the Uniform Commercial
Code as enacted in the state where the Premises are located. A financing
statement or statements reciting this Mortgage to be a security agreement,
affecting all of said personal property aforementioned, shall be executed by the
Grantor and the Agent and appropriately filed. The remedies for any violation of
the covenants, terms and condition of the security agreement herein contained
shall be (i) as prescribed herein or (ii) as prescribed by general law or (iii)
as prescribed by the specific statutory consequences now or hereafter enacted
and specified in said Uniform Commercial Code, all at Agent's sole election. The
Grantor and the Agent agree that the filing of such financing statement(s) in
the records normally having to do with personal property shall never be
construed as in anywise derogating from or impairing this declaration and hereby
stated intention of the Grantor and the Agent that everything used in connection
with the production of income from the Premises or adapted for use therein or
which is described or reflected in this Mortgage, is, and at all times and for
all purposes and in all proceedings both legal or equitable shall be, regarded
as part of the real estate irrespective of whether (a) any such item is
physically attached to the improvements, (b) serial numbers are used for the
better identification of certain items capable of being thus identified in a
recital contained herein, or (c) any such item is referred to or reflected in
any such financing statement(s) so filed at any time. Similarly, the mention in
any such financing statement(s) of the rights in and to (aa) the proceeds of any
fire or hazard insurance policy of (bb) any award in eminent domain proceedings
for a taking or for loss of value or (cc) the Grantor's interest as lessor in
any present or future lease or rights to income growing out of the use or
occupancy of the Premises, whether pursuant to lease or otherwise, shall never
be construed as in anywise altering any of the rights of the Grantor or the
Agent as determined by this instrument or impugning the priority of the Agent's
lien granted hereby or by any other recorded document, but such mention in such
financing statement(s) is declared to be for the protection of the Agent in the
event any court shall at any time hold with respect to the foregoing (aa) or
(bb) or (cc),
8
<PAGE> 9
that notice of the Agent's priority of interest to be effective against a
particular class of persons, must be filed in the Uniform Commercial Code
records.
(b) The Grantor warrants that the names of the "Debtor" and the
"Secured Party" (which are the Grantor and the Agent, respectively), the address
of the "Secured Party" from which information concerning the security interest
may be obtained, and the address of "Debtor", are as set forth in Section 6.2,
hereof; and a statement indicating the types, or describing the items, of
collateral is set forth hereinabove. The location of the collateral which is
Tangible Personalty is upon the Land. The Grantor agrees to furnish the Agent
with notice of any change in the name, identity, corporate structure, residence,
principal place of business or mailing address of the Grantor within ten (10)
days of the effective date of any such change and the Grantor will promptly
execute any financing statements or other instruments deemed necessary by the
Agent to prevent any filed financing statement from becoming misleading or
losing its perfected status.
ARTICLE III
Events of Default
An Event of Default shall exist under the terms of this Mortgage upon
the existence of an Event of Default under the terms of the Credit Agreement.
ARTICLE IV
Foreclosure
4.1 Acceleration of Secured Indebtedness; Foreclosure. Upon the
occurrence and during the continuance of an Event of Default, the entire balance
of the Obligations and any other obligations due under the Credit Documents,
including all accrued interest, shall, at the option of the Agent, become
immediately due and payable. Upon failure to pay the Obligations or reimburse
any other amounts due under the Credit Documents in full at any stated or
accelerated maturity and in addition to all other remedies available to the
Agent at law or in equity, the Agent may foreclose the lien of this Mortgage
pursuant to the power of sale hereby granted or by judicial proceeding. The
Grantor hereby waives any statutory right of redemption in connection with such
foreclosure proceeding.
4.2 Proceeds of Sale. Following a foreclosure sale, the proceeds of
such sale shall, subject to applicable law, be applied in accordance with
Section 10 of the Security Agreement.
ARTICLE V
Additional Rights and Remedies of the Agent
9
<PAGE> 10
5.1 Rights Upon an Event of Default. Upon the occurrence and during the
continuance of an Event of Default, but only after the Agent has exercised its
right to declare the entire balance of the Obligations due and payable, the
Agent, immediately and without additional notice and without liability therefor
to the Grantor, except for gross negligence, willful misconduct or unlawful
conduct, may do or cause to be done any or all of the following to the extent
permitted by applicable law: (a) take physical possession of the Premises; (b)
exercise its right to collect the Rents and Profits; (c) enter into contracts
for the completion, repair and maintenance of the Improvements thereon; (d)
expend Loan funds and any rents, income and profits derived from the Premises
for the payment of any taxes, insurance premiums, assessments and charges for
completion, repair and maintenance of the Improvements, preservation of the lien
of this Mortgage and satisfaction and fulfillment of any liabilities or
obligations of the Grantor arising out of or in any way connected with the
Premises whether or not such liabilities and obligations in any way affect, or
may affect, the lien of this Mortgage; (e) enter into leases demising the
Premises or any part thereof; (f) take such steps to protect and enforce the
specific performance of any covenant, condition or agreement in the Notes, this
Mortgage, the Credit Agreement or the other Credit Documents, or to aid the
execution of any power herein granted; and (g) generally, supervise, manage, and
contract with reference to the Premises as if the Agent were equitable owner of
the Premises. Notwithstanding the occurrence of an Event of Default or
acceleration of the Loans, the Agent shall continue to have the right to pay
money, whether or not Loan funds, for the purposes described in Sections 2.2,
2.6 and 2.8 hereof, and all such sums and interest thereon shall be secured
hereby. The Grantor also agrees that any of the foregoing rights and remedies of
the Agent may be exercised at any time independently of the exercise of any
other such rights and remedies, and the Agent may continue to exercise any or
all such rights and remedies until the Event(s) of Default are cured with the
consent of the Agent or until foreclosure and the conveyance of the Premises to
the high bidder or until the Credit Agreement is no longer in effect or the
Obligations are otherwise satisfied or paid in full.
5.2 Appointment of Receiver. Upon the occurrence of an Event of
Default, the Agent shall be entitled, without additional notice and without
regard to the adequacy of any security for the indebtedness secured hereby
whether the same shall then be occupied as a homestead or not or the solvency of
any party bound for its payment, to make application for the appointment of a
receiver to take possession of and to operate the Premises, and to collect the
rents, issues, profits, and income thereof, all expenses of which shall be added
to the Obligations and secured hereby. The receiver shall have all the rights
and powers provided for under the laws of the state in which the Premises are
located, including without limitation, the power to execute leases, and the
power to collect the rents, sales proceeds, issues, profits and proceeds of the
Premises during the pendency of such foreclosure suit, as well as during any
further times when the Grantor, its successors or assigns, except for the
intervention of such receiver, would be entitled to collect such rents, sales
proceeds, issues, proceeds and profits, and all other powers which may be
necessary or are usual in such cases for the protection, possession, control,
management and operation of the Premises during the whole of said period. All
costs and expenses (including receiver's fees, attorney's fees and costs
incurred in connection with the appointment of a receiver) shall be secured by
this Mortgage. Notwithstanding the appointment of any receiver, trustee or other
custodian, the Agent shall be entitled, to retain possession and control of any
10
<PAGE> 11
cash or other instruments, at the time held by or payable or deliverable under
the terms of the Mortgage to the Agent to the fullest extent permitted by law.
5.3 Waivers. No waiver of any Event of Default shall at any time
thereafter be held to be a waiver of any rights of the Agent stated anywhere in
the Notes, this Mortgage, the Credit Agreement or any of the other Credit
Documents, nor shall any waiver of a prior Event of Default operate to waive any
subsequent Event(s) of Default. All remedies provided in this Mortgage, the
Notes, the Credit Agreement or any of the other Credit Documents are cumulative
and may, at the election of the Agent, be exercised alternatively, successively,
or in any manner and are in addition to any other rights provided by law.
5.4 Delivery of Possession After Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale, the Grantor or the
Grantor's heirs, devises, representatives, successors or assigns are occupying
or using the Premises, or any part thereof, each and all immediately shall
become the tenant of the purchaser at such sale, which tenancy shall be a
tenancy from day to day, terminable at the will of either landlord or tenant, at
a reasonable rental per day based upon the value of the property occupied, such
rental to be due daily to the purchaser; and to the extent permitted by
applicable law, the purchaser at such sale, notwithstanding any language herein
apparently to the contrary, shall have the sole option to demand possession
immediately following the sale or to permit the occupants to remain as tenants
at will. In the event the tenant fails to surrender possession of said property
upon demand, the purchaser shall be entitled to institute and maintain a summary
action for possession of the property (such as an action for forcible detainer)
in any court having jurisdiction.
5.5 Marshalling. The Grantor hereby waives, in the event of foreclosure
of this Mortgage or the enforcement by the Agent of any other rights and
remedies hereunder, any right otherwise available in respect to marshalling of
assets which secure the Loans and Letters of Credit and any other indebtedness
secured hereby or to require the Agent to pursue its remedies against any other
such assets.
11
<PAGE> 12
ARTICLE VI
General Conditions
6.1 Terms. The singular used herein shall be deemed to include the
plural; the masculine deemed to include the feminine and neuter; and the named
parties deemed to include their heirs, successors and assigns. The term "Agent"
shall include any payee of the indebtedness hereby secured or any transferee
thereof whether by operation of law or otherwise.
6.2 Notices. All notices and other communications required to be given
hereunder shall be in writing (including by telecopy) and shall have been duly
given and shall be effective (i) when delivered by hand, (ii) when transmitted
via telecopy (or other facsimile device) to the number set out below, (iii) the
Business Day following the day on which the same has been delivered prepaid to a
reputable national overnight air courier service, or (iv) the third Business Day
following the day on which the same is sent by certified or registered mail,
postage prepaid, in each case to the respective parties at the address or
telecopy numbers set forth below, or at such other address as such party may
specify by written notice to the other parties hereto or to such other address
as may hereafter be given by notice in accordance with this paragraph.
12
<PAGE> 13
to the Grantor:
Herr Manufacturing Company
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036-6520
Telephone: 732-453-5019
Facsimile: 732-381-3925
with a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 1002-4675
Attn: Kimberly Taylor
Telephone: 212-446-4915
Facsimile: 212-446-4900
to the Agent:
First Union National Bank
One First Union Center, TW10
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telecopier: (704) 383-0288
Telephone: (704) 374-2698
6.3 Severability. If any provision of this Mortgage is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
6.4 Headings. The captions and headings herein are inserted only as a
matter of convenience and for reference and in no way define, limit, or describe
the scope of this Mortgage nor the intent of any provision hereof.
6.5 Conflicting Terms. In the event the terms and conditions of this
Mortgage conflict with the terms and conditions of the Credit Agreement, the
terms and conditions of the Credit Agreement shall control and supersede the
provisions of this Mortgage with respect to such conflicts.
6.6 Governing Law. This Mortgage shall be governed by and construed in
accordance with the internal law of the State of North Carolina as provided in
Section 9.13 of the Credit Agreement; provided, however, that the provisions of
this Mortgage relating to the
13
<PAGE> 14
creation, perfection and enforcement of the lien and security interest created
by this Mortgage in respect of the Premises and the exercise of each remedy
provided hereby, including the power of foreclosure or power of sale procedures
set forth in this Mortgage, shall be governed by and construed in accordance
with the internal law of the state where the Premises is located. In the event
of a conflict between the laws of the State of North Carolina and the internal
law with respect to creation, perfection and enforcement of the lien and
security interest created by this Mortgage, the laws of the state in which the
Premises is located shall govern.
6.7 Application of the Foreclosure Law. If any provision in this
Mortgage shall be inconsistent with any provision of the foreclosure laws of the
state where the Premises are located, the provisions of such laws shall take
precedence over the provisions of this Mortgage, but shall not invalidate or
render unenforceable any other provision of this Mortgage that can be construed
in a manner consistent with such laws.
6.8 WRITTEN AGREEMENT.
(a) THE RIGHTS AND OBLIGATIONS OF THE GRANTOR AND THE AGENT SHALL BE
DETERMINED SOLELY FROM THIS WRITTEN MORTGAGE AND THE OTHER LOAN DOCUMENTS, AND
ANY PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN THE AGENT AND THE GRANTOR
CONCERNING THE SUBJECT MATTER HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE
SUPERSEDED BY AND MERGED INTO THIS MORTGAGE AND THE OTHER LOAN DOCUMENTS.
(b) THIS MORTGAGE AND THE OTHER LOAN DOCUMENTS MAY NOT BE VARIED BY ANY
ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE, CONTEMPORANEOUSLY WITH, OR
SUBSEQUENT TO THE EXECUTION OF THIS MORTGAGE OR THE OTHER LOAN DOCUMENTS.
(c) THIS WRITTEN MORTGAGE AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
6.9 WAIVER OF JURY TRIAL. THE AGENT AND THE GRANTOR HEREBY WAIVE, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS
MORTGAGE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE
AGENT AND THE GRANTOR, AND THE AGENT AND THE GRANTOR ACKNOWLEDGE THAT NO PERSON
ACTING ON BEHALF OF ANOTHER PARTY TO THIS AGREEMENT HAS MADE ANY REPRESENTATIONS
OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR
NULLIFY ITS EFFECT. THE AGENT AND THE GRANTOR FURTHER ACKNOWLEDGE THAT THEY HAVE
BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING
OF THIS MORTGAGE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
14
<PAGE> 15
SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL.
6.10 Request for Notice. The Grantor requests a copy of any statutory
notice of default and a copy of any statutory notice of sale hereunder be mailed
to the Grantor at the address specified in Section 6.2 of this Mortgage.
6.11 Loan Charges. If the law of Pennsylvania is finally adjudicated to
govern the interest chargeable under the Credit Documents (notwithstanding the
choice of law provisions in the Credit Documents), and the law of Pennsylvania
is finally interpreted so that the interest or other loan charges collected or
to be collected in connection with the loans evidenced by the Credit Agreement
exceed the permitted limits under Pennsylvania law, then (a) any such loan
charge shall be reduced by the amount necessary to reduce the charge to the
permitted limit under Pennsylvania law; and (b) any sums already collected from
Grantor which exceeded permitted limits under Pennsylvania law will be refunded
to Grantor. The Agent may choose to make this refund by reducing the principal
owed under the Notes or by making a direct payment to Grantor. If a refund
reduces principal, the reduction will be treated as a partial prepayment without
any prepayment charge under the Notes.
15
<PAGE> 16
IN WITNESS WHEREOF, the Grantor has executed this Mortgage under seal
as of the above written date.
HERR MANUFACTURING COMPANY
By:
Name:
Title:
I certify that the address of the within Lenders is:
c/o First Union National Bank
One First Union Center, TW10
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
On behalf of the within Lenders
16
<PAGE> 17
COMMONWEALTH OF PENNSYLVANIA :
:
COUNTY OF__________________________ :
ON THIS, the _______ day of _________________, 19__, before me, a
Notary Public in and for the said Commonwealth, the undersigned officer,
personally appeared _________________________, who acknowledged himself to be
the _________________ of _________________________, a corporation, and that he
as such officer, being authorized to so do, executed the within instrument for
the purposes therein contained by signing the name of the corporation by himself
as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
______________________________
Notary Public
My Commission Expires:
______________________________
17
<PAGE> 18
EXHIBIT A
Lancaster County, PA
WRITTEN DESCRIPTION
<PAGE> 1
EXHIBIT 10.53
DRAWN BY AND RETURN TO:
MOORE & VAN ALLEN, PLLC (JWG)
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET, 47TH FLOOR
CHARLOTTE, NORTH CAROLINA 28202-4003
COMMONWEALTH OF PENNSYLVANIA THIS IS A FIRST AMENDMENT TO AN
OPEN-END MORTGAGE SECURING
FUTURE ADVANCES UP TO A MAXIMUM
PRINCIPAL AMOUNT OF
COUNTY OF LANCASTER $70,000,000 MILLION PLUS
ACCRUED INTEREST AND OTHER
INDEBTEDNESS AS DESCRIBED
EAST HEMPFIELD TOWNSHIP IN 42 PA C.S.A. SECTION 8143
OPEN-ENDED MORTGAGE AND
SECURITY AGREEMENT
THIS FIRST AMENDMENT TO OPEN-END MORTGAGE AND SECURITY AGREEMENT (the
"First Amendment") dated as of November 5, 1999, is by and between
HERR MANUFACTURING COMPANY, a Pennsylvania corporation (the "Grantor");
and
FIRST UNION NATIONAL BANK, a national banking association headquartered
in Charlotte, North Carolina, in its capacity as Administrative Agent (in such
capacity, the "Agent") for the lenders from time to time party to the Amended
and Restated Credit Agreement described herein (the "Lenders").
W I T N E S S E T H:
WHEREAS, the Grantor, a wholly owned subsidiary of the Borrower
(hereinafter defined), has previously executed a Mortgage and Security Agreement
dated as of the 18th day of May, 1999 in favor of the Agent, as Mortgagee,
recorded with the Recorder of Deeds, Lancaster County, Pennsylvania in Book
6236, Page 0006 on May 26, 1999 (the "Mortgage"), in connection with loans and
extensions of credit to Sleepmaster, L.L.C., a New Jersey limited liability
company (the "Borrower") pursuant to the terms of the Credit Agreement, as
referenced and defined in the Mortgage;
WHEREAS, the Mortgage encumbered the land described on Exhibit A
attached hereto and made a part hereof;
WHEREAS, the parties to the Credit Agreement have agreed to enter into
the Restated Credit Agreement (hereinafter defined) pursuant to which the credit
facilities extended to the Borrower will be increased to an amount up to
$70,000,000.00 (collectively, the "Credit Facilities").
<PAGE> 2
WHEREAS, the Grantor and the Agent have agreed to amend the Mortgage as
set forth herein and all defined terms used herein but not defined herein shall
have the meaning given to them in the Mortgage.
AGREEMENT:
NOW, THEREFORE IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Indebtedness. (a) The reference in the first recital of the
Mortgage to $25,000,000 shall hereinafter be a reference to $70,000,000.
(b) Subparagraph (a) of Section 1.1 of the Mortgage is hereby amended
and restated in its entirety as follows:
"(a) The Agent and the Lenders have agreed to establish a $70,000,000
senior secured credit facility (hereinafter the loans and extensions of
credit thereunder may be called the "Obligations") in favor of the
Sleepmaster L.L.C., a New Jersey limited liability company (the
"Borrower") pursuant to the terms of that certain Amended and Restated
Credit Agreement dated as of the date hereof among the Borrower,
Sleepmaster Holdings, L.L.C., as the Parent, the domestic subsidiaries
of the Borrower (including the Grantor) (individually a "Guarantor" and
collectively with the Grantor, the "Guarantors"), the Agent and the
Lenders (as amended, modified, extended, renewed or replaced from time
to time, the "Restated Credit Agreement") and as evidenced by (i) those
revolving credit promissory notes of the Borrower, under which sums may
be advanced, paid back or readvanced (as referenced and defined in the
Restated Credit Agreement, as amended, modified, supplemented,
extended, renewed or replaced from time to time, the "Revolving
Notes"), (ii) those term promissory notes of the Borrower (as
referenced and defined in the Restated Credit Agreement, as amended,
modified, supplemented, extended, renewed or replaced from time to
time, the "Term Notes") and (iii) those letters of credit for the
account of the Borrower or any other Credit Party (as referenced in the
Restated Credit Agreement, the "Letters of Credit"). The Revolving
Notes and the Term Notes shall hereinafter collectively be called the
"Notes." Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Restated Credit
Agreement. This Mortgage is given to secure the payment by the Borrower
and the Grantor under any Hedging Agreements (as defined in the
Restated Credit Agreement) and of all indebtedness and other
obligations now or hereafter owing under the Notes, the Letters of
Credit, the Restated Credit Agreement, this Mortgage and the other
Credit Documents (collectively, the "Indebtedness")."
SECTION 2. Ratification. Except as hereby modified, the terms and
conditions of the Mortgage (and Exhibits) remain in full force and effect. The
parties, by their execution hereof, hereby ratify, affirm and approve the
Mortgage (and Exhibits) as modified by this First Amendment.
-2-
<PAGE> 3
SECTION 3. Governing Law. This First Amendment shall be governed by and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
[Remainder of Page Intentionally Left Blank]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment under seal as of the above written date.
HERR MANUFACTURING COMPANY
By:
Name:
Title:
I certify that the address of the within Lenders is:
c/o First Union National Bank
One First Union Center, TW10
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
On behalf of the within Lenders
-4-
<PAGE> 5
STATE OF NORTH CAROLINA:
:
COUNTY OF MECKLENBURG:
ON THIS, the 4th day of November, 1999, before me, a Notary Public in
and for the said State, the undersigned officer, personally appeared James
Koscica, who acknowledged himself to be the Executive Vice President of Herr
Manufacturing Company, and that he as such officer, being authorized to so do,
executed the within instrument for the purposes therein contained by signing the
name of the corporation by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
------------------------------------
Notary Public
My Commission Expires:
February 17, 2004
-5-
<PAGE> 6
Exhibit A
(Legal Description)
<PAGE> 1
EXHIBIT 10.54
OPEN END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS
AND SECURITY AGREEMENT
Maximum Principal Amount Not to Exceed $150,000,000
THIS OPEN END MORTGAGE AND SECURITY AGREEMENT (the "Mortgage") is made
and entered into as of the 5th day of November, 1999, by ADAM WUEST CORPORATION,
a Delaware corporation (formerly known as AWI Corporation), with an address of
2001 Lower Road, Linden, New Jersey 07036-6520 (the "Grantor") and FIRST UNION
NATIONAL BANK, a national banking association, in its capacity as administrative
agent, with an address of 301 South College Street, One First Union Center,
DC-5, Charlotte, North Carolina 28288-0737 (in such capacity, the "Agent") for
the lenders from time to time party to the Credit Agreement described herein
(collectively, the "Lenders").
RECITALS:
WHEREAS, the Borrower (as hereinafter defined) and the Guarantors (as
hereinafter defined) have requested that the Lenders provide a credit facility
to the Borrower in an amount up to $70 million (collectively, the "Credit
Facilities");
WHEREAS, the Grantor, a subsidiary of the Borrower, is a Guarantor and
is the owner of the fee simple interest in the real property described on
Exhibit A attached hereto, and incorporated herein by reference; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Grantor provided that, among other things, the Grantor executes
and delivers this Mortgage.
W I T N E S S E T H:
In order to secure the repayment of the Credit Facilities and the
Indebtedness (hereinafter defined) described herein together with any renewals
or extensions or modifications thereof upon the same or different terms or at
the same or different rate of interest and also to secure: (i) all future
advances and readvances that may subsequently be made to the Grantor by the
Lenders evidenced by any promissory notes given in connection with the aforesaid
Credit Facilities, and all renewals and extensions thereof; and (ii) all other
indebtedness of the Grantor to the Lenders pursuant to the Credit Facilities,
now or hereafter existing, whether direct or indirect, the maximum amount of all
indebtedness outstanding at any one time secured hereby not to exceed
$70,000,000.00, plus interest thereon, all charges and expenses of collection
incurred by Agent
<PAGE> 2
including court costs and reasonable attorney's fees;
The Grantor, in consideration of the indebtedness herein recited and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, has irrevocably granted, released, sold, remised,
bargained, assigned, pledged, warranted, mortgaged, transferred and conveyed,
and does hereby grant, release, sell, remise, bargain, assign, pledge, warrant,
mortgage, transfer and convey unto the Agent and the Agent's successors and
assigns for the benefit of the Lenders with power of sale, forever, a continuing
security interest in and to, all of Grantor's right, title and interest in and
to the following described land, real property interests, buildings,
improvements and fixtures:
(a) All that tract or parcel of land and other real property
interests in Hamilton County, Ohio more particularly described in
Exhibit A attached hereto and made a part hereof (the "Land");
(b) All buildings and improvements of every kind and
description now or hereafter erected or placed on the aforesaid land
(the "Improvements") and all materials intended for construction,
reconstruction, alteration and repair of such Improvements now or
hereafter erected thereon, all of which materials shall be deemed to be
included within the premises hereby conveyed immediately upon the
delivery thereof to the aforesaid Land, and all fixtures now or
hereafter owned by the Grantor and attached to or contained in and used
in connection with the aforesaid Land and Improvements and all renewals
or replacements thereof or articles in substitution thereof, whether or
not the same are or shall be attached to the Land and Improvements in
any manner (the "Tangible Personalty") and all proceeds of the Tangible
Personalty (hereinafter, the Land, the Improvements and Tangible
Personalty may be collectively referred to as the "Premises"); and
(c) All appurtenances to the Premises together with all
proceeds thereof, including casualty and condemnation proceeds;
TO HAVE AND HOLD the same, together with all privileges, hereditaments,
easements and appurtenances thereunto belonging, subject to the Permitted Liens
(as defined in the hereinafter described Credit Agreement) and Permitted
Encumbrances (hereinafter defined) to the Agent and the Agent's successors and
assigns, to secure the Indebtedness and other obligations herein recited;
provided that, should the indebtedness secured hereby be paid according to the
tenor and effect thereof when the same shall be due and payable and should the
Grantor timely and fully discharge its obligations secured hereby and satisfy
the obligations in full, then the Premises shall be reconveyed to the Grantor or
the title thereto shall be revested according to the provisions of law.
And, as additional security for the Indebtedness, the Grantor hereby
conditionally assigns to the Agent all the security deposits, rents, issues,
profits and revenues of the Premises from time to time accruing (the "Rents and
Profits"), reserving only the right to the Grantor to collect
2
<PAGE> 3
and apply the same as Grantor chooses as long as there shall exist no Event of
Default (as defined in Article III).
As additional collateral and further security for the Indebtedness, the
Grantor does hereby assign to the Agent and grants to the Agent a security
interest in all of the right, title and the interest of the Grantor in and to
any and all insurance policies and proceeds thereof and any and all leases
(including equipment leases), rental agreements, management contracts, franchise
agreements, construction contracts, architects' contracts, technical services
agreements, or other contracts, licenses and permits to the extent now or
hereafter relating the Premises (the "Intangible Personalty") or any part
thereof, and the Grantor agrees to execute and deliver to the Agent such
additional instruments, in form and substance satisfactory to the Agent, as may
hereafter be requested by the Agent to evidence and confirm said assignment;
provided, however, that acceptance of any such assignment shall not be construed
as a consent by the Agent to any lease, rental agreement, management contract,
franchise agreement, construction contract, technical services agreement or
other contract, license or permit, or to impose upon the Agent any obligation
with respect thereto. Notwithstanding the foregoing provisions, such assignment
and grant of security interest contained herein shall not extend to, and the
Intangible Personalty shall not include, any personalty which is now or
hereafter held by the Grantor as licensee, lessee or otherwise, to the extent
that (a) such personalty is not assignable or capable of being encumbered as a
matter of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the licensor or lessor
thereof or other applicable party thereto and (b) such consent has not been
obtained; provided, however, that the foregoing assignment and grant of security
interest shall extend to, and the Intangible Personalty shall include, any and
all proceeds of such personalty to the extent that the assignment or encumbering
of such proceeds is not so restricted under the terms of the license, lease or
other agreement applicable thereto.
All the Tangible Personalty which comprise a part of the Premises
shall, as far as permitted by law, be deemed to be affixed to the aforesaid Land
and conveyed therewith. As to the balance of the Tangible Personalty and the
Intangible Personalty, this Mortgage shall be considered to be a security
agreement which creates a security interest in such items for the benefit of the
Agent. In that regard, the Grantor grants to the Agent all of the rights and
remedies of a secured party under the laws of the state in which the Premises
are located.
The Grantor and the Agent covenant, represent and agree as follows:
3
<PAGE> 4
ARTICLE I
Indebtedness Secured
1.1 Indebtedness. The Agent and the Lenders have agreed to establish a
$70,000,000 senior secured credit facility (hereinafter the loans and extensions
of credit thereunder may be called the "Obligations") in favor of the
Sleepmaster L.L.C., a New Jersey limited liability company (the "Borrower")
pursuant to the terms of that certain Amended and Restated Credit Agreement
dated as of the date hereof among the Borrower, Sleepmaster Holdings, L.L.C., as
the Parent, the domestic subsidiaries of the Borrower (including the Grantor)
(individually a "Guarantor" and collectively with the Grantor, the
"Guarantors"), the Agent and the Lenders (as amended, modified, extended,
renewed or replaced from time to time, the "Credit Agreement") and as evidenced
by (i) those revolving credit promissory notes of the Borrower, under which sums
may be advanced, paid back or readvanced (as referenced and defined in the
Credit Agreement, as amended, modified, supplemented, extended, renewed or
replaced from time to time, the "Revolving Notes"), (ii) those term promissory
notes of the Borrower (as referenced and defined in the Credit Agreement, as
amended, modified, supplemented, extended, renewed or replaced from time to
time, the "Term Notes") and (iii) those letters of credit for the account of the
Borrower or any other Credit Party (as referenced in the Credit Agreement, the
"Letters of Credit"). The Revolving Notes and the Term Notes shall hereinafter
collectively be called the "Notes." Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Credit
Agreement. This Mortgage is given to secure the payment of the Borrower and the
Grantor under any Hedging Agreements (as defined in the Credit Agreement) and
all indebtedness and other obligations now or hereafter owing under the Notes,
the Letters of Credit, the Credit Agreement, this Mortgage and the other Credit
Documents (collectively, the "Indebtedness").
1.2 Future Advances. This Mortgage is given to secure not only the
Obligations, but also (i) any disbursements made for the payment of taxes,
levies or insurance on the Premises and (ii) such future advances made pursuant
to this Mortgage, which advances are to be made at the option of the Agent
within twenty (20) years from the date hereof, to the same extent as if such
future advances were made on the date of the execution of this Mortgage. The
total amount of indebtedness that may be so secured may decrease or increase
from time to time, but the total unpaid balance so secured at one time shall not
exceed $150,000,000.
ARTICLE II
Grantor's Covenants, Representations and Agreements
2.1 Title to Property. The Grantor represents and warrants to the Agent
(i) that it is seized of the Land, the Improvements (and any fixtures) and the
Tangible Personalty in fee to the extent such Tangible Personalty does not
constitute fixtures and has the right to encumber and convey the same, (ii) as
of the date hereof, that title to the Tangible Personalty is free and clear of
all liens and encumbrances except for the Permitted Liens and title to all such
other property is free and clear of all encumbrances except for the matters
shown on the title policy accepted by
4
<PAGE> 5
the Agent in connection with this Mortgage (the "Permitted Encumbrances"), and
(iii) that it will warrant and defend the title to such property except for the
Permitted Encumbrances and Permitted Liens against the claims of all Persons. As
to the balance of the Premises, the Rents and Profits and the Intangible
Personalty, the Grantor represents and warrants that it has title to such
property, that it has the right to encumber and convey such property and that it
will warrant and defend such property against the claims of all Persons subject
to the Permitted Encumbrances and the Permitted Liens.
2.2 Taxes and Fees. The Grantor will pay prior to delinquency all
taxes, general and special assessments, insurance premiums, permit fees,
inspection fees, user fees, license fees, water and sewer charges, franchise
fees and equipment rents against it or the Premises as required by the terms and
conditions of Section 5.3 of the Credit Agreement (and the Grantor, upon request
of the Agent, will submit to the Agent receipts evidencing said payments). The
Grantor or the Borrower will also pay, as and when due, all mortgage taxes and
intangible tax due or payable in connection with the execution and delivery of
this Mortgage, including sums due in connection with any future advances made
pursuant to the Credit Agreement.
2.3 Reimbursement. The Grantor agrees that if it shall fail to pay on
or before the date that the same become delinquent any tax, assessment or charge
levied or assessed against the Premises or any utility charge, whether public or
private, or any insurance premium, or if it shall fail to procure the insurance
coverage and the delivery of the insurance certificates required hereunder, or
if it shall fail to pay any other charge or fee described in Section 2.4 hereof,
then (unless such obligations are being contested in the manner set forth in
Section 5.3 of the Credit Agreement), the Agent, at its option, may pay or
procure the same and will give the Grantor prompt notice of any such
expenditures. The Grantor will reimburse the Agent upon demand for any sums of
money paid by the Agent pursuant to this Section, together with interest on each
such payment at the default rate of interest provided in Section 2.8 of the
Credit Agreement for Loans, and all such sums and interest thereon shall be
secured hereby.
2.4 Additional Documents. The Grantor agrees to execute and deliver to
the Agent, concurrently with the execution of this Mortgage and upon the request
of the Agent from time to time hereafter, all financing statements and other
documents reasonably required to perfect and maintain the security interest
created hereby. The Grantor hereby irrevocably (as long as the Loans remain
unpaid) makes, constitutes and appoints the Agent as the true and lawful
attorney of the Grantor (such appointment being coupled with an interest) to
sign the name of the Grantor (after the Grantor has failed or refused to timely
execute such documents upon request of the Agent) on any financing statement,
continuation of financing statement or similar document required to perfect or
continue such security interests but only in the event the Grantor refuses to do
so after receipt of written notice.
2.5 Sale or Encumbrance. Except as otherwise permitted in the Credit
Agreement, the Grantor will not sell, encumber or otherwise dispose of any of
the Tangible Personalty except to the incorporate such into the Improvements or
replace with goods of quality and value at least equal to that replaced.
Provided, however, in the event the Grantor sells or otherwise disposes of any
of the Tangible Personalty, except to the extent permitted by the Credit
5
<PAGE> 6
Agreement, the Agent's security interest in the proceeds of the Tangible
Personalty shall continue pursuant to this Mortgage.
2.6 Fees and Expenses. The Grantor will promptly pay upon demand any
and all reasonable costs and expenses of the Agent, (a) as required under
Section 9.5 of the Credit Agreement and (b) as necessary to protect the
Premises, the Rents and Profits or the Intangible Personalty or incurred in
connection with the exercise of any rights or remedies under this Mortgage or
with respect to the Premises, Rents and Profits or the Intangible Personalty.
All of the foregoing costs and expenses shall be secured hereby.
2.7 Leases and Other Agreements. Without first obtaining on each
occasion the written approval of the Agent, the Grantor shall not, except as
permitted by the Credit Agreement, enter into, cancel, surrender or materially
modify or permit the cancellation of any material lease (including any equipment
lease), rental agreement, management contract, franchise agreement, construction
contract, technical services agreement or other material contract, license or
permit now or hereafter affecting the Premises, or materially modify any of said
instruments, or accept or permit to be made, any prepayment (more than one
month) of any installment of rent or fees thereunder. Certified copies of each
such approved material lease or other material agreement not previously
delivered to the Agent shall be submitted to the Agent as soon as possible. The
Grantor shall faithfully keep and perform, or cause to be kept and performed, in
all material respects, all of the covenants, conditions, and agreements
contained in each of said agreements, now or hereafter existing, on the part of
the Grantor to be kept and performed (including performance of all covenants to
be performed under any and all leases of the Premises or any part thereof) and
shall at all times use commercially reasonable efforts to enforce, with respect
to each other party to said agreements, all obligations, covenants and
agreements by such other party to be performed thereunder.
2.8 Maintenance of Premises. The Grantor will abstain from and will not
permit the commission of waste in or about the Premises and will maintain, or
cause to be maintained, the Premises in reasonable condition and repair,
ordinary wear and tear and obsolescence excepted.
2.9 Insurance.
(a) Types Required. The Grantor shall maintain insurance for
the Premises as set forth in Section 5.5 of the Credit Agreement. In
addition to the requirements set forth in Section 5.5 of the Credit
Agreement, if any part of the Improvements is located in an area having
"special flood hazards" as defined in the Federal Flood Disaster
Protection Act of 1973, a flood insurance policy as may be required by
law naming the Agent as mortgagee must be submitted to the Agent. The
policy must be in such amount, covering such risks and liabilities and
with such deductibles or self-insurance retentions as are in accordance
with normal industry practice.
(b) Use of Proceeds. All insurance proceeds received by the
Grantor shall be applied as set forth in the Credit Agreement with
respect to a "Recovery Event."
6
<PAGE> 7
2.10 Eminent Domain. Subject to the provisions of the Credit Agreement,
the Grantor assigns to the Agent any proceeds or awards which may become due by
reason of any condemnation or other taking for public use of the whole or any
part of the Premises or any rights appurtenant thereto to which the Grantor is
entitled, and such proceeds or awards shall be applied in the same manner the
insurance proceeds are applied as set forth in the Credit Agreement with respect
to a "Recovery Event." The Grantor agrees to execute such further assignments
and agreements as may be reasonably required by the Agent to assure the
effectiveness of this Section. In the event any Governmental Authority shall
require or commence any proceedings for the demolition of any buildings or
structures comprising a part of the Premises, or shall commence any proceedings
to condemn or otherwise take pursuant to the power of eminent domain a material
portion of the Premises, the Grantor shall promptly notify the Agent of such
requirements or commencement of proceeding (for demolition, condemnation of
other taking).
2.11 Releases and Waivers. The Grantor agrees that no release by the
Agent of any portion of the Premises, the Rents and Profits or the Intangible
Personalty, no subordination of lien, no forbearance on the part of the Agent to
collect on the Loans, or any part thereof, no waiver of any right granted or
remedy available to the Agent and no action taken or not taken by the Agent
shall, except to the extent expressly released, in any way have the effect of
releasing the Grantor from full responsibility to the Agent for the complete
discharge of each and every of the Grantor's obligations hereunder.
2.12 Transfer of Premises. Except as otherwise permitted in the Credit
Agreement, the Grantor covenants and agrees with the Agent that the Grantor
shall not sell, transfer, convey, mortgage, encumber or otherwise dispose of the
Premises, the Rents and Profits or the Intangible Personalty or any part thereof
or any interest therein or engage in subordinate financing with respect thereto
during the term of this Mortgage without the prior written consent of the Agent.
2.13 Compliance with Law. Except as otherwise permitted in the Credit
Agreement, the Grantor will comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental
authorities in respect of the ownership of the Premises (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls).
2.14 Inspection. Except as otherwise permitted in the Credit Agreement,
the Grantor will permit the Agent, or its Agents, at all reasonable times during
regular business hours (per Section 5.6 of Credit Agreement) and with advance
prior notice to enter and pass through or over the Premises for the purpose of
inspecting same; provided, however, prior to an Event of Default inspections
shall be at reasonable times during the Grantor's normal business hours.
7
<PAGE> 8
2.15 Security Agreement.
(a) Insofar as the fixtures and articles of personal property either
referred to or described in this Mortgage are in any way connected with the use
and enjoyment of the Premises, this Mortgage is hereby made and declared to be a
security agreement, encumbering each and every item of personal property
included herein, in compliance with the provisions of the Uniform Commercial
Code as enacted in the state where the Premises are located. A financing
statement or statements reciting this Mortgage to be a security agreement,
affecting all of said personal property aforementioned, shall be executed by the
Grantor and the Agent and appropriately filed. The remedies for any violation of
the covenants, terms and condition of the security agreement herein contained
shall be (i) as prescribed herein or (ii) as prescribed by general law or (iii)
as prescribed by the specific statutory consequences now or hereafter enacted
and specified in said Uniform Commercial Code, all at Agent's sole election. The
Grantor and the Agent agree that the filing of such financing statement(s) in
the records normally having to do with personal property shall never be
construed as in anywise derogating from or impairing this declaration and hereby
stated intention of the Grantor and the Agent that everything used in connection
with the production of income from the Premises or adapted for use therein or
which is described or reflected in this Mortgage, is, and at all times and for
all purposes and in all proceedings both legal or equitable shall be, regarded
as part of the real estate irrespective of whether (a) any such item is
physically attached to the improvements, (b) serial numbers are used for the
better identification of certain items capable of being thus identified in a
recital contained herein, or (c) any such item is referred to or reflected in
any such financing statement(s) so filed at any time. Similarly, the mention in
any such financing statement(s) of the rights in and to (aa) the proceeds of any
fire or hazard insurance policy of (bb) any award in eminent domain proceedings
for a taking or for loss of value or (cc) the Grantor's interest as lessor in
any present or future lease or rights to income growing out of the use or
occupancy of the Premises, whether pursuant to lease or otherwise, shall never
be construed as in anywise altering any of the rights of the Grantor or the
Agent as determined by this instrument or impugning the priority of the Agent's
lien granted hereby or by any other recorded document, but such mention in such
financing statement(s) is declared to be for the protection of the Agent in the
event any court shall at any time hold with respect to the foregoing (aa) or
(bb) or (cc), that notice of the Agent's priority of interest to be effective
against a particular class of persons, must be filed in the Uniform Commercial
Code records.
(b) The Grantor warrants that the names of the "Debtor" and the
"Secured Party" (which are the Grantor and the Agent, respectively), the address
of the "Secured Party" from which information concerning the security interest
may be obtained, and the address of "Debtor", are as set forth in Section 6.2,
hereof; and a statement indicating the types, or describing the items, of
collateral is set forth hereinabove. The location of the collateral which is
Tangible Personalty is upon the Land. The Grantor agrees to furnish the Agent
with notice of any change in the name, identity, corporate structure, residence,
principal place of business or mailing address of the Grantor within ten (10)
days of the effective date of any such change and the Grantor will promptly
execute any financing statements or other instruments deemed necessary by the
Agent to prevent any filed financing statement from becoming misleading or
losing its perfected status.
8
<PAGE> 9
ARTICLE III
Events of Default
An Event of Default shall exist under the terms of this Mortgage upon
the existence of an Event of Default under the terms of the Credit Agreement.
ARTICLE IV
Foreclosure
4.1 Acceleration of Secured Indebtedness; Foreclosure. Upon the
occurrence and during the continuance of an Event of Default, the entire balance
of the Obligations and any other obligations due under the Credit Documents,
including all accrued interest, shall, at the option of the Agent, become
immediately due and payable. Upon failure to pay the Obligations or reimburse
any other amounts due under the Credit Documents in full at any stated or
accelerated maturity and in addition to all other remedies available to the
Agent at law or in equity, the Agent may foreclose the lien of this Mortgage
pursuant to the power of sale hereby granted or by judicial proceeding. The
Grantor hereby waives any statutory right of redemption in connection with such
foreclosure proceeding.
4.2 Proceeds of Sale. Following a foreclosure sale, the proceeds of
such sale shall, subject to applicable law, be applied in accordance with
Section 10 of the Security Agreement.
ARTICLE V
Additional Rights and Remedies of the Agent
5.1 Rights Upon an Event of Default. Upon the occurrence and during the
continuance of an Event of Default, but only after the Agent has exercised its
right to declare the entire balance of the Obligations due and payable, the
Agent, immediately and without additional notice and without liability therefor
to the Grantor, except for gross negligence, willful misconduct or unlawful
conduct, may do or cause to be done any or all of the following to the extent
permitted by applicable law: (a) take physical possession of the Premises; (b)
exercise its right to collect the Rents and Profits; (c) enter into contracts
for the completion, repair and maintenance of the Improvements thereon; (d)
expend Loan funds and any rents, income and profits derived from the Premises
for the payment of any taxes, insurance premiums, assessments and charges for
completion, repair and maintenance of the Improvements, preservation of the lien
of this Mortgage and satisfaction and fulfillment of any liabilities or
obligations of the Grantor arising out of or in any way connected with the
Premises whether or not such liabilities and obligations in any way affect, or
may affect, the lien of this Mortgage; (e) enter into leases demising the
Premises or any part thereof; (f) take such steps to protect and
9
<PAGE> 10
enforce the specific performance of any covenant, condition or agreement in the
Notes, this Mortgage, the Credit Agreement or the other Credit Documents, or to
aid the execution of any power herein granted; and (g) generally, supervise,
manage, and contract with reference to the Premises as if the Agent were
equitable owner of the Premises. Notwithstanding the occurrence of an Event of
Default or acceleration of the Loans, the Agent shall continue to have the right
to pay money, whether or not Loan funds, for the purposes described in Sections
2.2, 2.6 and 2.8 hereof, and all such sums and interest thereon shall be secured
hereby. The Grantor also agrees that any of the foregoing rights and remedies of
the Agent may be exercised at any time independently of the exercise of any
other such rights and remedies, and the Agent may continue to exercise any or
all such rights and remedies until the Event(s) of Default are cured with the
consent of the Agent or until foreclosure and the conveyance of the Premises to
the high bidder or until the Credit Agreement is no longer in effect or the
Obligations are otherwise satisfied or paid in full.
PROVIDED ALWAYS, and it is the true intent and meaning of the Grantor
and the Agent, that if the Grantor, its successors and assigns, shall pay or
cause to be paid and discharged unto the Agent, its successors and assigns, the
obligations secured hereby according to the terms of this Mortgage and the
Credit Documents, then this Mortgage shall cease, determine and be void,
otherwise it shall remain in full force and virtue. And it is agreed, by and
between the Grantor and the Agent, that the Grantor is to hold and enjoy the
said premises until an Event of Default be made in the terms of this Mortgage.
5.2 Appointment of Receiver. Upon the occurrence of an Event of
Default, the Agent shall be entitled, without additional notice and without
regard to the adequacy of any security for the indebtedness secured hereby
whether the same shall then be occupied as a homestead or not or the solvency of
any party bound for its payment, to make application for the appointment of a
receiver to take possession of and to operate the Premises, and to collect the
rents, issues, profits, and income thereof, all expenses of which shall be added
to the Obligations and secured hereby. The receiver shall have all the rights
and powers provided for under the laws of the state in which the Premises are
located, including without limitation, the power to execute leases, and the
power to collect the rents, sales proceeds, issues, profits and proceeds of the
Premises during the pendency of such foreclosure suit, as well as during any
further times when the Grantor, its successors or assigns, except for the
intervention of such receiver, would be entitled to collect such rents, sales
proceeds, issues, proceeds and profits, and all other powers which may be
necessary or are usual in such cases for the protection, possession, control,
management and operation of the Premises during the whole of said period. All
costs and expenses (including receiver's fees, attorney's fees and costs
incurred in connection with the appointment of a receiver) shall be secured by
this Mortgage. Notwithstanding the appointment of any receiver, trustee or other
custodian, the Agent shall be entitled, to retain possession and control of any
cash or other instruments, at the time held by or payable or deliverable under
the terms of the Mortgage to the Agent to the fullest extent permitted by law.
5.3 Waivers. No waiver of any Event of Default shall at any time
thereafter be held to be a waiver of any rights of the Agent stated anywhere in
the Notes, this Mortgage, the Credit Agreement or any of the other Credit
Documents, nor shall any waiver of a prior Event of
10
<PAGE> 11
Default operate to waive any subsequent Event(s) of Default. All remedies
provided in this Mortgage, the Notes, the Credit Agreement or any of the other
Credit Documents are cumulative and may, at the election of the Agent, be
exercised alternatively, successively, or in any manner and are in addition to
any other rights provided by law.
5.4 Delivery of Possession After Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale, the Grantor or the
Grantor's heirs, devises, representatives, successors or assigns are occupying
or using the Premises, or any part thereof, each and all immediately shall
become the tenant of the purchaser at such sale, which tenancy shall be a
tenancy from day to day, terminable at the will of either landlord or tenant, at
a reasonable rental per day based upon the value of the property occupied, such
rental to be due daily to the purchaser; and to the extent permitted by
applicable law, the purchaser at such sale, notwithstanding any language herein
apparently to the contrary, shall have the sole option to demand possession
immediately following the sale or to permit the occupants to remain as tenants
at will. In the event the tenant fails to surrender possession of said property
upon demand, the purchaser shall be entitled to institute and maintain a summary
action for possession of the property (such as an action for forcible detainer)
in any court having jurisdiction.
5.5 Marshalling. The Grantor hereby waives, in the event of foreclosure
of this Mortgage or the enforcement by the Agent of any other rights and
remedies hereunder, any right otherwise available in respect to marshalling of
assets which secure the Loans and Letters of Credit and any other indebtedness
secured hereby or to require the Agent to pursue its remedies against any other
such assets.
ARTICLE VI
General Conditions
6.1 Terms. The singular used herein shall be deemed to include the
plural; the masculine deemed to include the feminine and neuter; and the named
parties deemed to include their heirs, successors and assigns. The term "Agent"
shall include any payee of the indebtedness hereby secured or any transferee
thereof whether by operation of law or otherwise.
6.2 Notices. All notices and other communications required to be given
hereunder shall be in writing (including by telecopy) and shall have been duly
given and shall be effective (i) when delivered by hand, (ii) when transmitted
via telecopy (or other facsimile device) to the number set out below, (iii) the
Business Day following the day on which the same has been delivered prepaid to a
reputable national overnight air courier service, or (iv) the third Business Day
following the day on which the same is sent by certified or registered mail,
postage prepaid, in each case to the respective parties at the address or
telecopy numbers set forth below, or at such other address as such party may
specify by written notice to the other parties hereto or to such other address
as may hereafter be given by notice in accordance with this paragraph.
11
<PAGE> 12
to the Grantor:
Adam Wuest Corporation
c/o Sleepmaster L.L.C.
2001 Lower Road
Linden, New Jersey 07036-6520
Telephone: 732-453-5019
Facsimile: 732-381-3925
with a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 1002-4675
Attn: Kimberly Taylor
Telephone: 212-446-4915
Facsimile: 212-446-4900
to the Agent:
First Union National Bank
One First Union Center, TW10
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telecopier: (704) 383-0288
Telephone: (704) 374-2698
6.3 Severability. If any provision of this Mortgage is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
6.4 Headings. The captions and headings herein are inserted only as a
matter of convenience and for reference and in no way define, limit, or describe
the scope of this Mortgage nor the intent of any provision hereof.
6.5 Conflicting Terms. In the event the terms and conditions of this
Mortgage conflict with the terms and conditions of the Credit Agreement, the
terms and conditions of the Credit Agreement shall control and supersede the
provisions of this Mortgage with respect to such conflicts.
6.6 Governing Law. This Mortgage shall be governed by and construed in
accordance with the internal law of the State of North Carolina as provided in
Section 9.13 of the
12
<PAGE> 13
Credit Agreement; provided, however, that the provisions of this Mortgage
relating to the creation, perfection and enforcement of the lien and security
interest created by this Mortgage in respect of the Premises and the exercise of
each remedy provided hereby, including the power of foreclosure or power of sale
procedures set forth in this Mortgage, shall be governed by and construed in
accordance with the internal law of the state where the Premises is located. In
the event of a conflict between the laws of the State of North Carolina and the
internal law with respect to creation, perfection and enforcement of the lien
and security interest created by this Mortgage, the laws of the state in which
the Premises is located shall govern.
6.7 Application of the Foreclosure Law. If any provision in this
Mortgage shall be inconsistent with any provision of the foreclosure laws of the
state where the Premises are located, the provisions of such laws shall take
precedence over the provisions of this Mortgage, but shall not invalidate or
render unenforceable any other provision of this Mortgage that can be construed
in a manner consistent with such laws.
6.8 WRITTEN AGREEMENT.
(a) THE RIGHTS AND OBLIGATIONS OF THE GRANTOR AND THE AGENT SHALL BE
DETERMINED SOLELY FROM THIS WRITTEN MORTGAGE AND THE OTHER LOAN DOCUMENTS, AND
ANY PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN THE AGENT AND THE GRANTOR
CONCERNING THE SUBJECT MATTER HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE
SUPERSEDED BY AND MERGED INTO THIS MORTGAGE AND THE OTHER LOAN DOCUMENTS.
(b) THIS MORTGAGE AND THE OTHER LOAN DOCUMENTS MAY NOT BE VARIED BY ANY
ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE, CONTEMPORANEOUSLY WITH, OR
SUBSEQUENT TO THE EXECUTION OF THIS MORTGAGE OR THE OTHER LOAN DOCUMENTS.
(c) THIS WRITTEN MORTGAGE AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
6.9 WAIVER OF JURY TRIAL. THE AGENT AND THE GRANTOR HEREBY WAIVE, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS
MORTGAGE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE
AGENT AND THE GRANTOR, AND THE AGENT AND THE GRANTOR ACKNOWLEDGE THAT NO PERSON
ACTING ON BEHALF OF ANOTHER PARTY TO THIS AGREEMENT HAS MADE ANY REPRESENTATIONS
OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR
NULLIFY ITS EFFECT. THE AGENT AND THE GRANTOR FURTHER ACKNOWLEDGE THAT THEY HAVE
BEEN REPRESENTED (OR HAVE HAD
13
<PAGE> 14
THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS MORTGAGE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF THEIR OWN FREE
WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.
6.10 Request for Notice. The Grantor requests a copy of any statutory
notice of default and a copy of any statutory notice of sale hereunder be mailed
to the Grantor at the address specified in Section 6.2 of this Mortgage.
[Remainder of Page Intentionally Left Blank]
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Mortgage
under seal as of the above written date.
WITNESS: ADAM WUEST CORPORATION
(formerly known as AWI Corporation)
By:
--------------------------------
By Name (Printed):
-------------------------------- --------------------
Name (Printed): Title:
------------------- -----------------------------
By
--------------------------------
Name (Printed):
-------------------
STATE OF
--------------------------
COUNTY OF
-------------------------
The foregoing instrument was acknowledged before me this __________ day
of __________, 1999 by __________ as __________of ADAM WUEST CORPORATION, a
Delaware corporation, on behalf of the corporation. He/she personally appeared
before me and is/are personally known to me or produced as identification.
Notary:
----------------------------
[NOTARIAL SEAL] Printed Name:
----------------------
Notary Public, State of
-----------
My Commission Expires:
-------------
15
<PAGE> 16
FIRST UNION NATIONAL BANK, a
national banking association
WITNESS:
By:
--------------------------------
By: Name (Printed):
------------------------------- --------------------
Name (Printed) Title:
-------------------- -----------------------------
By:
-------------------------------
Name (Printed)
--------------------
STATE OF
--------------------------
COUNTY OF
-------------------------
The foregoing instrument was acknowledged before me this __________ day
of __________ , 1999 by __________ as __________ of FIRST UNION NATIONAL BANK, a
national banking association, on behalf of the banking association. He/she
personally appeared before me and is/are personally known to me or produced as
identification.
Notary:
----------------------------
[BANK SEAL] Printed Name:
----------------------
Notary Public, State of
-----------
My Commission Expires:
-------------
Prepared By and Return To:
Jeffrey W. Glenney, Esq.
Moore & Van Allen, PLLC
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Telephone 704-331-1016
16
<PAGE> 17
EXHIBIT A
[Legal Description]
<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, except as to Note 18, which is as of May 18, 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
November 11, 1999
<PAGE> 2
To the Director of Star Bedding Products [1986] Limited
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
November 11, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made part of this
Registration Statement No. 333-81987 on Form S-4.
/s/ Arthur Andersen
-------------------------
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
November 11, 1999
